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Why You Should Ignore the Stock Market

Note: I first published this post in March 2009 as the already-beleaguered stock market neared its deepest bottoms in more than ten years. Originally a reaction to the hysterical media coverage of that crash (and a simple plug for emotionless, buy-and-hold investing), I later realized this post underscores my investing philosophy as a whole and have updated it slightly.

The stock market bottom of March 2009.

Shown for context, this is a look at the Dow Jones Industrial Average over the past few years, showing the market bottom at the time this post was written.

As I write this, there is widespread speculation among bloggers and in the mainstream media that this past Monday will mark the bottom of the stock market in our current recession.

What do I think?

I don’t care.

And, if you want to consider yourself a savvy investor, neither should you.

In fact, when asked recently where he thinks the stock market will go over the next few years, investor demigod Warren Buffet retorted that he didn’t know, and that it doesn’t matter.

Asked to sum up my investing advice to anybody between 18 and 35, it is this: After you have some cash saved for emergencies, invest as much money as you can afford (starting with tax-deferred retirement accounts) in aggressive low-cost mutual funds that focus mostly on stocks.

It’s true: Especially if you’re in your twenties or thirties, where the stock market is going in the next month, the next year, or even the next ten years, doesn’t matter. What matters is that you are putting a portion of your income aside and investing it (hopefully in tax-deferred accounts when possible), day in and day out.

So when the stock market has a really awful day, ignore it. When it has a great day, ignore it. Just don’t ignore this advice, or you end up buying high and selling low. That’s not good, and it ends up looking like this).

Just keep funneling money into your investments. Focus on investing in yourself and increasing your earning potential (so you can funnel more money into your investments). Let time do the rest.

It’s why you don’t see me write an awful lot about investing strategy here on Money Under 30. There simply isn’t much to it. Most of my investments are in exchange-traded index funds that track entire market sectors and target-date retirement funds. I contribute to them on a regular basis to take advantage of dollar-cost averaging and, for the most part, forget about them.

Anybody trying to guess where the market is going by actively trading is most likely wasting money on fees and loads (and thereby reducing their returns). In fact, The Motley Fool just wrote about a study that showed, on average, male investors trade more often than female investors, but earn lower returns! ,

IGNORE THE MARKETS, BUT DON’T IGNORE INVESTING

I just have to clarify that when I say “ignore the stock market” I DO NOT mean “ignore investing.” Everybody—no matter how little you earn or how little you know (or care to know) about investing—should invest something for your later years.

Need to invest? Start with retirement accounts and move to regular brokerage accounts once you’ve maxed out your 401(k) and/or IRA. Check out my list of recommended online brokers to get started with an IRA or regular trading account today.

Finally, although nobody should fixate on regular market fluctuations, everybody should review their portfolios annually to ensure their funds’ fees are in check and their portfolio is balanced. If you need help doing this, ask your 401(k) administrator or investment advisor, or take some time to learn about how to rebalance your portfolio and general theories of asset allocation.

What do you think? Do you invest and forget about the market? Or you do disagree and think that even young people should pay attention to short-term market fluctuations and adjust investments accordingly?

For more about simple, buy-and-hold investing, check out my friend Mike Piper’s blog, The Oblivious Investor.

About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. In theory it should bother no normal investor. You addressed us young’ns but older people shouldn’t care as much either. Someone in their 40s still has time for a recovery before retirement, and people in their 50s and beyond should have a good amount of their investments in bonds by now and avoided much of this mess.

    I’m with you David, we shouldn’t pay attention to the market’s movements.

  2. Matt O'Rourke says:

    I agree completely. Anyone trying to make a quick buck in the stock market is playing with fire. If you are a long term investor, there is nothing to worry about. I would add however, that with stocks so low, I am snapping up some bargains (mainly via increasing 401K and ROTH IRA contributions and buying mutual funds) but I plan on holding them for the long haul.

  3. Investing in index funds fails to hold individual companies accountable, and only enables and facilitates executive-level accounting fraud and other non-positive behaviors. In these same 20s and 30s (hitting 30 here) you should educate yourself about solid companies and their equally solid management, buy for value, and invest for the long term.

  4. Great post! You sort of mentioned it briefly, but I love to use dollar cost averaging to help me buy when the market is low. Being so young and so far away from retirement, I actually usually hope for a dip in the market so I can buy low in order to sell high in retirement. But, I feel bad wishing for a market correction sometimes.

  5. I’ve made more money by never investing in the stock market. All my money is in a bank account. With a steady 3-4% interest, I’ve made more than I would have on the stock market in recent years.

    On top of that, I own the house I live in outright (no mortgage) and also own another apartment which I rent out.

    You couldn’t pay me to invest in the stock market. Every study shows it’s going to keep falling in the US and many Americans will lose everything. No thanks.

  6. 3-4% interest in a bank account? What bank is this? My interest rate on a savings account is 0.25% and that’s considered the premium rate because I’m an employee of said bank… it’s one of our “perks”

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