How did your investments do in 2015?
Any of you who know me know that I am a big fan of investing in stock market index fund. These funds mirror the performance of the stock market as a whole and do not seek to pick and choose winners. Historically, most people who invest in index funds make more money than the people who try to gamble on the performance of a specific company or industry.
One of my favorite index funds mirrors the performance of the S&P 500 Index. The S&P 500 Index measures the performance of the 500 largest companies in the United States. Let’s see how it did in 2015 by way of examples:
In 2015, if you invested $1000 at the end of each month, you would have $11933.78 at the end of the year. In other words, you would have lost $66.22 out of the $12000 you invested.
Or… If you had invested $12000 on the first business day of January 2015, you would have had $11907.37 at the end of the year. In other words, you would have lost $92.63 out of the $12000 you invested. That’s less than 1%.
To put that in perspective, it is interesting to note that if you had sold such a hypothetical investment just 2 days ago, you would have gained more than 1% for 2015.
Remember that stocks are long term investments. It is normal for them to change day by day and from month to month or year to year. Economists have studied stock fluctuations for many decades and have found that there is no real pattern to day to day movements in stocks. If stocks go up one day, that does not mean that the economy is getting better. And if they go down one day, that does not mean that the economy is doing worse.
But, one thing we can say is that, in general, stocks increase in value over 10 or more years.
It is also important to remember that 2015 was the first year in 7 years that stocks went down over the course of the year. (And that was just barely). Where were stocks 7 years ago?
Well… if you had invested $12000 seven years ago, then you would have almost $18000 today.
Things are not so bad after all. And today begins a new year. Good things are in store for those who invest regularly in a diverse portfolio of investments.
How do I know? It has always been that way and there is no reason to believe that things are different now.
Happy New Year!