Don’t Invest in the Stock Market

talk, telling me that he was getting some stock certificates that he hadn’t accessed in years.  He was going to sell his stock.  He was an older gentleman, probably in his early seventies.  He then proceeded to tell me that he lost so much money in the stock market that he’d advise people to never invest in the stock market.  I made the remark that everyone tells me that I’m young, so I shouldn’t worry about the volatility of the stock market because I’ve got a long time to weather the ups and downs.

He told me at one point he had been making $14,000 a month from the stock market alone.  He didn’t disclose how much money he invested, but that was his gain monthly from investing in the stock market.  Crazy. I can’t even imagine earning $14,000 a month without having to do any work to earn it.

In 2001 after the 9-11 attacks on the World Trade Center, he lost 50% of his investment value.  Instead of cashing it out, he decided to hold onto it and see exactly how long it would take for the value to come back.  Finally this year he’s caught up and the value of his investments is now equal to what it was ten years ago.  Ten years!

Investing in the stock market has always scared me.  I don’t like the feeling of being vulnerable.  I do have a Roth IRA that is invested in mutual funds, and part of my 401k through work is also invested in different bonds, money market funds, and stocks.  I’ve got a pretty good investment mix, so it’s not like I’ve got all my eggs in one basket.

I feel safer when I invest any extra money into a savings account.  The money is liquid and if I ever need it, I have access to it.  With a money market or regular savings account, I earn interest and my principal is protected.  I’m guaranteed I’m not going to lose money in our savings account.  Granted, the interest rate probably isn’t as high as the rate of inflation, but that’s okay.

One of the most important things about personal finance and money is that you’ve got to do whatever makes you feel safe personally.  If you are comfortable with carrying a responsible amount of debt, that’s fine.  If you choose to do without some things in order to avoid debt, that’s your choice.  You’ve got to do whatever makes you happy.  I try my hardest to find a happy balance between being frugal and living life.  It’s not always easy, but I figure that everything will work out in the end, so I shouldn’t stress too much about it.  Easier said than done.

How do you feel about investing in the stock market?  Does it make you nervous, or do you love investing?


I Sold All of my Company Stock

I logged in to check my 401k performance the other day and realized that about 35% of my 401k portfolio was in company stock.  I personally don’t allocate my contributions to company stock, so it was all from the company match.  While I am thankful for the 401k match, I also don’t like having that much of my 401k tied up in company stock.  I don’t know much about investing, but I do know that it’s not good to have your eggs in one basket, especially in your company stock.

I am reminded of a couple years ago when the bank I work for was not doing so well.  At one point our stock was $45 a share.  Before we were bought out, our stock was down around $2.  Many people, including the branch manager and licensed investment adviser, had their entire 401k in company stock.  To say they lost money would be an understatement.  Unfortunately, I know this happened to many others as well, and not just those who worked at the bank.

I sold all the stock and put it into a money market fund until I decide what I want to do with it.  At least it will be earning interest (although not much) while I make a decision.  I left my future contributions how they were, and I’ll have to go back in 3-6 months and reevaluate.  If I have too much stock then, I’ll sell again. I’m thankful that the company still does a 401k match.

What’s funny is the investment adviser at my branch told me that I shouldn’t do it.  I’d make more money if I left it in the stock.  I didn’t feel comfortable doing so, so I did what I thought was best.

Does your company match your 401k contributions?  Do you receive stock if so?


Investment Ideas for the New Investor

Investing for Beginners

Getting started as an investor is essential in order to begin laying a foundation for financial success. The traditional approach to investing has been to open a retirement account and begin paying into it each month, and then after 30 years—voila!—a nice nest egg is ready for you. Generally, retirement accounts tend to have a heavy amount of exposure to U.S. equity markets due to the stock market’s very strong historical growth figures. But as many close-to-retiree-age folks discovered in 2008, a retirement account heavily exposed to the U.S. equity markets can be diminished in a matter of months if a global economic meltdown erupts.

If you are just beginning to invest and you have 20+ years before retirement, it may be wise to speak with a financial adviser and seriously consider investing in a strategy that seeks to benefit from the explosion of growth in China and India. Let’s examine why.

What should I invest my 401k in?

Retirement planning and investing has a very clear stated goal—to make money over the long term. This goal is why most retirement accounts over the last 30 years have been heavily exposed to the United States equity markets. If we rewind to the 1960’s and 1970’s, where was most of the global economic growth expected to occur over the next 30 years? Of course, the answer is America. Sure, there were other countries during the 60’s and 70’s that were emerging, namely Germany, Japan, and Russia, but it wasn’t thought that any of them would really grow more than the United States over the next few decades.

But this has changed. The 2008 Global Credit Crisis has changed things. The U.S. recovery is currently hitting a major slow-down, and the Federal Reserve is saying that it may take 4-6 years to recover to pre-crisis levels. Growth is expected to be very sluggish for an extended period of time, and no one is really sure what the economic future of America holds. The most difficult reality facing new investors is that there is a strong probability that the U.S. equity market and U.S. economy in general will not grow as steadily over the next 30 years as it has over the previous 30 years. So, what other alternative options are there for new investors?

Investing in Foreign Equities

China, India, and Brazil are currently growing at a red-hot pace, and the growth is not expected to slow down significantly, especially in China and India, anytime soon. Economists generally expect China to surpass the U.S. economy by 2030, but depending on the current U.S. recovery, it could be even sooner. To understand how much the economic balance of power is shifting at the moment, one must understand how the current sluggish recovery in the U.S. and Europe is affecting the global economy. If the U.S. and Europe suffer through very slow and sluggish growth during the next 10 years and China and India continue to grow as expected, the performance gap between these counties will only narrow.

Investing in Foreign Markets

The best decision a new investor may make is to consider investing in emerging market such as China and India. A very small capital exposure to foreign and emerging market has been common in retirement planning over the last 20 years, but the degree of exposure may need to begin increasing significantly in order to truly find yield for your invested capital. There are several ways to take advantage of foreign markets. Forex trading is one. One investing opportunity that is beginning to open up currently is investment in the Chinese Yuan. The Chinese Yuan is expected to increase dramatically over the long-term. Due to several reasons, it is difficult to purchase large amounts of the Yuan right now, but investors can begin positioning themselves for future growth by investing in Exchange Traded Funds. A financial adviser may help explain this option further.

A second, and more common, option is to invest in Chinese and Indian equity markets by purchasing stock in several companies. If you are more interested in investing your money personally, you may be more interested in doing research and determining which companies to invest in individually, or you can invest in an index or mutual fund that is heavily, or even completely exposed, to Chinese and Indian equities.

There is no doubt that the global financial landscape is changing. Emerging market economies are allowing the power of democracy and capitalism to transform their once struggling countries into economic powerhouses. As this transformation continues over the next few decades, investors will increasingly become interested in investing abroad. By taking the first steps now, investors may be able to get in toward the bottom of what could a major move up in several of these markets over the next 30 years.

This is a guest post from Mark Trankle.  Thanks for the awesome post, Mark!

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