11/01/2011 - It's easy to become overwhelmed by the constant stream of negative news about the state of our country and the world. This feeling also makes it difficult to be confident as an investor.
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At times likes these, a little perspective might be in order. A good place to start is to remember that smart investing is not dependent on today's headlines, but about building wealth over a long period of time. With that in mind, here are five important reasons you should feel encouraged about your long-term investments:
#1 A stock market with room to grow
The stock market (as measured by the S&P 500 ─ an unmanaged index of stocks and a benchmark measurement of the broad stock market) has regained much of the ground it lost between 2007 and 2009. In the 12 months ending June 30, 2011, the index generated a total return of more than 30%. Yet halfway through 2011, the index stood 15% below its peak reached nearly four years ago. Historically, the stock market trend has been growth ─ and there seems to be plenty of room for more of that. But even in light of the current bull market cycle, investors should always expect the stock market to fluctuate along the way.
#2 Companies are profiting even in a modest economic recovery
Though the economy is not exactly growing at a sizzling pace, U.S. companies represented in the S&P 500 Index have the potential to generate record profits in 2011. Many firms have found ways to generate products and services in a more productive and cost-efficient fashion, which positions them for additional growth during more prosperous periods.
#3 The "echo boomers" are emerging
An estimated 75 million children of baby boomer parents are now coming of age. They were born between 1979 and 1995 and are already a part of (or will soon be entering) the professional world. As they begin receiving incomes, they will begin buying homes, cars, and other essential (and non-essential) items. They make up the next great consumer class in America.
#4 Capitalism is a worldwide phenomenon
Free markets are more widespread than ever before. Many of us grew up in a time when the U.S. and only a few other countries were capitalist centers. Now it is prevalent in places we wouldn't have dreamed of a generation ago ─ including China, Russia and most of Eastern Europe. This trend is creating a burgeoning global middle class, and real consumers are emerging by the millions in many new markets, some with extremely large populations. This creates huge business opportunities for companies that are well positioned to capitalize on them. Growth is alive and well in many of these newly developing free markets as well as in established markets across the world.
#5 The pessimists have been wrong
Investing in stocks means believing in the potential of businesses for years to come. Although pessimists in the current market call these "unprecedented times," the same assumption was incorrectly made at other times throughout history. After a rough decade for stocks in the 1970s, one magazine ran a cover story on "the death of equities" that was followed by two decades of record returns for stocks. In the midst of the Great Depression, many questioned whether capitalism was still viable, but in the decades to follow America emerged as the world's strongest economic power. There will always be doomsday pessimists. But while problems exist, our history shows countless examples of companies that uncovered innovative solutions to problems confronting consumers, businesses and society that allowed these firms to thrive. That process leads to new jobs, more economic prosperity and better returns for investors.
As an investor, consider whether the current market challenges are a roadblock that will prevent investment success, or the foundation of new opportunities for future profits. If history is any guide, investors who can afford to ride through short-term market swings will have the potential to realize future profitability.
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The Standard & Poor's 500 Index (S&P 500® Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. It is not possible to invest directly in an index.
The views expressed here reflect the views ofAmeriprise Financial as of 7/11. These views may change as market or other conditions change. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
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