Friday, August 5, 2011

Shopping Time

I have no head for the stock market, aside from understanding a few simple facts. But I manage my own retirement savings and some other money we've accumulated, so I try to know enough to handle it responsibly. So far, these rules have kept us in fairly decent shape — which is not bad at all, these days:
  • Keep a diversified portfolio. For us, this means a mix of mutual funds including bond and real-estate funds. I never buy individual stocks; too risky when you don't have heaps to invest. Or the brains to understand each business you buy into.
  • Invest for the long haul: don't bail out of a down market. I avoid checking damage to our portfolio until the market starts to improve. And it always does.
  • Know what you own and why you own it. I research funds on Morningstar.com about twice a year, which is about how often you should check and rebalance your portfolio unless you are a cold-blooded type who can resist freaking out when your funds lose money. I run my research and choices by an investment adviser, bur I do the trading myself. (Morningstar membership is $185 annually. Basic investment advice from both Fidelity and my husband's employer is free. I'm always a cheap date.). I make sure I know all about the funds I'm buying, and why they should be a good fit for us. But then I forget everything. It's all too complicated. I just keep an eye on things every six months or so, and make sure nothing's really tanking. And even if it is, I try to be patient as long as Morningstar hasn't started dissing the fund and taking away lots of stars from its rating.
  • Know your comfort level with risk. I am uncomfortable being too conservative and too risky. I'm not all that comfortable with moderate risk, either. in other words, the stock market bothers me no matter what I choose, because I dislike both risk and stagnation. For me, this means that some of our mutual funds are conservative while others are riskier. And we keep a generous emergency fund in cash, too. Everyone needs that in place before they think about investing extra savings.
  • Buy cheap.  I only buy no-load funds that don't charge a sales commission. I buy funds with low expenses and management fees. There are hundreds of inexpensive, well-managed funds. It makes to sense to put your money in these rather than in the pocket of some salesman just for the privilege of owning a similar fund, which is just as likely to do poorly as a no-load fund. Index funds are often the cheapest funds, because they require no decision-making to manage. Owning a range of index funds based on the different market indices is a good, "mindless" way to invest. That said, I don't do it. Maybe I should rethink that....
I may be no expert on investing, but I do know plenty about shopping. I'm always looking for sales, free shipping deals, and other bargains as I keep an eye on things I want and/or need. I pounce when I find a good deal.

So, the stock market is having a sale this week. If you look at it that way, you can cheer up considerably. This is a great time to invest any stray cash you've had sitting around doing nothing. I realize that few people have piles of stray cash gathering dust, but we actually do right now, because I was horribly lazy about investing the money we added to our retirement plans at tax time. And that would be for 2009 and 2010. Don't ask me why... maybe it's because I tend to do my investing research in late summer, and the market is often unusually volatile in August, so I think, "Nah. I just don't feel good about this. Anything could happen, even tomorrow." So I lie low and forget, and months pass. But now it seems that any gains we would have made over all those months would probably have been wiped out this week. I never try to "time the market," but buying in a way-down market is when you're likely to get "bargains." How can a shopping maven resist?

A logical person might ask: why even bother with the stock market? It's such an emotional roller-coaster, a gamble, a crapshoot. Indeed, so it is. But so is life. And if your money sits in a bank, earning low interest at most, it's not keeping up with inflation, so it is worth less and less as its buying power drops over the years. You have to try to make it grow to protect it, in fact. And the stock market is still the most reliable way to make money, slowly, over time, if you are patient, reasonably informed, and remember to pay attention every once in awhile. Like right now. It's shopping time.

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