Stay the Course

Chart of the Week for March 16-22, 2001

As the equity markets continue to tumble, investors’ confidence is fading. To all these investors, we say this: don’t panic; stay the course for the long run.

The most compelling reason for investors to remain calm is the following: in the past 25 years, the stock market (as measured by the S&P 500 Index performance) had rebounded strongly in the twelve months following the 8 worst one-day drops. In other words, the market bounces back and rises over the long run.

Analyzing the turmoil in the equity markets closely, it’s evident that the tumult is caused mainly by the rapid fall of growth-oriented stocks— more specifically, technology stocks. These stocks were overvalued and, in some cases, excessively so. The economic slowdown has only contributed to bringing these once-high flying stocks to their true valuations, removing excesses in the equity markets in the process. Once these excesses are removed, the markets will do just fine as good companies that were overshadowed by the technology craze will reclaim their rightful place in investors’; mind. (Such changes tend to favor value-oriented stocks. See last week’s Chart of the Week for more information on the subject.) Although there are reasons for concerns as the markets’ gyrations have become more pronounced, investors should not panic.

If anything, the recent fluctuations offer investors one more reason to take steps to protect their assets through appropriate sector and segment diversification, and skilled stock selection while maintaining a long-term focus.

This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.

Investment information can change rapidly and the changes can be significant particularly in volatile markets. For this reason “as of”’ dates are provided for specific data where applicable. The information should not be considered current after the dates provided.

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The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240. Para asistencia en Español llame al 800-669-8216. Performance data current to the most recent quarter end is available by visiting www.icmarc.org.