Keep calm and buy when there’s blood in the streets

Financial markets are characterized by long cycles with many ups and downs. Successful investors block out fear and sensationalism and recognize that these market cycles are part of investing. In practically every bull market of the last 40 years, the U.S. stock market has experienced a correction during its rise. The Dow posted its worst one-day point drop in history today (though not its biggest percentage drop). It was a classic panic-selling scenario. Here’s what you should do about it: 1) Know your history Since 1900, the U.S. has seen 125 corrections of 10% or more, which averages out to about one per year. (A correction is defined as a 10% pullback, and though we haven’t reached that territory yet, we may be headed there.) Since 1980, the stock market has had positive annual returns in 28 of the last 37 years. With that perspective, if your investing time frame is years or even decades from now, it may be best to hold tight and stay invested. Of course, there’s no guarantee that durations of future recoveries will happen in a similar time, or at all. But unless you have a need for the money in the short term, it

February 5, 2018 No Comments

Make your money work for you

If at age 25 you deposit $100 a month into a mutual fund with an annualized return of 10% a year, you’ll have about $640,000 when you’re 65. You’ll have deposited a total of $48,000 of your own money. On the other hand, if you procrastinate and wait until you’re 40 to start saving, you’ll need to come up with another $142,000 out of your own pocket to have the same amount at age 65. That’s the power of compounding – the power of money making money for you. Many investors think they can just make a small initial deposit and then market returns will make them rich. Here’s the reality: contributions matter more than investment returns when you’re building your portfolio. While it’s true that investment returns can help grow your wealth and protect it from inflation, they alone don’t have the power to make you rich. The chart below illustrates three scenarios for an investor earning $100,000 annually and investing 10% of his income over a decade. In a moderate portfolio that earns 6% annually, illustrated in the middle column, contributions account for 73% of the portfolio! Even in a bull market that earns 12% annually, contributions matter

December 8, 2017 No Comments