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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Sunday, August 13, 2006

Long-Term Investment Strategy

A bull stock market makes it easy to stay on course with your long-term investment goals; the challenge is to do this during bear markets. It can be tough, but when that bull market comes if you are well-diversified there is nothing you should do but stay the course.

If you examine performance during a a recessionary period of 1971-1974 you can see that stocks went down about 25%; if you had a 50/50 stock and bond portfolio you lost around 9% and if you had all bonds you were up around 10%. On the other hand, looking at a long period of time (1974-2000) the opposite becomes true. $1,000 would be worth over $48,000 if invested in stocks; about $25,000 in a 50/50 bond and stock portfolio and about $11,000 for an all bond portfolio.

So you might be at a loss in the short run, but if you can stay with your plan of diversification through the bad times you will win out in the end.


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