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S&P 2000: A Bumpy Ride With Low Returns
The S&P 500 has been in a volatile grind since hitting 1000 in 1998.
Michael Comeau    

There's a lot of fanfare over the S&P 500's close over 2000 for the first time yesterday.

Many market participants are looking back to the first close over 1000 back on February 2, 1998, when the S&P finished at 1001.27.

But what many folks are missing is that the market has been a volatile grind since then.

In the 16.57 years it took the S&P to advance one thousand points, the index (excluding dividends) has compounded at an annual rate of just 4.3%.

Lame! From 1970-1997, the compounded annual return for the S&P was 8.1%.

Now let's look at the last doubling of the S&P, from when it first closed above 500, to that first 1000 close on February 2, 1998.

It took less than three years -- 2.86 to be exact, from the 500.97 close on March 25, 1995.

As I showed in my recent post [subcription required] on long-term rolling returns, we've occasionally seen massive downward volatility in the past decade (2008, and 2000-2002), which underscores the importance of timing in the investment equation.

If you put $100,000 in the S&P at the end of 2007, you would have had about $125,000 (excluding dividends) at the end of 2013.

But if you put it in at the end of 2008 and missed the big slide that year, you'd have over $200,000.

So dollar-cost averaging (and actually increasing investment levels during downturns) probably works out well for many folks over the long run.

Plus, the big ups and downs in the market emphasizes an important lesson we can all learn from Warren Buffett: when times are bad, having liquidity means having opportunities.

We can't emulate his incredibly well-timed investments in Goldman Sachs (GS) and Bank of America (BAC) during the financial crisis.

But what we can do is remember that over the long run, putting cash into equities and other risk assets is most lucrative during times of crisis.

Now's the time to start thinking about potential scenarios and plans of action.

To avoid the Lehmans and Bears, stick with ETFs, mutual funds, closed-end funds, and other diversified instruments.

Twitter: @MichaelComeau

 

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
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No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
S&P 2000: A Bumpy Ride With Low Returns
The S&P 500 has been in a volatile grind since hitting 1000 in 1998.
Michael Comeau    

There's a lot of fanfare over the S&P 500's close over 2000 for the first time yesterday.

Many market participants are looking back to the first close over 1000 back on February 2, 1998, when the S&P finished at 1001.27.

But what many folks are missing is that the market has been a volatile grind since then.

In the 16.57 years it took the S&P to advance one thousand points, the index (excluding dividends) has compounded at an annual rate of just 4.3%.

Lame! From 1970-1997, the compounded annual return for the S&P was 8.1%.

Now let's look at the last doubling of the S&P, from when it first closed above 500, to that first 1000 close on February 2, 1998.

It took less than three years -- 2.86 to be exact, from the 500.97 close on March 25, 1995.

As I showed in my recent post [subcription required] on long-term rolling returns, we've occasionally seen massive downward volatility in the past decade (2008, and 2000-2002), which underscores the importance of timing in the investment equation.

If you put $100,000 in the S&P at the end of 2007, you would have had about $125,000 (excluding dividends) at the end of 2013.

But if you put it in at the end of 2008 and missed the big slide that year, you'd have over $200,000.

So dollar-cost averaging (and actually increasing investment levels during downturns) probably works out well for many folks over the long run.

Plus, the big ups and downs in the market emphasizes an important lesson we can all learn from Warren Buffett: when times are bad, having liquidity means having opportunities.

We can't emulate his incredibly well-timed investments in Goldman Sachs (GS) and Bank of America (BAC) during the financial crisis.

But what we can do is remember that over the long run, putting cash into equities and other risk assets is most lucrative during times of crisis.

Now's the time to start thinking about potential scenarios and plans of action.

To avoid the Lehmans and Bears, stick with ETFs, mutual funds, closed-end funds, and other diversified instruments.

Twitter: @MichaelComeau

 

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
More From Michael Comeau
Daily Recap
S&P 2000: A Bumpy Ride With Low Returns
The S&P 500 has been in a volatile grind since hitting 1000 in 1998.
Michael Comeau    

There's a lot of fanfare over the S&P 500's close over 2000 for the first time yesterday.

Many market participants are looking back to the first close over 1000 back on February 2, 1998, when the S&P finished at 1001.27.

But what many folks are missing is that the market has been a volatile grind since then.

In the 16.57 years it took the S&P to advance one thousand points, the index (excluding dividends) has compounded at an annual rate of just 4.3%.

Lame! From 1970-1997, the compounded annual return for the S&P was 8.1%.

Now let's look at the last doubling of the S&P, from when it first closed above 500, to that first 1000 close on February 2, 1998.

It took less than three years -- 2.86 to be exact, from the 500.97 close on March 25, 1995.

As I showed in my recent post [subcription required] on long-term rolling returns, we've occasionally seen massive downward volatility in the past decade (2008, and 2000-2002), which underscores the importance of timing in the investment equation.

If you put $100,000 in the S&P at the end of 2007, you would have had about $125,000 (excluding dividends) at the end of 2013.

But if you put it in at the end of 2008 and missed the big slide that year, you'd have over $200,000.

So dollar-cost averaging (and actually increasing investment levels during downturns) probably works out well for many folks over the long run.

Plus, the big ups and downs in the market emphasizes an important lesson we can all learn from Warren Buffett: when times are bad, having liquidity means having opportunities.

We can't emulate his incredibly well-timed investments in Goldman Sachs (GS) and Bank of America (BAC) during the financial crisis.

But what we can do is remember that over the long run, putting cash into equities and other risk assets is most lucrative during times of crisis.

Now's the time to start thinking about potential scenarios and plans of action.

To avoid the Lehmans and Bears, stick with ETFs, mutual funds, closed-end funds, and other diversified instruments.

Twitter: @MichaelComeau

 

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
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