Understanding The New Investing Drama
from daveramsey.com on 04 May 2011
Media coverage of the stock market is nothing new. But have you noticed a new "story" that's emerged from recent articles about retirement investing?
The lead character in this story is The Investor. The Investor has been saving for retirement for many years, usually through his 401(k). With the help of his friend, The Stock Market, those efforts have resulted in a respectable sum. The Investor's plan is to continue investing until he's saved enough to retire comfortably.
But suddenly, The Stock Market betrays The Investor! He becomes a sinister and selfish creature who unexpectedly and without regard for the careful planning of The Investor "steals" nearly half of The Investor's savings in just a few months! The only way The Investor can protect himself is to remove the remainder of his savings from the clutches of The Stock Market.
The now hapless Investor limps away from his encounter with this new Stock Market, his courage shaken, his plan in ruins. And, as The Stock Market soars into unparalleled prosperity, we hear his ominous laughter—moo-ha-Ha-HA!
It's Just Not The Truth
How's that for drama? Sometimes the media's depiction of the stock market's performance of 2008–09 and its effect on investors falls just short of our little story above. They love to tell stories about people whose savings were "cut in half' in the financial markets' "collapse." Investors themselves will complain about what "the stock market did to them."
In this story, the investor is the victim rather than the hero.
But that's not the truth, is it? The truth is, investors who "lost" a huge chunk of their savings lost it because they panicked. They saw the value of their investments dropping with no end in sight and felt they had to do something—anything. So they pulled their money out of their investments and moved it to something "safe."
With that one decision, those investors made their losses permanent. And their fear of the market kept them from reinvesting in time to take advantage of the market's rebound.
So what happened to investors who did stay in the market? A recent report examined average 401(k) balances for investors who had 401(k)s at the end of 2000 and kept them until the end of 2010. The report shows that people who remained invested during that 10-year period saw their 401(k) balances more than triple, rising from $59,100 to $183,100!
The latest stock market slide didn't change anything. You can still build wealth through investing!
Making The Choice
The funds you invest in are as important as your commitment to staying invested. Dave has always recommended you invest in mutual funds with a history of above-average returns. To choose his high-return funds, Dave depends on advice from his investment advisor. He also likes to research funds on his own.
Talk to a Pro
For the best investing advice, you need to work with a professional with the heart of a teacher. Dave's investing Endorsed Local Providers (ELPs) are experienced pros who will give you the same advice Dave would. Get in touch with your ELP today!