Why Should I Invest in the Stock Market Now?

Transcription

1 Why Should I Invest in the Stock Market Now?

2 Where Is the Market Headed? Recent volatility has some investors contemplating if they should pull out of the market or sit on the sidelines and wait for the best time to invest. If you re not convinced that now is a good time to be invested, consider some of the reasons that kept our fictional investors from investing in years past. S&P 500 INDEX PERFORMANCE OVER THE LAST HALF CENTURY 1 (As of December 31, 2008) $10,000,000 S&P 500 Index Recession $1,000,000 $,000 $11, A U.S. spy plane was shot down over the Soviet Union. If this results in war, it won t be good for the stock market. 2 $25, The Vietnam War is dragging on, President Johnson s support rating is down and Martin Luther King Jr. was just assassinated. $21, The S&P 500 Index fell 10% in the first half of this year alone! We re officially in a recession. 1 $10,000 $13, On May 28, the Dow had its sharpest drop since 1929! 3 And in October we had a stand-off with Russia over their missile bases in Cuba. This could mean war. $28, A 10% devaluation of the U.S. dollar and a prime rate of 9.75% this is destroying the economy! 3 *All statements made at year end by fictional investors. $1,000 12/58 12/63 12/68 12/73 The unmanaged S&P 500 Index represents the general stock market and is for illustrative purposes only. It does not reflect the performance of any Franklin, Templeton or Mutual Series fund. One cannot invest directly in an index. While stocks have historically outperformed other asset classes over the long term, they tend to fluctuate dramatically over the short term. Investors should be comfortable with fluctuation in the value of their investment. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE

3 Using the S&P 500 Index to represent the general stock market, we see that, regardless of what often seems like bad timing, stocks have historically provided investors with growth over time, despite short-term ups and downs. And often the best buying opportunities were when things still seemed quite bleak. $35, There s no way you can convince me to invest in this volatile market. The S&P 500 Index has gone from to 93.15, a drop of over 12%, in two months. 5 $33, Inflation is up to 6.7%, and in the wake of the Middle East Oil Embargo, gas prices are skyrocketing! 4 $110, The number of bank failures is out of control 116 this year alone. 7 $64, The unemployment rate is at 10.8%, its highest in years. Now is not a good time to invest. 6 $211, Before 350 savings & loans failed, I thought they were the safest place to put my money. 8 $137, Black Monday s 22% drop in the Dow on October 19 is still too fresh in my mind. 3 12/78 12/83 12/ Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Recession data source: National Bureau of Economic Research. 2. U.S. Department of State Vol. X, Part 1, FRUS, : E. Europe Region; Soviet Union, Office of the Historian. 3. California Department of Finance, Chronology of Significant Events, Inflation: Consumer Price index (CPI). Gasoline: U.S. Department of Labor, Bureau of Labor Statistics, U.S. City Average Gasoline Prices. 5. Standard & Poor s. 6. U.S. Bureau of Labor Statistics, U.S. unemployment rate for December Federal Deposit Insurance Corporation, 1985 Annual Report, FDIC Division of Finance, Division of Research & Statistics. 8. New York Times, U.S. Weighing Plan to Take Over 350 Insolvent Savings Institutions, 2/5/ The World Almanac and Book of Facts 1996, pg Dow Jones and Company, Inc. As of 12/31/08.

4 $287, Invest now? Not when both Macy s and TWA have filed for bankruptcy and Chrysler, Ford and GM are all reporting huge losses. 9 $724, Although the Dow soared in the first half of the year, it crashed on October 17, losing over 7% in just one day! 3 $441, The S&P 500 Index set record highs 77 times this year. 5 I missed the boat. $1,127, The Dow increased 27% this year. 10 And the NASDAQ closed above 4,000 for the first time! 3 $703, The Dow sunk to its lowest level in almost four years. Both the NASDAQ and the S&P 500 Index hit their lowest levels since the beginning of I m going to wait until the market turns around. 3 $902, The U.S. entered a recession in March, terrorists attacked the World Trade Center and the Pentagon, and markets fell for the second year in a row. 3 $1,003, The Dow closed at its highest level in over two years on February $810, Several banks have failed, like in The American auto industry has reported huge losses, similar to Global stock markets have plunged. 3 The Dow fell 38% from its all-time high. 10 While past performance cannot guarantee future results, MAYBE NOW ISN T SUCH A BAD TIME TO INVEST. 12/93 12/98 12/03 12/08 For more information on the importance of long-term investing and how to deal with market volatility, contact your financial advisor, call us at (800) DIAL BEN/ (800) , or visit franklintempleton.com.

5 Recessions Often Lead to Opportunities The stock market in general is forward-looking it moves in anticipation of expected events. For example, if the Federal Reserve was expected to raise interest rates, the market typically would have priced this in even before the rate hike actually happened. Likewise, past market recoveries have typically started before a recession was officially over. Thus, if you wait until the end of the current recession before you invest, you may miss a very attractive investment opportunity. The charts below show the S&P 500 Index s movements shortly before, during and right after each of the seven U.S. recessions over the past 50 years. During this period, recessions lasted an average of 12 months, and stocks hit bottom an average of 4 months before the recession ended. 11 Past performance cannot guarantee future results. S AND RECOVERIES OVER THE LAST HALF CENTURY 11 April 1960 February 1961 July 1981 November /60 7/60 12/60 4/61 Market peak August 1959 Recession starts April 1960 Market trough October 1960 Recession ends February 1961 Peak to trough -14% Trough to recession end 21% /81 10/81 3/82 8/82 1/83 Market peak November 1980 Recession starts July 1981 Market trough August 1982 Recession ends November 1982 Peak to trough -27% Trough to recession end 35% December 1969 November 1970 July 1990 March 1991 Market peak November 1968 Recession starts December Market trough May 1970 Recession ends November Peak to trough -36% 70 Trough to recession end 26% 10/69 3/70 8/70 1/ Market peak June Recession starts July 1990 Market trough October Recession ends March Peak to trough -20% 300 Trough to recession end 27% 5/90 8/90 11/90 2/91 5/91 November 1973 March /73 2/74 7/74 12/74 5/75 Market peak January 1973 Recession starts November 1973 Market trough October 1974 Recession ends March 1975 Peak to trough -48% Trough to recession end 34% March 2001 November ,400 Market peak March ,300 Recession starts March 2001 Market trough September ,200 Recession ends November , Peak to trough -37% 1,000 Trough to recession end 18% 1/01 4/01 7/01 10/01 1/02 January 1980 July /79 4/80 9/80 Market peak October 1979 Recession starts January 1980 Market trough March 1980 Recession ends July 1980 Peak to trough -12% Trough to recession end 24% The unmanaged S&P 500 Index represents the general stock market and is for illustrative purposes only. It does not reflect the performance of any Franklin, Templeton or Mutual Series fund. One cannot invest directly in an index. While stocks have historically outperformed other asset classes over the long term, they tend to fluctuate dramatically over the short term. Investors should be comfortable with fluctuation in the value of their investment. 11. Calculations are based on the S&P 500 Price Return Index. Standard & Poor s, National Bureau of Economic Research.

6 < GAIN FROM OUR PERSPECTIVE > VALU E BLEND GROWTH SECTOR GLOBAL INTERNATIONAL HYBRID ASSET ALLOCATION FIXED INCOME TAX- FREE INCOME Franklin Templeton Distributors, Inc. One Franklin Parkway, San Mateo, CA (800) DIAL BEN (800) TDD/Hearing Impaired (800) franklintempleton.com Franklin Templeton Investments Your Source for: Mutual Funds Retirement Plans 529 College Savings Plans Separate Accounts Investors should carefully consider a fund s investment goals, risks, charges and expenses before investing. To obtain a prospectus, which contains this and other information, talk to your financial advisor, call us at (800) DIAL BEN/(800) or visit franklintempleton.com. Please carefully read the prospectus before you invest or send money. IBS SIDFL 01/09