So many people I talk to are freaking out right now looking at their 401k statements and associated stock or mutual fund portfolios. If you are very close to retirement I can understand why, chances are you won’t be able to regain your losses before you have to start pulling money out. However, most of the people I talk to are nowhere near retirement. They are in their 20’s and 30’s and can’t even touch their 401ks without penalty for several decades. Still, the losses on paper are large enough to make people question their entire investment strategy and pull all of their money out of stocks to invest in bonds or other low yield options.
Investment is long term
I didn’t start investing in my 401k at age 19 because I planned on making a killing by age 20. I invested because I believed the market would grow over time and the value of my investments would grow along with it. I take the same long term approach with my companies and real estate. I’m not in it to flip it. I am in it to create a long term asset.
I don’t “play the stock market”. I don’t day trade. This isn’t Vegas… that is how you lose your ass(ets).
With any market there is going to be fluctuation and sometimes that fluctuation gets out of control either positively or negatively. I remember when my house was supposedly worth 2.5x what I bought it for after just 3 years of ownership. I didn’t complain about market fluctuation then. I also didn’t take out a huge loan against a value that I didn’t think was real, something many people did and are paying for now that prices have come down dramatically.
Big lesson here : Don’t borrow on unrealized gains. The money isn’t real unless it is in your bank account.
I have at least 33 years before I plan on dipping into my 401k. I may not like to look at my statement but I am by no means freaked out. In fact quite the opposite, I see opportunity.
I know that other people are freaked out. I know that other people are thinking short term. I know that this is creating some great long term stock buys on solid companies that will come out of the recession leaner and stronger than before. GE stock at $10? That is a solid company that has a long history of paying dividends. It will be back.
Part of my portfolio was invested in stocks when the Dow was at 5,000 in 1996, 13,850 in 2008 and 6,400 this month. I am going to continue to buy more stock (in a diversified manner) for the next 28 years or so. As I get closer to retirement (my exit) I will probably start moving my money into less volatile short term investment vehicles… but until then I am keeping cool and riding out this downturn without concern.
Please note that this is my personal opinion. I am not a financial advisor.
No tongue lashing on this one.Great post on long term investing Ted! I did financial advising for almost twenty years and believe in what you are sharing! Losses now are only on paper unless liquidated. There are some incredible opportunities long term out there. Enjoy the journey!
If you did play the stock market you could learn a thing or two from Stephen The Dog. You know him, he was a PPP blogger for a while and now he took his PPP money and is playing a weekly market game and blogging it in a segment he calls Financial Fridays. He still can’t spell or string two words together without screwing them up but the dog can make some money, at least for now.
As far as my investing strategy, I just keep putting money into my ROTH each month and waiting.
@Bob Bicknell:
“Losses now are only on paper unless liquidated. ” I love that.
@BenSpark:
I am just happy that you are saving. I can’t believe how many people I know that don’t even have a savings account. I don’t care how much or how little money you make, you should always be stashing some cash away.
Cut up those credit cards and start saving!
My rule for 09 is “If I can’t pay cash, I don’t buy it”. Obviously cars and houses are exceptions to the rule.
On a side note, I use tradeking.com for dabbling in the markets. You might want to check it out.
‘Don’t borrow on unrealized gains’ is the best advice ever – I hope people pay attention to that.
You definitely have the advantage at your age to benefit long term from the market. Now, in my fifties my portfolio isn’t looking as good as it did a few of years ago, but I intend to wait it out as I’m sure it will appreciate in value eventually – and if it doesn’t I’ll be doubly glad I followed the advice to never invest anything I wasn’t prepared to live without.
GE is a good buy. Not sure if you remember, but back in October Warren Buffet put $3 billion in GE @ $22.25 / share. Although he missed the bottom, I’m sure he will end up in the positive on his investment.