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October | Chasing Rainbows
The Average investor's experience may differ greatly when compared to a fund's stated return. Investors often endure poor timing and planning as they chase past performance. They get into funds that are performing well and initiate a selling spree following a decline. This behavior could prove costly as investors who try to time the market might be at risk of missing exceptional returns. The graph illustrates the investor return relative to the market return for a given fund.
November | Bracing for Reality
The recent market turmoil resulting from the subprime mortgage crisis has created quite a panic among investors. Such market conditions may cause investors to abandon their long-term goals and replace them with risky short-term investment strategies. The image demonstrates the benefits of long-term investing by highlighting the return performance of the stock market over the past 50 years, and comparing that to the average returns of both the stock and bond markets over the same time period.
Market performance during recessionary periods could have a negative impact on portfolio returns. Investing in value stocks, considered to be one of the less risky investments during recessions, may help minimize the impact of a downturn. Further, it may better position a portfolio to reap gains during a market turnaround. Illustrates the average cumulative returns of growth and value stocks after the last six recessions from 1969 to 2007.
Investors need to select a healthy blend of asset classes in order to maintain portfolio income, lower risk, and outpace inflation. Fixed-income securities, considered lower risk investments, can be used to stabilize a stock heavy portfolio and provide income and diversification benefits. Further, investing in bond funds may offer more liquidity than individual fixed-income securities. Illustrates the range of returns for different bond fund categories for the past ten years.
