Amid reports that investing in stocks and other financial assets no longer makes sense, we remind investors that the time-tested principles of sound investing remain the same.
Just as they were 50 years ago, strategies such as asset allocation, diversification, and investing for the long term are critical.
While stocks have been through a difficult period over the past few years and ongoing market volatility remains high, we believe that stocks continue to play an important role in your long-term financial plan, even in retirement.
Cutting through the Noise Investors have an avalanche of information to sift through before making decisions.
The role of your Wealth Manager is to help you cut through the noise and make sound decisions for your individual goals.
The last decade proved challenging for investors, but the rewards were rich for those who were diversified across a broad range of asset classes and had the patience and wisdom to stick with their long-term plans.
Dividends Improve Total Returns Over the ten-year period ending December 31, 2010, the stocks of large U.
S.
companies declined by (4.
7%).
The popular media dubbed this "the lost decade" of stock investing.
But, they only focused on half the picture.
Total returns for any asset class are generated by price appreciation AND income.
When you add dividends to the equation, large caps stock produced a positive total return of 15.
1%.
That's a swing of nearly 20%.
(Source: Bloomberg.
US Stocks are reflected by the S&P 500.
-4.
7% 15.
1% -10% -5% 0% 5% 10% 15% 20% 10 Year Period 12/31/00 - 12/31/10 US Stocks (Price Appreciation) US Stocks (Gross Dividend Reinvested) Global Diversification Benefits U.
S.
Investors Investing globally over the same time frame produced markedly better results, confirming the soundness of our philosophy.
That's why we include global equities in most client portfolios.
Global equities can also help protect your portfolio against long-term inflation, diversify your currency exposure, and gain access to faster-growing economies.
US Stocks (price appreciation) performed at -4.
7% from 12/31/00 to 12/31/10 while Global Stocks (price appreciation) performed at +7.
9%.
(Source: Bloomberg.
US Stocks are reflected by the S&P 500, Global Stocks are reflected by the S&P 1200.
) Patience Is Rewarded If you waited just three months and take the same measure of return on the same stocks, the results are dramatically different.
The ten-year period ending March 31, 2011 price appreciation for large U.
S.
company stocks was 14.
3%.
(Source: Bloomberg.
US Stocks are reflected by the S&P 500, Global Stocks are reflected by the S&P 1200.
14.
3% 29.
7% 0% 5% 10% 15% 20% 25% 30% 35% 10 Year Period 03/31/01 - 03/31/11 US Stocks (Price Appreciation) Global Stocks (Price Appreciation) -4.
7% 7.
9% -6% -4% -2% 0% 2% 4% 6% 8% 10% 10 Year Period 12/31/00 - 12/31/10 US Stocks (Price Appreciation) Global Stocks (Price Appreciation) Investors Have a Long-Term View Investors allocate capital based on fundamental reasons; speculators invest based on a hope for the price of an asset to move.
With all investments, price and value are inversely related.
The lower the price, the more potential a stock has for long-term appreciation.
An ideal time to buy quality companies is often during a bear market, when most people are selling stocks.
In other words, as an investor, you need to feel comfortable doing exactly the opposite of what the crowd is doing.
The history of the stock market shows a bear market emerging about every five years.
History also demonstrates the market has always returned to strength following a downturn, rewarding investors who took a long-term view.
Speculators tend to invest for the short term.
They look for the stocks that are rising faster.
The problem is when a stock's price begins to rise, all things being equal, its value begins to fall.
Because speculators tend to forget that price and value are inversely related, they buy and sell at exactly the wrong times in the market cycle.
We believe the key to achieving your financial goals is becoming an investor, not a speculator.
Working with Your Wealth Manager One of the most effective ways to keep your portfolio on the right track is to work with a Wealth Manager.
Your Wealth Manager takes the time to understand your individual goals and craft investment solutions that are appropriate for your objectives.
In addition, your Wealth Manager can help you manage stock market volatility through asset allocation (having exposure to stocks, bonds and cash), diversification (having exposure to different types of stocks) and security selection (selecting high-quality stocks and stock mutual funds for your portfolio).
Remember that the person reading the evening news doesn't understand your individual portfolio.
Your Wealth Manager does.
Through regular portfolio review and account updates, your Wealth Manager helps you understand what's going on in the world-and in your portfolio.
So stick with stocks, maintain a broadly diversified portfolio, and always be an investor, not a speculator.
You'll enjoy a more secure financial future and remain better prepared to meet your goals.