6/6/2014 6:30 PM ET|
Why you should buy stocks today
Even if you invest at the market's highest point of the year, a recent study finds that it makes little difference over the long term.
Today's stock market exhibits plenty of worrisome signs. Stocks of small companies have been sinking, which is often a bad sign for the broader market. Economic growth remains sluggish years after the worst recession since the Great Depression. Vladimir Putin's mischief ultimately threatens the crucial flow of natural gas from Russia to Western Europe.
Why buy now, when the leading market indexes are at record highs?
Because a review of recent history shows that the date you pick to invest doesn't matter that much, even if you invest at the market's highest level of the year.
Sound crazy? Dan Wiener, editor of "The Independent Adviser for Vanguard Investors," compared the records of two hypothetical investors over the past 30 years. Each started by investing $1,000 in the Standard & Poor's 500 index ($INX) at the end of 1983. (Of course, you can't buy an index, but you can invest in a low-cost index fund.)
Over the subsequent 30 years, each investor put $1,000 annually into the S&P 500. But investor No. 1 bought on the last trading day of the year, while investor No. 2 bought at the S&P's highest point each year. In other words, investor No. 2 bought on the worst possible day each year.
Here's the surprise: At the end of 30 years, investor No. 1 had achieved an annualized return of 9.9 percent, while investor No. 2 earned an annualized return of 9.5 percent. The difference in returns was just 0.4 percentage point per year, on average.
In dollar terms, investor No. 1's total contributions of $31,000 grew to $177,176, while the additions of the investor with extremely poor timing grew to $169,153. The difference is $8,023. If you're saving for retirement, you'd hope to invest a lot more than $31,000 over three decades, which would result in a far greater dollar gap.
The difference between the two approaches is significant. But it's not nearly as much as I would have expected, and it puts some perspective into all the agonizing many of us go through before we put new money to work in stocks.
Of course, if you could accurately time the stock market, you could enrich yourself enormously. Over the past five years through April 30, the S&P 500 returned a sizzling 19.1 percent annualized. But from December 31, 1999, through April 30, the index returned only 3.7 percent annualized. So clever market timing would have done far better than buying and holding through this period, which included two vicious bear markets.
In the 2000-02 bear market, the S&P plunged 47 percent, and in 2007-09, it did even worse, sinking 55 percent (both figures include dividends). Since 1926, large-company stocks have returned an annualized 10.1 percent, according to Ibbotson Associates -- almost three times the return so far this century.
Wiener's study provides evidence of the merits of dollar-cost averaging -- that is, investing a fixed amount at regular intervals, in this case once a year. Indeed, if you had invested $1,000 annually in the S&P on the last day of the year from 1999 through 2013, you would have earned a 7.0 percent annualized return by April 30 -- almost double what a one-time, lump sum investment at the start of the century would have produced.
The lesson is clear: Dollar-cost averaging works wonders in volatile markets. But the bigger lesson is even clearer: If you plan to buy stocks this year, go ahead and invest now -- even if you think the market may be at its yearly high.
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If any investor/speculator is DUMB enough to base their Future Retirement on some hypothetical BS, then they deserve the spanking they are sure to get. Here's is something that isn't hypothetical, Global Debt has risen 40% since the Great Recession. 3 Central Bankers alone have printed to the Tune of nearly $10 Trillion and counting.
The issues of the Stolen Funds from the Social Security and Medicare Trust funds has NOT been addressed. We have a massive unsolved problem of over $700 Trillion in Scam/Toxic Banking Derivatives.
So what we have is an unsustainable Stock Market and Debt Bubble. Buy and hold to infinity is DEAD. This is the Mother of all Bull Markets that will be Followed by the Father of all BEAR Markets. This article is useless for future investors/speculators because we are simply put, in uncharted territory.
This article is attempting to Promise the Future because of the Past. It's doing so without addressing any of the Real Issues that not only America faces but the Global Economy as well. Folks that don't won't to have an Adult Conversation about that and continue to say buy and hold to Infinity are terrified that Folks start selling and they lose. That's basically the bottom-line with these types of Articles. That or some guy trying to collect more investment fees. Maybe both.
"The revision to the mean implies that over time the ups and downs balance with a upward bias trend."
Folks better pray that a Real Revision to the Means never happens, because if it does, it's a long way DOWN. In the Long Haul, you can't continue to Rob Peter to Pay Paul. Some posters just refuse to admit that. 3 Central Banks printing already to the tune of nearly $10Trillion and counting. But sure, ignore real facts and sell the BS of Buy and Hold to Infinity. This has indeed been an Epic Bull Market, the Bear Market that follows will make the Great Recession look like a Walk in the Park. Some ride it up just so that they can ride it down? It's not a crime to lock in profits.
How often have you heard some shill talking about all the cash on the sidelines waiting to come back into the market? Or some pundit worrying that too many investors have rushed into stocks, signaling an imminent sell-off?
Well, now, we can safely ignore those claims and others like them. An authoritative new study shows that all investors -- individuals and institutions alike -- are keeping the lowest percentage of their portfolios in stock in over half a century.
SAN FRANCISCO (Reuters) - Uber Inc has raised $1.2 billion from mutual funds and other investors in a funding round valuing the fast-growing rides-on-demand service at $18.2 billion, one of the highest valuations ever for a Silicon Valley startup.
Uber Chief Executive Officer Travis Kalanick announced the funding round on Uber's blog Friday.
The funding, eclipsed only by the likes of Facebook Inc before it went public, is a vote of confidence by investors in four-year-old Uber's growth potential.
More JUNK technology that can't turn profit so it hucksters ads and takes investor capital. When do we close the door on this crap and focus on meaningful jobs?
For a lot of steady, slow growth stocks, there are no-purchase-fee DRIPs where you can put in as little as $25 in some cases or $50, $100, or $250 minimums in others so that you don't have to wait and save up enough to make trading commissions an insignificant percentage of the investment. This allows dollar-cost-averaging lets you buy more shares at the lower prices and fewer shares at the higher prices even though you don't know when you're at a high or low point. Stocks that have such drips include Abbott Labs, Cracker Barrel Old Country Store, Exxon, Conoco, General Mills, Procter & Gamble, and Bank of America.
Now would be a good time to put them in something beaten down like gold, small cap stocks, European issues, bonds.
The important thing is to start accumulating and learning. Time is more important than how much; start now!
The study is nonsensical. Investing on the last day of the year tells us exactly nothing. Was the last day of a particular year the highest? lowest? 2nd highest?
Put together a study which shows investing on the highest and lowest days of the year over 30 years and see what happens.
The best advice is from John Bogle of Vanguard; pick an allocation you can live with and rebalance periodically. That forces you to sell some assets high and buy other assets low. You'll sleep better too.
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[BRIEFING.COM] The stock market hasn't lacked bullish catalysts today, yet buyers nonetheless have been a reluctant bunch.
- There were no major geopolitical flare ups over the weekend
- M&A activity continued afoot
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