Weathering the Current Market “Storm”…
Jun 17 2008
“Buy…sell…buy gold…short stocks…get into oil futures contracts…the Fed’s gonna raise rates…watch out for inflation…”
Sound familiar? In today’s 24-hour news cycle…with business news channels worried about selling their next ad…the amount of “buzz” that fills the air around things financial on TV, radio, the Web and good, old-fashioned print media is astounding. But should you be listening?
According to investing curmudgeons like Paul B. Farrell of Marketwatch.com, probably not. I like Farrell’s musings for the most part and found one of his latest pennings good food for thought. His ‘Brainwashing 101 for Dummies (and Investors!): 11 Reasons Why Passive Investors let Wall Street steal their money’ is vintage Farrell and worth a read.
To a larger point though, how much action do you need to take when the market is on a roller-coaster ride? The answer – according to many seasoned investment pros who don’t have a vested interest in your buying their products – is not much.
By way of example, from 1987 through 2006, a single dollar invested in the S&P 500 Index would have grown to $9.31. However, if you had missed the best 17 months of market performance during that 20-year period through trying to time the market, sitting things out waiting for the market to improve or chasing after hot sectors, your single dollar would only have grown to $2.32…less than if you had simply left it invested in U.S. Treasury Bills, which turned a single dollar into $2.42 without any market gyrations (Source: Morningstar.com).
The moral of the story? Be very careful trying to “outsmart” the market. Consider using a broadly-diversified portfolio of low-cost index funds to build your investment base within the TSP, Roth IRAs and other long-term savings plans. Even the investment sage Warren Buffett – arguably the pre-eminent U.S. investor alive today – commented at the 2008 Bershire Hathaway Shareholder Meeting that the best investment for an individual in his or her 30′s is “…a very low-cost index fund from a reputable company”.
Who am I to argue?
