Stock Market is for Suckers?

**sweeps** · 01-16-2009, 08:06 AM

I sympathize (empathize?) with your frustration.

However, I think Following The Crowd is for suckers. If you're buying when everyone else is buying and you're selling when everyone else is selling, you will lose. This is a very rough time for stock bulls, but those who are investing right now will win big in the long run. IMHO.

**poundwise** · 01-16-2009, 08:13 AM

You could always invest in real estate.

Oh... wait...

**Broken Arrow** · 01-16-2009, 09:02 AM

Well, it's understandable to question the viability of investing in the current environment, what with so many of us having lost so much capital in such a short time.

However, please understand that the underlying principal of stocks are based on the human equity; the drive create and grow a better company. Not everything about greed is bad. In fact, we are still, in many ways, the envy of the rest of the world. Sure, it's tough for us right now, but is it really as tough as some other countries have it? Think about how we have prospered to this point to begin with.

Another thing to consider is that proper asset allocation shouldn't always be 100% into stock market anyways. Even doing 100% S&P fund isn't exactly well-diversified, because you're only diversified up to one, single market. That's why there is so much emphasis in having non-correlated asset classes, such as bond funds for example, in your portfolio. So, a hit from the market shouldn't be that big, depending on your risk tolerance and target horizon.

I don't know. I don't think it's a sucker's bet, but I do think knowledge is power, and the more we know the more we can understand what we should or should not do in this market, and why....

**disneysteve** · 01-16-2009, 09:24 AM

I'll bet you weren't asking this question a year ago when the DJIA was at 14,000. And you probably won't be asking it 2 or 3 years from now when the market has recovered from the current downturn.

This is normal. The market has lost at least 40% 5 times since 1926. The talking heads like to insist that this time is different. It isn't. The market will recover and start growing again and a few years from now, we will look back on this as the best buying opportunity of our lifetime.

**EEinNJ** · 01-16-2009, 10:37 AM

Broken Arrow, Disney Steve, to clarify, my observation is essentially that in the last 10-15 years equity indexes have not performed up to the much longer term averages that are used to sell/predict average rates of returns.
People like Sir John Templeton and Warren Buffet, even before the current bear market, have predicted we will see much lower returns in the next 5-10 years than we have in the past. True, the US has the largest, most productive economy in the world, but globalization, debt, and the rise of developing economies is undermining that position.

My own accounts are balanced and diversified across large/small cap, international, bond funds, I readjust and don't trade in and out. Even before the dive last year, I was seeing mediocre long term results following this commonly prescribed model.

**jIM_Ohio** · 01-16-2009, 10:45 AM

The issue is that 10 year returns right now are flat or somewhat negative depending on which chart you look at.

The market is NOT for a 10 year investment- it is for 20 year and 30 year (and longer) time horizons.

Obviously many of us track the dollar amount we invest and see we have lost $$. I also look at my number of shares, and that number will nearly be double what it was in 2007 by years end (thanks to buying low and investing more money now than I did in 1996-2006).

Until a person has enough money to be in the growth stage of investing, they will probably not see the true power of compounding.

Remember the phases
1) start out (deposits are a higher than the account balance)
2) accumulation (deposits are a high percent of account balance - when measured by annual expenses or annual deposits)
3) growth (when the portfolio generates more in returns than a person deposits)
4) stability (when the portfolio needs no more deposits and a person can live off the earnings)
5) draw down (when a person has to sell shares to provide the income needed)

Most of people commenting in this thread (I am guessing) are in phase 2 (myself included). I would need my 120 portfolio to increase to a 300k portfolio to consistently earn 10% for me to meet the growth criteria (I deposit close to 30k per year).

**Broken Arrow** · 01-16-2009, 11:18 AM

The only thing I would want to add is to please consider your risk tolerance. Yes, to have money in the stock market is to take on risk. Once averaged out in the long term, it may come out to be a nice return, but in the interim, the market is a volatile place, especially right now.

So yes, we're going to lose capital sometimes. That's the risk, and that's what happened in 2008 (and perhaps this year as well). However, to answer the original question, "Is it a sucker's bet?" again, I don't think that it is....

If it helps, I prefer to see the market as the weather and I on a ship of my own making. The key then is not to wish there was never bad weather, because that is simply impossible. Instead, I can only become the best Captain I can be for my own little ship, and help steer my U.S.S. Portfolio towards a better tomorrow....

If the current market is bothers you, consider changing your portfolio towards a more conservative allocation (which should take more of your money out of the stock market). There's nothing wrong with adjusting one's portfolio accordingly to their risk tolerance....

**jIM_Ohio** · 01-16-2009, 02:19 PM

People should realize the long term return (20+ year) of market is 10-11%.
The volatility is around 14%. This means you are as likely to get a 25% return as a -4% return in any given year.
As time moves into 5 year, 10 year and 20 year periods that volatility shrinks considerably (meaning the volatility of any one years return might be 14, but I think over 3 year periods it drops to around 5-9. Meaning you are as likely to see 10% returns (long term) with highs of 19% and lows of 1% (over 3-5 year periods).

**tripods68** · 01-16-2009, 02:39 PM

Past performance does not equal future returns. In this unprecendented tough times, it may very well take more than 5 + more years to recover entire losses of 2008.

**Goldy1** · 01-18-2009, 07:57 AM

Yes, the whole past performance quote...was sang before this recent crash. I have also heard the phrase "maybe this buy and gold strategy won't work in the future" muffled on tv by some advisors. Not sure what they recomend though b/c buying in and out has proven to not work based on my reading and decrease returns(IN THE PAST) but I do not plan to buy in and out like I am in Vegas.
My reaction has been to continue to invest but less and I have to admit this;don't scold me;ok do if you must but I have been putting some money into a target retirement account 2025 and I am 33 b/c I wanted a more moderate allocation and didn't want to allocate it myself.

**kork13** · 01-18-2009, 10:26 AM

Originally posted by Goldy1 View Post

My reaction has been to continue to invest but less and I have to admit this;don't scold me;ok do if you must but I have been putting some money into a target retirement account 2025 and I am 33 b/c I wanted a more moderate allocation and didn't want to allocate it myself.

You should invest as you feel comfortable. Yes, it's a risk. If you want to be more conservative, then that's just your investing style. As long as you do that with the understanding of what you gain and sacrifice with that more conservative stance, then so be it.

I think what alot of times people may get lectured to about (bad way to put it) is taking aggressive or conservative positions without at the same time understanding WHY they're doing what they're doing. Make your choices, because they're yours to make...just be sure they're educated choices, not ignorant ones.

**vonowen** · 01-18-2009, 10:53 PM

I'm so scared investing my money today due to the global recession

**Broken Arrow** · 01-19-2009, 10:39 AM

Originally posted by vonowen View Post

I'm so scared investing my money today due to the global recession

Well... I mean, that's understandable.

On the other hand, if this is money for the long-term, then it's actually a good opportunity right now. Seriously, a lot of funds out there are very affordable.

However, if it's not for long-term, then you don't have to invest in the stock market. For example, my short-term cash is simply sitting in my bank account right now (but then, it's also earning 5% APY). So, it just depends on what your goals and your options are.

I hope that, as people explore their financial options, they'll also find the opportunity and the way forward amidst all the gloom.

**EEinNJ** · 01-19-2009, 10:40 AM

I really am hoping things will bounce back. They always have before, but past performance... blah blah blah. Risk tolerance is hard to assess until you actually experience the downside. I seen investments tank before, but never so bad across the board. I'm not going to bail out, but I've reduced my expectations and become more conservative.

Stock Market is for Suckers?