Published May 2001
Stay
invested: It should
pay off in the long run
Disappointing
investment results in 2000 and so far this year may be sending some people
out of the market and onto the “sidelines” — where they’ll wait for things
“to get better” before jumping back in. But is it a good idea to take
a time out from investing? Not really.
If you’re investing
for the long term, you always have to be looking toward the future. And
no matter what the market as a whole is doing, you can always find areas
that offer strong potential for growth. Plus, when the market is down,
you may be able to pick up high-quality stocks at attractive prices.
By staying invested,
you won’t miss out on any market upturns.
Remember, the market
can rise just as quickly as it can fall. If you’re off to the side just
watching, you run the risk of being left behind quickly when the market
takes off.
There’s ample historical
evidence that it could do just that. Over long periods of time, stocks
typically have trended up, overcoming the down years and bear markets.
Still, there’s no
question that the market’s performance in 2000 was shaky enough to give
even experienced investors the jitters. The Dow Jones Industrial Average
was down 6.2 percent for the year — its worst year since 1981 and its
first losing year since 1990.
But the Dow’s slide
was dwarfed by the drop in the technology-heavy Nasdaq composite index,
which tumbled 39.3 percent for the year — its worst year ever.
If you do want to
stay in the market, but you don’t want to be a victim of big market declines,
what can you do?
Your most important
defense is asset allocation — the distribution of your investment dollars
over five primary investment categories: cash/cash equivalents (like money
market funds), fixed income, growth and income, growth and aggressive
growth.
Proper allocation
can help protect you against downturns affecting just one or two investment
types. And, if you’re well diversified — that is, you own an appropriate
variety of quality investments within each category — you’ll increase
the likelihood that, at any given time, some parts of your portfolio will
do well.
Your individual
asset mix will depend on several factors, including your risk tolerance,
age, objectives and financial resources. A qualified investment professional
can help you determine the combination right for your situation.
Once you’ve established
the proper asset allocation and degree of diversification in your portfolio,
you’ll need to monitor it and allow for flexibility as you encounter changes
in your life.
Even with a carefully
prepared asset allocation plan, there’s no guarantee that you’ll avoid
losses (especially in the short term). But if you’ve chosen high-quality
investments and you have the patience to stick with them over the long
term, you should do a lot better in the market than out of it.
Eric Cumley is an
Investment Representative with Edward Jones Investments located at 1201-C
SE Everett Mall Way in Everett. He can be reached at 425-353-2322. Edward
Jones is an NYSE-member investment firm with more than 7,500 locations
nationwide.
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