1. Figures are past results and are not predictive of results in future periods. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so investors may lose money.
© 2008 American Funds Distributors, Inc.
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2. Think you have bad timing?
Meet Louie the Loser
Do you worry about bad timing when it comes to investing?
Do you wish you had a crystal ball so you could know the best time to invest?
Let me introduce Louie the Loser.
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3. He cancelled his dental insurance the day before his root canal flared up.
His vacation in the desert was rained out.
He misses planes but catches colds.
Why is he so happy?
Louie cancelled his dental insurance the day before his root canal flared up.
His vacation in the desert was rained out.
He misses planes but catches colds.
Louie couldn’t have worse timing.
So, why is he so happy? Let’s take a look.
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4. Louie the Loser
Starting in 1987, invested $10,000 a year in The Investment Company of America
Chose the worst day — market high
Total investment: $200,000
Twenty years ago, Louie decided he should do some investing — $10,000 every year.
Considering the type of guy he is, it’s no surprise that each year, when he told his financial adviser to invest $10,000 in The Investment Company of America (ICA), it was the day the stock market hit its highest point that year. In other words, it was the worst day he could have picked because at least for the rest of that year, the market was lower.
By the way, when I say the “market,” I’m referring to the Dow Jones Industrial Average, an unmanaged index comprising a price-weighted average of 30 actively traded industrial and service-oriented blue chip stocks.
ICA is the oldest and one of the largest of the 30 American Funds. It’s a growth-and-income fund that seeks to provide long-term growth of capital and income by investing in solid companies with potential for future dividends.
Twenty years of investing on the worst possible day. Anyone want to venture a guess on how Louie did?
[Note to presenter: Take guesses from your client or audience.]
Let’s see how he made out.
Market high based on Dow Jones Industrial Average.
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5. Louie the Loser As of 12/31/06 $10,000 a year, starting in 1987:
Figures are past results and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so you may lose money. For current information and month-end results, visit americanfunds.com. Fund results are for Class A shares and reflect deduction of maximum sales charge (5.75%).
It’s hard to believe, but despite an almost superhuman knack for picking the worst day — the day the market hit its high — Louie did just fine. In fact, he did very well.
Over 20 years, he invested $200,000, and that grew to more than $637,000 by December 31, 2006 — an average annual total return of 10.7%. Not bad for a guy with a terminal case of bad timing!
Now, if Louie had had perfect timing and invested on the best day each year — the day the market hit its low — he would have done a bit better.
His investment would have grown to more than $772,000, and he would have seen an average annual total return of 12.0%.
Of course, anyone else investing $10,000 a year in ICA over that same period would most likely have had different timing and results than Louie’s.
Also, we should keep in mind that even with the bear market, the past 20-year period has been a good one for stocks; therefore, these results may be higher than what the future will hold.
However, we can realistically expect that, if we invest regularly, our timing won’t be perfect but won’t be nearly as bad as Louie’s either.
$10,000 a year, starting in 1987:
Worst-day investments (market highs)
Account value $637,185
Average annual total return 10.7%
Best-day investments (market lows)
Account value $772,705
Average annual total return 12.0%
Market highs and lows based on Dow Jones Industrial Average. Cumulative volume discount applied when appropriate.
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6. It’s time in, not timing, the market that counts
What we know for sure
It’s time in, not timing, the market that counts
Louie’s story illustrates an important principle in investing: It’s time — not timing — that matters over the long term. No one has a crystal ball that can predict the “best” time to invest.
What’s clear is that if your assets are not invested, you miss out on any opportunity for investment growth. Waiting for the perfect opportunity has a price. Historically, it has been time in the market that has helped investors succeed.
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7. American Funds investment results
Average annual total returns for periods ended 12/31/07
Figures are past results and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so you may lose money. For current information and month-end results, visit americanfunds.com. Fund results are for Class A shares and reflect deduction of maximum sales charge (5.75%).
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Gross 1 year 5 years 10 years expense ratio*
The Investment Company of America® – 0.14% % 7.62% 0.56%
*As of the fund’s most recent fiscal year-end at time of publication.
Results are based on an initial $1,000 investment at the beginning of the stated periods. The fund’s investment adviser is waiving a portion of its management fees. Results shown reflect the waiver, without which they would have been lower. The actual expense ratio for the fund is lower than the amount shown. Please see the fund’s most recent shareholder report for details.
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8. Investors should carefully consider the investment objectives, risks, charges and expenses of the American Funds. This and other important information is contained in the prospectus(es), which can be obtained from their financial professional and should be read carefully before investing.
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9. Dow Jones Industrial Average is a price-weighted average of 30 actively traded industrial and service-oriented blue chip stocks.
Indexes are unmanaged. They include reinvested distributions but do not reflect sales charges, commissions or expenses.
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10. Equity investments are subject to market fluctuations.
If used after March 31, 2008, this presentation must be accompanied by a current American Funds quarterly statistical update.
Equity investments are subject to market fluctuations.
Regular investing neither ensures a profit nor protects against loss in a declining market.
© American Funds Distributors, Inc.
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11. American Funds: The right choice for the long term.
© 2008 American Funds Distributors, Inc.
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