KENSINGTON, MARYLAND. October 21, 2009 – -Investors need to take a longer view of the stock market and their investments, and not just look at the recent gains in the Dow Jones Industrial Average, says Samuel N. Asare, a senior financial strategist with the Kensington, Maryland-based Laser Financial Group, LC.
“While it’s true that the Dow closed above 10,000 on October 14, it is also truethat the same Dow was at 10,323.16 in October of 1999. Given a more complete picture, would investors be excited that the money they invested 10 years ago is worth two percent less today?” said Asare.
Although the Dow is up 53 percent since March of 2009, it’s worth notingthat on that date the market declined to its lowest level in 12 years, pointed out Asare. Perhaps investors should not be ecstatic about that 53 percent gain, given that all the gains they had made over the previous 12 years were wiped out, said Asare.
“Back in March, when investors were upset and uncertain, the very same experts and advisors who are now telling them to jump back in because the water’s fine were telling investors that they should focus on the ‘long-term.’ The implication was that what happens day-to-day is not really all that important. Apparently their definition of “long-term” is about seven months, because now they say it’s time to dive in, based on what happened on October 14. Investors need to be wiser than this,” emphasized Asare.
Asare cited this example to illustrate his point: Say John Smith had an investment worth $100,000 in the Dow at the beginning of 2008. By the end of the year, Smith’s investment would have been worth $66,200 because he would have lost $33,800, or 33.8 percent. In order for Smith’s investment to return to its original value of $100,000 by the end of 2009, the Dow would have to gain 51 percent! So far this year, the Dow is up about 14 percent. It was at 8,776.39 on New Year’s Eve 2008, and as of October 16, it closed at 9,995.91. (That was below the 10,000 mark – the psychological tipping point – just two days later.)
For investors who lost money in the stock market, that money is gone forever, says Asare. “Although other advisors may have described the situation as ‘simply paper losses,’ that is not the case. There is no such thing as a paper loss in investing. There really are only two ways to go: gain or lose. When the market “recovers” and investors start making gains again, it is entirely new money. Only someone who did not lose in the downturn will make new gains, in addition to their existing balance,” said Asare.
Instead of the stock market, Laser Financial Group recommends investments that are linked to a stock market index.
“Our methodology allows investors to make decent returns when the market is up, but not lose money when it plummets,” explains Asare. He added that none of their clients lost money last year. Instead, they earned between one and five percent, depending on their specific contracts with their respective carriers.