For the cave-dwellers in the audience, it may come as a surprise to know that the economy basically threw itself off a cliff late last year. From that point on, it has basically continued to fall, sometimes briefly regaining, only to lose it all again.
Between November 2007 and today (July, 2008), everything has dropped about 15-20%. It’s a fantastic drop, unlike anything I’ve seen since the dot-com bubble thing of the early 2000’s (when I tamely invested only in savings accounts and money market accounts). “Recession” is a hiss and byword among those who keep a finger on the pulse of the markets, and the less stalwart view it as a terrible time to start investing. Some have even gone so far as to cut their losses and cash out (!!!).
To me, this is essentially the stupidest idea ever. If anything, now is _the time_ to scoop up stock. Instead of viewing it as a large loss, view it as a 20% sale — everything, 20% off. This is the _Low_ in “Buy Low, Sell High.” For those cashing out, it’s like saying “I’ll sell this junk to you for 80 cents on the dollar” — why not keep it until it regains value? Why not wait out the storm? Selling low, and buying high (when then market’s doing extremely well) are the exact opposite of what you’re supposed to be doing! 🙂
“But what if it keeps dropping? I’ll lose what I put in, even now!” Quite possible. Maybe you haven’t got the stomach for risk. Maybe you don’t have the time. History gives you a 97% chance to retaining every dollar you invest if you leave it there for 5 years. Leaving it in for 10 or 20 gives you a 100% chance of having some form of gains. So economic-disaster-as-the-world-has-never-seen notwithstanding, you’re in good hands if you have that kind of time. If you don’t, you should be mostly in bonds by now anyway…
Finding out your tolerance for risk (Often called “Risk Capacity”) and then sticking to that metric can keep you free from letting your emotions get in the way of making rational financial decisions. There are numerous places that offer to assess your risk. They all ask about the same things, and give you a relatively good idea of where you should focus. It’s pretty cool, overall.
Now, if only people listened to them… 🙂