Stock Market Information

I know, American Blue Chips seems like a bad place to be these days. The markets have been extraordinarily volatile over the last few days, 400 points up, 400 points down, etc. Blue chips in particular have scared off investors with historic collapses like Bear Stearns and Lehman Brothers, despite being one of the best available paths to investment success. A recent article in CNN Money examined the blue chip conundrum, and goes on to explain why U.S. Blue Chip stocks (still) deserve a spot in your portfolio.

The recent chaos in the markets has brought about a number of angry investors. I mean, financial institutions such as Bear Stearns and Lehman Brothers made it through the great depression but the overleveraged nature of their mortgage securities brought them both down. Some analysts believe this could signal a long term decline in America’s economy, and as such should be replaced with international stocks like those of Asia and Russia.

Of course there are still plenty of reasons for owning large cap U.S. stocks. It’s likely that investors are focusing too much on the short term, and that means there’s a lot opportunities out there and some holdings are available at a bargain price. Once everything is said and done, American businesses will still earn profits and, most importantly, send some of that money into the hands of shareholders via dividends. The founder of Vanguard, John Bogle, noted that 9.8 percentage points of stock in the 20^th century were driven by earnings and dividends out of the 10.4% annual return.

Historically speaking, your chances are quite good. Every time the market swings too much in one particular direction, through too much enthusiasm or selling to the point of depression, stocks will moderate one way or the other, while maintaining upward momentum.