Is It Too Late For An Investing Strategy?

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As the savings rate dipped to historic lows, people argued that this was not a cause of concern due to the appreciating value of stocks and real estate.1 People we’re leveraging themselves, but it was considered justified because their houses and stocks were worth more. This of course has proven to be far from guaranteed. People watched as those assets, which were often serving as collateral, spiraled lower and lower in price.

As the markets have plummeted, many people have adopted a “wait and see” strategy. They are “waiting to see the markets recover” before they put any more money into their retirement funds. This begs the question: Why were you investing in the first place?

If these investors thought the Dow Jones was a buy at 14,000, why are they reticent to buy it now at a fraction of that price. Ultimately, the problem is these investors never had a strategy. They’ve only stopped to think about what makes sense investment-wise now that they’ve already experienced large losses.

Is It Too Late?

The simple answer is it’s never too late to have a strategy. However, the strategy you may develop may not paint a rosy picture. Many of us should take this opportunity to do what we should have done before the economic crisis: decide what actions really make sense for us. If you’re hoping to retire in the next few years, should your money be in stocks? Many hopeful retirees’ answer to that question is: I have to leave my money in stocks so I can make back what I’ve lost. My one piece of advice to those who are looking to recover losses in their 401Ks is:

Do not try to “get your money back.”

Until you’ve sold your stock, you haven’t “earned” any of that money. You had an asset that was worth more than when you bought it, and now it’s worth less. That’s the nature of assets. Just because you were up at one point at the casino, that doesn’t mean you get to take home the most you were ever worth while you were there. Ultimately if you had no strategy up until now, there’s no time like the present.

Don’t let the fact that you didn’t develop a strategy earlier keep you from developing one now. Spend some time thinking about 1.) how much money you can expose to risk, and 2.) how soon you’re going to need your money. The right strategy varies from person to person and family to family, and there are countless paths to take. If you want to play “market speculator” and wait for the market to recover, feel free; but understand the risks of this approach. If you want to ignore the stock market that burned you, this may be a valid strategy; but make sure you’re picking the strategy for the right reasons.

Make your strategy now! The next time something like this happens, you’ll be ahead of the game.

1. Wall Street Journal: Don’t Dismiss Our Dismal Savings Rate [↩]

One Response to “Is It Too Late For An Investing Strategy?”

1. tattoo kits says:

   January 9, 2010 at 4:14 pm

   I cannot believe how much the American net worth diminished over that short period of time – shocking! 🙁