the s&p 500 boulevard

S&P 500 closed the year at 2673.61, up 19.42% from the previous year end. Since the beginning of 2000, over the 18-year period, you got an annual upside of 3.68%, and over the 10-year period 6.18%, whereas, if you consider the 5-year period, the index rose 13.39% annually. There is a reason for that: S&P 500 went nowhere from December 2007 to December 2012. Those were obviously frustrating times for the investors, even for those who held long terms views on the markets. In October 2008 itself, the index dropped 16.94%; and closed the year down 38.49% sharply reacting to the global financial crisis. In February 2009, S&P 500 was trading at 735.09, and even corporate earnings fell significantly. Earnings recovery began in the last quarter of 2009. Since the beginning of 2013, the bulls have graced the markets, and there seems to be no stopping; is that so? Except for 2015, we have got only horns held high. 

We have had some five falls during the past 18 years, the positive side of which is that we have had much more rises. From 1394, S&P 500 has moved to 2673 now. Not great; but considering the inflation and interest rate environment, that's what you got. Remember also that you started in January 2000 with the flashes of dotcom era.

Yet, if you did dollar-cost averaging, you would have earned 7.33% annually over the entire period; and that isn't bad. To make it appear more impressive, consider this: If you had thrown $2,500 each month from January 2000 until December 2017, you would be looking at over a million dollars. Start with $1,000 a month, but increase it 5% each year, and you would have over $675,000. In addition, you also got those quarterly dividends.

The moral of the story is that for the index investors, it is the market return that matters. It is far more useful to invest in the index on a periodic basis, say, each month, over multiple decades to get the benefit of equity investing. The cost averages out during the long haul, and returns should be more satisfactory. Never try to time the markets. Periodic investments are the way to go for the index investors. If possible, it is better to make additional lump sum investments into the index during bear markets. 

As for the stock pickers, the story is different. There are opportunities both during bulls and bears, albeit more so during bear markets. They should concentrate on high quality stocks for the very long period, and for other stocks, anywhere up to three years. For them, the gap between price and value is the key to success.