Just how volatile has the stock market been over the past
year? Check out this table of the S&P 500 index's closing
price over the past four quarters:
Date
Closing Price
Change From Previous Date
Sept. 16, 2008
1,214
N/A
Dec. 16, 2008
913
(25%)
March 16, 2009
754
(17%)
June 16, 2009
912
21%
Sept. 16, 2009
1,067
17%
And that's just a quarterly snapshot. Anyone who has been
in the market over the past year knows just how extreme the
day-to-day fluctuations have been. In 99 of the last 252
trading days, the stock market moved more than 2% from the
previous day's closing price, either up or down.
If you're a long-term investor, that stat should make you
very excited.
Come again?
Sure, that volatility can be stomach-churning, but it
also presents great opportunities for patient investors to
profit.
In a report called
How to Stop Worrying and Learn to Love Volatility,
Lord Abbett senior economist Milton Ezrati showed how market
volatility "can actually help build wealth over time,
especially for longer-term investors."
According to Ezrati, regularly adding new money in a
volatile market allows an investor to purchase more shares at
cheaper prices, thus lowering the effective cost basis.
Interestingly, Ezrati's findings hold true whether prices are
rising or falling. Continued... |