RIP VAN WINKLE SLEPT FOR 20 YEARS . . .

and he awoke to discover that his world had changed dramatically. The U.S. stock market has been “asleep” for about 13 years now and in another seven, we may find our world is much different, too.

In the nearly 13 years between January 11, 1999 and last Friday, the S&P 500 index rose as high as 1,565 and dropped as low as 676. During that volatile period, we witnessed numerous impactful events including the following:

  • The bursting of the dot-com bubble
  • The rise of the euro
  • 9/11
  • The war on terrorism
  • The rise and fall of the real estate bubble
  • The spectacular rise of the price of gold
  • The Southeast Asia tsunami and the Japan tsunami
  • The rise of social media
  • The Great Recession
  • The sovereign debt crisis

Yet, with all those world events and the tremendous moves in the S&P 500 – both up and down – during those nearly 13 years, guess how much the S&P 500 price changed between January 11, 1999 and last Friday?

Exactly zero!

That’s right. The S&P 500 closed at 1,263 on January 11, 1999 and at 1,263 last Friday, according to data from Yahoo! Finance.

Does this mean you should never invest in the stock market because it’s been flat for so long? No. Here are five things to understand from this long market malaise:

  1. Dividends matter. While there was no price change between these two time periods, reinvesting dividends or owning investments that pay dividends may have generated a positive return.
  2. Diversification matters. The S&P 500 was flat, but some other asset classes did fine over the past 13 years, so it’s important to search far and wide for investment opportunities.
  3. Perspective matters. It’s easy to get caught up in the large day-to-day swings in the market, but understanding the broader trend or context of the market is important to help prevent day-to-day volatility from causing you to make bad investment decisions.
  4. Patience matters. As long-term investors, we’re more like the tortoise than the hare. Short-term, rapid traders create a lot of noise and may lead the pack from time-to-time, but we’re focused on winning at the end, not at each checkpoint.
  5. Valuation matters. The bubble-like values placed on some companies in the late 1990s were so out of whack with normalcy that it’s taken the market many years to work off those excesses. So, while patience is important, it’s also necessary to understand that valuation at the time you make your investment could have a major impact on how long it takes to get a return on your investment. 

Nobody knows if the market will remain “asleep” for another seven years to match Mr. Van Winkle. Regardless, the world will be different and we’ll keep searching for ways to help you reach your destination without nightmares.

Weekly Focus – Think About It

“Rip Van Winkle, however, was one of those happy mortals, of foolish, well-oiled dispositions, who take the world easy, eat white bread or brown, which ever can be got with the least thought or trouble, and would rather starve on a penny than work for a pound.”        –Excerpt from Rip Van Winkle by Washington Irving

Best regards,

Jonathan K. DeYoe

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added. This newsletter was prepared by Peak Advisor Alliance.  Peak Advisor Alliance is not affiliated with the named broker/dealer. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.  The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association. The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones. Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. You cannot invest directly in an index. Consult your financial professional before making any investment decision.

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