Yesterday’s Net Worth update is the source of inspiration for today’s blog post. Not because of anything I did, but because of the comments you all left. They were made in regards to investment strategies, particularly heavily investing in the stock market. One commenter was all for it, the other wasn’t the biggest fan. I love when peeps leave opinionated comments as it allows for some great conversation.
The first comment reads…
I think your “100% stock” strategy is pretty good for your age – historically, the stock market has always outperformed other investment instruments and it’s a good bet that will still be the case, in spite of the market’s natural volatility (including huge psychological swings, but you majored in psychology, right?). If you happen to need your stock-invested money at the wrong time, then you are indeed hosed. But you seem to have picked up on that and have a nice amount of cash on hand to see you through an emergency.
And a completely different view…
I sold my last stock before the crash. Very happy about that. Now I just have one more mutual fund to get rid of and I’ll finally achieve my goal of all cash! Be careful of the buy and hold mentality, it’s quite dangerous. Do you have any time frame of when to sell? When is a good time to sell? How about re-balancing your investments towards less risky stuff in the future? Tough questions but crucial for retirement planning, usually neglected until it’s too late.
As you can see, Lola and StackingCash (SC) hold pretty different opinions on the safety of investing in the market. As you already know, I side with Lola. I’m a huge proponent of the long term investing strategy, particularly in diversified mutual funds.
So who is right? Lola or SC? I think you already know the answer….they both are. For someone like Lola, who is willing to take on some risk to reap a large return, the volatility of the market is nothing to worry about. For SC, however, cash is king. Who needs to take on risk, if you can find comfort in liquidity?
I personally believe in the US economy. Sure, the last couple years have been no fun, but I don’t think that negates the overall growth of the market. In fact, the Dow Jones has grown over 1,340% in the last 39 years. No, that’s not a typo. It really has grown over a thousand percent. Now call me crazy, but if you don’t think that’s sexy, I don’t know what is. If someone out there can find me a non-stock investment strategy that trumps this please let me know below so I can get in on that action.
I’d never tell someone to invest in the market, just like I would never tell someone to get out of it. That is a decision each person has to make for themselves. What are their goals? What’s their emotional attachment to their money? How much time do they have? What if their nipples turn in to Eggo waffles (just wanted to make sure you are still paying attention:))?
The phrase “Different strokes for different folks” is totally applicable with respect to investment strategies. My plan, may not be your plan, and you know what? That’s okay.
So I ask you fellow PFers… What’s your investment strategy? Are you a risk taker? Is liquidity your best friend? Why do you invest the way you do, or in other words, who do you get your advice from?