Feb. 23 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor’s 500 Index to a 12-year low, as concern that the deepening recession will erode earnings offset the government’s pledge to give more capital to banks.I haven't lost a cent during this debacle and I want to preserve that record. I've said a few times recently that I am tempted to stick my toes in the water. Good thing I lack these.
Guess I'll settle for 1% interest for a while longer.
2 comments:
Just remember, getting 0% interest in a deflationary environment is actually a positive return. We're all so used to inflation that it can be easy to miss the benefits of deflationary mathematics.
Let's say there is "hyper deflation" and prices fall 50% in a year. Due to uncertainty you keep your money in a bank account bearing 0% interest. So $100 at the start of the year will thus be $100 at the end of the year. But factoring in the 50% hyper-deflation you have a 100% gain in real purchasing power.
I guess what I'm getting at is that 1% returns don't sound so bad right now.
While it's no sure thing, it is highly likely that stocks will recover. It is also highly likely that if you wait until things look better to get in, then you will miss the upswing.
"Buy low/sell high" seems obvious, but it isn't. It means buying when almost everyone else is selling and selling when almost everyone else is buying. It means conquering the emotions that are driving everyone else's behavior in the same situation. It's very hard. The easiest way to do this is:
1)Don't go in all at once. That way you won't bet it all on whether you picked the right time to buy. Use dollar cost averaging over several months.
2)Don't pick individual stocks; buy no-load indexes. Buying individual stocks means that you think you're better at picking stocks than the thousands of professionals devoting 40+hrs a week to picking stocks. As bad as they are, you're even worse.
3)Stay in for the long haul. Only sell when you need the income (e.g., you're retired) or to rebalance your portfolio. Doing anything else = trying to time the market = stupid.
4) Rebalance your portfolio yearly.
That's it. No guarantees, but this simple strategy gives you an excellent chance of making money 8% and up in stocks over the long haul (10+ years). There will be good years and bad years. Get over it.
So does the market scare me right now? Hell yeah! But don't let your emotions get the better of you. There's no better bet.
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