Stock Market Investing
Understanding Stock Market Ups & Downs... Three Ways to Achieve Peace of Mind While Maximizing Your Returns
Stocks have historically proven to be a very good investment. According to research done by the Leuthold Group, from 1926 to 2000, the U.S. Stock market provided investors with an average 13.4% annualized return. That means that a hypothetical $100 investment in 1926 would have been worth $1.2 million at the end of 2000.
This does not mean that every year will produce double-digit or even a positive return. Looking at the time period from 1900-2000, while the market did post positive gains in 69 of those years, it actually exhibited losses in 32 years. In other words, DOWN YEARS ARE A NATURAL PART OF EQUITY INVESTING. Therefore, don't let the short-term declines distract you from the long-term potential of stock market investing.
As you are aware, after posting record gains in 1999, equity markets have taken investors on a seemingly endless roller coaster ride. What can you do to successfully weather these turbulant times? There are three basic courses of action:
1. STAYING THE COURSE
Don't panic and pull out of the market during a downturn. The rallies you could miss could significantly hurt your overall return.
2. TAKE ADVANTAGE OF THE DOWNTURNS
By viewing market declines as buying opportunities, you can significantly enhance your long-term potential when the market rebounds.
3. DIVERSIFYING YOUR PORTFOLIO
Rather than trying to pick a single investment type and time the market, diversifying across asset classes may decrease your risk an enhance long-term return potential.
Most importantly, please consult your financial advisor before implementing ANY strategy as individual circumstances and goals differ substantially.
source: Merrill Lynch Investment Managers
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