Sunday, January 13, 2013

Stock Market: Patience Pays

Last week the US stock market (S&P 500) climbed on a new 5-year high. Since the begin of the recent bull market in the spring 2009 stocks gained more than 100% ( Investors who ignored the daily "Katzenjammer" in the media and the cult of crisis were highly rewarded. Patience pays.

The media is usually ignoring the positive trends. Very often you can read about the lost decade because stock prices today are generally lower than in spring 2000 when the S&P peaked above 1.500 points.

But this comparison is ridiculous. The risk to buy on an all-time-high is very low, like buying on the bottom of a bear market. Sound investing means buying stock continuously, for instance using a certain proportion of the income for stock purchases. In this case investors are buying monthly stocks and achieve an average stock price which lays somewhat between the peaks and lows of the stock market. The average stock price of the last 12 years lays way below the recents stock prices. Hence investors who have been buying stocks consistently made gains even in the sluggish last 12 years.

These gains are even higher if investors started buying before the peak of 2000. In this case they could add ad least partly the huge rally before the year 2000. In the long run - the last 200 years - investments in the stock market generated a yearly average return of around 7% (wikipedia). Patience pays.

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