At times like this, it's hard to count on anything. Banks need to raise capital again, and the worst may be yet to come. Analysts are tossing out outlandish future earnings estimates, but they've been wrong before. Even the recent rally has plenty of doubters.
But there are some good things we can count on in the investing world. For many people, that might be particularly good news, given what 2008 did to most of our investment accounts.
Good old history
For starters, we can count on history -- not as a guaranteed predictor of future events, but as a rather reliable guide of what to expect. We've suffered through market crashes before, and we'll likely do so again -- and after each past one, the market has rebounded.
Before 2008, you were probably aware that the stock market had averaged gains of around 10% annually over many decades. After 2008, the average is ... almost 10% -- specifically, 9.6% between 1926 and 2008, according to Vanguard.
Focus on reality
When the stock market is having fits and investors are panicking, it can be easy to wring your hands, gnash your teeth, and think that the investing world as we knew it has come to an end, and that now, anything can happen. That seems kind of wrong to me. Sure, anything can happen in the short term -- as it quite emphatically did in 2008. But over the long haul, the market has pretty much always trended upward.
If you're a trader, you might think of shares of stock simply as electronic numbers that go up and down at random. But in fact, they represent a real share you own in a real company. And just take a look at how some of those companies are faring:
|
Stock
|
TTM Revenue
|
Change From Previous Year
|
|
Coca-Cola (NYSE: KO )
|
$31.7 billion
|
5.3%
|
|
McDonald's (NYSE: MCD )
|
$23 billion
|
(0.5%)
|
|
Kellogg (NYSE: K )
|
$12.7 billion
|
5.5%
|
|
Nike (NYSE: NKE )
|
$19.6 billion
|
9.1%
|
Source: Capital IQ, a division of Standard and Poor's. TTM = trailing 12 months.
As you can see, even though the economy's doing poorly, these companies have seen their businesses hold up pretty well. Do you think that people will stop drinking their beloved Diet Cokes or eating Big Macs? Will we suddenly stop buying Rice Krispies and switch to making ourselves oatmeal in the morning? Will we not buy new sneakers when our old ones give out? These are real companies, with real revenue and real earnings and real futures.
Sure, a recession will hit some companies harder than others -- people are likely to put off buying washing machines if they can help it, so Whirlpool (NYSE: WHR ) will likely suffer. Airlines might delay ordering new airplanes, so Boeing (NYSE: BA ) will hit some turbulence. People might take fewer cruise vacations, perhaps opting instead to drive a few states away to visit family. If so, Carnival (NYSE: CCL ) could face choppy waters -- for a while.
But America's economy isn't going away anytime soon. You can count on that.
Your brain, and time
You can also count on that grey matter in your head. That's one of the few things that can almost never be taken away from us. If you're stressing out about whether you'll have enough to retire on, you can put your brain to work by reading about your options, then taking action. You can start contributing to your IRA, or contribute more. ($5,000 invested per year and earning an annual average of 8% will amount to almost $250,000 in 20 years. Growing at 10%, it will top $300,000.) You can sock away more in your 401(k) -- and salvage it if it took a big hit last year.
How can I say any of that with any confidence? Because we can also count on time. Most of us still have plenty of time in which our investments can grow. Even if you're already 55 years old, you have a good chance of living another 30 years. If you're lucky enough to be in your 20s or 30s, you have enough time ahead of you to see the stock market work miracles. A one-time $10,000 investment that grows at 10% for 40 years, for example, will grow to more than $450,000!
So don't despair when times get tough. Remember that the stock market has always rebounded from its falls. Remember that it's based on actual tangible businesses. Remember that you have smarts and time on your side to make the most of it all.
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