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Features – A visitor to my office asked if I thought the stock market was still a good place to invest, given the “recent volatility.”
This frequent question involves the assumption that there was a time when the stock market was less volatile. When I first started getting serious about investing, the Dow Jones Industrial Average was in the $700 range. In the years since, we have seen short-term volatility become the norm rather than the exception.
I also noticed that there were significant price fluctuations in the real estate market during the same year. The prices of oil, gold, and other commodities have risen and fallen many times, and even the bank's CD interest rate has gone from more than 20% in the early 80s to nearly 1% in recent years. It's changing.
This volatility doesn't just apply to investing. We see that short-term, sometimes dramatic changes are common and normal in politics, weather, international affairs, and even our own health. The stock market doesn't have a corner on volatility. It is the very fabric of the world we live in.
The question is not whether you should invest with this constant volatility in mind, but rather why some people think volatility itself is bad. In investing and in life, we need to remember that short-term volatile trends that may present us with opportunities tend to smooth out over time. I don't think that if you get the flu, the rest of your life will be miserable. Even if a storm brings flooding to our town, we will not cancel all future outdoor activities.
Even if our team loses in the playoffs, we won't stop watching sports. (OK, I stopped watching college basketball when Jerry Tarkanians' Running Rebels lost to Duke in 1991. But that's a story for another day.) Even in the world of politics, we Just because the party loses the election doesn't mean it's going to give up. We know that over time these things tend to average out.
In 2010, a kind-hearted woman named Grace Groner passed away at the age of 100. Grace was an orphan at the age of 12, but she was raised by a kind family who took her in. After graduating from college, she worked as a secretary at Abbott Laboratories until her retirement. . Grace saved her paycheck until 1935, when she was a secretary at Abbott, where she was able to buy three shares of Abbott stock for $60 per share. Her total investment was $180.
When Grace died, she left her Abbott stock to the college she attended in her youth. In her 75 years, the value of these three of her shares has grown to over $7 million for her. A look back at Abbott's stock at the time shows it was as volatile as the turbulent stock market it was a part of.
In fact, if Grace had been careful, she might have sold her stock many times out of fear. But Grace ignored volatility and let stocks run their course through good and bad times. Her story is a reminder that the power of time can weather the storms that often occur in her investments and in her life. If you can see the big picture, the normal fluctuations of investing and life can work in your favor.
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