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UP OR DOWN, WHICH WAY ARE WE GOING?
By Paul Gonzalez
Financially speaking, 2008 and most of 2009 were like taking a one-two punch combo from the likes of Mike Tyson. Many people are still reeling from the sting of the world’s economic crumble. Everything from milk to automobile tires rose in price to compensate for the steep price hike in gasoline. The saying goes, “What goes up, must come down”. However, in the world of the financial economy, what goes down, must eventually come back up. And for the most part, it has begun.
The third and fourth quarter earnings of 2009 showed significant gains to finish the year on a high note. Consumer spending and confidence was slightly up, and job loss ended at an even plateau. Many investment portfolios’ year end statements had investors smiling from ear to ear as the posted returns for mutual funds such as T. Rowe Price’s Mid Cap Growth Fund on 12/31/09 were 45.01% , and with many others we saw much more green than red.
There are many factors that contributed to the gainful end to 2009. The infamous “Government Bailout” played a major role. Now, of course there are those who say that the bailout was a huge mistake and should never have happened. However, there are some companies like AIG who report that they will actually be able to start paying back large portions of that borrowed money. This is wonderful news as it shows that the ship is now on course to be righted.
“Cash For Clunkers” was also a player in the economy’s improvement. Many people who at that time, would have likely NOT bought a new car in place of their current one, traded in their old “clunker” and drove off into the sunset in whichever new car met their fancy. A car is a major purchase, and the fact that many people bought new cars in 2008 and 2009 showed that Americans still want to spend their hard earned money. They just need to first see value before doing so.
History has shown us that since the stock market’s inception there have been many contributing factors to a decline in the market’s performance. Right off the bat there was the “Great Depression”, which many say is the worst financial time in our nation’s history. Kennedy’s assassination, the oil embargo, Black Monday and the Twin Towers terrorist attack… all were major contributing factors of the stock market’s historic declines. However, with not only these, but many other negative impacts on the market, there are a good number of mutual fund portfolios that have averaged approximately 15% or better over a 70 year time period.
Consistency has always been the key in our market’s performance. Often times, investors will want to jump ship or bail out when times get tough. However, a savvy investor will know that this if nothing but opportunity knocking at your door. It’s been proven by Nobel Prize winning economists that “timing the market” cannot be done effectively, and that a properly managed, diversified portfolio will always out perform this investment strategy. A perfect example of “timing the market” is when the bond market is performing well, an investor will put 100% of his/her money in bonds. Then when the bond market dries up, and international markets are up, he/she will put all of their money into the international markets. You get the idea.
It’s been said that, “If you believe in the United States of America, then invest in the stock market.” And I couldn’t agree more. Our economy may have taken a few of those Mike Tyson one-two punch combos, but like any true boxing champion, we might get knocked down, but we always manage to get back on our feet!
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