By Gary Silverman, CFP®
I’ve been hearing from quite a few people lately who are having reservations about having money in the stock market. So, the question for today is: When should you stop investing in stocks?
The first thing to forget about is that stocks are the most common investment that gives the best long-term growth. That is true, but that doesn’t mean you have to use them. You can successfully retire having all your money in a checking account. It just means you’ll either need to save more while you are working or spend less when you are retired compared to a portfolio that includes stocks.
What you need to look at are the times (like now) when stocks go down for a while. That little “problem” with stocks can cause you problems in several ways. Let’s say that you will need to buy a car sometime in the next two years. The money you are saving for that should not be put in the stock market. There are myriad times when stocks go down and take well over two years to get back to where they were. Investing in them when you have a purchase that will happen before they have time to recover is probably stupid or at best a gamble. Don’t gamble with your ability to drive to work or the grandkids’ soccer games.
The other reason you should not invest in stocks is if you are the type of person who wants to sell after they have fallen 20% (or whatever they’ve gotten to when you read this) to make the bleeding stop. You should also not invest in stocks if you are the type of person who would sell if they fell another 10, 20, or 30% from here. Selling after the stock market crumbles is not smart. You must be the type of person who can ride the market down and back up again. If you can’t do that, you shouldn’t be in the stock market.
And if you tell me you’d get out and then get back in when everything settles down, I don’t want to hear it. Several times a year I tell my readers that I know of no good way to get this right on a regular basis.
Instead, most professional money managers would recommend that you mix non-stocks with stocks so that your overall portfolio’s downside is limited. I agree with this, but if you are the type of person who would look inside that portfolio, see the stock portion go down 40% and then sell even if it makes up a small part of your portfolio, then you just shouldn’t be in stocks. Try to ride this one out, sell once things get better, and don’t look back.
May Ukraine stay free.
Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.