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If
you remember 1973, you know it was a
difficult period for the United States.
A series of events – including the
Watergate scandal, the OPEC oil embargo,
the Vietnam War and the resignation of
Vice President Spiro Agnew – had shaken
the public's morale. By November,
President Richard Nixon's approval
rating stood at 37 percent, and
presidential approval ratings tend to
track the mood of the nation. Given all
this, you might think that 1973 was not
a good year in which to invest in the
stock market.
But you would be wrong. From
Nov. 30, 1973, to Nov. 30, 1983, the S&P
500 recorded an average annual return of
10.9 percent. So, if you had invested
$10,000 in the market at the beginning
of that period, it would have grown to
$28,139 by the end. And over the next 20
years, from Nov. 30, 1983, to Nov. 30,
2003, the S&P 500 returned, on average,
12.8 percent a year; consequently,
$10,000 invested in 1983 would have
grown to $111,219 in 20 years. (Keep in
mind, however, that the S & P 500 is an
unmanaged index, and you cannot invest
directly into it. Also, past performance
is not an indication of future results.)
In short, if you had started
investing in the troubled year of 1973,
and you had kept investing, you would
have probably done pretty well over the
next three decades.
Now, look at what is
happening in the country in 2006. We are
facing global unrest, high gas prices
and concerns about economic security.
Although there are some similarities
between 1973 and 2006 such as a
controversial war, high gas prices and
political concerns, there are also some
key differences.
Perhaps most important, our
economy today is much stronger than it
was back then. And as an investor, you
might be particularly interested in the
following:
-- Interest rates are near a
40-year low. When interest rates are
low, it is less expensive for businesses
to borrow money to expand their
operations. As businesses grow, so does
their attractiveness to investors.
-- Corporate profits are
growing rapidly. Corporate profits have
expanded at double-digit rates for 10
consecutive quarters; profitability is
one of the key fundamentals that drive a
company's stock price. So, despite the
worried national mood, the investment
climate of 2006 may actually be quite
promising.
It is true that 2006 may be
an unusually tense year for the country.
But seen, 1973 was also a difficult year
– by some measures, considerably more
unsettling than 2006 – and yet, many
investors who had faith in the financial
markets in 1973 were amply rewarded.
You might not achieve
similar returns going forward over the
next few decades - no one can predict
the future course of the markets. But
the experience of 1973 shows the
historical importance of continuous
investing. A systematic investment plan
does not assure a profit and does not
protect against loss in declining
markets. Such a plan involves continuous
investment regardless of fluctuating
price levels.
You should not let today's
headlines keep you on the investment
sidelines. If you buy quality
investments, diversify your portfolio
and invest for the long term, you may be
able to design a strategy designed to
work toward your financial goals in good
times and bad. |
