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Market in Turmoil
By Jon Menaster | November 13, 2007
It’s been a while since I posted - and things have gotten out of control! The market is up, the market is down, the market is up again.. People have been asking me what’s happening and why is their Roth doing so poorly. Well, I hate to break it to you, but the stock market was born in the random ward of the financial hospital, and it’s most likely going to die there. I am of course referring to the ever relevant investing bible entitled “A Random Walk Down Wall Street”, by Burton Malkiel, in which the author posits his theory that
stock price changes have the same distribution and are independent of each other, so the past movement or trend of a stock price or market cannot be used to predict its future movement.
Of course, this blockbuster idea (the book was initially written in 1973) was met with plenty of harrumphs from the Wall Street corporate types, and cheers from the anti-Wall Street types. Go figure. Either way, the most important thing you can do to save your sanity is to simply ignore the noise. Turn off the TV. Go for a walk. Stop and smell the roses. I promise everything will be waiting for you when you get back. The point is that checking your investments every half hour will do nothing but drive you insane.
Over the long run stock prices tend to go up; that’s all you need to remember. Buy and hold a diversified portfolio of stocks and bonds, and if things run similarly in the next 100 years as they have in the past 100, you’ll be up in the long run. The short run is another matter - and that’s why it’s important that you not panic. Individual stocks, of course, can take a dive and be gone forever should the company close its doors. That’s why you should avoid them like the plague. Indexes, which are a basket of stocks or bonds put together, will always be around, simply because they have the ability to add a new company once an old one has gone bankrupt.
I know it’s difficult, but try your best not to buy into the hype, the noise, the yelling, the screaming, the cajoling, the day in day out huge stream of pressure to get you to make a move. Buying or selling a security is how your broker make money. Find a good fee-based financial adviser that works with you to create a comprehensive plan for your retirement and your money in general. That’s the best advice I would give to anyone who asks what to do right now. Till next time!
Topics: Investing, Money News, Psychology, Retirement |