The Dow Jones Industrial average has been dancing around all-time highs since the beginning of March, while other market indicators, like the S&P 500, have matched an overall trend toward the positive.
But despite the daily ups and downs that keep some investors constantly on edge, there are some in the financial world who stress that when it comes to the stock market, the short-term wins and losses cannot compare to the potential long-term benefits of investing.
One of those big-picture planners is William Lako, managing director and principal at Henssler Financial in Kennesaw.
“People feel the stock market is overvalued,” Lako said. “We take a different approach. We think it has been undervalued.”
As the nation’s mood over the economy has softened recently, so have the general trends in the markets.
“There’s more clarity now than there was six months ago,” Lako said. “The housing rebound is starting to make people feel better. The future is looking better.”
Since 2009, when the market hit record lows, stocks have generally moved upward.
On Thursday, the Dow Jones Industrial average closed at 14,578.54, which is a 123 percent rise since March 9, 2009. The S&P 500 is up 131 percent during that same period, to Thursday’s mark of 1,569.19.
And in the NASDAQ, the same period produced a 157 percent surge, although that market is down by about 35 percent since an all-time high in March 2000.
As many stock values soar, many potential investors are wondering whether it is too late to get into the market, while those already in it consider when the best time is to cash in on market success.
“The only thing that drives stock numbers is earnings,” Lako said.
Lako said he views the recent market highs as an extension of a broader trend in stock pricing. While the future of the overall market may experience a few bumps in the road as inflation rates continue to rise, he does not see a big collapse in the market any time soon.
“The effect of inflation would be stocks would be sold off,” Lako said. “Not a huge crash, but a correction.”
Trends over 10-year
Lako said that being prepared to leave investment in stocks over extended periods is the safer bet when considering the market.
He said looking at 10-year windows reveals a lot about the value of investing in the stock market. In other words, being prepared to keep investments in the stock market for at least 10 years increases the odds of financial gains.
When looking at individual 10-year periods during the last century, keeping money in the stock market has been a moneymaker nearly every time.
“(There have been) only two times when leaving money in for 10 years has resulted in a loss,” Lako said. “About 97 to 98 percent of the time, you don’t lose over that 10 years.”
In the past 10 years, Dow Jones has risen by 74 percent, the S&P 500 by 77 percent and NASDAQ by 133 percent.
But if investors are looking to make their money back more quickly, buying stocks can be a riskier proposition, he said.
“If you need money in a hurry, you cannot have that invested in stocks,” Lako said. “Don’t put money you need in the market.”
So regardless of whether short-term indicators show peaks and valleys, the true value of investing in the stock market comes from simply riding it out.
Looking to the future
For average investor looking toward the stock market, the best approach is to put money into established companies — good companies that know how to grow their earnings.
“For the average investor, it’s better to buy something you understand,” Lako said. “Buy stocks for things you know people have to have.”
A diversified stock portfolio can include a small portion of international investments, he said, but those looking to break into the market should focus on lower risks.
But looking for investments beyond the stock market has considerable value right now.
“For new families, there’s not a better time to buy a house and real estate,” Lako said.
Interest rates for a 30-year fixed mortgage currently are hovering at about 3.75 percent.
Perhaps within two or three years, the interest rate may be at 6 percent, Lako predicted.
“It could easily rise a percentage point within a 12-month period,” he said.
And as inflation rates rise, there may be little effects on older, established people, but it will have an impact on younger people trying to raise families.
“A normal family is going to get squeezed pretty hard,” Lako said.