Business Magazine

When Investing, Be Cautious but Don’t Be a Coward

Posted on the 17 May 2013 by Mdelp


Almost all of today’s “financial doomsday” headlines can be placed into one of two topics:

·   Sell your stocks today because of reasons X, Y and Z.

·   Sell your bonds today because interest rates will be going up in X, Y, or Z time frame.

I’m not here to argue against the logic of reasons X, Y or Z or the direction or time frames of interest rate moves but over the last twenty years there has not been a single calendar year return when BOTH stocks and bonds fell.

The chart below shows the year by year percentage returns over the last 20 years for the S&P 500 Stock Index and the Barclays U.S. Aggregate Bond Index as reported by Morningstar.  Some years stocks and bonds both had positive returns and some years only one did, but year had them both lose money.

   S&P 500    Barclays  

Year   Stock Index    Bond Index

1993   8.09   4.66

1994   1.32   -2.92

1995   37.58   18.47

1996   22.96   3.63

1997   33.36   9.65

1998   28.57   8.69

1999   21.05   -0.82

2000   -9.11   11.63

2001   -11.88   8.44

2002   -22.10   10.25

2003   28.69   4.10

2004   10.87   4.34

2005   4.89   2.43

2006   15.80   4.33

2007   5.49   6.97

2008   -37.00   5.24

2009   26.46   5.93

2010   15.07   6.54

2011   2.12   7.84

2012   15.98   4.22

2013*  12.74   0.89

*1-1-13 to 4-30-13  

If you’re very afraid of living through another 2008 type stock market crash, then by all means be cautious and reduce your stock exposure and move some of your money into other categories that have historically down well when the economy slows down and consumer spending falls such as bonds.

If you’re very afraid of interest rates and inflation spiking and having your bond principal paid back to you at essentially pennies on the dollar, then by all means be cautious and reduce your bond exposure and move some of your money into other investments that historically done well during times of rising inflation and interest rates such as stocks.

The point being you can be a cautious investor but you can’t be coward investor and be afraid of everything.

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