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Stay with investment plan

Updated: May 3, 2013 12:14PM

Originally published: October 8, 2001

It’s easy to be scared out of the stock market. All the statistics that show the market is a good investment over the long run are small comfort when it’s your money that is disappearing down the drain of collapsing prices. That’s where self-discipline comes in.

Just as you can look back and say you should have sold out when you had profits, it’s now equally difficult to force yourself to stick with an investment program that requires you to put new dollars into your investment account. Yet that’s just what you should be doing.

Professional portfolio managers who make investment decisions for traditional pension funds full of other people’s money have a greater distance from their emotions. Now that millions of Americans are facing the test of managing their own 40l(k) retirement programs through good times and bad, it gets personal. Your future retirement income is based on decisions you make today.

And when it’s your own money melting away, there’s a very human tendency to just say “no more”--and stop investing. Or to sell out and switch to something safer. Or to tell yourself that you’ll start investing again when things look better. But if you have a long-term time horizon--at least 20 years until you need to withdraw all that money--you should continue to invest in the stock market, not be scared out.

The chart that accompanies this column from Ibbotson Associates, the Chicago research powerhouse, makes the point.

Over the past 20 years, one dollar invested in the S&P 500 grew to $18.41, compared with a return of only $3.61 invested in Treasury bills. Clearly stocks are best for the long run.

Now what about market timing--choosing the best times to be in, and out, of stocks? Can you “beat” the market?

Inevitably, you’ll make mistakes. The chart shows that if you missed the best 15 months out of 240 months in that 20-year period, your return would be only $4.73.

You might think the past 20 years have been a special and unusual period of stock market growth. But Ibbotson also reports that the disparity holds true--and is even greater--viewed over the past 75 years.

In that period, $1 invested in the stock market grew to $2,587, while the same dollar in T-bills grew to only $16.56. And if you missed just the best 40 months of that 75-year period, your return shrank to only $15.33--less than Treasury bills!

And it bears repeating that the Ibbotson studies show there has never been a 20-year period where you would have lost money in a diversified portfolio of large-company stocks.

Yes, you should always have some “chicken money” that doesn’t belong in the stock market--money you can’t afford to lose. So don’t ever put it there again. Not even in the next bull market--and there will be one!

But if you have set aside money for long-term investing, this is the time to stick to your plan.

And that’s The Savage Truth.

Terry Savage is a registered investment adviser and is on the board of directors of McDonald’s Corp. and Pennzoil-Quaker State Co. Send questions via e-mail to She appears weekly on WMAQ-Channel 5’s 4:30 p.m. newscast.

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