Staying with stocks despite volatility can pay off

By Matt Krantz, USA TODAY

The question is often asked, "Why do people even bother investing in stocks when they just go up and down and don't make any real progress?"

Investors are understandably disgusted with stocks. But they need to look beyond stock charts before drawing conclusions about how stocks have really performed.

Yes, if you just punch up the Dow Jones industrial average or Standard & Poor's 500 index and look at the chart, you see lots of volatility and little payback. The S&P 500 has fallen by as much as 53% over the past five years, and investors really have nothing to show for it, based on the stock chart.

Over those five years, the value of the S&P 500 is actually down by about 3%.

Investors who just look at the chart might think, "Why bother?"

But the chart doesn't show the whole story. Keep in mind that most investors didn't just plunk down all their money five years ago.

Many prudent investors were buying stocks during the bear market in 2009 and 2010. Those investors have gained nicely on those purchases, which were probably pretty scary to make at the time. The S&P 500 has more than doubled from its lows in 2009.

Furthermore, during the entire time, many companies in the S&P 500 have been paying dividends. If you include the value of those dividends, stocks haven't fared nearly as badly as you might think.

While the S&P 500 is still 10% below its all-time high based on price alone, if you include dividends, investors who stuck with stocks are nearly back to their high-water mark, says Howard Silverblatt of S&P Dow Jones Indexes.

If stocks have done so well, then why all the bellyaching? The fact is, most investors allow their emotions to run their portfolios. The investors who jumped into stocks when they were pricey in 2008, and panicked and sold when they were cheap in 2009, lost out and lost big. These are the investors complaining now.

But for the rest, the investors who created diversified portfolios and stuck with their strategies, stocks are doing just fine. And it's these investors who appreciate that stocks are one of the few asset classes that generate the kinds of returns, 10% a year on average, to help keep the value of their assets growing faster than inflation can eat them up.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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