Many people throw up their hands in despair at what happens in the investment world. There seem to be so many things one cannot anticipate or control: political turmoil, rising oil prices, fluctuating interest rates, the subprime mortgage crisis, etc. As an investor, aren't you just at the mercy of these and other events?
Not necessarily. You can't alter the headlines, but you can manage your response to them - and that makes all the difference.
Unfortunately, too many investors are reactive, not proactive. Violence in the Mideast? Time to sell the stocks. Oil prices surpassing $90 per barrel? Head to the investment sidelines. Subprime borrowers falling behind on mortgage payments? Put the money under the mattress.
You get the picture. Negative news just plain frightens investors - and it frequently causes them to take negative actions. Of course, this phenomenon is nothing new. If you look back through the years at almost any major piece of bad news, you will see a striking pattern: Stock prices fall quickly, as people hurriedly sell shares, and then gradually recover and go on to new heights.
Want a couple of examples? First, consider the Cuban missile crisis. For many of us, it's now just a distant memory or an event in a history book, but, at the time, it marked a period of extraordinary fear and tension for Americans, as war with the Soviet Union seemed imminent. Not surprisingly, many investors fled the market, and the Dow Jones Industrial Average fell more than nine percent during the weeks of the crisis. But those investors who stayed the course were well rewarded; just six months after the conclusion of the missile crisis, the Dow had not only recovered the nine percent it lost, but also posted a nearly 29 percent gain.
Now, let's move forward nearly three decades, to the market crash of 1987. After the Dow plunged more than 500 points one day in October, a financial panic ensued. At its lowest point, the Dow was down 34 percent. But investors with patience and foresight didn't panic. And four months later, they looked pretty smart, as the Dow recouped the entire 34 percent and added on another 15 percent. In fact, that surge marked the beginning of an almost unbroken rally throughout the 1990s.
You can find countless other revealing, if less dramatic, examples of the market bouncing back after a piece of unsettling news. Past performance is no guarantee of future results, but if investment history teaches us anything, it's this: Yesterday's events often have little to do with tomorrow's results.
Chart your own course
If you create a long-term financial strategy - one that incorporates a diversified mix of investments suitable for your risk tolerance, individual goals and time horizon - you can continue making progress toward your objectives, no matter what is going on in the world around you. Will you always make short-term gains? No. Will you have "bad" months or even years? Almost certainly. But if you chart the course that's right for your needs, and you follow it relentlessly for years and decades, your chances of success are excellent. And that's the sort of news anyone would welcome.
For more information call Ross Fambrough at 254-968-6224. You can also visit us at Edward Jones Fambrough, 2215 W. Washington, Stephenville or on the web at www.edwardjones.com. Edward Jones is a member of SIPC. (Paid Advertorial).