Throughout history, when bad news and events touched the daily lives of investors and caused nest eggs to shrink, it’s been natural to ask, “Is this the end of investing as we know it? Have new developments changed things so much that the old patterns no longer apply?”
These four stories should help illustrate an important investment principle: Markets have always gone up and down, sometimes in dramatic and alarming ways. For investors who have maintained diversified portfolios over the long term, the stock market has consistently provided a positive investment experience.
Michael and Jan started investing in January 2000. They didn’t know the dot-com bubble was only a few months from bursting, or that the collapse would send stocks into a free fall, or that troubles would continue to mount.
Two of the largest bankruptcies in US history came only a few months apart. The SARS virus caused fears of a global pandemic. Oil prices began a precipitous climb, taking gas prices with them. Mortgage defaults began to grow, sending shocks across the economy.
Is there any way Michael and Jan’s portfolio could have survived two major economic downturns in the decade?
Did Michael and Jan’s portfolio survive the downturns? Yes, and they remain in positive territory.
During stock declines in the early years, they focused on long-term goals and maintained their stock allocations, so they were positioned to ride a surprising 2003 surge. They didn’t bet heavily on US large stocks repeating gains of the 1990s.
The volatility of emerging markets, which sometimes means big gains, helped them in later years.
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