Now that we're more than two years into the market recovery from the March 2009 bottom, fund manager T. Rowe Price notes that if you stuck to all those boring old lessons, well, not only would you have been made whole by now -- your portfolio would actually be ahead.
"The S&P 500 Index gained 104 percent from the market low through the first quarter of 2011," T. Rowe says as part of its Spring 2011 outlook. But folks who just sat on the sidelines in a straight-up S&P 500 index fund? They still haven't caught up to the good old days of fall 2007 when the equity markets hit their giddy all-time highs.
"Investors who had $100,000 invested in such a portfolio at [the S&P 500's] last high point on October 9, 2007 were still not [back to breakeven] at the end of the first quarter of this year, with a portfolio value (including dividends) of $91,511," T. Rowe notes. My colleague Allan Roth, however, points out that a portfolio invested in the total U.S. stock market is just 3 percent below the all-time high, with dividends reinvested.
But by making additional contributions (you know, dollar-cost averaging, where you buy more of a security when it's cheap, and less of it when it's more expensive) and various combos of equity-bond allocations produced very different -- and in some cases very remunerative -- results.
Look at these nine examples in the chart below. The only portfolio that lost value from the market's October 2007 peak through to mid-March 2011 was the one that was 85 percent stocks/15 percent bonds and -- importantly -- was one with no additional desposits.