We need to step back from all the "noise" that is going on around us when we are investing for the long-term. There is a lot of distracting and useless information out there as far as the stock market is concerned, and it is easy to get caught up in it. Is it necessary for us to have access to current quotes day in and day out? Is it important what the stock market does on any given day, or the latest move by the Fed on interest rates? For the long-term investor, do you think any of this will matter 10, 20, or 30 years from now when you start using the funds you have invested? Warren Buffet (who is about as great an investor as you will find) says that if they closed the stock market for the next three years it wouldn’t matter to him. Peter Lynch was the most successful equity mutual fund money manager in the U.S. from 1977 to 1990 when he ran the Fidelity Magellan Fund, and he consistently beat the market averages by several percentage points. Despite this record, the majority of investors who invested in his fund lost money! Why? Because they were not long-term investors, and as soon as the going got a bit rough they sold out, often at a loss since they were selling when the market was down. Remember that the long-term trend of the market is up.

Let’s take a look at how often the Dow declined between 1900 and 2000:

• The Dow declined 5% or more 328 times, lasting an average of 40 days, and occurring 3.3 times per year
• The Dow declined 10% or more 108 times, lasting an average of 3 ½ months, and occurring 1.1 times per year
• The Dow declined 15% or more 51 times, lasting an average of 7 months, and occurring once every 2 years
• The Dow declined 20% or more 29 times, lasting an average of 1 year, and occurring once every 3 years

The Dow has now dropped 20% this year from its last year high. I, nor anyone else, know for sure when the market will turn, or where the bottom is. But by the time the consensus says the market has turned, it will be at much higher levels than it is now. Just look at what happened on the way down. At first dips were considered buying opportunities, since this had worked for many of the past years. (and they were buying opportunities for the diversified long-term investor). However the market continued to keep establishing new lows, and now the consensus is we are in a "bear" market. This information would have been great to know a year ago, but it is essentially useless now, unless you want to sell low after buying high. For long-term investors it is more risky to be out of the market than in it, and the long-term investor welcomes lower prices. This enables him or her to buy low and then sell high.

Let’s take a long-term look at bear markets:

It would be great if we could all buy stocks and they would just go up consistently and regularly, year after year. This is just not the case. But before we start complaining about the "volatility" of the market, remember that it is this same volatility driving the market down which then drives the market higher!

No matter how young you are you should not have all your money in stocks, nor however old you are, should you be completely out of stocks. Having said that, it is important to realize that stocks are not the only component for building wealth. There are four major asset categories, and they all play a role in a balanced financial plan. These categories are:,

1. Cash and cash equivalents (money market accounts, CDs maturing in less than a year)
2. Equities (stocks, both U.S. and international, small, mid, and large capitalization, growth and value)
3. Fixed-income (bonds, both U.S. and international)
4. Tangible assets (such as real estate) as an inflation hedge

Add considerations such as insurance, emergency reserves, and retirement planning to the pie, and there is a lot to think about. Putting together a mix that is right for you in your current situation is what good money management is all about, and this is where a professional, such as a CFP practitioner, can be a great help.

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