Follow the Investing Herd at your Own Peril
I love the questions I receive from the MBA students in the investing class I’m teaching. A recent favorite is:
Should I put all my savings into the stock market now?
The level of the DOW Industrial average should not impact your investing decision!
Investing is a long term wealth building strategy. In spite of the day traders and active fund managers’ machinations, only about 30 percent of active fund managers beat unmanaged index funds in any one year. And those managers that beat the indexes one year, are unlikely to outperform in subsequent years.
What does this investing data mean for you?
Rarely is it a good idea to put all your money into the market at once. It doesn’t matter if the DOW is at a peak or a trough (and you won’t know for certain until later), dollar cost averaging is the best way to buy more shares when asset prices are low and less when they are higher. Choose a set amount of cash and invest it at regular periods; monthly, or quarterly. If you have a workplace retirement account, you’re already doing that.
Do not be swayed by the enthusiastic talk on CNBC. “Investing should be like watching paint dry”, according to famed economist Paul Samuelson.
If you haven’t started investing yet, make sure you follow these “10 Steps to Take Before Investing“.
Start investing regularly and be prepared for your stock and bond investment values to fluctuate. The only time to consider putting a large chunk of cash into the markets is after a big drop in market prices, not after a big gain!
Business Insider-Why Consumer Sentiment is Spiking-Investors are happy, stocks are up. Homeowners are happy, home values are up. Gas prices are lower, yea. Enjoy this part of the business cycle and educate yourself about the ups and downs of the economy. Save and invest now to prepare for the downturn which will come in the future.
BBC News-Retirement Harmful to Health-For all you “early retirement” seekers, why bother? Keep working and stay healthier. Who knew? It’s better to work!
GoGirl Finance-How to Know if You’re Ready to Invest- Know the basics before taking the plunge. It’s tempting to chase a rising market. Don’t start investing without getting rid of debt and basic knowledge.
Good Financial Cents-Couples Finances-What if You Don’t Agree? There is no right way for couples to handle their finances. But, you do need to communicate and resolve the money issues that prevent you from moving forward.
Frugal Rules-Things I Would Never Do: The 97 Month Car Loan-I guess paying cash for a car loan is the other extreme. Better to shorten the loan or save for a new car and pay cash!
Rick Ferri-The Bubblegum Ratio and Future Stock Returns-If you’re enthralled with investment ratios (as I am) you’ll find this humorous study of the “bubblegum ratio” thought provoking. Makes one wonder whether any ratio can predict future stock market returns.
Barb Across the Web
1099 MomLinsey Knerl reviews How to Get Rich: Wealth Building Guide for the Financially Illiterate. I am humbled by this glowing review.
Steve at MoneyPlanSOS.com posts my YouTube interview from Fincon 2012.
Carnival of Financial Planning at Hurricanes, Panties
Carnival of MoneyPros at My Personal Finance Journey
Finance Carnival for Young Adults at WILDaboutFinance
Are you starting to invest now? For the seasoned investors, are you changing your strategy now that the market is up?
image credit: google images_mother jones