Timely template letter: An illustrated case for staying invested

(February 2005) Are your clients puzzled and frustrated by the lacklustre performance of today’s markets, such that they’re losing sight of their long-term goals? Then send them this template letter that uses two charts to illustrate the importance of staying invested. This will also remind them that you are just a phone call away and can provide additional information and perspective.

Dear [Client’s name]

When we first began investing together, we discussed the importance of long-range thinking – that is to say, returns are best measured over decades, not just years. Sometimes when the markets are soaring, it’s easy to forget that there also have been (and will be) times when the economy isn’t quite so robust. I’m writing you this letter to remind you to keep your long-term goals in sight.

It’s often said that a picture is worth a thousand words, so I’ve attached two charts to illustrate how the stock markets have performed in the past, and why it’s so important to remain invested.

This first chart shows the performance of the S&P/TSX Composite Index over the last five years. It follows the fortunes of the 300 largest stocks on the Toronto exchange, and is a good way to measure the overall health of the market. You’ll notice that while the market hasn’t quite reached the heights it was at in the fall of 2000, it is on an upward trend.

Someone who had panicked (or declined to invest) when the market was down in late 2002 would have missed out on all of the growth we’ve experienced since then—about 3,000 points worth!

The next chart shows how the same index has performed since 1985:

Now think back to all the events that took place during the late 1980s and early 1990s.

Do you see that short decline in the first quarter of the chart? That was the infamous “Black Monday” of October 19, 1987, when the Dow Jones dropped 22%. Newspaper headlines and TV reports were full of doom and gloom, and many investors were desperate to redeem their funds. There was also the Gulf War and the 1990s recession, but the chart shows without a doubt that those who rode out the rough spots and stayed in the market are certainly better off today!

You may be frustrated with the markets at the moment, and that’s natural—but history has shown that cooler heads prevail over the long term. If you have any questions or would like to discuss your situation in greater detail, please don’t hesitate to call me to book an appointment. I’d be happy to explain your options and provide a little extra perspective on the markets.

Sincerely,

[Your signature]

[Your name]

02/18/05