Money Madness in a financial blizzard : Weathering The Storm
Posted on October 13th, 2008 in Investing, Retirement
I wanted to offer you all a little good news about this economic turmoil we are all going through, and that good news is, that you can relax and turn this into a positive experience! Let me explain how.
I know that my house fluctuates in value. But I don’t stand in front of my house month-by-month or day-by-day, let alone minute to minute watching a ticker-tape of my home’s value going up and down. We all know that house values fluctuate, especially during a natural disaster like a hurricane or an earthquake. But because I have no knowledge of the actual decrease, I don’t think about selling my house as it decreases in value. I think, instead, that I’ll be in my house for a long time and the house value will recover over time. Thankfully, there is no one to tell me how much my house is worth on a daily basis! Knowing that information would, at best, ruin my sleep and at worst, provoke me to react in a financially self-destructive way.
Unfortunately, the information on the daily movements of my investment portfolio IS available to me. Most of my money invested in the stock market is there to cover my expenses in the next 15-50 years; therefore, for some reason I think it’s critical for me to know how my portfolio is doing minute to minute. When I log on to financial websites or listen to the news with up-to-the-minute information on the market, the news has the illusion of being useful. And the media is being paid by advertisers to convince us that the information IS relevant.
The stock market is doing its best to provide a daily appraisal of the value of thousands of public companies. But we’re currently in the middle of a financial hurricane. We all know it’s unwise to sell a house in the middle of an actual hurricane, like Katrina. So why would we sell our stocks in the middle of a financial hurricane? History has always shown us that we must wait for financial storms to subside before the markets will fairly appraise our homes and portfolios. Once the storms subside and the skies clear, the public, acting as an appraiser, is able to restore normal valuations.
It’s simple : keep your money diversified and take advantage of opportunities as they arise. Some of the richest people in the world made their money by staying centered and awake during the darkest days of a storm.
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Education: The Perfect Financial Storm | Capital Gains and Games – Education: The Perfect Financial Storm. Nov. 13. Stan Collender. Andrew spends his days (and I suspect many nights) at Dartmouth where, as he has reminded us before, he is on the front lines of some of the biggest education battles … Horizon of Stars: How Can Australia Weather the Financial Storm? – How Can Australia Weather the Financial Storm? Solar water heater on a rooftop in Jerusalem, … Image via WikipediaAustralia, like the rest of the world, is coming under some battering from the financial crisis. … Officials: Lehigh equipped to weather financial storm – News – Officials: Lehigh equipped to weather financial storm, |
Tags: Financial Crisis
Hello Spencer,
Comparing this crisis to Katrina brings to mind the fact that hundreds of thousands of people lost their homes COMPLETLY1 NOTHING TO GO BACK TO. What’s wrong with moving to the side lines and reentering when things have stabilized? especially for a senior citizen who might not have 20-30 years to recover crucial principal. I would very much appreciate your response.
Juliet –
The problem is, the odds are against you if you sell when the markets are down. Why? Because you will want to buy back in at some point, and the chances of you buying back in above where you sold are great.
Consider this : Lets say you sell when the market is at 9000. The market drops to 8500, and you feel great about selling. The market drops even more to 8000, and you feel even better. Then the market goes up to 8200, but you don’t buy back in because you are still afraid of it going down. Then it goes up to 8500, 8700, 9000, and now to 9300. You buy in worried that you missing the come back.
Now you have sold low, and bought high, and paid commissions on top of that.
Over the next ten years, as the markets recover, which they will, you would have been better off letting the market go down, and come back then selling low and buying back in high. Of course, had you sold at 9000 and bought back in at 8000, you would have done well, but the chances of you timing the market like that are just not in your favor.
If you aren’t planning on spending all that money you took out, which it sounds like you are not since you are retired, you would be better off letting it ride, and if possible, buying some more while everything is at 30 – 40% off.
The advantage of the Rainbow Portfolio (TM) model, is that it automatically re balances, achieving this for you.
I think I am caught in the storm, and can’t wait for it to get gone!!
Hi Spancer:
I read your book Money madness, it’s great. I am very small investor, i am learning how to invest. I am looking for your new updated Rainbow Portfolio, can you please send to me to my email address. your help will be grately appriciated. I am trying to make my money work insted of i work formy money. So later on I can make good amount of money for my family by using your mathod, which is rainbow portfolio.
thanks,
s. p.
You can get this info by clicking ” Own The Book? ” on the homepage.