Wednesday, April 22, 2009

No more investing?

I was reading an article in this month's Atlantic (Why I Fired my Broker, Goldberg) and it brought up an interesting thought, which, admittedly, goes completely against my investing paradigm. However, now I'm wondering if it's time for a complete paradigm shift, given the current state of the economy and how we got here.

To date, my husband and I invest in the stock market, even if indirectly. We max out on our 401(k)s and we invest a monthly amount with our broker. We don't have too much debt, but should we even have any?

Over the past year, we've seen our 401(k)s plummet and our market investments drop. Granted, these are unrealized losses, but for how long will the market continue to drop?

Goldberg argues that only serious investors should invest in the stock market, rather than people using the market to build a future. In other words, only those people who can afford to lose everything they invest should invest. If you're saving for a child's college fund and can't afford to lose all that money, then you shouldn't invest in the stock market.

This goes against everything I believe in. Over the long run, the market evens out and you should expect about a 6-8% yearly return on average. But is this all different in this new environment? 

Goldberg also argues that brokers are bias in what stocks and industries they recommend, sometimes to the detriment of investors (as we've seen in th news lately). So if a broker is recommending a certain portfolio, is it really in my best interest? Aren't they tainted, to a certain degree, by their own agenda? Who can you really trust and where can you get that unbiased information?

Perhaps my husband and I should pull everything out and become debt free. Or, at the very least, stop investing in the market and use that money, instead, to pay off our debts. And then just save in a safer, albeit lower yield, investment. Of course, if I cash out now, I realize those losses, but if the market keeps tanking, isn't it better to cash out now while there's still something left?

Maybe the morale is that we all might need to do something a little different. Maybe investing in the markets is not the best way to go anymore. Is it time for a whole new change in thinking?

1 comment:

Bluedog said...

Monkey Girl - You should visit Swingtrader's blog (via a link on mine) and ask him about this. My thoughts are that as long as you're investing for the long-term your money should be in stocks. As your spending horizon approaches (retirement, college for the kids, etc.) you'll want to move what you need into principal-saving options. My wife and I have a 529 Plan for our daughter's college education and it is age-specific. The closer she gets to her senior year in high school the more conservative the investments become. 401(k) balances and other investments certainly aren't like cruise missles (fire and forget).