It's been 10 years this month since the stock market bottomed in 2009. It's crazy to think about, in many ways it seems like yesterday and yet it also seems like so long ago.
For the last few years as I've been listening to market and economic expectations, I've been hearing comments about "when" the market will turn down, when the economy will slow down, when this concern and when that one. I'm here to say today that the truth is, no one really knows when any of that will happen... and that's OK.
The bottom line is that if we want to take care of ourselves down the road (and I hope you do!), saving money is necessary. Necessary because we are never guaranteed to have a job, or to have our health, or to have our spouse to financially rely on.
Yes, savings is necessary but what you do with that savings, is not.
Conventional, and sometimes challenged wisdom, is that you then invest some of that saved money.
But with that talk of looming concerns that you sometimes hear out there, what do you invest in now?
Despite some of the calls for a turn around in our market, investing in traditional stocks and bonds still makes sense for many people. In fact, there is a saying that says it's "Time in the market, not timing the market" that's important. What does that mean? Timing the market is trying to buy at the right time and trying to likewise sell at the right time. The "right" time defined as THE best time to make the most gain (i.e: buy at the markets bottom), and avoid the most loss (i.e: sell at the markets top).
Not even the professionals have been able to consistently master that one. Here's an interesting article from USA Today that goes into the numbers here... it compares hypothetical siblings and their investment timing between 1977 to 2018. One invested at the perfect time every time, once just invested consistently every year and the third invested at the worst time every time. If you've never dived into the numbers of this, it's worth the read.
So, if we are not likely to be able to consistently buy and sell at a time that helps us achieve 100% of the growth and avoid any loss, what's a saver to do?
The answer is to have a special blend of those stocks and bonds, one that's tailored to your unique situation. Your need for the money is one aspect to consider (short term or long term, how much or how little), your ability to add to the money and several other factors that are particular to your situation also affect it. This blend, we call 'asset allocation', can help make sure that your saved money has the best chance as possible to grow into what you need it to be someday, and limit (but won't eliminate!) the downside you see along the way. Once you have this blend dialed it, it's simply being IN the market (rather than trying to jump in and jump out at the right time) that has been more historically successful for investors.
If you're still not sure if buying stocks is right for you, yes, there are other options. But, what may seem like an alternative, out of the market panacea will itself come with risks. I can't stress that enough. If you are seeking alternatives, be careful to do your due diligence and research, research, research! Know EXACTLY what you are buying, what the fees are, what the potential losses could be. Ask around... and don't just ask those that have had success in it or are being paid commissions if you invest in it, truly look for people that have seen a variety of outcomes.
*For more about the long term investing and historical market trends and returns one resource I recommend is Stocks for the Long Run by Jeremy Siegel, Professor of Finance at the Wharton School of the University of Pennsylvania
Stay tuned for next months topic: Are Annuities Right For You?