The other day, my husband, Patrick, and I were driving home on the freeway, talking about how the day went. Because I work in the field of investing, the stock market came up.

Patrick said,  “Investing in the stock market is like driving on the freeway.”

I had never heard this analogy, and asked, “What do you mean?”

He said, “Most people try to drive in the fast lane on the freeway, but when someone blocks them, they go to another lane even though in the long run the fast lane will get them there the fastest.

The stock market is the same way. Most people are happy when the stock market is going well and don’t want to leave, but when the market goes down they leave. In the long run, they would be better off if they stayed in the whole time instead of leaving when it got bad.”

I thought that was a good way of looking at it. It seems like it would be the right thing to pull out when things are bad in the stock market, but in reality it only hurts you.

I’ve talked to Dave Young, President of Paragon, about this a few times. He agrees and usually shows me Paragon’s numbers to illustrate this point.

Let’s look at Paragon’s Growth Portfolio called Top Flight as an example.

Top Flight Performance Numbers vs. the S&P 500

2008 (thru 2nd quarter)    -4.70%                  -11.91%
2007                           16.98%                      5.50%
2006                             5.91%                    15.79%
2005                             6.30%                      4.89%
2004                            10.15%                    10.87%
2003                            50.31%                    28.69%
2002                          -13.60%                 -22.12%
2001                              9.10%                  -11.92%
2000                            62.42%                    -8.82%
1999                            17.69%                    20.66%
1998                            31.67%                    28.58%

As you know, past performance is no guarantee of future results, but as you can see in most cases, performance went up after it went down.

Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions. Benchmarks are used for comparative purposes only. Past performance is no guarantee of future results. Investments in securities involve the risk of loss. An investor’s actual returns may vary due to timing of withdrawals, contributions and other factors. Before investing, contact Paragon to discuss your investment objectives, risk tolerance and fees. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation. It is not possible to directly invest in this index.