With our current recession and the huge drop in the stock market, many people are focused on getting out of the market. But, did you know that the Dow had its best July in 20 years – it was up 8.6% for the month?
Many people try to time the market, and they'll either pull their money out of the stock market during times of decline and put them in cash or bonds. However, did you know that just one day can make a huge difference?
If you look at the average annual total return of the S&P 500 between 1978 and 2007, those who bought and held their money in an index fund had an average annual return of 9.6%. Those who missed the 5 best days, had a return of only 8.52%. If they missed the 25 best days, the average annual return dropped to only 5.57%, almost half.
You never know when the market is going to bounce back. Historically, the worst market fluctuations and losses were followed by a period of market recovery. For example, I started my 401(k) in 2000. I started out buying stocks at the height of the dot com boom. However, they quickly turned to bust, and I “lost” a substantial amount of money. It did recover (plus profit) before the current downturn. You've only lost your money on paper until you sell, and I figure I have at least 30 years before I “have” to sell at retirement (and even then, you're only required to pull minimum withdrawals once you hit 70 1/2).
Has the downturn affected the way you invest? Are you still saving and investing your money? Do you feel optimistic that things are going to change? For more frugal ideas, please visit Frugal Friday at Life as Mom.
Photo by OmirOnia