In response to a few reader questions, all relating to moving their investments into something safer:
Question #1: Why do you really want to sell? Can you predict future movements of the stock market? I can’t. If you could, then you should have known these collapses were coming, shorted these stocks, and made a fortune. If you bet big enough, you’d be retired right now and not reading this.
So you’re not psychic. Then why? The real reason you want to sell is that your investments have dropped by 20% and you’re scared it will fall further. Okay, so you sell. How do you know when to buy back in again? If you use the same logic, you’ll wait until the market has gone up 20% already and you don’t want to be left behind. That’s just another way of saying buy high, sell low. Not a great way to make money.
Question #2: When do you need the money? If it’s still over 25 years from now, then what’s the worry? I don’t need this money for three more decades. Do you remember what the New York Times headlines were 25 years ago? You can bet they were worrying about something. Time horizon is important; Stocks are called long-term investments for a reason.
If you need the money a lot sooner, then you might want to re-examine your risk profile. But I’d still avoid making a rash decision.
By Jonathan Ping | Investing | 9/18/08, 7:10am