Welcome to my blog where I discuss money, investing, politics, and anything else import in the world. I find it surprising that most people in their 30s have very little knowledge or interest in these areas. Of course everyone is interested in money, but very few take the time or have the discipline to properly save and invest it for the future or short term. For those who at least have the interest, I'll write about my experiences and methods of investing, and hopefully give you a head start in investing.

Friday, January 11, 2008

Was 2007 really so bad for investors?

Now that 2007 is over, let's look at the year in review. To listen to some people discuss the economy and the markets, you would think it was a horrible year. In fact, you would think the last 8 years have been terrible, but anyone invested in the market knows that is not true. Focusing just on 2007 for now, here are the numbers:

S&P500: 3.53%
DJIA: 6.46%
Nasdaq: 9.63%
Wilson5000: 3.94%

Those numbers do not take into account revinvesting dividends and, if you did, the S&P500 had a total return of 5.49%. These are certainly not stellar returns, but nonetheless performed comparable to more conservative investments such as CDs and Treasuries.

There were two real issues in 2007 and that was the real estate market and volatility. If your only investments were in real estate, financial companies, or your house, then at least on paper, you are looking at losses. The S&P Financials were down over -20%. Likewise, the DJ Wilshire REIT Index was off -17%. Meanwhile, the energy and emerging markets sectors were the real winners up 32.38% and 42% respectively. You should have owned all of these as investors in Index Funds or ETFs.

Quicktip: if you are sick of increasing gas and energy costs, invest a little in the energy markets, at least as your bills go up, so does your investment

The volatility in 2007 meant it took a lot of courage to stay in the market amidst the wild swings. However, fighting the urge to bailout is the right move to make, as I will discuss in future posts.

Finally, inflation year over year for CPI core was 2.3% as of November (that excludes energy and food). CPI-U, which includes it all, was at 4.2%. The core inflation is what is usually quoted and used for your Social Security calculations.

So what do all these numbers mean?

  • First, if you were a diversified investor in the overall markets, you owned all of the good, bad, and ugly performing stocks, and came out ahead, which is what I will be pushing in future posts

  • We are reminded that Real Estate does not always go up and should only be a part of your investment strategy

  • By definition, we are not in a recession, as evidenced by moderate inflation, economic market growth, and GDP growth

I look forward in 2008 to discussing how we can ride out the volatility. We should be investing for the long term and ignoring the short term swings.

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