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Information for Investors
Don't Panic Over Market Cycles
This is like déjà vu all over again.
– Yogi Berra
Anyone who has been investing for the past 20 years knows something about market cycles. On Oct. 19, 1987, the Dow Jones Industrial Average (DJIA) lost 22.61% in one day, the second-worst single-day performance in history.* Then there was the euphoria of 1995 through 1999 – the Standard & Poor's (S&P) 500 Index grew in double digits each year for five years in a row.
For the following three years (2000 through 2002), investors endured negative market returns. The stock market then regained traction, with positive performance in 2003, 2004 and 2005.** However, in early June 2006, the major indexes had their worst week of the year. By the end of the third quarter, the indexes had rebounded and the DJIA closed above the 12,000 mark on Oct. 19.***
What's Going On?
A heightened trade deficit, rising oil
prices, the war in Iraq, inflation fears
and the Federal Reserve Board's hints
of continued interest rate hikes fueled
the early June sell-off. In the following
weeks, the market regained traction.
But the underlying causes of investor
uncertainty remain, so it may be that
the markets will continue to be volatile
for some time.
Don't Go It Alone
An investment professional at Croghan
Colonial Bank can help you develop
an investing strategy that is appropriate
for your situation and can help you
look at market cycles objectively.
Give us a call today at
| * | Source: Dow Jones Indexes, www.djindexes.com; past performance is not an indication of future results. | |
| ** | Source: "Stocks, Bonds, Bills, and Inflation 2006 Yearbook," Ibbotson Associates, Chicago. As measured by large-company stocks (Standard & Poor's 500 Index); past performance is not an indication of future results. | |
| *** | Source: The Wall Street Journal, Oct. 20, 2006. |
Investment products:
. Are not federally insured.
. Have no financial institution guarantee.
. May lose value.
|
What Can Investors Do? Here are some tips to help you ride out market cycles. Avoid overreacting to headlines. Although you want to pay attention to the performance of your portfolio, it is generally unwise to buy and sell based on day-to-day market changes. Review your asset allocation. Take a look at the percentage of your portfolio invested in stocks, bonds and cash equivalents. Is your allocation suited to your goals, timeline and risk tolerance? If not, consider rebalancing to an allocation more in line with your needs. Review your diversification. Decide whether your portfolio is overly exposed to risk in a certain sector. Keeping the equity portion of your portfolio diversified with a mix of large-, mid- and smallcap stocks, as well as different sectors of the market, may help you reduce volatility as you pursue growth. Keep your perspective. Market cycles are inevitable, but historically, over the long term, stocks provide the greatest potential for beating inflation.** Although past performance cannot predict future results, it can help you keep changes in perspective. |
Performance of Large-Company Stocks 1986-2005
Click to enlarge
Source: "Stocks, Bonds, Bills, and Inflation 2006 Yearbook," Ibbotson Associates, Chicago. As measured by the Standard & Poor's 500 Index with all dividends reinvested. Past performance is not an indication of future results.
This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material. © 2006 Priority Publications Inc.