“Why would anyone keep investing when the market keeps going lower every day?”
March 09th, 2009 - 36 Comments
A friend forwarded me these, and I wanted to share them with you. Don’t automatically discount them just because they come from a financial company. These are excellent.
Think carefully about where you want to be 10-20 years from now, investing-wise.
The key takeaways:
- If you believe the market will recover and grow over the long term, you need to be investing consistently
- Whether you should be saving or investing depend on the time horizon of your money. If you need your money within the next 5 years (say, for a down payment), you should be saving it in a savings account. This hasn’t changed
- If you truly believe that the next ten or twenty years will be “different” than history (or, admittedly, the same as the last 10 years) and there will be small, or no, returns, you have a few options: Stop investing, pull all your money out of the market (for some reason, many lay investors believe this is the only option), adjust your asset allocation, or extend the timeline of your dollar-cost averaging (i.e., instead of investing $300/month, invest $100/month)
- If you believe that the market will recover and grow, keep investing. Feel free to adjust your investing timeline or any of the other factors above. But you recognize the importance of picking up shares consistently, since you can’t time when they’re high or low
- From my book: “Recently, a group called Dimensional Funds studied the performance of the S&P 500 from January 1970 to December 2006, during which time the annualized return of the market was 11.1%. They also noted something amazing: Of those 36 years from 1970 to 1986, if you missed the 25 days when the stock market performed the best, your return would have dropped from 11.1% to 7.6%, a crippling difference.
Now, if only we could know the best investing days ahead of time.”
- If, however, you believe the news about how this time it’s different, you don’t invest, and then wonder why you only have what you managed to save over the next decade or two (say, a few thousand a year), you have nobody to blame but yourself. Our generation will almost certainly become increasingly conservative investors
- The trick, of course, is that nobody will know for 10-20 years
- No decision is a decision
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