And while you’re at it, provide me the winning numbers to this week’s lottery.
I have a CD coming due, and I’m trying to make up my mind to turn it over for 4.7% or to instead invest it in an index fund. The latter seemed like a very good idea at first, but lately I’ve been reading a few doom-and-gloom predictions for the stock market in 2008 and it’s scaring me.
What does the crystal ball say, Doper financial wizards?
Some energy stocks are going to soar do to increased demand in the face of pressure from developing nations. Tech stocks are going to be hit and miss as some companies hit it big with new innovations while some start to fail. Biotech will be hot but watch out for those multi-billion dollar lawsuits hitting the players both big and small. The domestic auto industry will continue to fail in parts but will be offset by some of the big players left and strong sales of foreign autos many of which are built on U.S. shores. The construction industry will be way down so vote against home improvement mega-stores like Home Depot. A sagging economy will push money straight into downscale mega-retailers like Wal-Mart.
FYI, Countrywide has decent CD rates for a little while (5.10% for 12 months, 5.50% for 3 and 6 month terms) - it is not advised to go above $100,000 so you qualify for FDIC insurance. https://bank.countrywide.com/CWBRates.aspx
…at least until you decide what you want to do. Countrywide has been in a bad light due to the mortgage crisis. But FDIC is FDIC and you will not lose any principal.
Nobody on earth has any idea what the stock market will do. You want to hold index funds for at least 5+ years, the short term fluctuations don’t really mean much. You would have to decide how comfortable you are leaving your money there for that long.
Of course everybody’s needs are different, and your course of action depends on your individual circumstances. What is your intended use of the this money (savings, retirement, down payment, etc…)?
Savings and down payments generally need to stay in CD’s, money markets, or short-term bonds. For retirement and long term goals, they belong in a combination of stocks/bonds in an asset allocation that suits your needs for your age and risk tolerance.
I already have my 401k arranged, which is asset-allocated according to my age and retirement date. The money in question is savings money, but interest rates have been clipped down since I started doing CDs. I thought I’d keep some money in CDs and perhaps do an index fund with some of the rest to try to ramp up the earned interest a bit. Energy funds do seem alluring; I don’t see anyone cutting back on fuel usage anytime soon, nor are they making any progress on the introduction of ethanol as a viable energy alternative. Hmmmm.
Nobody knows. If they really did know, they would have their money already invested in those positions that they, “knew,” would become more valuable. Securities are already priced with what the overall market (including a lot of eggheads with economics PhD’s at investment banks) predicts will be their future value.
So, based upon the market’s long-term performance, it still makes sense to be widely invested, but there are risks, YMMV, and no one knows what will do well for sure.
Given the weakness in many different areas of the economy (high debt, weak dollar, still-plunging housing market, poor manufacturing and retail performance), I’d be very hesitant to jump into the stock market right now. I’d stick with a guaranteed 5% in a money market fund for the near term. If the stock market plunges during the next year, then consider transferring that money into index funds.
No one knows what’s going to happen, but most people think the economy could just as easily take a dive as do well. That’s a lot of risk for not much reward.
Stock market investing is based on the idea that over the long term, the stock market goes up. But over the short term (and one year is a short term), the market could do anything. You shouldn’t put money into stocks if you are going to want to use it any time soon. If you are saving up for a new car or something, stick to the CD. If that is your rainy-day money, DEFINITELY stick to the CD. If it’s retirement savings, an index fund is a fine idea.
These days, I tend to look at buying in the energy sector like this (or any “hot” stock/sector):
Today, you see a car that you want that is for sale and is priced at $5,000. You want to wait to see what it’ll be tomorrow.
Tomorrow comes and the car is now $5200, not too bad but it is increasing. You decide to hold off.
On the third day, the car is going for $6,000! Wow! “It must be a good car if it’s priced so high!” you say to your self.
On the fourth day, you see it’s $6,800.
On the fifth day, you decide to buy it at $7,200 before you lose out on any money in the coming days.
Anybody in there right mind wouldn’t do this with a car, why would they do it with stocks? That is how I view market timing and the misinformation about buying into the hype of something because someone else is. Sadly, this stuff is discussed around the water cooler everyday in related to “smart investing”.
Index funds are for suckers. You’d be better off in a CD. Personally, I prefer individual stock investing, where you at least have control of where your money is. I stayed in growth stocks last year and made 37%. On the other hand, my Thrift Savings Plan money, which is in index funds, barely made anything. Growth stocks are still strong, despite recent downturns. Buy a reputable stock advisor newsletter, such as the ones put out by Louis Navellier, and stop letting others pick your slow death for you.