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The Recent Global Crises Are Not Unprecedented. Here's How To Weather Them.

Seth Jentner05/29/2012

2011 was a pretty crazy year for the markets. We had a nuclear disaster in Japan, a downgrade of U.S. debt and a major debt crisis in Europe that threatened to end the Euro as a currency. The third quarter saw world markets decline dramatically, only to recover swiftly in October, one of the best months for investors in 20 years.

Even though it’s tempting to think, “It’s different this time,” a look back at history suggests it may not be. Consider these examples.

• Since 1950, the S&P 500 stock market index has increased by 11 percent compounded annually, despite 10 bear markets and 10 recessions.

• Think the 2008 bailouts were unprecedented? You are forgetting the $293 billion savings and loan bailout in 1989, the $10 billion bailout of New York City in 1975, the first bailout of Chrysler in 1980, the bailout of Lockheed in 1971 and numerous others.

• Since 1950, unemployment topped 8 percent in 16 calendar years.

• The European debt crisis isn’t the first. There was the Latin American debt crisis of the 1980s, the Japanese asset bubble burst in the 1990s, the Asian debt crisis in 1997 and the Russian debt crisis of 1998.

• The United States fought in 5 wars and numerous military engagements. It faced the Cold War and the Cuban Missile Crisis. Society was entangled by the civil rights, black power, equal rights, gay rights and the environmental movements.

At the end of the day, $1 invested in big U.S. stocks in 1950 is worth about $600 today. Think times are tough? Yes, they are, but they’ve been tough—or even tougher—in recent history.

Will this time be different? Perhaps—anything is possible. But a look back at history suggests that the odds are on the side of long-term investors who control their emotions, remain diversified and stay the course.

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