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EQUITIES
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LIQUIDITY
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ALTERNATIVES
BLACKROCK SOLUTIONS
Be Confident, Be Invested An Historical Perspective of Stock Market Behavior
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Be Confident, Be Invested Shock. Fear. Anger. Sell! While this may be a natural progression when reacting to catastrophic events, avoiding an emotional response to investing by keeping sight of your investment objectives during these times is often a determining factor in long-term success. Of course, gauging the likely path of the global stock markets is difficult, if not impossible, under the best of circumstances. That problem could be amplified by the waves of emotion that investors may experience in the aftermath of calamitous events. There are many precedents of bubble-bursting in our financial history, such as the energy bubble of the 1980s and the technology bubble of the 1990s. We have also seen our share of financial panics, including the savings and loan crisis of the late 1980s and early 1990s, the currency crisis of the late 1990s and the current credit crunch. Continued acts of violence in the Middle East and elsewhere in the world exacerbate worries over possible terrorism, and add to the list of events that could rattle global financial markets and economies. Despite the horrific nature of terrorism and other geopolitical crises, the financial effects of individual acts tend to be brief, and markets have shown the ability to recover quickly. In other words, down years are a natural part of equity investing and in the long run, markets have shown remarkable resiliency in times of crisis.
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How Can Investors Weather Difficult Times? Be Confident, Be Invested While no one can predict when markets will decline or rebound, a strategy of adding to holdings when markets are “on sale” may provide significant advantages versus a strategy of pulling out of the market.
Be Informed Understand Market Ups and Downs Understanding general stock market behavior is an important factor for investing during good times as well as trying times, and in achieving long-term investment success. Stocks have historically proven to be a very good investment. This does not mean that every year will produce a double-digit, or even a positive, return. In other words, down periods, as well as up, are natural parts of equity investing. Unpredictable events will have an impact on markets, sometimes negatively. However, do not let the short-term declines distract you from your long-term goals or the long-term potential of stock market investing. Be Invested Keep Your Money Working for You Over every market cycle, there will be up days and down days. Missing even a few of the stock market’s best-performing days can result in significantly lower returns than the market index. Often, a few very good days account for a large part of the market’s total return. By trying to time the market, you potentially miss out on market rallies that can substantially improve your overall return and long-term wealth. Thus, what is most important is not timing the market, but rather time in the market. Staying the course when confronting difficult markets ensures that investments will be “in” the market on the good days and may ultimately prove very rewarding. Be Resolute Stay the Course Do not panic and pull out of the market during a downturn. The rallies you miss could significantly hurt your overall return and impede achieving your investment goals. Goals that are most important to investors, such as a financially secure retirement, funding children’s education, providing for the well-being of one’s own parents, or leaving a legacy to family or charities, require a long-term perspective. Clouding long-term goals by reacting to short-term events and interrupting a disciplined investment approach is often counterproductive to achieving those goals. Be Opportunistic Take Advantage of the Downturns By viewing market declines as great buying opportunities, you could significantly enhance your long-term return potential when the market rebounds. While no one can predict when markets will decline or rebound, a strategy of adding to holdings when markets are “on sale” may provide significant advantages versus a strategy of pulling out of the market. Furthermore, dollar cost averaging, in which
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you invest a fixed amount of money at regular intervals, is a disciplined investment strategy that can turn volatility into a potential positive. This strategy ensures that you buy more shares of an investment when prices are low and less when they are high. Ultimately, a lower average cost translates to a higher return when the market swings back up. Since such a plan involves continuous investment in securities regardless of their fluctuating price levels, you should consider your financial ability to continue purchases through periods of low price levels.
Investing across multiple asset classes, styles, sectors and regions reduces risk and enhances the potential for being invested in the best-performing asset class and diminishes the impact of being invested in the worst.
Be Diversified Reduce Volatility and Enhance Returns Diversify your investments. Rather than trying to pick a single investment type and time the market, diversifying across asset classes may decrease your risk and enhance long-term return potential. Not all investment types perform the same during similar time periods. Investing across multiple asset classes, styles, sectors and regions reduces risk and enhances the potential for being invested in the best-performing asset class and diminishes the impact of being invested in the worst. This strategy may be especially important in a difficult market environment when sector rotations and market fluctuations happen continuously. Diversification may reduce the overall volatility of your entire portfolio while helping you achieve above-average long-term returns. Be Confident Be Invested Investors have seen a number of shocks and disruptions to global financial markets caused by both political and economic factors, and markets may react dramatically in response to specific events. While investors may see the market react dramatically to horrific events, they should be far more influenced by their long-term goals and remain disciplined. Maintaining a clear focus on your investment objectives during difficult times is often a determining factor in long-term success. Seasoned investors know that in the long run, markets have shown remarkable resiliency in times of crisis. Investors who are informed, invested, resolute, opportunistic and diversified can have a greater degree of confidence that their investment goals can be met. History has shown that markets can be volatile, but you do not have to navigate these challenging times alone. BlackRock has the experience, insight, global resources and investments to help you stay the course and meet your financial goals. Through our strengths in the areas of investment excellence, global reach, risk management, intellectual leadership and service—as well as our partnership with your Financial Advisor — you can feel confident that your assets are being managed by some of the most experienced and best prepared investment professionals in the industry.
Please note: All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. You should remember past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product.
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Not surprisingly, financial crises tend to be
MSCI World Index: Investing During Uncertain Times
associated with periods of intense market volatility and in many cases, downturns in
1,800
equity markets. The accompanying chart
Annual Total Returns (%)
1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
depicts the MSCI World Index since 1970 SM
and shows that while crises can disrupt
1,600
markets over the short term, over the long term markets have tended to recover. 1,400
1,200
1,000
800
-1.98 19.56 23.55 -14.51 -24.48 34.50 14.71 2.00 18.22 12.67 27.72 -3.30 11.27 23.28 5.77 41.77 42.80 16.76 23.95
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
17.19 -16.52 18.97 -4.66 23.13 5.58 21.32 14.00 16.23 24.80 25.34 -12.92 -16.52 -19.54 33.76 15.25 10.02 20.65 9.57
1970 United States bombs Cambodia
600
1983 United States invades Grenada 1982 Falkland Islands War
1979 Energy bubble-bursting 1979-1980 Union of Soviet Socialist Republics (USSR) in Afghanistan 1973 Arab oil embargo
400
1974 Nixon resigns
200
0 1/70
1/73
1/76
1970-1979: 8.4%
6
1/79
1/82
1
1980 -1
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2001-2002 Post 9/11; Enron/Worldcom
2007 Subprime credit crunch
2000 Technology bubble
2003 War in Iraq
1992 European exchange rate mechanism (ERM) United Kingdom currency crisis 1997 Asian stock market crisis
2008 JPMorgan’s acquisition of Bear Stearns
1990-1991 Gulf War ultimatum 1989 Savings and loan crisis
1998 Russian crisis; Long-Term Capital Management failure; U.S. Embassy bombings in Africa 1995 Oklahoma City bombing 1994 Russia and Mexico crises; Orange County bankruptcy
1987 Black Monday 1986 United States bombs Libya
1/85
80 -1989: 20.7%
1/88
1993 World Trade Center bombing 1991 Gorbachev coup
1/91
1/94
1990-1999: 12.8%
1/97
1/00
1/03
1/06
6/08
2000-2007: 4.0%
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Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. As of June 2007, the MSCI World Index consisted of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The opinions expressed are those of BlackRock as of August 2008 and subject to change. There is no guarantee that the forecasts made will come to pass. This material is not intended as an endorsement of any specific investment. Investment involves risk. This material has been produced by BlackRock for use by Merrill Lynch Financial Advisors in countries and with clients where Merrill Lynch has the appropriate authorization to market the product and use this material. BlackRock takes no responsibility for this Merrill Lynch marketing activity.
You should consider the investment objectives, risks, charges and expenses of any BlackRock mutual fund carefully before investing. Each mutual fund’s prospectus contains this and other information about the fund and is available by contacting your Financial Advisor. The prospectus should be read carefully before investing. Unless otherwise noted, all information contained herein is as of the date of the publication of this brochure. BLACKROCK is a registered trademark of BlackRock, Inc. MSCI WORLD is a registered trademark of Morgan Stanley Capital International.
FOR MORE INFORMATION www.blackrock.com Prepared by BlackRock Investments, Inc., member FINRA. ©2008 BlackRock, Inc. All Rights Reserved. OS2225–9/2008 OS-BCBI-0908-2