I found this warning about trying to time the markets in the St. Louis Post-Dispatch over the weekend. The warning was that 2009 was when the stock market bottomed out. Nobody predicted that was when it was going to happen. People who were buying stocks in 2009, when things looked bleak, are sitting much prettier than people who weren’t.
Although the economy as a whole is still a bit shaky, the stock market has had a historic run from 2009 to now. It just goes to show that the markets are fickle. Very fickle.
When the market was sinking fast and hard in 2009, I saw an opportunity. The fortune my grandfather made in the Great Depression is something of a family legend. (Where that money went is another legend that I’m not interested in speaking about.) That year looked like it might be the best opportunity I would see in my lifetime, so I sunk every dime I could into my 401(K) that year and encouraged my coworkers to do the same, though the most vocal of them were certainly talking about how much of a waste of time the 401(K) was, as far as they could tell.
I don’t know how many listened, but those who did probably are glad they did.
You can’t time the market. The best you can do is buy whatever is cheap. Take the emotion out of it. Set it up and make it automatic. Buy stock every payday by having automatic withdrawals, set a mix of blue-chip stocks, growth stocks, small company stocks, and bonds, and set the portfolio to rebalance. Some years it’s been the big companies that made the best return and some years it’s the small ones. Rebalancing forces you to buy low and sell high, to take last year’s profits and turn them into next year’s.
Remember. The market is fickle. It’s not God, and it’s not infallible. It’s actually very fickle and stupid. The way you beat a fickle and stupid market is by not being fickle. Don’t trust the market. It’s not trustworthy. Exploit the market.
I’ve had financial advisors try to sell me other gimmicky investments over the years. None has come close to matching the simple formula of evenly dividing holdings between those four categories in plain, simple no-load index funds. (You may have to settle for a managed fund for your growth holdings, but that’s OK.) Then rebalance. Whether it’s better to rebalance once a year or once a month or once a quarter is unclear. Your 401(K) may only give you one option anyway, so don’t obsess over it. The important thing is having a schedule.
When I was still in my 20s, I lost most of my retirement savings to poor management. I don’t intend to repeat that.
Oh, and one more thing: Don’t look at your financial statements. Toss them in a drawer in case you need them. The only time I look at them is when I’m trying to get a mortgage. Real estate is cheap, but stocks are expensive, so I’m buying real estate. I have to prove I have six months’ worth of mortgage payments stashed somewhere to get a loan, so that’s when I look at those statements–and then, just to make sure the big number is big enough, and that I’m putting it right-side up in the scanner.