2008 will go down as one of the worst markets in history.  Many records were broken, but not the kind of records that investors are excited about.   For a period of 8 days in October, baby boomers were left in shock and awe as they saw the market drop an additional 22%, further extending the deep losses they were still trying to swallow.  So many boomers are left scratching their heads wondering when the right time to get back in is.

A false sense of security by waiting for a better time to invest, you may be missing out on some potentially rewarding investment opportunities. Consider this: Among the three major asset classes, stocks or bonds have been the best asset class many more times than cash over the past 82 years. In addition, every one of cash’s best rolling five- and 10-year returns was between 1970 and 1982 — a period of extremely high interest rates. You remember making 15% on your Cd’s?  If so, they I’m sure you remember paying 15% on your mortgage as well.

Security vs. opportunity

Cash can provide protection and liquidity during volatile markets — especially as part of a well-planned, diversified investment program. Yet, as the chart below shows, investing in cash alone would have generated decent returns over 12 of the 82 years. Over the long haul, stocks have generated relatively attractive long-term returns and outpaced inflation. However, stocks have been more volatile than cash, but that goes without saying doesn’t it?

Best Returns For The Past 82 Years

(1926–2007)
Cash was the best: Bonds were the best: Stocks were the best:

12 of 82                      22 of 82                                          48 of 82

Single calendar years
4 of 78                        18 of 78                                         56 of 78

Rolling 5-year periods
6 of 73                       9 of 73                                             58 of 73

How To Use The Information

For baby boomers that have 10 years or more till retirement, your investment strategy stays pretty much intact.  For those are in the 5 year window, things get interesting.  As the chart above displays, over a 5 year period stocks have been a better performer 58 of 73 years.  Whether that holds in this 5 year period is will depend largely on 2009 and 2010.  But the chart does tell you that if you have already rode the market thus far, then you’re best bet is to wait it out.  Cash will not get you to par and make up for your drastic losses.  Know your investments and if they are well allocated, let the market do it’s job and get you back on track.