May 11th, 2009
Why to Not Give Up on Stocks
Every time there’s a significant stock market downturn, some investors swear stocks off forever. There are often stories about people who are devastated if not destroyed financially due to the downturn which sends many scurrying for the exits.
Despite all of this, those of us who stuck in during the carnage of the last year and a half are starting to see exactly why we did so.
Yes, the market is still well off its all time highs, and honestly, the market is actually still down for the year even after the furious stock market rally of more than 37% since March 9, 2009. But that said, my portfolio is actually up for the year, and I’m hoping that it’ll gain more and more as time goes on. How is this possible?
Because I kept doing what I set out to do.
Regular investing means that I wasn’t just buying into the market when it was going up, I was buying in as it was going down as well. The dollars that were invested when the market was totally in the toilet have grown substantially over the last couple of months. If I had stopped investing, I would never have realized those gains; moreover, if I had pulled my money out of stocks and gone for the safety of bonds, I would have never realized gains in the part of my portfolio that had been hit hard over the last couple of years.
Also take those stories about financial ruin with a grain of salt: yes, it’s true these happen, but almost inevitably, when I read the details on these stories, these folks are people who were over exposed in a particular stock [a lot of times employees who were getting 401(k) matches in company stock that was well over the 5% I like to use as my limit for any particular stock being part of my overall portfolio] or those who had asset allocations that seemed wildly out of step with their age and time horizon (folks who were in retirement with 80% of their portfolio in stock).
Yes, there’s risk in the stock market, no question. But the recent stock market rally is showing those of us who have been willing to accept that risk very clearly why we did so.
Every time stocks go down further, I just smile because I’m buying at a discount. I’m so young I wouldn’t mind a S&P 500 at 300 right now.
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