Power Of Compound Interest

Greetings all. The S&P Index closed at 1087.69 on Friday, down about 8% from the April 30 month end close (click on image). Remember a couple of weeks ago where I warned about some short term weakness? Well, the weakness has been more pronounced than I forecast. However, the index did close up on Friday with very heavy volume. This buying also took place at a critical support level which leads me to believe that there is a high probability of rising prices, at least through the first half of next week. Right now although the green arrow is still in effect, there are enough warning signs to suggest that the market may be in a transition phase on a long term basis. Next Friday's close will tell us a lot, as it will also be the May month end close. IMPORTANT: I would highly suggest that you may want to check the blog daily next week. The reason is that if early next week the market breaks below current levels on heavy volume there may be some rather serious deterioration in prices. Stay tuned.












FOR YOUR EDUCATION...Remember the article last week which compared three investors? Investor A was good about entering the market on the green arrows but he exited the market whenever he got scared instead of being disciplined and waiting for the red arrows to get out. He averaged a 10% annual return. Investor B followed the advice of many market "experts" and simply left all of his money in mutual funds through the major bear markets. He averaged a 2.4% annual return. Investor C ignored the experts and controlled his emotions by simply putting all of his money into mutual funds on the green arrows and shifting all of his money into money market funds on the red arrows.

I thought it would be interesting to compare the results of all three investors assuming that each was 50 years old, had $10,000 to start, and wished to retire at age 65:

Investor A...$41,772 (A 318% return on original investment)
Investor B...$14,272 (A 43% return on original investment)
Investor C...$135,895 (A 1259% return on original investment)

It doesn't take a rocket scientist to figure out who will still likely have to work at age 65 does it? I hope this motivates you to get serious about taking more responsibility in the planning and managing of your investments. If you don't the probabilities are high that you'll find yourself in the category of Investor B. It doesn't have to be that way.