Are you worried about your market investments?

In My Humble Opinion
1

I’m curious how invested in the market everyone is, as a percentage of your overall wealth.

It’s just that you can’t turn on the news and not hear red flag, after red flag. Anyone pulled out of the market because of it?

The housing market is bust. America’s rating has been downgraded. The banks, not that long ago, were teetering on the brink. Companies are going belly up all over, unemployment is high. And government seems too dysfunctional to help.

I know it’s all overstated and sensationalized, like all news nowadays.

I’m just saying, if the bottom falls out of everything tomorrow, how silly are you going to feel, about losing your investments, when all the signs were right there?

I’m not an economist or even a savy investor, but I can’t help wondering why people aren’t pulling out of the markets and hiding some of their money in their mattresses?

Are you doing anything to protect yourself and your family? If so, what?

2

And I can’t help but wonder why people aren’t jumping into the markets when the S&P 500 is trading at like 11.5x forward earnings.

3

If I knew what this meant your post would have some meaning for me.

4

I think basically it means taking if you add up all the prices of the 500 stocks on the Standard and Poors 500 index and compare it with the projected annual earnings for the same stocks the former figure is 11.5 times the latter.

This ratio is a lot lower than that we’ve seen for quite a while (with the implication that now’s a good time to buy) but IIRC isn’t that unusual in historical terms. And if the world economy nose dives those projected future earnings are going to be far lower anyway.

As to your initial question, I do worry a bit but as the only direct exposure I have is in a retirement account that I can’t touch for 30 years I don’t lose any sleep over it.

5

I was at the gym watching the 4% collapse last week. Then I went home and doubled down. It’s been a pretty good few days so far.

6

As a percentage of overall wealth - more than half - but much of that is in investments for retirement that I won’t need for 20+ years - not worried about that. Some is in college funds - won’t start needing that for 7 years - and that is already in a more short term mix than simple equities.

Since the last crash I’ve been investing primarily in dividend stocks. Yes, I care about the initial investment, but its really the dividend I’m going for. And international funds.

I have nothing I need short term in the stock market.

I figure that the wealthy need somewhere to put their money - there isn’t enough gold in the world. Chances are pretty good that for my lifetime the primary vehicle for people and investment houses will be the stock market. So they’ll put their money back in.

7

No, you shouldn’t try to time the market. Something like 20% of people who actively trade on the stock market beat the average market performance, and there is strong indication most of those that beat the market are doing so because just based on random chance someone has to, something that reinforces this idea is that the 20% who beat the market aren’t the same 20% of people year to year. Only a very small number of individuals consistently beat the market.

The financial services industry would have you believe that they can regularly beat the market, that really isn’t the case.

As an average investor what happens when you try to time the market is you react to a big drop. You sell, you’ve just sold low. Then when the market starts going back up, you buy. You’re buying high.

Does that sound intuitive? To sell when the prices are low and to buy when they are high? It shouldn’t, because that’s how you don’t make money in the market.

If you’re long, and unless you’re working at a desk with 10 32" monitors for a major brokerage house as a day trader I’m going to assume you are long, you need to not try and time the market. There was a period from the late 1890s up through the 1920s when bonds outperformed stocks for a long period of time. Stocks have not had great performance from 2000-2011, but it’s still extremely unlikely that over the next 30 years stocks won’t beat inflation and beat bonds, so no reason to stay out of equities.

As someone who is holding on to an asset long term, your goal is basically to keep investing regularly regardless of price, and if you have spare money invest more when you see the market tanking, because your money gets your more shares at the same price, so when the market goes back up you see very nice gains.

When you get nearer retirement, start moving a greater percentage of your assets to bonds and other stable investments. You don’t want to try and time the market generally, but you do want to protect yourself from having your retirement date coincide with a 5-6 year market downturn which could leave you unable to retire as planned.

For the average retirement investor it’s very questionable to own any significant amount of shares in individual companies, you should instead mostly be invested in various index funds and mutual funds (none with expense ratios above 1%, and most of the ones worth owning you can find at under 0.50%.)

If you do own shares in individual companies I personally think companies like IBM, which have paid a quarterly dividend for decades, and utility company stocks, which often have similar records are good investments. Buy these stocks for their dividend yield, and set it up so your dividends are used to buy new shares. Then when you retire you can actually start collecting the dividends as income, and it won’t matter if random market fluctuations has IBM valued at 30% less than it’s really worth, because you aren’t living off that stock valuation but instead the dividend payout. Certain trusts can be good to own as well, there are some Canadian Income Trusts linked to natural resources and etc, which as part of their governing rules have to give out a certain portion of their earnings in dividends every year, since they are linked to things like oil production they are fairly safe investments that pay regular dividends.

8

Good post MH. OP, go read www.motleyfool.com if you’d like some more good background re: investing.

Personally, I’m fully invested in stocks in all retirement and taxable (through index ETFs mainly). I’m currently thinking about various ways to borrow to buy more and when exactly to do that.

9

About 75% of our net worth is in the market, in mutual funds that are mostly stocks. 10% in home equity, the rest in a savings account. We’re in our early 40’s.

That’s an interesting statement, mostly because of the “if.” IF the bottom falls out, then you’ll say all the signs were there. But if the bottom DOESN’T fall out, then what does all that same information mean? Clearly all the signs aren’t there, if there’s some uncertainty about whether the bottom will fall out.

Look at the long-term history of the market. Short-term investing is a crapshoot, but in the past ~100 years, there hasn’t been a 30-year period where long-term investors haven’t come out ahead. Some years you’re down, some years you’re up, but over the course of many years, you are very probably up. Private investors have a woefully short risk horizon; they tend to think just a few years into the future instead of 20-30 years into the future, and they make expensive decisions because of that shortsightedness. As Martin Hyde says, they tend to sell low and buy high, the exact opposite of what you want to do. The famous expression is this: “The time to buy is when there’s blood in the streets.” Market’s tanking? Great, cut another check and deposit it in your favorite mutual fund.

Staying in the market. I’ve got at least 25 years before I need to start drawing on my investments, so I’m letting everything ride. My retirement contributions at work are maxed out, so are my wife’s, and we continue to move money from our savings account to our private investments on a monthly basis. If we somehow both get laid off, we have enough in our savings account to pay our bills for over a year before we need to think about selling some investments.

I just read this article this morning. The first part is about the problem of people not having enough savings for retirement, but the second part (beginning with “Individual investors also make things worse”) is relevant here, talking about how private investors sabotage their own retirement investments.

If you want more coaching about investment, I recommend a couple of books:

The first is The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk. The author spends a good bit of the early chapters giving you simple, real-world examples (involving coin tosses) that help you understand how long-term investing works well in spite of market fluctuations, and how diversifying your portfolio helps to reduce risk. He also acknowledges the emotional difficulty that many investors have when it comes to leaving your money out there (and even continuing to put more out there) while the market drops. He’ll show you charts that confirm what I claimed earlier: people who invest for the long term (put your money out there and leave it for 20-30 years) have always done well.

The second book is The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns. This was written by John Bogle, the founder of Vanguard investments. He’s been a big proponent of index funds for decades.

10

I don’t pay a lot of attention to the financial news. I have money set aside in various types of investments, which I add to regularly. This is money that I don’t expect to need for a long time – several decades. Regardless of what the market does, I don’t plan to sell.

11

Forward earnings projections are not distributable cash flows and some of us doubt how useful of a metric they are.

12

I hardly have anything in the market. My employer just started offering a 401(k) plan last year, and I’ve been contributing a pretty minimal amount because they just switched us to an HSA/HDHP medical insurance plan and I’m making sure I have enough in the HSA to cover my deductible.

I think the account might be worth about $3 grand right now. Probably a bit less after last week (it’s all in aggressive growth). Even if it was $3,000,000 I wouldn’t be worried, though.

13

Being 27 years old, I’m not worried. From a purely selfish point of view, I’d love for the market to crash again so that I could buy as much as possible.

14

Something I read in one of those books: “If you’re young, pray for a bear market; if you’re old, pray for a bull market.”

15

We had 2012 pencilled in for the next crash (circumstances seem to have prompted it early), so you might still get your wish.

I’m not too worried about my investments, but I have them in money markets and am not planning to move them into higher-risk until after 2012 at the earliest. We don’t have a lot of money in RRSPs, either (401ks to US Americans); we have other ideas for retirement funds.

16

The last big crash took my wife’s and her co-workers 401Ks from around 50K to 20K. They were both panicky and wanted to jump ship. I told my wife to sit tight and keep her money right where it was in stocks.
Her co-worker couldn’t handle the pressure and moved everything into bonds.

One of them made their money back and then some. The other one is sitting a bit above the 20K mark.

Who was the silly one?

17

I don’t know, but what the hell did they have in their 401(k)s that lost half its value?

18

in spring '09, the entire market was down about 50% from its peak a year and a half earlier.

19

How much good will a mayonnaise jar full of hundred dollar bills do you after the economic apocalypse? The market equivalent of the mayonnaise jar is precious metals, and sure enough people actually are fleeing into that section of the market like never before.

20

Sorry, next time I quickly advise someone on a message board not to store his 401(k) in his mattress, I’ll first calculate the mean cash flow ratio of the entire S&P 500.