Bad Times to Invest Can Yield Good Results
May 06, 2005 08:51PM
By Don Kindred
By Ken Stelts - Investment Counselor
Is there ever a “bad time” to invest? A lot of people have thought so, for one reason or another but they’ve usually been proved wrong.
Just glance back over the past 20 years. We’ve had plenty of economic and financial events that probably caused many people to delay investing. But their hesitancy proved expensive. Consider these bits of history:
Recession It’s the first day of 1982, and we’re in the middle of a recession so you think twice about venturing into the market. But if you put $10,000 in the stocks making up the S&P 500, you will have accumulated more than $190,000 by the end of 2000.
S&L bailout It’s New Year’s Day, 1989, and the government is on the verge of bailing out the savings and loan industry. Grim news for investors, right? However, if you can overcome your concerns and put $10,000 in the S&P 500, your money will grow to some $63,000 by the end of 2000, when the bailout had become a distant memory.
Stock “meltdown” It’s Jan. 1, 1995. The investment community is still reeling from 1994, when more than 400 stocks dropped 40 percent, vaporizing billions of dollars of wealth. Do you really want to jump into the stock market? If so, you won’t be sorry your $10,000 investment in 1995’s S&P 500 will grow to more than $31,000 just five years later.
Of course, these results, encouraging as they are, can’t be used to predict future market performance after a crisis, real or perceived. Furthermore, these three events weren’t the only supposedly “dark clouds’’ on the investment horizon over the past two decades. In fact, you probably wouldn’t have to look too hard to find a reason not to invest in any given year. There’s always something going on: bad economic news, political instability, energy crises you name it. But if you delayed investing until conditions were perfect, you’d have a long wait indeed.
You can’t control world economic and political events but you can manage your response to them. Instead of letting today’s headlines dictate your investment decisions, make up your mind to focus on the future. Instead of aggravating yourself over how this or that event will affect a particular stock, focus on quality. By building a diversified portfolio of high-quality equities, and holding them for the long term, you’ll have a good chance of achieving the type of performance you need to help meet your financial goals.
If there are no “bad times” to invest, are there particularly good times? Yes and the best time is today. As an investor, you must put time on your side. The longer you hold your stocks, the greater your potential for growth. Plus, over long periods of time, stock price fluctuations tend to even out.
The next time you’re pondering all the reasons you should put off investing, close your eyes and picture yourself in 10 or 20 years, looking back on the year 2001 and shaking your head sadly over lost opportunities. That should be enough of an incentive to spur you into action. b