The Hot Corner...

February 22, 2010

Did Someone (CNBC) Say Something About A Lost Decade

In our most recent quarterly client letter we discussed the so called "Lost Decade" investors have just lived through. According to the media, if you invested in the stock market in 1999 and went to sleep, you woke up at the end of 2009 with less money. A simplistic but accurate statement! Although one that we took issue with as it is not very practical.

The premise of their statement was that "Buy & Hold" investing was dead. Well, we, as well as all other long term investors know that a key component of a "Buy & Hold" strategy is to continuously invest money, also known as Dollar Cost Average. And if this is implemented you will be hard pressed to "lose" money over any extended period of time (especially ten years). Well, looks like we are not alone in this belief. And the below facts from the nation's 401(k) leader, Fidelity, do not lie:

10-YR Continuous Participants Show 150 Percent Increase in Account Balances: Even during a decade that included unprecedented volatility coupled with two of the worst market downturns in history, analysis of employed participants with a Fidelity 401(k) plan for the past 10 years (1999 to 2009) showed their account balance increased nearly 150 percent to $163,900 at the end of 2009 from $65,800 at the end of 1999. The increase in balance was due to continued participant and employer contributions, dollar cost averaging and market returns. The analysis also showed that these continuous participants had a median age of 51 years with a deferral rate of 10.4 percent.

If you didn't believe us before, hopefully you believe us now! Long term investing is proven and there is absolutely no reason to stray from this philosophy. Thanks Fidelity! It's always nice to be backed up by a financial giant! I look forward to a guest appearance on CNBC to discuss this "phenomenon."