Think Long Term

You gotta be in it - to win it...

It's been two months since my last blog to you. I hope you had a nice summer and are getting back to normal with your schedules as we enter the last quarter of 2007.

The stock market did not fare too well this past week. Friday marked the 20th anniversary of that fateful day in 1987 when all hell broke loose, chopping 508 points or 22% off the popular Dow Jones Industrial Average in one day. I remember it quite clearly. My father and I were managing pension fund money then, and I had taken my fiancee out to lunch that day (we married 5 months later). I called in and asked if the market had pulled up from the morning retreat. He paused and said I had better come back quick. The market had fallen 109 points the prior Friday and was off over 200 at that point. I still have my ring-binder with yellowing pages of hand-written orders I placed then. We were net buyers of shares after that crash, adding to stocks we already owned. That was about it: stock prices stablized, the S&P 500 was actually up 5% overall in 1987, and stock prices doubled in the next four years before a slowdown (still gains) in the early 90's.

Friday's fall, almost 400 points, was nasty in its own right, but bore little resemblance to 1987. It amounted to just a 2.6% loss. But, just 20 stocks rose in price in the S&P 500 Index of 500 stocks. All this history is past news, and what the newspapers and on-line media-reporteres will fill the pages with this weekend. Rarely do you read about market history longer term, where we all should be thinking anyway.

My main point is: Don't let the media and talking heads scare you into foolish decision-making with your money. Unless you are retiring tomorrow, buying a boat and sailing away, you should have participation in the stock and bond markets to 'be in the game' and help assure your retirement and savings 5,10,15 or more years from now. I've harped on this before - with history on my side - get yourself a good manager who knows how to control the risks with your money - who can read a chart, be independent, and who has learned from their mistakes.

For instance, with a 10-year time horizon, a 70% stock, 30% bond portfolio has a performance range of +2% to +17% during the last 79 years. I figure that +2% to +5% is needed to keep up with inflation, so anything above 5% can build real wealth over time. And the trick is to stay in the game, as you don't know when the super-charged periods will occur. Since stock prices rise in 3 of 4 years anyway, the odds are good for gains during the next 10 years.

October 9th marked the five year anniversary of the 2002 market low of Dow 7,300, so in effect, stock prices almost doubled (+95%) in 5 years. Who knows what will happen in the next 5 years? Perhaps a regression to 7-8% gains per year? A change in the leadership in Washington in 2008 could be both good and bad for various markets and businesses also.

Stay tuned! There's rarely a boring day in this business.

Thanks for reading !

~Barry Unterbrink
Retirement Planning Counselor