I’m sorry I have not been posting as often as I used to but with the new baby, new promotion, and weddings I’ve just not had the time to sit down and write every day. Anyway I’ve been keeping my pulse on most of the personal finance community and one thing that really surprised me is how some of the personal finance bloggers I admire most are reacting to the latest market movements and advocating or adjusting their investing strategies because of short term market fluctuations and the worst part is they are reacting in my opinion counter intuitively.
Now let me get this out of the way first, I admire every single one of these guys and if I had to pick only 5-6 blogs where you could consistently get well written sound financial advice all three of these would be on that list, but I’ve got to question them on some of their recent posts.
First I noticed that Jim over at BluePrint For Financial Prosperity went ahead and liquidated his target retirement 2050 fund. Now he does mention that he has not touched the rest of his portfolio so he’s not entirely gone bonkers, but he is very concerned about the short-term future of the market talking about China and saying things like “my heart is telling me to sit out the next month or so and let everything settle down.” Seeing as how this money isn’t for retirement it may be ok that he finally realized that he had put the money in the wrong investment vehicle, but I still think now would be about the worst time to pull it out of there and the fact that he is pulling out at least in part due to the way the market has headed recently makes me think maybe he is pulling out at least partially for all the wrong reasons.
I think plonkee stated it best
“Well, I think it was either a mistake to hold the money there in the first place or to withdraw it. What were the goals for this money? Or more plainly, when were you planning on spending it? If not for the next ten years, who cares if it goes down now, if you were planning on spending it shortly, what was it doing 100% in stocks anyway?”
Anyway as Jim pointed out most people wouldn’t have even mentioned that they did something like this and I give him all hte credit in the world for being open about it, I just think he panicked on this one and let the short-term fluctuations & media get the best of him and made him think about timing the market. I guess my question for Jim is – if the market was up 15% in July/August instead of down would you still have liquidated that account?
Dave over at My Two Dollars talks about how the markets nose diving and he’s glad he got out. Now again he didn’t liquidate his retirement savings, but cashed out on a number of individual stocks he has.
Of course, the market goes through these wild times every once in a while and it is making me nervous. But for now, I think I will stay put in my funds and not add or take out any money let’s see where this ride takes us.
I guess I was just suprised to see all of these guys trying to time the market. In David’s case he’s decided not add any more money. To me this makes no sense as if the same stocks/funds you thought were good investments are now cheaper and you don’t want to buy them. You’ll wait till they are more expensive to buy?
Then finally Trent at The Simple Dollar advises people to completely get out of an investment when you get nervous. While this may not be horrible advice in every situation, really that decision should be made up front before you buy an investment not when one of the normal anticipated swings happens. Again do the research up front. You know stocks swing widely, in fact what we have right now is really nothing too exciting, but the WORST time to change your mind about an investment vehicle and sell is when things are headed south. Now certainly invidivual investments can change through time and a company may not be what it used to be and is performing poorly and you may decide your money is best invested elsewhere, but when the ENTIRE market is going through a normal fluctuation and it has nothing to do with the quality of your individual investments you’d be pretty dumb in my book to sell those investments.
If I were Lila, I’d move everything into a money market account for a while and sit on it for at least three weeks, then wait until I started feeling confident about the stock market again – or at least until I felt it was close to the bottom, which I don’t think we’ll see for another year
You simply cannot time time the market and trying to do so will only hurt your performance in the long run. Steady regular investments in good times and in bad is what will make you a successful investor, not thinking you can predict the future and burning up all of your money in transaction costs buying and selling everytime some talking head tells you the sky is falling.