You Need To Be in the Market
By LAWRENCE MURRAY WITH HELP FROM WSJ’S DAVE KANSAS
The Dow Jones Industrial Average is retracing the steps from 1996 and almost 50% below its record levels reached in the fall of 2007. The Nasdaq Composite on the other hand has fallen to near lows where it lost 70% of its value earlier in the decade. Then take Japans 75% market loss starting in 1990. The markets are a long term forward looking deposit system and in the past 2 weeks have displaying some signs of life.
Is the stock market still a good vehicle for long term investing like for retirement since the stock-market averages are struggling so much?
Saving and investing depends a great deal on where you are in your life cycle. A good rule of thumb is to use your age to determine how much you should have invested in the safer assets, such as cash, money market funds, Treasurys and corporate bonds. If you are 50, then you should have less than 50% of your assets in stocks and 50% in safer assets. If you are 30, then your retirement accounts should have a 70%-30% mix of stocks and bonds. Some people argue for the "rule of 110," which is modestly more aggressive. That rule argues for subtracting your age from 110, and having that amount of money in the stock market. So, if you are 50, you'd have 60% (110 minus 50) of your investments in the stock market.
But no matter which rule you use to make up your plan, the older you get, the more you want to move your assets away from the stock market, preserving the gains you've made. If you have a 401K, add to it regularly. Then rebalance, or if your administrator allows, automatic quarterly rebalancing, annually changing the percentage by one percent more into safer assets. Some people try to even maximize this simple adjustment to realize the top of the market for the year to add to performance as well as adding small amounts to their retirement account if the market moves down. In this way, you hope to buy low and sell high. I say, always buy and always look for an opportunity to sell.
One of the biggest mistakes research have found in the data indicates that individuals tend to bail out of the stock market closer to bottoms than to tops. Making a plan avoids this temptation as most market timer’s performance has usually not played out particularly well.
Moreover, it is usually at the depths of economic difficulty where the stock market starts to rebound. The stock market is a forward-looking investment instrument, meaning that it starts to rebound well before the economic data show that things are getting better.
So, as tough as this period has been for the long-term investor, there are ample reasons to stick with a long-term plan that includes a large role for the stock market.
The Dow Jones Industrial Average is retracing the steps from 1996 and almost 50% below its record levels reached in the fall of 2007. The Nasdaq Composite on the other hand has fallen to near lows where it lost 70% of its value earlier in the decade. Then take Japans 75% market loss starting in 1990. The markets are a long term forward looking deposit system and in the past 2 weeks have displaying some signs of life.
Is the stock market still a good vehicle for long term investing like for retirement since the stock-market averages are struggling so much?
Saving and investing depends a great deal on where you are in your life cycle. A good rule of thumb is to use your age to determine how much you should have invested in the safer assets, such as cash, money market funds, Treasurys and corporate bonds. If you are 50, then you should have less than 50% of your assets in stocks and 50% in safer assets. If you are 30, then your retirement accounts should have a 70%-30% mix of stocks and bonds. Some people argue for the "rule of 110," which is modestly more aggressive. That rule argues for subtracting your age from 110, and having that amount of money in the stock market. So, if you are 50, you'd have 60% (110 minus 50) of your investments in the stock market.
But no matter which rule you use to make up your plan, the older you get, the more you want to move your assets away from the stock market, preserving the gains you've made. If you have a 401K, add to it regularly. Then rebalance, or if your administrator allows, automatic quarterly rebalancing, annually changing the percentage by one percent more into safer assets. Some people try to even maximize this simple adjustment to realize the top of the market for the year to add to performance as well as adding small amounts to their retirement account if the market moves down. In this way, you hope to buy low and sell high. I say, always buy and always look for an opportunity to sell.
One of the biggest mistakes research have found in the data indicates that individuals tend to bail out of the stock market closer to bottoms than to tops. Making a plan avoids this temptation as most market timer’s performance has usually not played out particularly well.
Moreover, it is usually at the depths of economic difficulty where the stock market starts to rebound. The stock market is a forward-looking investment instrument, meaning that it starts to rebound well before the economic data show that things are getting better.
So, as tough as this period has been for the long-term investor, there are ample reasons to stick with a long-term plan that includes a large role for the stock market.
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Replies to This Discussion
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Permalink Reply by Jim on -
Hopefully the brokers for those who bought stocks/bonds try to persuade those who want to sell when the market is down to wait.
Those who bought only one or a few stocks probably won't have one and may sell out of fear and or uncertainty. (before it gets lower) -
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Permalink Reply by Lawrence Murray on -
If the markets went down just because some people sell, we would not see the rapid loss of wealth as we did in 1929 and now. But today we allow people to short a stock driving it down without even owning the stock-it is pure gambling but you can be so big that it is like making minimum wages on a job in the USA. This is what they did to Leman Brothers making some people rich at others expense. I am apposed to this. I want the uptick rule back and derivates ended.
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Permalink Reply by Paul Kopper on -
With the market at record lows, in my humble opinion, you need to invest now. Dollar cost average if you must, but now is the time to start. You could look back in 12 months and say, "Gee, I should have..." Or, you could say, "I'm glad I didn't...", but if you don't do anything, "could of, would of, should of..." Or, if you were already in and have lost a lot (like I have), now is the time to buy some more and dollar cost average, buy cheap on the way back up.... Just my humble opinion...
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Permalink Reply by Lawrence Murray on
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Wish we could get a mutual fund that helps us get the stuff we need to make America better so we did not have to do most of it with government help. My idea is to even invest in new technologies.
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Permalink Reply by Lawrence Murray on
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And the markets went up 20%. That is a good year. We are starting to see money move and creditors taking shares in companies we thought were going out of business like Ford (F). The jobs picture is not improving, but some companies are hiring and the stimulus will put some to work very soon. But we have to see Washington DC make more changes. And keeping the pressure on them is what PickensPlan is about. Otherwise, we get the same result: no innovation, billions of dollars to prop up other governments, with the peak of oil globally prices will skyrocket once out of the recession.
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