In early 2010 there was much wringing of the hands by economists, politicians, and other “pundits”. The economy, many believed, was headed for a double dip and the stock market was on its way to another steep decline. The usual suspects were at the heart of this thesis: stubborn unemployment continued housing woes and massive levels of government debt. In the end, things turned out just fine.
The stock market added to its significant gains of 2009 by rising 15% in 2010. Of course, that presumes that you were invested only in large-cap, domestic stocks. Had you ventured into mid-cap, small-cap, emerging market, or real estate stocks, you would have done even better? Diversification, anyone?
Interestingly, despite the strong returns, the stock market was quite erratic during 2010. September was the best month, with the S&P 500 posting a return of 8.9%. May was the worst month, showing a decline of 8.0%. That is a significant spread. In fact, if you strip out the two best months, September and July, you would have lost a bit more than 1.0% during 2010. I believe this shows the fallacy of trying to time the market. You need a long-term perspective to harvest the market’s returns. Of course, a naysayer might point out that were you smart enough to get out of the market during the two worst months, May and June, you would have ended up with a return of almost 32% for the year. Nevertheless, I’m sticking to my guns on the long-term perspective, perhaps because I am not smart enough to call market tops and bottoms…
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