X hits on this document

52 views

0 shares

0 downloads

0 comments

18 / 24

Taking Stock of the Market: Are We There Yet?

The U.S. stock market recovery is more than two years old, dating from the last low of the S&P 500 Index on March 9, 2009.

And Judith Ward, a T. Rowe Price

  • nancial planner, says the protracted

rebound reminds her of those “long road trips with the kids in the back- seat” because some investors may have been repeatedly asking, “Are we there yet?”—while waiting to recoup their losses in the 2007–2009 market crash.

The S&P 500 Index gained 104% from the market low through the

  • rst quarter of 2011. Nevertheless,

investors who had $100,000 invested in such a portfolio at its last high point on October 9, 2007, were still not “there yet” at the end of the rst quarter of this year, with a portfolio value (including dividends) of $91,511.

But T. Rowe Price advises investors to diversify their portfolios consistent with the time horizons of their goals.

An 85% stock/15% bond portfo- lio, which the rm typically recom- mends for those about 20 years from retirement, fared better than a portfolio with 100% stocks, but also had not fully recovered.

Those with a 55% stock/45% bond retirement portfolio, generally appropriate for investors at retirement age, rst recouped their losses by last October and have generally stayed above the $100,000 level since then.

And those with a 45% stock/55% bond retirement portfolio—generally appropriate for investors roughly

  • ve years into retirement—recovered

even earlier, rst crossing the thresh- old in April 2010 and remaining above it since last September.

Moreover, those who invested throughout the downturn and recovery fared better (see bottom chart). Contributing $416.67 each

18 www.troweprice.com

month—$5,000 a year—meant that all three portfolios, as well as the 100% stock portfolio, reached $100,000 even earlier.

Ms. Ward takes two key lessons from these data:

  • Diversification can’t assure a prot or protect against a loss in a down market, but it can help investors ride out stock volatility.

  • The greatest influence on meet- ing long-term nancial goals

is saving—and the sooner the better. Moreover, saving in down markets enables investors to purchase more shares per dollar.

“It’s been a very bumpy ride,” Ms. Ward says. “But a successful journey hinges on setting an asset allocation appropriate to the time horizons of your goals and resisting the temptation to deviate because of short-term market events.”

Getting Even

The Performance of Three Portfolios Since Last Market Peak (October 9, 2007, Through March 31, 2011)

These charts show that diversification and savings helped investors better weather the market crash of 2007–2009. In the top chart, investors started with $100,000 and did not add more savings. In the bottom chart, investors also started with $100,000 but added $416.67 a month, or $5,000 a year, to their portfolios.

In both cases, portfolios were rebalanced monthly to sustain the following stock/ bond asset allocations for the three portfolios: 45%/55%, 55%/45%, 85%/15%. Stocks are represented by the S&P 500 Index and bonds by the Barclays Capital U.S. Aggregate Index. Past performance cannot guarantee future results. It is not possible to invest directly in an index.

$100,000 Portfolios Without Additional Savings

$140,000

45% Stocks/55% Bonds

55% Stocks/45% Bonds

120,000

85% Stocks/15% Bonds

100,000

80,000

60,000

40,000

’07

’08

’09

’10

3/11

$100,000 Portfolios With Additional Savings of $5,000 Annually

$140,000

45% Stocks/55% Bonds

55% Stocks/45% Bonds

120,000

85% Stocks/15% Bonds

100,000

80,000

60,000

40,000

’07 Source: T. Rowe Price.

’08

’09

’10

3/11

Document info
Document views52
Page views52
Page last viewedSat Dec 03 01:04:13 UTC 2016
Pages24
Paragraphs2249
Words16310

Comments