Page 160 - FebDefComp

What causes History says: stay invested

market volatility? The chart (on the next page) demonstrates a

While many things contribute to stock market hypothetical investment of $10,000 invested
movement — good news, bad news, earnings in the stock market, as measured by the S&P
reports, consumer sentiment, and economic 500 Index, in 1980, and how the investment
changes — the important thing to remember would have grown to $484,093 by the end
is that with the stock market, volatility is the of 2014.
norm. Fluctuations in price and potential gains
However, if you had cashed out your
or losses are what the stock market is all about.
investment each time the stock market
The market has weathered many serious dropped by 20%, and invested in 90-day T-Bills
events during its history. Since 1929, there for one year before reentering the market, the
have been 16 bear markets — including the one hypothetical $10,000 invested would have
in 2008. 1 grown to only $272,904.

Yet since 1969, the stock market has had a
positive return in 37 out of 45 calendar years. 2
So while understanding that volatility in the
stock market is normal, it is also important not
to react, or overreact, to every headline or
market swing.

1 A bear market history lesson, Gerri Willis, CNN, 10/8/08
2 Morningstar EnCorr. Stock market represented by S&P 500 R Index

1