Money Talk: Patience a virtue in life and investing

Erin Eddins
Erin Eddins

Market volatility can be frightening. Even the possibility of volatility scares some investors. Anxiety is a natural reaction to the hyperbolic headlines calling for the next major market downturn due to the latest world conflict or catastrophe. The important thing to remember is that the primary goal of your portfolio is long-term returns. Shift your focus away from short-term performance and readjust your sights on the big picture instead. Patience will win in the end.

A Look Back

For some perspective, let’s look at the returns of the Standard & Poor’s 500 Index throughout the years. Annual returns vary from year to year; they’ve been as high as 52.62 percent in 1954 and as low as -37.00 percent in 2008. Since 1926, the S&P 500’s annual return has averaged 10.08 percent.

When we can examine returns on a 10-year basis, we see that there have only been two 10-year periods since 1939 when the S&P 500 index showed negative returns — the 10-year periods of 1999–2008 and 2000–2009. Every other 10-year period has yielded positive returns.

Market Performance and World Events

If you’re ever tempted to pull out of markets when events around the world have pundits declaring the worst, consider this: A review of major events over the last six years reveals a multitude of scary events that did not result in a longer-term market downturn.

It’s true that if you sold all of your stocks at the end of 2007, you would have missed the market meltdown at the end of 2008 and early 2009. But how would you have known when to re-enter? By April 2009, the European debt crisis was beginning, so a cautious investor might have waited longer to jump back in and would have missed out on a 26.46 percent gain in the S&P 500 in 2009.

In April 2010, the Deepwater Horizon oil drill exploded in the Gulf of Mexico and proceeded to leak oil onto the ocean floor for 87 days, causing market — not to mention environmental — concerns. At the same time, Greece’s economy pulled the European Union deeper into the debt crisis, requiring a €110 billion bailout package. Yet, the S&P 500 was up 15.06 percent for the year.

Next, the Arab Spring protests riveted the world during much of 2011, and in Europe, the debt crisis reached a crescendo by the end of the year. A political stalemate in August 2011 took the U.S. to the first brink of default and, as a result, Standard & Poor’s downgraded U.S. debt. That year, the S&P 500 was up 2.11 percent.

In 2012, the Syrian civil war emerged as the next possible military risk and Hurricane Sandy ravaged the East Coast, yet the S&P 500 gained 16 percent. And in 2013, despite significant political turmoil and the government shutdown, the S&P 500 gained 32.4 percent. From 2008 through Aug. 31, 2014, including the financial crisis, the cumulative return on the S&P 500 was nearly 58 percent, with an average of a 7.1 percent gain per year.

Warren Buffet once said, “The stock market is designed to transfer money from the active to the patient.” We agree: The evidence shows that for long-term gains, there’s still no better advice than to be patient and stick with your established investing plan.

— By Erin Eddins

Erin Eddins is a Certified Financial Planner and Chartered Financial Consultant with Stancorp Investment Advisors in Lynnwood.


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