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.
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?