Investing Scared: Part 1
By Gary Silverman, CFP®
Recently, I’ve been making the case for why you should include stocks in your portfolio. As I turn the page we begin a new chapter that shifts to why a whole bunch of folks can’t seem to hold onto those stocks.
Some of this may seem familiar. See, I named this column and the next few “Investing Scared,” because that’s often what investors seem to be doing. Around the time of the election and this year’s inauguration, we talked about how folks were scared how the markets could react. So, even if it seems familiar, the information is important enough to look at again.
In almost everything we buy, low prices seem like a good thing. If a computer I was going to buy for $1000 was on sale for $700, 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 to a lot of people when they’re watching their 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 the values 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 something like the caldera under Yellowstone erupting and ending civilization 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.
Next week we’ll look at why I stay in the stock market through thick or thin.
Just a note: If you are interested in learning all about basic strategies for your investments, or even how to get started (hint: it’s not just for rich folks), consider taking my Real World Investing course at Vernon College in July. More details under upcoming events.
This article was scheduled to be published in the Wichita Falls Times Record News on June 14, 2017.
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.