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Old Thinking
We do a lot of thinking here at the BCD. We try to figure out what it is that makes this market seem continually alien to even the most experienced investor and we try to make it seem less so to you. We encourage a disciplined contribution to your retirement. We think that having no debt is the crowning achievement of a lifetime, because we know that debt is a very real thing for many of you. We like to think that you keep coming back and keep telling your friends because we are trying to keep you on course towards what we hope is a comfortable life after work. Even if it means that you have to do something else after you retire.
We face the grim reality that your after career life may just be more complicated than you want to admit. We only hope that we can provide you with a little bit of comfort in the thought that what you are doing (paying off your debt, paying yourself, saving what you can), is the right thing to do. On that note, let me talk a little about what is going on in the financial markets and how it does and doesn't effect you.
For the beginner, the term "bull" that you hear a lot in reference to the market is a good thing. The word "bear" would be the opposite. The market runs in cycles of bulls and bears. This should be of little importance to you either way.
We are currently in a new kind of market, so say the talking heads that seem to blossom throughout the landscape like scrub grass. They earn their living trying to determine what the heck is going on... and how they can make money doing it. The market has become a two tiered animal. The "bears" have seemed to become part of the New York Stock Exchange. The "bulls" have embraced the Nasdaq, which was once the red headed stepchild of the financial world. (I love red heads and raised three step children so I have nothing against them either.) These markets have been operating in different directions lately. They call this a new economy/old economy battle and they say that it is new.
Now the older, more experienced investor looks at charts and moving averages and trend lines and hopes beyond hope, that they can find some sense to what is happening. The older more experienced investor reacts little except in their percentages of investments. When things were good, they might keep 75% invested in stocks or mutual funds that buy stocks, 15% in bonds or mutual funds that invested in them, and 10% in cash, or money market funds. This might have been considered a bullish position.
But if this older type investor saw what they perceived to be a turn towards the bearish side, they would decrease their positions in stock, or stock funds to 50%, bond or bond funds to 25%, and the rest in cash or money market accounts. This was considered a safe position to ride out the downturn.
But this thinking has come under fire lately as not being very profitable. And has even been described as foolish. But its not.
This current "bull" market is being described as something that has never happened before. But it has. What the internet supposedly did for this marketplace, electricity did 70 years ago. The internet promises increased productivity and will deliver it enthusiastically. Electricity did the same thing technologically increasing production and allowing businesses to move forward with less employees thus becoming more profitable. The production line at Ford is an often sited example. Over 3,000 automobile companies popped up financed like the internet start-ups of the last year or so. Each company had the new, new thing. Electrical products came to market making companies rich with their promise of endless good times. The wet towel of course was the Crash of 1929. (Before someone starts in, this is a beginner's explanation of what was, compared to what is. There were many other factors at play then, and one of them was margin debt. Key word:debt)
Now this new market consists of companies who often don't make money, sometimes don't have a product, and who might not be here several years from now. The old market companies have profit, products and value. The new market is sexy with hype and momentum. The old market, is well, old.
What does this mean to the BlueCollarDollar reader? Something? Or nothing? A little of both. You should first realize that if you have begun to invest in mutual funds for your retirement, you should look at what they are investing in as compared to your age. Now this might be called dinosaur thinking, but I don't care. If you are young, and somewhat new to the investment game, you are at a stage of life that almost requires you to take some risk. Your funds should be aggressive, chasing this new market as if it were the ice cream truck on a hot summer's day. If you have reached the middle of your investment cycle, you should be looking at balancing your picks with something that might be considered less volatile. What is that, you ask. Good question.
This is where it gets messy. We never started my financial investments until we reached that middle age stage. We raised the kids without really putting anything away for ourselves. We have chosen to be as aggressive as the younger investors. We feel as though we have to be. We anticipate working in some way, shape, or form for the next twenty years or so. Maybe longer. If I work another thirty years, it will compare to the careers of our fathers. So I have to invest with an eye towards being able to take a few lumps. I will have the house paid for by the time we chose to call it quits. But we have to be careful also. An incredibly sudden downturn in the market could hurt if we were close to retirement, but we aren't.
What should you do? That can't be answered by anyone but you. The BCD has set some real guidelines for you to help you pick your future, but you will have to do the picking. If you have decreased your debt or eliminated it altogether, you know what kind of a person you are. You have embraced a certain discipline that becomes a personal accomplishment. You now know yourself very well. Investing takes the same type of personal fortitude. You can do it, and you know it.
The mutual funds that you but into should be good, with good management, and they should be cheap with low expenses and inexpensive initial contributions.
But don't think that because the stock market is racing by you that you are missing something. Many investors are missing it also. Will the stock market return to the days of profits and values and products? Sure it will. Does the current enthusiasm for technology ever have to end? Sure it does. Will you still be investing steadily, using old methods like dollar cost averaging? We can only hope.
We can only hope that you will be a better educated investor in your future. One that is debt free, investment rich, and comfortable. Order your copy of Building Wealth in a Paycheck-to-Paycheck World by Paul Petillo. It is packed with safe, proven wealth-building strategies that cover all the major components of a balanced financial plan, including: |