After the impressive market rally of 2009, many investors were again becoming complacent. They started to believe that the days of easy money had returned and that all one had to do was buy stocks and collect the profits.

Often a short-term view provides a distorted picture of the present situation. From time to time it is wise to step back and take a long-term look to see where we are and where we have been.

The chart below shows performance of the S&P 500 over the past 15 years. I added the red line to mark the current level of the index. As it clearly shows, the first time the index crossed this level was in early 1998. So an investor who purchased this index in 1998 and held it until now would have realized zero return in his investment.

To help put that time frame in perspective, in 1998 Bill Clinton was president of the United States and embroiled in the Monica Lewinsky scandal. The twin towers of the World Trade Center were still a landmark and a dominant feature of the New York City skyline. Gas was $1.15 a gallon and a first class postage stamp was 32 cents. It was the year Google was formed and the X-Files was one of the more popular television programs.

Two times the markets advanced strongly above this level, but each advance was followed by an equally powerful fall. Given the current economic state, any advance from this point must be viewed with caution.

This chart is evidence against the argument that the best way for investors to make money in the markets is to buy index funds and simply hold them until the money is needed. Investors who bought into that philosophy in 1998 are finding themselves exactly where they started.

Investments need to be monitored and managed to avoid periods of excessive risk and to take advantage of periods that offer a reasonable opportunity for gains.

F.S.