The Wall Street Journal's Marketwatch website recently reported that in the past three years, from September 9, 2008 to September 9, 2011, the S&P has gone nowhere - 0.00% when dividends are factored in. This fact, along with the negative global news surrounding the investment markets, may make you wonder why you're invested in stocks if over three years you've made nothing on that investment. You may even remember reading an article or hearing your financial adviser tell you that U.S. Treasury bonds or bills have such a low return that they aren't worth a second look. Looking back, even if they averaged a yield of 2%, that's still better than 0.00% on the S&P 500.

If that 0% gain wasn't depressing enough, if you had invested in an index fund either as an exchange traded fund or mutual fund, you would actually be down slightly because you still have to pay the fees that came with those funds. The answer is not in what the statistics are telling you, but what they aren't telling you.

Before you give up entirely on the market, remember that your entire retirement, IRA, or individual investment account hopefully isn't 100% invested in stock-based products. The fact that this one index is flat doesn't speak for your entire portfolio. In fact, many financial advisers recommend only committing 5% to 10% of your portfolio to index funds. (For more check out The Lowdown On Index Funds.)

TUTORIAL: Investing 101

Look at the Details
Normally we are too focused on the details and miss the big picture, but in this case, it is the opposite. The S&P 500 is a weighted average of 500 stocks with some of those having a rough three years while others have done quite well. If you held Apple (Nasdaq:AAPL) for three years you would be quite happy with the 149% gain you've seen. If you aren't skilled at choosing stocks, staying with a broader index fund will return impressive gains over time when the dividend is factored in.

The Dividend
The dividend plays a big part in the gains of any portfolio, and if you're not taking advantage of stocks that pay dividends, you're missing out on virtually free money. Dividends are like interest in your savings account. You don't have to do anything to earn it and although some companies will cut their dividends, it is still a steady, secure source of income. Many higher wealth individuals live on the dividends that come from their stock purchases. (To learn more, read Why Dividends Matter.)

How About 10 Years?
In the past 10 years, the S&P 500 has lost an inflation adjusted 13.54% of its value. Once the inflation adjusted annual dividend is added in, it is up 8.4% in those 10 years. While this isn't an impressive 10 year return, these numbers would be much different just two months ago before the S&P 500 suffered a loss of 14%.

How about some individual names? If you would have seen the potential in Green Mountain Coffee Roasters (Nasdaq:GMCR) 10 years ago you would have a 5,067% gain today. Apple has a 10 year return of 4,320% and (Nasdaq:AMZN) has seen 2,448% added to its stock price.

Of course, the chances that you added these names to your portfolio and then held them through the good and bad times are not very likely, but these figures clearly demonstrate that when a portfolio is supplemented with a few good stocks, the gains can be quite impressive. Even if you held these names for half or a quarter of the time, you would be proof that investing in the stock market isn't a losing venture.

Index Funds Versus Actively Managed Funds
If you're not skilled at choosing stocks and you don't want to take the chance that your financial adviser or the people managing your mutual funds are either, invest in index funds as an exchange traded fund or mutual fund. One study showed that over a 10-year period, out of 262 mutual funds studied, only 46 beat the S&P 500.

The Bottom Line
Sure, there are other investment vehicles that have performed better than the average returns of the S&P 500, but that doesn't mean that your money should steer clear of the stock market. When dividends and good stock picking by a skilled investor supplement other investment products, the stock market remains an impressive source of revenue over time. (To help you find an adviser, check out Find The Right Financial Adviser.)

Related Articles
  1. Investing Basics

    5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  2. Mutual Funds & ETFs

    Best 3 Vanguard Mutual Funds for Retirement

    Discover the top Vanguard target-date retirement funds with target dates in 2020, 2030 and 2050, and learn about the characteristics of these funds.
  3. Mutual Funds & ETFs

    How Vanguard Index Funds Work

    Learn how Vanguard index funds work. See how the index sampling technique allows Vanguard to charge low expense ratios that can save investors money.
  4. Investing

    Understanding High Yield Fund Performance

    For exchange traded fund, not all high-yield ETFs are the same. So, we take a look at one high yield investment in particular to set the stage for you.
  5. Options & Futures

    Terrorism's Effects on Wall Street

    Terrorist activity tends to have a negative impact on the markets, but just how much? Find out how to take cover.
  6. Mutual Funds & ETFs

    ETF Options Vs Index Options

    Investors have much to consider when they’re deciding between ETF and index options. Here's help in making the decision.
  7. Mutual Funds & ETFs

    The 3 Best and Most Popular Vanguard Index Funds

    Learn about three popular Vanguard Index Funds. See how index funds provide an easy way for investors to gain exposure to the market with low costs.
  8. Mutual Funds & ETFs

    3 Vanguard Funds with the Lowest Fees

    Learn about the top three Vanguard funds that have the lowest expense ratios and follow different investment objectives by investing in equities and bonds.
  9. Mutual Funds & ETFs

    Vanguard Total Stock Index Vs. Vanguard 500 Index Fund

    Explore detailed analyses of the Vanguard Total Stock Market and Vanguard 500 Index funds, and learn about their characteristics and suitability.
  10. Mutual Funds & ETFs

    For More And More Investors, ETFs Are A Godsend

    Average and cautious investors can experience lower risk with ETFs - a safer alternative to swaps and derivatives.
  1. Have hedge funds eroded market opportunities?

    Hedge funds have not eroded market opportunities for longer-term investors. Many investors incorrectly assume they cannot ... Read Full Answer >>
  2. What fees are associated with target-date funds?

    Target-date funds have two types of fees. The first type of fee is paid to the company managing the fund and selecting the ... Read Full Answer >>
  3. Some of the Best No-load Funds to Consider

    Some of the most well-known no-load funds are the DoubleLine Total Return Bond Fund (DLTNX), Vanguard Short-Term Investment-Grade ... Read Full Answer >>
  4. Can mutual funds fail?

    Mutual funds can fail. Unlike bank accounts, there is no Federal Deposit Insurance Corporation (FDIC) or similar agency that ... Read Full Answer >>
  5. How do mutual fund managers make money?

    Mutual fund managers get base salaries, which vary greatly depending on the size and pedigree of the fund company. They may ... Read Full Answer >>
  6. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  5. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
Trading Center