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Investors often are overly optimistic when investment markets climb and equally pessimistic when they tumble. Buying stocks or funds based on their recent performance or selling them as soon as they begin to decline is a recipe for buying high and selling low - the opposite of successful investing.
When investing, think in terms of your long-term plan and try not to react to current market conditions. A well-defined investment strategy using a diversified portfolio can help you make investment decisions that are consistent with your goals, your tolerance for risk and the time remaining until you need to use the money.
History shows that soaring bull markets and tumbling bear markets don't last forever. It also shows that patient investors who focus on long-term goals can withstand turbulent periods.
The longer your money is invested, the more likely you will be able to manage market fluctuations. Consider that the historic average annual return of the S&P 500® Index has been 10.09% per year since 1971.1 Remember, past performance is not a guarantee of future returns.
Staying committed to a long-term strategy-perhaps seven to 10 years-can provide a useful foundation for analyzing your investment strategy. Tracking daily stock price movements or the annual returns of mutual funds can be unsettling at times, and investment returns aren't guaranteed. But patience, careful planning and regular investing can get you through difficult market periods and help you make progress toward your goals.
As you plan your long-term investments, it's important to remember a few key investing principles:
1 Source: Data are provided by FactSet Research Systems, Inc. Data from January 1, 1971 to December 31, 2012. All rights reserved.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
Diversification does not assure a profit nor does it protect against loss of principal.
International investing involves special risks, such as political instability and currency fluctuations.
Generally, as interest rates rise, the value of the securities held in the fund will decline. The opposite is true when interest rates decline.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
©2013 Standard & Poor's Financial Services LLC.
For a detailed description of any index referenced above, refer to our Glossary.