Monday, January 19, 2009

The Fork in the Road for Investing

"When you get to a fork in the road, take it." ~ Yogi Berra

2009 may be fork in the road year for investing, with the decision being to invest or not to invest in the stock market.

After a horrific 2008, many people, including me, aren't excited about Boldstock market results. The challenge is that most of us naturally extrapolate the recent past into the future. When stocks and housing were gaining 20% or more a year, people included 20% returns in financial plans. Now that stocks and housing have 20-40% negative returns, people reluctant to invest in them.

For me, the solution is to examine historic returns, with the assumption that over a longer period of time, the total return will be closer to the average. The concept is known is known as "regression to the mean," and is remarkably predictive, unless there is a fundamental change which alters the mean.

So the real question is not, "Should I put money in the stock market or keep it in safe investments?" The question should be, "Do I believe their is a fundamental shift in the U.S. economy, or is this recession part of the normal correction process?"

Although I agree this recession will be among the worst, I still believe it is still within the range of a normal correction process. Therefore, I will stay invested in the stock market and look for opportunities to add new money when appropriate.

For more on Strategy and Plans, check back every Monday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

1 comment:

Mr. GoTo said...

I'm taking both forks - staying invested in equities with existing money, seeking alternative investments with new money. This does represent a paradigm shift in long term investing, not so much because of the economy but because of the revelations of corruption, greed, and incompetence by those who are in charge of it.