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Stocks Go Up, Down and Never Stay the Same

December 11, 2014

Every day every stock value changes.  On balance, there is a gradual overall increase in stock values but that occurs over long periods such as ten or fifteen years.

There is a but!  A big but!  The gradual increase doesn’t apply to every stock or even every group or sector.  Witness the change since 2000 in the values of the three largest indexes.  The Dow Jones Industrial Average and S&P 500 are at all-time highs while the NASDAQ is still 17% lower than its March 2000 high.  Also as I pointed out in a previous blog, some of the DJIA components are still lower than their highs in 2000.

It is now time to repeat myself:  Buying individual stocks is risky.  Buying the funds that track the large indexes is less risky.  Neither method will insulate you from an overall market drop or meltdown, but we’ve seen eventual bounce backs and recoveries. 

A recent article indicated that this year 85% of the large mutual funds that do not track the indexes [referred to as actively managed funds] did not do better than their appropriate index.  85% of the best professionals in the business did not beat the market, and when you buy individual stocks, do you expect to?  Not likely.  At best, you have a 15% chance based on what happened this year.

Simple advice: If you want to invest in the stock market, consider the funds tracking the large indexes rather than actively managed mutual funds or individual stocks.

Caveat for all my blogs which represent my opinions:  Individual situations require personalized attention based on your circumstances.  Before you act on any general advice consult with a financial advisor.

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