Taking The Stock Market PunchesThis is the fourth installment of my three-part series on why you should include stocks in your retirement savings. Fourth part of three? Don’t worry; I am actually good with numbers. The last three columns discussed why buying stocks makes sense when preparing for and living through retirement. This fourth article is different. Instead of saying why you should include stocks, I’m looking at why a whole bunch of folks can’t seem to hold onto them.
In almost everything we buy, low prices seem like a good thing. If a computer I was going to buy for $2000 was priced at $1700, I wouldn’t worry about buying it. Sure, the price may come down more, but I am getting a heck of a deal if I scoop it up now.
I like cooking fish (the fish, on the other hand, aren’t as thrilled about this). When I was picking up some salmon, cod, and halibut the other day, I noticed that the salmon was on sale. I put back some of the cod and halibut and picked up more salmon. If it was good the day before at one price, it seemed even better for a dollar off.
When it comes to investments, however, folks don’t like it when they are on sale. Since the stock market has averaged one 30% down year for every five since World War II, folks see sales quite regularly. That the stock market has grown to 50 times its value since then is no consolation when you’re watching your portfolio plummet that one year out of five.
This, I believe, is because of a phenomenon involving investments. If fish or computer prices are down, we realize that they may go lower. But we also know, with a fair amount of certainty, that prices are not going down to zero. Not so with stocks. People know there is a chance for a stock to completely lose all of its value.
While that is a valid point if we talk about a single stock, it is not when we talk about the stock market. A single stock can go bankrupt. Barring the U.S. government nationalizing all public companies, a successful invasion of a foreign power, or the caldera under Yellowstone erupting and ending all life in the United States, it isn’t likely that the companies in the S&P 500 or any other stock index are all heading to zero at the same time.
And if any of those events happen, trust me; your retirement portfolio won’t be on the top of your mind.
So, with my encouragement, and your own study, you may start adding or increasing your holdings of stocks in your investment mix. But please don’t do so if you can’t stand what might happen next. 2008 wasn’t that long ago. You’ve seen how dire the market can look. You’ve seen fear in the eyes of many investors—amateurs and professionals alike. The stock market will punch you in the gut now and then. Toughen up, be ready for it, and make sure you have a good defense in case of this inevitability.
That, or stay out of the fight.
This article was published under the title "Stock Market to Deliver punches in the gut at times"
in the WichitaFalls Times Record Newson April 30, 2011.
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