Stock Market: Long Term Investing

If you are a long term investor (do not need the money you are investing in the short term), there is little downside to investing in the stock market right now (especially in broad based mutual funds or a broadly diversified basket of stocks).

 

Now the market has given indications of a technical "bottom" today and yesterday (violent, "capitulation" sell off, with a reversal today).  I hate "technical analysis".  "Technical analysts" are like gypsy fortune tellers:  a lot of mumbo jumbo and vague, if impressive sounding, "advice"--which can sometimes be a self-fulfilling prophecy.  It doesn't matter.

 

As a long term investor, you can't time "the bottom".  All you can do is recognize when you will be ahead long term.  Now is one of those times.  Look past the "recession" that the fear mongers have probably brought upon us, and the market almost surely has much more upside here than downside.  As a long term investor, that is the time to buy . It does not matter if the market goes down another 10%.  As long as you don't panic, you are fine.  Now "long term", in my view, does not mean that you invest in a stock for the rest of your life.  The days when you can do that are about gone.  You should probably have a long term price target in mind when you buy a stock, and get out when the stock reaches that target.  But however you do it, you need to get out of stocks (and reduce your exposure to the market as a whole) the higher the market goes, and the more money you make.  Those are decisions (to sell) you do not face now.  Other than whether to sell an individual stock and buy another, you don't want to be selling stock now (unless you have to).  You want to be buying stock now.

 

That is especially true for your 401(k).  You should continue to invest in your 401(k)--now, more than any other timne.  You should even be transferring assets out of cash (or cash type investments) in your 401(k) into broad based stock market investments (depending on options in your 401(k).  If nothing else, you need ot be "rebalancing" your 401(k) (assuming a drop in the stock portion, which has made the cash portion a greater percentage) in order to keep the stock exposure to at least the same percentage.  Even if already fully invested in stocks, you should keep that way, and not sellnow.  As stated, you should continue to make investments in 401(k) plans and IRA's, at least at the level you have previously done so. 

 

In short, for a long term investor (even though "long term" is no longer a lifetime for individual stocks), now is definitely the time to buy.  It does not matter whether it is the exact, best time or not.  As long as you don't panic, investments now (broad based) will gain in the end.  The only way that is not true is if the country goes under.  In that case, you are doomed anyway.