Happy Anniversary S&P 500!
On March fourth, 1957, nearly 57 years ago, the Standard & Poors 500 (S&P 500) was introduced to track the performance of the largest five hundred publicly traded companies domiciled in the United States. A market-weighted index, the S&P 500 has become the barometer of American stock market performance, a benchmark by which investors can measure their returns relative to this broad basket of stocks.
Representing nearly 85 percent of the total market capitalization of the U.S. Stock Market, the S&P 500 is not the daily measuring stick used to determine the direction of stocks. That honor is usually bestowed on the Dow Jones Industrial Average, a dollar weighted index that tracks the performance of only 30 stocks. However, because of the number and overall market capitalization covered by the S&P 500, changes in this index will provide the most accurate answer to the question hows the market doing?
Over this long, but sometime tumultuous period, the S&P 500, including dividends, has an average annual return of nearly ten percent! Impressive, given the wall of worry that this index has climbed " a sample of which includes the assassination of President Kennedy (1963); the tumultuous civil unrest during the 1960s; (1972) the Watergate scandal which culminated in the resignation of President Nixon (1974); the Iranian Hostage Crisis accompanied by skyrocketing energy prices (1979); Iraq invading Kuwait which led to U.S. involvement in the Persian Gulf (1990); the Oklahoma City Bombing (1995); the NASDAQ bubble during the late 1990s; September 11th (2001); and the sub-prime mortgage crisis during 2007-2008.
On the surface, each and every one of these events provided a sufficient enough reason to sell, move to the sidelines, and lose faith in the direction of the stock market and sometimes, the United States. However, over the long haul, each and every time, a move to the sidelines would have proved costly.
Nonetheless, quite often investors succumb to their emotions and fears. A relatively recent study by Dalbar, Inc. determined that for the 20 year period ending December 2008, the average equity fund returned 7.30% annually while the average equity investor made just 1.87% per year. To put these returns into numbers, consider two investors, A and B, both start with $10,000. Investor A invests in an average equity fund and doesnt look again for twenty years, over the above noted timeframe, he/she would have turned that $10,000 into $40,925. However, Investor B, the Nervous Nellie who jumps into and out of the market would have turned that $10,000 into only $14,485.
Since 1957, as a country, we have fought wars, had politicians assassinated or resigned from office, suffered numerous terrorist attacks, endured recessions and nearly depressions, won Olympic gold medals and boycotted them as well. As individuals, we have become parents and lost parents. We have baptized, retired, and eulogized. Weve been to weddings, bar mitzvahs " cried, laughed and lived. In short, much has happened to us as a country and as individuals. In fact, as much as our lives have evolved, so has the business world, in fact less than fifteen percent of the original members of the S&P 500 remain in that index today.
Regardless, America as well as the economy and the S&P 500 has endured. It is for these reasons, borne out in the statistics noted above that we find it odd and counter-productive for investors to try to market time their investment portfolios, IRAs, 403(b)s or 401(k)s. To lose faith in the benefits of investing or to become short-sighted, waiting for a better time, makes no sense to us at Fagan Associates. A bell doesnt sound or a green light doesnt flash. Happy Anniversary S&P 500- youve been through a lot!
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.