Let’s use the S&P 500 as representaive of a typical mutual fund.
By Daniel at 20 July, 2009, 7:19 pm
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You don’t have to be a rocket scientist (which I used to be before I retired) to figure it out.
Assume that you had $10,000 invested on 12/31/07.
You would have had $6,151 invested on 12/31/08 after taking a 38.49% loss in 2008
As of July 17th. 2009 the S&P 500 is up 4.11% for the year.
Your $6,151 is now $6,404.
Whoopee! Your original investment of $10,000 has made you $253 so far this year.
In terms every investor needs to understand - If you take a 50% loss then you have to DOUBLE your money just to get even again and doubling your money is not easy.
The lesson to be learned is that Buy and Hope is for Dummies. During the nineties it worked OK but in this decade it has been a disaster. This has been a lost decade for a great many investors.
You don’t have to time all the smaller ups and downs of the market but you can’t fall asleep at the wheel during a major Bear market or this is what you get. There are several simple ways that can be used to keep your investments out of big trouble. Some people like exponential moving averages, others like the Relative Strength Index known as RSI. The other very important component of investment success is Fund Selection. You just can’t stay with a bad fund, you have to dump it and get into a good fund.
flyawaybrit
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