Q: I think the market will fall late this year due to concerns over the Year 2000 problem. I am considering transferring money out of stocks in October or November before the end-of-the-year panic, and “buying low” later on. What do you think? — B.B., via the Internet
A: We think it sounds as if you’re trying to “time the market.” That plan might work, or it might not. But the odds are always heavily against any investor who thinks that he can buy into the market at its lowest point and sell when it peaks. We Fools believe that any money you’re not planning to spend for five years or longer is probably best kept fully invested in the market.
Backing up a bit, we’ll give a short synopsis of the Year 2000 problem (a.k.a. Y2K, the Millennium Bug or “that thing that’s happening at the end of the year that everyone keeps talking about”). Back in the Middle Ages of the computer era, the 1970s, memory bytes were expensive and the year 2000 seemed ages away. To save space, computer programmers used just the last two digits of a year to represent each year, so 1972 became 72 and so forth. But with the approach of the year 2000, computers operating on the two-digit system simply will not be able to compute calculations based on these dates. Everything, doomsayers say, will then go kablooie.
Sure, the market may tumble in response to Y2K. But then again, it may not. No one really knows what will happen, but make no mistake about it — investors have been thinking about Y2K fallout for some time. Their predictions are already being factored into the price of stocks. So trying to predict a sudden change in the future is next to impossible.
We think that investors should keep an eye on the long term and not sweat the day-to-day movements of the market. Consider, for instance, the returns on small-company stocks between 1925 and 1992. If you had been invested in small-company stocks over this period, your average annual return would have been 12.1 percent. If you sat out the single best month during that 67-year period, you would have made only 11.2 percent a year. If you missed out on the best five months, well, forget it. You would have notched gains of only 8.5 percent. Finally, if you had missed the best 10 months, you would have retained only 6.3 percent annual gains, almost half of what you could have made had you been fully invested. This data and other data like it have proved again and again the wisdom of buying and holding stocks.
For more information, check out www.itaa.org/year2000 for the latest Y2K bug news.