A few weeks ago we finally decided to take the plunge and go completely paperless! Gone are the days of pulling client files because they’ve all been scanned and are stored safely on our server. In the process of going through the files for scanning I came across an old newspaper article we saved from the Denver Post. The day was Friday, February 24, 1995. There on the front page of the business section was a bold headline that read, “4,000 DOW a precarious high!” The analysts went on to warn investors, “This rally has pitfalls.” Don’t they all!

Time equals perspective. In February 1995 a 4000 DOW seemed nail-bitingly high. After all, it was just 4 years earlier, shortly after the beginning of the Iraq war, the DOW closed above 3000.* As I write this blog, December 14th, 2012, the DOW closed at 13,135.  This is the kind of data that makes stock phobic investors crazy! Even though the S&P 500 is up 14.8% so far this year, more investors have been selling stocks and buying bonds for fear of the next crisis (the fiscal cliff, the election, Iran, Israel, Y2K…pick one). The media has trained us well. Fear sells.

Here are some facts to consider. Since 1926, large company stocks have compounded at about 10%. The cost of living has compounded at about 3%. I encourage you to think about the real risk to long-term investors and that is purchasing power. Even if you protect your money from stock market volatility and keep it invested in cash, when the cost of living doubles, as it will over the long-term (think 4 cent stamps), you’ll have lost half of your money! Even though you’ll still have your principal, it will buy fewer of the goods and services we all need. In order for your money to last the rest of your lifetime, it needs to grow at a rate at least as fast as inflation and taxes. The real risk to your financial well-being is not stock market volatility. The real risk is the loss of purchasing power that happens when your investments don’t grow at a rate that keeps pace with inflation. The potentially greater growth of stocks may be a way to help do that.

*Source: InvesTech Research, Encyclopedia of American Facts and Dates (1993)

Indices mentioned are unmanaged and cannot be invested into directly. Past performance is not a guarantee of future results.

Linda Eden is a Registered Principal offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.

Copyright ©2012 Linda Eden. All Rights reserved. Commercial copying, duplication or reproduction is prohibited.