Who says buy and hold investing is dead?
With today being the 25th anniversary of Black Monday -- the day the Dow Jones industrial average fell 508 points, or 22.6% (the equivalent of a 3,000-point drop today) -- I wondered how well (or badly) you would have done if you had bought stocks on the Friday before the crash and held them over all these years. So I checked the return for Vanguard 500 Index (symbol VFINX), an index fund that tracks the U.S. stock market, from Friday, October 16, 1987, through October 18, 2012.
If you had bought that Friday, you suffered not only through the 1987 crash, but also a 20% bear market decline in 1990, a 48% tumble in 2000-02, a catastrophic 55% drop in 2007-09 and a drop of nearly 20% last year. Despite all of that, the annualized total return, including reinvested dividends, for the Vanguard 500 Index fund over the past 25 years is 8.9% (the chart below is based on closing prices, not total return, but demonstrates the volatile ride since 1987). If you had invested the $3,000 minimum on October 16, 1987, in your IRA (and thus not had to worry about taxes), your stake would be worth roughly $25,280 today.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
You may not get 8.9% a year over the next 25 years, but you'll stand a good chance of earning more than the inflation rate, and your stock holdings will almost certainly do better than bonds, which because of today's ultra-low yields are destined to deliver sub-par results in coming years. The bottom line is that if you have a long time horizon, stocks really are the best choice for most investors. You just have to have the intestinal fortitude to ride out those big declines, which occur regularly and can occasionally be gut-wrenchingly steep.
Subscribe to Manny Schiffres on Facebook for his latest commentary on investing (and baseball).
Kiplinger's Investing for Income will help you maximize your cash yield under any economic conditions. Subscribe now!
-
I'm 54 with a $320,000 IRA and will soon be self-employed, earning about $120,000 per year. How much should I be saving for retirement?We asked financial experts for advice.
-
This High-Performance Investment Vehicle Can Pump Up WealthLeave online real estate investing to the beginners. Accredited investors who want real growth need the wealth-building potential of Delaware statutory trusts.
-
Investors Buy the Nasdaq's Big Dip: Stock Market TodayStocks are up and down again to end an up-and-down week ahead of big earnings announcements and the eventual return of regular economic data flow.
-
Dow Dives 797 Points as Government Opens: Stock Market TodayThe process of pricing and re-pricing realities old and new never stops, and next week promises to be at least as exciting as this week.
-
Dow Climbs 327 Points, Crosses 48,000: Stock Market TodayMarkets are pricing the end of the longest government shutdown in history – and another solid set of quarterly earnings.
-
Dow Climbs 559 Points to Hit a New High: Stock Market TodayThe rotation out of tech stocks resumed Tuesday, with buying seen in more defensive corners of the market.
-
Risk Is On Again, Dow Jumps 381 Points: Stock Market TodayThe stock market started the week strong on signs the government shutdown could soon be over.
-
Stocks Bounce But End With Big Weekly Losses: Stock Market TodayThe stock market rout continued on Friday, but a late-day burst of buying power brought the main indexes off their session lows.
-
Risk Is Off Again, Dow Falls 397 Points: Stock Market TodayMarket participants are weighing still-solid earnings against both expectations and an increasingly opaque economic picture.
-
Stocks Rally as Investors Buy the Dip: Stock Market TodayMost sectors are "go" only a day after talk of bubbles, extended valuations and narrow breadth undermined any kind of exuberance.
