The Market
I have been getting inundated with questions about the stock market. Here, in a nutshell, is the big picture response:
Stock trading is a financial game where you buy and sell stocks over short time periods (hours, weeks, or months) in order to make money on the short term swings of the stock or market. For trading, market volatility is what makes the game interesting — not to mention possible.
Stock Investing is a strategy where you place money in equities in order to make money over a long period of time. This is typically considered in the range of three or more years. For stock investing, market swings are to be expected and present opportunities to leverage the effects of dollar cost averaging to increase your portfolio.
If you need your money in the the next few years it should not be invested in the general stock market. It should be in instruments that are more predictable and less subject to short-term swings.
If you need your for a retirement that is 5, 10, 20, or 30 years from now, you should not be particularly concerned with what the current market value is. The market has shown to be on of the best long-term investment available (the best is to purchase a house). In fact, the most predictably successful investment models suggest that you should continue to invest money as you always have.
So, what does the low market mean? It means that the economic environment you live in today is on edge and subject to short-term changes. You need to be certain that your short-term savings are in a secure places and available to weather any potential personal financial storms (i.e. layoffs, increases in cost, decrease in commissions, etc).
For those without such savings you need to do the things you should have been doing all along. Spend less, save more, pay down debt, secure your employment, get your own health insurance, invest don’t trade, and live below your means.
Posted by Paul Gernhardt on Oct 19, 2008