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Words of Wisdom in a Volatile Market

Seth Jentner07/17/2013

The market continues to be volatile. So what is an investor supposed to do?

One of the financial industry’s premier speakers and authors shared two observations at an investment conference in New York City.

1.  The earnings, cash flows and cash positions of the 500 companies of the S&P 500 Index (500 of the largest, best financed and most profitable companies in the world) are at all-time highs.

2.  The current average yield of those 500 companies is higher than the benchmark 10-year Treasury note.

So what can we conclude? From a fundamental point of view, these 500 companies are positioned to weather the current economic storm.

Most people think the challenge is timing:  when to get out and when to get back into the market. After more than three decades in this business, I have not met anyone who is able to consistently get that right.

I started in this business in 1980. From 1980 to 2010, the S&P 500 went up 24 out of 31 years. The average annual return of the S&P 500 during this period was approximately 10%. Yet on average the index fell -14.3% at some point during each of those years.

So can we use history to predict the future?  No.

But can we learn anything from history? Yes. During this period, there were plenty of uncertainties and fears. There always has been, and there always will be. The markets fluctuate, and they always will.

If your investment time frame is the next month, quarter or year, you should not be in the stock market. However, it is hard to imagine how a serious long-term investor would not consider having a portion of their investment portfolio in the stock market.

Am I comfortable investing a portion of my long-term investments into institutional asset-class funds that represent the market with hundreds, or better yet, thousands of companies? You bet.

Long-term funds can be successfully invested into a globally diversified portfolio of thousands of companies if, and only if, you are willing to ignore the short-term noise of daily, weekly and monthly events and instead stay focused and disciplined for the long term. It’s your choice.

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