Class Investing Basics

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The yearly returns of the stock market, as represented by the S&P 500, are literally all over the place. Some of the biggest, positive, yearly returns followed some of the all-time worst returns. This is where many investors run into trouble. Scared by down markets, they fail to position themselves for the strong markets that often follow. That's the essence of buying high right after the big market gains and selling low right after the market falls. It's one reason why so many investors, according to Dalbar, only earned 162%, instead of 894% between 1984 and 2002.

What happens if we take a longer-term view? We discover that the U.S. stock market only had two negative ten-year periods since 1925 and those two periods, ending in 1938 and 1939 encompassed the 1929 stock market crash and subsequent depression. Since then, there has never been a single ten-year period in which the stock market was down, according to Ibbotson Associates.