Tuesday, January 6, 2015

Not Time to Panic

With the stock market going down, oil prices going down, and the Greek Exit GREXIT being discussed again, is now the time to panic and sell your stocks and mutual funds?  Should we buy gold and keep cash?  Is it time to take advantage of that buy-one-get-one-free offer on assault weapons at the gun store?

No, it is not time to panic in my opinion.  The US economy, still the world's largest, is expanding at a good rate, and the oil price decline will further improve business prospects outside the energy industry.  The US housing market has stabilized.  The Europeans will wait until the last minute and pull a compromise out of the hat for the third or fourth time.

Ask yourself the following questions:

  • Am I planning to use the money in my stocks and funds soon, in the next 2 years or so?  Probably not, you are likely saving for retirement or your child's college expenses.  So what does it matter if stock prices went down over the last month, you don't need the money now anyway.  In the unlikely event you do need the money in the next year or so, you should sell some stocks and bonds and move the cash to a high interest savings account.
  • Has the stock market ever gone down and never come back, even over a number of years?  No, it has always come back, even though it might take 2 to 10 years.  In 2009, some of my friends were moving to all cash in the great recession and they missed most of the upturn in the markets.  I continued to invest via my 401K and saving and those investments have more than doubled in the last 5 years.
  • Do you have a better long term investment opportunity than stocks and bonds and mutual funds?  Probably not, bank savings accounts pay less than 1%, real estate is unpredictable, and gold is not likely to rebound to its high levels.  If you have high interest debt, like credit cards, you might actually have a better place to put your money - into paying down this debt.  Check with your financial advisor.
Answer these questions for yourself, and you can then make an intelligent decision on what to do with your investments.  You can clearly see my opinion, but the decision is up to you.  Whatever decisions you make on your finances should allow you to sleep soundly at night.

Note that this is my opinion and you should not rely on it or any other blog/article/advertisement/dancing-hamsters site on the internet for financial advice.  Free information on a completely uncontrolled system like the internet is not a reliable way to plan your financial life.

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