The market is going down and some personal finance bloggers have lost their minds

The market is going down and some personal finance bloggers have lost their minds

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?

Next up
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.

  • Did you see that I wrote ” I finally made the call to do what I had meant to do for a long time…get out…I had been holding on to my personal stock portfolio for years, long after I stopped investing in individual companies.”

    I didn’t lose my mind at all.

  • MFJ

    Ok – maybe that wasn’t the best title in the world 🙂 I still would question why you decided to stop adding any more money now.

  • Did you see my post yesterday reminding people that investment advice PF Bloggers should be taken with a grain of salt?

    I’m not a forecaster. It’s one thing to say, “This is what I’m doing.” And another to say, “You should do this.” I am sure everyone means well, but really investment professionals exist for a reason.

    I am doubling down! (BTW, I think Jim pulled out because he is going to need the money near term for his wedding, whereas I need mine in 30 years when I retire. Time horizons do matter when making investment decisions.)

  • “investment advice PF Bloggers”

    Sorry, that should read “investment advice from PF Bloggers”

  • j2r

    I’ve been doing quite the opposite. I’ve buying stocks like crazy these past weeks.

    I hope I budgeted everything properly 🙂

  • MFJ

    Yeah just to restate I think all of these bloggers are top notch – just afraid that they were falling into the short-term thinking trap. I agree that Jim had a good reason to not have that money in the 2050 fund in the first place, just now is a peculiar time to pull it out, with the wedding you do what you got to do, I just figured he’d have all his wedding money in savings/money market now a fund with a 43 year time horizon.

    I too have been adding more than my usual amount into the market the last few weeks and was really upset when I saw the market up over 2% today as I had a number of limit orders very close to firing….oh well hopefully the sky is falling and his rebound today is just a blip on the downward death spiral 😉

  • j2r

    As much as I admire Trent, I think that was the wrong advice. I think that’s called panicking.

  • j2r

    I’m not sure aboug “downard death spiral”, since I’ve but quite a large amount of money recently 🙂

    I’m also changing my strategy. Signed up for Income Investments over at Fool. I think I like that strategy better than the growth strategy at Stock Advisors.

  • MFJ

    Ironically I’ve been looking a lot into some dividend stocks (want to start some DRIPS for my kids soon) and I guess in situations like this dividends can help you keep your cool as they might help buffer you in downtimes.

    I just like them as I think they are good learning tool for kids as the dividend payouts are easier for them to understand that their money is making money vs just seeing a share price go up. Plus if they wanted those dividends could be use to purchase things and they still have the principal in place. It gives you more options.

  • It’s good to read someone preaching calm during such a jittery time. As you say, if you’re investing for the long term, surely a downturn should be an opportunity, not a reason for panic selling. I was particularly interested by a reference you made that implied in the US it’s possible to cash in retirement savings early. Did I get that right? Here in the UK once money goes into a designated pension plan, although you can move it to another provider or into different funds, you can’t actually withdraw the cash. You have to wait until you’re at least 50 for that. Are things organised very differently on your side of the Atlantic?

  • MFJ

    No – same rules over here for retirement. The 2050 thing I was referring to was a mutual fund that automatically adjusts its asset allocation over time to make sure you are properly allocated based on your time horizon for retirement.

    See Prospectus here

  • If I was interested in buying individual stocks again, I would def. be going in deep. But since we are slowly moving to almost all funds, the time came to take money out of stocks like I had planned to do.

    No one said I haven’t been putting money into my funds though 🙂

  • MFJ

    Ok my bad – I thought when you said “I think I will stay put in my funds and not add or take out any money…” meant you had stopped putting money into your funds as well.

  • I think I left comments on all the sites, but my feeling is that a lot of it is coincidence with Jim and David. Trent’s advice struck me as a little un-Trent-like and I had to disagree with getting out of the market. I agree with you MFJ, know what you are getting into upfront and if it’s too much risk add some fixed investments to balance or don’t buy the fund at all.

  • Yea I should have clarified the “stay put in my funds”…I meant that I would not be selling them. Good conversation though here, it’s scary when people tell others to get out, jump ship, abandon investing.

  • Thanks for clarifying that, MFJ. Another point I’m curious about, which I wonder if you could shed light on… In the UK we get tax relief at our highest rate (22 per cent for basic rate payers and 40 per cent for higher rate) on cash invested in pension funds. Are there similar incentives in the US? Thank you!

  • MFJ

    In the US you can contribute up to $15,500 per year in an employer sponsored 401k plan and all of the money contributed is exempt from federal personal income tax and also grows tax free. You pay the taxes when you take the money out at retirement.

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  • Hi again MFJ,

    Thanks for that explanation. It sounds like the pension situation is very similar in the US and UK, although the law has been changed recently here to remove a lot of the complex limits on how much you can save and still get tax benefits. This will be good for some of those who already save, but sadly won’t make much difference to those who don’t – but should – be putting money away.

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  • An interesting point and follow up comments. I guess that it is hard to keep finding long term perspective when things aren’t doing so well here and now. And it is hard to find inspiration for articles whilst losing money…
    Love the site by the way.

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