Many Rim Country residents will probably remember 1973 as a difficult period for the United States. A series of events -- the Watergate scandal, the OPEC oil embargo, the Vietnam War and the resignation of Vice President Agnew -- shook the public's morale. By November, President Nixon's approval rating stood at 37 percent -- and presidential approval ratings tend to track the mood of the nation. Given all this, you might think that 1973 was not a good year in which to invest in the stock market.
But you'd be wrong. From Nov. 30, 1973 to Nov. 30, 1983, the S & P 500 recorded an average annual return of 10.9 percent. So, if you had invested $10,000 in the market at the beginning of that period, it would have grown to $28,139 by the end. And over the next 20 years, from Nov. 30, 1983 to Nov. 30, 2003, the S & P 500 returned, on average, 12.8 percent a year. Consequently, $10,000 invested in 1983 would have grown to $111,219 in twenty years. (Keep in mind, however, that the S & P 500 is an unmanaged index, and you cannot invest directly into it. Also, as you've heard, past performance is not an indicator of future results.)
In short, if you had started investing in the troubled year of 1973, and you had kept investing, you would have probably done pretty well over the next three decades.
Now, let's look at what's happening in the country in 2006. We are facing global unrest, high gas prices and concerns about economic security. Although there are some similarities between 1973 and 2006 -- a controversial war, high gas prices, and political concerns -- there are also some key differences. Perhaps most importantly, our economy today is much stronger than it was back then. And as an investor, you might be particularly interested in the following:
• Interest rates are near a 40-year low. When interest rates are low, it is less expensive for businesses to borrow money to expand their operations. And as businesses grow, so does their attractiveness to investors.
- Corporate profits are growing rapidly. Corporate profits have expanded at double-digit rates for ten consecutive quarters. Profitability is one of the key fundamentals that drive a company's stock price.
So, despite the worried national mood, the investment climate of 2006 may actually be quite promising.
Don't stop investing
It's true that 2006 may be an unusually tense year for the country. But as we've seen, 1973 was also a difficult year. In fact, by some measures, considerably more unsettling than 2006, and yet, many investors who had faith in the financial markets in 1973 were amply rewarded. Of course, you might not achieve similar returns going forward over the next few decades, because no one can predict the future course of the markets.
Nonetheless, don't let today's headlines keep you on the investment "sidelines." If you buy quality investments, diversify your portfolio and invest for the long term, you can design a strategy that can help you work toward your financial goals -- in good times and bad.
-- Scott Flake is a licensed investment representative with the firm of Edward Jones. To reach him, call (928) 468-1470.