AssetBuilder CEO Kennon Grose: Staying Calm During Crisis Is the Best Investment Strategy
“Historically, You Can Miss the Recovery in the Blink of an Eye,” Financial Advisor Says
DALLAS -- During a steep decline in the financial markets like the one Americans face currently, investors are tempted to make rash decisions. But pulling money out of the stock market during a downturn, and then missing the start of the recovery, can put a major dent in your finances over the long term, says Kennon Grose, president and chief executive officer of AssetBuilder, a Registered Investment Advisor that combines low-cost index funds with science-based diversification strategies.
“Historically, you can miss a recovery of the financial markets in the blink of any eye,” Grose says. “As an example, let’s look at the period from January 1980 to August 2008. If you held investments during this timeframe that reflected the major indices, you would have achieved a significant return.
“But if you had pulled your money out of the market during the best six individual months of this 28+ year period, you would have missed out on nearly half of the return. That’s right: six months, spread across three decades, is responsible for nearly half of the long-term return during this period.”
The percentage returns of four broad indices from January 1980 to August 2008 -- with and without the best six months -- are shown below:
Time Period: 1/1980 - 8/2008
Growth of $1 (all months)
S&P 500 TR................27.11
MSCI EAFE TR............20.34
Russell 2000 Val TR.....41.42
DJ Wilshire REIT TR....30.28
Growth of $1 (without the best 6 months)
S&P 500 TR................15.44
MSCI EAFE TR............11.51
Russell 2000 Val TR.....22.04
DJ Wilshire REIT TR....16.00
Source: Morningstar; calculation done using ENCOR product. Past returns are not indicative of future results.
Grose says this historical data demonstrates the wisdom of staying calm – and holding on to your investments -- during the current financial crisis.
“The global market decline has led to some extreme talk and behavior among pundits and investors. For example, Jim Cramer of CNBC has advised the public to sell stocks now if they will need any money in the next five years,” Grose says.
“In the face of such reaction, it’s important to understand that this market is not unique. We have had similarly steep declines before, most recently from 2000-2002. We have also had past credit scares. Recall Michael Milken and the junk bond era, or risky lending to REITs in the late ‘70s, or the S&L lending binge of the early ‘80s. In every previous instance, the market has recovered.”
AssetBuilder offers weary investors a science-based alternative to the unnecessary costs, risks and complexity of traditional Wall Street firms. Co-founded by personal finance writer Scott Burns, the company provides customers a menu of pre-constructed, risk-managed portfolios that make choosing and implementing a personal investment strategy simpler than ever. Based in Dallas, AssetBuilder is a Registered Investment Advisor. For more information, visit the company’s Web site at www.AssetBuilder.com.
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