Hi Everyone,

The last couple of times I wrote about the market conditions were in the middle of March and in early January. I thought I look back and see what would have happened if you took the plunge back then and invested in a diversified portfolio. I mentioned in both posts that some of the biggest gains are right after the market bottom, and if you have a longer term investment horizon, timing will likely not make much of a difference.

So what is the verdict?

If you invested in early January in a diversified mutual fund portfolio, you would be up about 3 percent as of May 16th, 2008. I am using mainly funds from Dimensional Funds Advisor (www.dfaus.com). What stood out the most is that the Real Estate Fund was up a whopping 24 percent.

If you invested in mid March, almost at the bottom when the Fed bailed out Bear Stearns, the portfolio that I looked at was up just under 10%.

I think this does show that some of the large gains were again right after the bottom, on the other hand, investing early like in the January example did not kill the returns. I do think this does not hold true in longer bear markets like earlier this decade.

The big question now is: What will the market do in the coming months? Generally the summer months are not very good for stocks, and there is still uncertainty, so I think we might see more side movement. On the other hand, this is an election year, so in some ways, all bets are off. I do think that the dollar will strengthen further, at least against the European currencies, and commodities might further ease over the coming months.

If you a long term investor, what most people should be, you don’t really care about the short term markets. If you like to trade a little, there are some fun opportunities, especially with options.

Drop me an email or a comment if you would like.

Cheers,

Patrick