After a year where the S&P 500 posted its best performance since 1997, I have run into many people who are wary of investing in the stock market because it is 'too high.' In 2013, we avoided the Fiscal Cliff, weathered through a government shutdown, and the S&P posted a 29.6% return. Stocks soared with an improved economy coupled with numerous Federal Reserve stimulus packages. For people in retirement, it can be a daunting thought to buy stocks after we have watched the markets hit a new high after a new high.
The best advice I can give to those worried about market volatility is to stick to your investment objectives. If you are a long-term investor, remind yourself that you are not purchasing the investment to trade it a week from now. Invest in stable companies, with high-quality products or services that are in demand, and give that company time to earn their profits, and, in turn, share those profits with you, the shareholder.
For an example, let's look at Johnson & Johnson (JNJ) a company whose products I'm sure you know well; Tylenol, Visine, Nicorette, Band Aid, etc. If you had purchased 250 shares of JNJ in January of 2000, you would have made an initial investment of approximately $10,700. Your 250 shares would be worth over $23,000 as of market close on Friday; but don't forget that in March of 2000 your $10,700 investment would have been worth approximately $8,700 (a $2,000 loss). Had you remained patient and reminded yourself that you were investing for the future and not the present, you would have been handsomely rewarded with a 115% return over that 14 year period. Below is JNJ's chart for that 14 year period:
-- From FreeStockCharts.com
While no one can predict the market, 2014 may yield a great return, a modest return, or even a negative return. All I can do is make recommendations to my clients with regard to their investment objectives. Whether you're investing for income, growth, or stability, be sure that you are comfortable. Obviously, past returns are no guarantee of future returns. 1997 was the last time the S&P 500 generated over 30%, and in 1998 the S&P rose over 25%. It is possible to have a healthy return after a year like 2013, and what is of the utmost importance are the financial strength of your investments, prospects for growth, and the ability to generate consistent cash flow.
Ethan Wade, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).