Published On: Fri, Apr 9th, 2010

The View From On High


By: Steven L. Pomeranz

Most people are still very worried about investing in the stock market today and it’s easy to understand why. We live in a dynamic and seemingly dangerous investment world; a world in which it seems that any stock market investment decision can lead to a devastating loss. It is a world which refuses to settle into a state of equilibrium and where unpleasant surprises seem to lurk around every corner.

Steven L. Pomeranz

Who would want to venture out into a world like this? If this were truly how things worked, why would anyone take any risk? Logically we know that risk-taking is important in order to create wealth but how can we do this under present circumstances? And honestly, does keeping your money in low yielding savings accounts or CDs truly protect you from the other future dangers like inflation? In order to get this right, there has got to be a way to navigate between these two opposite poles. You must come up with a workable plan.

There is a solution to this mystery and all it takes is a change of perspective. The secret is to get the view from 10,000 feet because if you fly high enough, you will notice patterns unseen at street level. What are the patterns of the stock market from 10,000 feet? Not as confusing and dangerous as you would think. Let’s look at five-year rolling periods for the S&P 500.

There were 420 five-year periods between 1970 and 2009 and interestingly, a whopping 87% of them were positive and only 13% were negative. In other words, you would have made money about 9 out of 10 times if you bought into the stock market and held onto it for five years.

Does this one fact make stock investing seem a little less scary? Would you at least consider the possibility of venturing back into the investment world? Only perhaps, if you have a five-year time horizon. If you do, the stock market could be a very good place to invest.

Of course there is more to consider, but time is one of the key elements for successful investing. Calculate a handful more, and you’re on your way to higher returns.

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