As financial markets twist and turn, long term investors are bemoaning the fact there is no longer any place where they can safely park their money and enjoy a steady return. And their concerns are rising almost to a crescendo pitch every time news broadcasts report another bump in the road.
All this hand writing is, however, ignoring one important fact. Nostalgia might paint a pretty picture of a recent past marked by profits flowing freely and consistently. However, financial markets have rarely if ever followed a smooth upward trajectory. Sharp peaks and valleys have been much more the norm; not everybody has been agile enough to benefit from these movements as they buy low and sell high.
The Dow Jones Industrial Average has, for example, spent the last several decades doing exactly what it is doing today: exerting so much energy gyrating between highs and lows that it has never really achieved much consistent forward momentum. When adjusted for inflation this benchmark, which tracks 30 major corporations, barely managed to double between its high in 1929 to February, 2010 . (Phrase for this hyperlink extends from “double” to “2010.” So, talk about the good old days might be just that; talk.
The more broadly-based S & P 500 has also followed a jag toothed pattern that supported no consistent upward trend. Between 1950 and 2008, it only inched up 6.8 per cent when inflation and dividend distribution rates are calculated into the equation. That return is hardly something to write home about and certainly not something that can finance a comfortable retirement.
Gold, meanwhile, has often been proclaimed a refuge, a safe haven: If the stock market becomes too jerky for your tastes, turn your assets into gold; they might not skyrocket in value but they will give you a “consistent” return. The facts, however, do not indicter that this precious metal has always glittered.
Between 1994 and 2004 its price essentially flat lined at just below $400.00 an ounce. Then, as investors fled the stock market for what they hoped would be more profitable waters it climbed until it peaked above $1800 an ounce during 2 011.
Since that point, however, it has lost some of its luster and the future of gold prices remains essentially anybody’s guess, being determined by a myriad of economic factors. So, how can investors cope as financial markets continue along their accustomed path of volatility? Well, they might gulp hard and reach for something – anything – they find soothing. Or, as a last resort, they might push themselves away from 24-hour channel networks which scare them by blaring out the latest market catastrophes and dire predictions. As is the case with financial markets, however, they might find habits of gyrating between euphoria and fear hard to break.