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Investments: Why Your Wall Street Portfolio Is In It For The Long Haul

When it comes to your investment portfolio and stocks, patience is indeed a virtue.

Everyone talks about the rebound in the stock market as a reason for everyone to celebrate but have forgotten, apparently, that when the market tanked in early 2009 the darkest of predictions seemed possible.

A likely jump to pass 17,000, however, doesn’t have everyone—especially those who pulled out of the market for a bit when it was down in 2008 and 2009—breaking out cake just yet. In addition, consumer confidence remains on edge because the unemployment rate remains elevated and the economy isn’t showing any robust growth and job gains like we witnessed in other recoveries.

The market decline in March 2009 to a 12-year low of 6,547 prompted some to remove cash from the market and not risk any more declines to their brokerage accounts. The result? Too many missed out on the gains in the bull market.

“We had some clients that pulled out of the market for a little while and missed some of the gains when they came back into the market a couple of years later,” says Stephen Wright, a financial planner with the Miami-based The Enlightenment Group. “We tried to talk people out of getting out of the market when it went down and tried to encourage them to put more money in. We talked as planners about people will make an effort to go to the store and buy things when they’re on sale or there’s a good sale, but when stocks are on sale when a market declines, people are selling them and afraid to buy more.”

Wright says the only permanent loss people have is when you sell; anything other than that is what people think something is worth and that goes up and down every single day, he says.

“People who stayed in the stock market got back everything in less than two years,” Wright says. “If you stayed in the market, you would have recovered very well, but people who got out in 2009 missed the big run up. That’s what happens with markets. They go up and down, but you stay in them for the long term. In the long term, history has shown you do better in US stocks than you do with bonds or CDs or putting it in savings.”

One thing Wright says he noticed is that the people who were in 401(k)s didn’t make a lot of changes because they make automatic investments every paycheck and have it already determined where you have the money go. People don’t look at it all that much, and those accounts came back quickly.

“Where people did get scared and pulled away was in the non-401(k) accounts such as regular brokerage accounts,” Wright says. “Not only did you have locking in that loss, but you had the tax consequences of that also.”

But even those who kept money in their retirement accounts didn’t benefit to the tune of 150-percent plus that the DOW has spiked since then. The one example out there is from Vanguard, which reports that between 2008 and 2013 the average 401(k) account balance rose by $46,000 from $56,000 to $102,000.

“You have different types of funds—some that are mostly in the US stock market and some that are more global where you have US stocks and foreign that are mostly in certain sectors like Europe,” Wright says. “Some funds that are combination of stocks and bonds and the mix up of the funds in large part determines how it performs. What you saw last year in 2013 was that US stock market did phenomenally well, but bonds were generally down and foreign stocks did OK but not as well as the US stock market and so how the fund performed depended on your allocation among those that affected. But on the flip side, if you have a fund that is 100 percent US stocks or mostly US stocks, it did great last year but you wouldn’t wanted to own that going into 2008. You would have gotten hammered.”

Investing in the stock market—or anywhere, for that matter—is decidedly not an exact science.

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