I’m often asked when the right time is to sell an investment. There are actually two answers — a logical one and an emotional one. Let me explain by illustrating through one of the lessons in a course I teach.
I’m going to try to mislead you, but it’s for a very good reason. What I have for you is a U.S. stock fund that not only has beaten the S&P 500 index, it’s nearly certain to continue doing so in the long run. For now, I’m going to call this mutual fund the Super-Secret Fund, or SSF for short.
For some time now, actively managed mutual funds have been underperforming index funds that essentially own shares of all the stocks in the market. That’s because the lower costs of index funds give them huge advantages over the high-priced active funds. Though I’ve been investing in index funds for decades, I’m rather surprised by their more recent popularity. My indexing approach was once rare, but now a full 37 percent of the money in U.S. stock funds is in index funds. With more and more money flowing out of managed funds and into index funds, can indexing become too big?
Six years ago today, the Standard & Poor’s 500 Index closed at 676.5, which represented a 56 percent decline in less than 18 months. Many a shell-shocked pundit predicted then that the bloodbath was not over, such as this article warning that it would take eight years to recover, possibly longer. Harry Dent’s book The Great Depression Ahead was a best-seller, GM was flirting with bankruptcy, and cash was viewed as the only safe haven. It was a very scary time, and many believed capitalism had failed. It was a new paradigm.
It’s been another good year for investing, but only if you’ve been doing it right. U.S. stocks are up 14 percent this year as of Dec. 26, on top of a 33.5 percent gain last year, as measured by the Vanguard Total Stock Index Fund ETF (VTI). If you want to do it right in 2015, and maximize the chances of growing your wealth, now is the perfect time to make some New Year’s resolutions. Repeat after me....
Since 1950, December has proven to be the best month for the stock market. According to MoneyChimp.com, the S&P 500 has turned in an average gain for December of 1.62 percent, outpacing any other month. So far this December, Santa has left nothing but coal in the stock market’s stocking, with the S&P 500 losing more than 65 points, or about 3.77 percent, through Dec. 15. Not exactly anyone’s idea of a rally.
The headlines read “Stocks Plunge” and “Why the Selling Is Just Getting Started.” It’s enough to get anyone scared and ready to exit the market. Before you do, consider the following:
Employees contributed more to their 401(k) plans in 2011, according to Fidelity Investments, and matching contributions from employers were up, too. But despite this uptick in contributions, the year-end average for Fidelity's 401(k) participants was down.
The Takeaway: U.S. Retirement Assets Declining Again; Payroll Tax Deadlock Ends; World's Oldest Yoga Teacher
Americans' retirement assets lost a total value of $1.4 trillion last quarter, the first decline since the depths of the recession three years ago, according to a new report ... After initially rejecting the measure, House Republican leaders yesterday agreed to a two-month payroll tax cut extension"”and, with it, an extension of federal unemployment benefits and a temporary 'doc fix' ... And Bernice Bates, 91, has been named the world's oldest yoga teacher by Guinness World Records.
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