I’d have to argue that the stock market is a great alternative for long-term investment goals and a horrible one for short-term goals. Yes….it’s great but not perfect.

Many look for the silver bullet and it doesn’t exist IMO. You can do everything right and the universe may conspire against you. That doesn’t mean you made a mistake.

Yes, you have a greater need for higher returns with a shorter time horizon/less money situation, but the market won’t cooperate just because we have needs. Most financial planners will tell you to reduce your exposure to stocks the closer you are to needing the capital invested, which is sage advice.

My comment “it’s almost guaranteed you’ll get a big loss instead” was tongue-in-cheek, which doesn’t translate in emails unfortunately. But it serves to highlight that the more we NEED something to happen, the less likely it is to happen, and it might even go the other way.

Our needs can affect our direction and decisions, but they have no bearing at all on the outcome of an investment vehicle as impersonal as the stock market.
A person with great short term needs, who invested his small pile in the market in 2007 would have a lot of wounds to lick right now. That’s an extreme example of course, but real life can be that way.

Does that make sense?

Also, the stock market has ‘historically’ increased on average — but that does not mean it will continue to do so into the future, and it absolutely does not mean it will even keep pace with inflation.

You are suggesting that it is not a NEED, and instead modify the goal (work longer, reduce lifestyle in retirement) — which, of course is an option — but that also means you do not ‘need’ the money in the short-term timeframe.

I agree with Neal Frankle completely when he said: “You’d be far better off letting your goals be the lens through which every investment is examined. People often forget about this and as a result get involved with investments that expose them to undue risk and (often) investment failure.”

People should really absorb and understand what he is saying there, because that is a gem.

I think retirement (or savings) goals should be divided into two parts: the absolute minimum NEED part, and the preferred WANT part. Then make all investment decisions with both goals in mind — guarantee the NEED at all costs, and try to increase the odds of meeting the WANT part through increased savings, or by choosing riskier investments. But the NEED part should be in risk-free guaranteed investments.

Kevin: The stock market, on average, increases. Thus, your statement that you’re “almost guaranteed” to face a big loss over the short term is incorrect. While I understand (and agree with) your point about using the stock market to play catch up late in life, you’re overstating things here.

If you’re 59 years old and plowing money into the market in hopes of making a big hit so you can retire it’s almost guaranteed you’ll get a big loss instead. In that situation you’d be far better with a CD strategy, plus plan on working for the rest of your life.

The stock market is completely variable, and not the place to take chances on short term bets.

This ‘advice’ is counter to what any financial professional will tell you, but it is a realistic alternative. Why invest in the stock market (and take those risks) when you don’t need to?

The only time anyone should even consider stock investments is if they are not saving enough (savings rate), or they started saving late (not many years left till retirement).

I personally believe in investing with trends but I find that frustrating too. Not because I expect perfection – I don’t. But sometimes, clients expect a system, based on trends to ALWAYS beat the market and work miracles which it does not do. Trend investing, IMO, is a long-term strategy too. That means anyone using it would have to accept underperformance at times.

Nice response sir.

My own guess is that the market will be far less predictable in the next few years than it’s been for most of the time since 1982. We seem to be in the early stages of a major league transition.

Unfortunately, there are such periods. You may not agree with me, but I liken it to wearing seat belts. You could possible die because you wear them but chances are they will save your life. You could have a long-term time frame, invest in stocks and still fail…but what is the alternative?

Some great money must have been made by anyone buying after the crash. So the moral of the story is that it’s better to buy after a major sell off.

http://seekingalpha.com/articl.....-different

Not even Jim? How about especially not Jim? His picks may be fun and his explanations/reasoning educational, however, he has a dreadful track record ever since the introduction of Mad Money.

In the past two years, he has made many more poor (even catastrophic) recommendations than good. Listen to him if you enjoy it; I personally think he has a good personality and is entertaining, but do yourself a favor and don’t buy based on Cramer.

One thing I’ve seen time and time again is novice investors have some beginner’s luck in the stock market and then they bet bigger and bigger amounts on riskier and riskier stocks. But the thing they don’t realize is that one big misjudged bet will wipe them out.

I completely agree with you again. Individuals CAN do it but it takes a great deal of discipline. The emotions take over and the logic shuts down. That’s why most folks don’t make money. IMHO

Kevin, I think you are right. These 4 mistakes basically point to the problem that you identify as the “big picture” and these 4 kind of break that down. At least, that’s been my experience as a financial adviser.

Leslink, I agree that trading makes no sense for most people. Unfortunately, some folks start out as investors and become traders for the reasons I’ve outlined. They don’t see themselves as traders but traders they are.

Personally, I dislike mutual funds because it removes all the control and I ended up doing just as much research as fund managers trying to find a fund with the right mix, but I realize that not everyone has the time to do the day to day watching or even picking of stocks.

ETFs are bit better, but they still suffer macro effects, especially if its a sector ETFs. Plus, some ETFs are doing some new tricks which just confuses it more (3X bull/bear). Tread carefully.

In the end, its your money, and never forget it. Too many people see the stock market as a casino (e.g., “Put all of it on stock XYZ! Come on big money!”).

It takes more talent than the financial media ever admit, and of course the long cycle bull run of the 1980s and 1990s made a lot of ordinary folks come to believe they were investment geniuses after year after year of double digit gains. Worse, many were believing the market to be a benign venue! Since 2000 it’s been a very different story and millions have been burned.

For the average person, it’s best to recognize and respect that the stock market IS volatile, it MIGHT not cooperate with your long term plans, is NO place for non-professionals, and even professionals get burned in down markets.

I’m not a financial planner or investment genius, but from what I’ve seen, the best route for a non expert is to invest through mutual funds, buy only after a steep and sustained sell off (risk reduction), allocate only a minority percentage of your money, and be prepared to sit back and wait, many years if necessary.

Even then, as you said, there are no guarantees!