In case you didn't notice, the stock market is up so far this year. Never mind that it's only the first trading day of 2003; after 27 tumultuous months, we weary investors will take what we can get.
Yes, the major indexes finished in the red for the third year in a row, the first time that's happened in over 60 years. Here is the final scorecard for 2002, as well as average annual returns for the past three and five years, with dividends reinvested:
Index 1-yr 3-yr 5-yr ----- ------ ------ ------ Dow -16.76 -10.14 1.07 Nasdaq -31.53 -31.02 -3.19 S&P 500 -22.23 -14.59 -0.62 Source: Morningstar
Of special interest are the five-year returns, which are about breakeven for all the indexes. This points out something we've talked about for a long time at The Motley Fool: If you can stay in the market for at least several years, you decrease your risk of losing money and increase your chance of making money.
Put another way, if you've been invested for the past five years and earned something close to average returns, you're no worse for the wear despite one of the worst bear markets in history.
This is not an attempt to sugarcoat the risks of investing, however. If you first got into the market three years ago in an S&P 500 index fund, for example, you'll have to average 27% returns the next couple of years to hit the breakeven point after five years.
That's unlikely, but if you're able to stay the course for several more years, the odds that you'll actually make money increase dramatically. And that is, after all, the reason we invest in the first place.