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Trent Let Me Down

By JLP | August 22, 2007

Normally, I’m envious of Trent’s ability to write thoughtful posts over at The Simple Dollar. He could write about cat poo and people would read it. However, today I came across a post of his from last week titled Basic Investing in a Down Market (Or Any Time You Feel Like It), which was written in response to an email from a reader who was nervous about the market. Here’s her email to Trent:

My 401k is heavily invested in growth stock mutual funds (several different ones but all are growth stock oriented).

I’m wondering if it would be a good strategy to move a portion (25-50%) out of these growth funds into a money market fund and wait for the correction to be over before buying back in. I’m not talking about withdrawing from the 401k, just reallocating the money within it, so I can avoid the potential downside and buy back in closer to the bottom. Or I can just close my eyes and hang on, mentally preparing myself to see the decline in value and waiting patiently for it to begin to grow again.

If it matters, I’m in my 40’s, so I’ve got about 20 years before I plan to start withdrawals.

Here’s the first part of Trent’s response:

My philosophy is that the instant an investment makes you nervous, you should pull back into something safer. This is a very conservative approach, but it’s served me incredibly well so far.

Wrong!

If an investment makes you nervous it’s because you:

or, most importantly…

Unfortunately, Trent’s philosophy caters to one’s emotions and has nothing to do with being conservative.

As bad as that first part of his response is, this part is even worse:

If I were Lila, I’d move everything into a money market account for a while and sit on it for at least three weeks, then wait until I started feeling confident about the stock market again – or at least until I felt it was close to the bottom, which I don’t think we’ll see for another year unless there are tremendous cuts in interest rates (this last bit is solely my opinion from having watched the stupidity of the housing market over the last few years).

This is the part that really bugs me: “…or at least until I felt it was close to the bottom.”

It’s anybody’s guess as to when the market is at the bottom. Therefore, don’t worry about it if you are an investor for the long term. Trying to time the bottom of the market will wreak havoc on your emotions, especially if you time it wrong. For instance, what happens if you think the market has bottomed and you move all your money back into it only to find out that it still had room to fall? Or, say the market keeps going up and with each increase you think it is more likely to fall again so you sit on the sidelines waiting for something that never happens? See how silly this can become?

My advice to Lily is to stick it out provided she has a good asset allocation plan. She still has 20 years until retirement, which bodes well for stocks.

Topics: Index Funds, Investing, Retirement Planning | 65 Comments »


65 Responses to “Trent Let Me Down”

  1. Aaron Stroud Says:
    August 22nd, 2007 at 12:27 pm

    JLP, I couldn’t have said it better myself. Market timing is impossible to pull off consistently. Emotions have sunk more nest eggs than market corrections have.

    I would also recommend that Lily take this opportunity to learn more about investing and the market. A good two-book combo would be The Bogleheads Guide to Investing and then William Bernstein’s The Four Pillars of Investing.

  2. Independent George Says:
    August 22nd, 2007 at 12:31 pm

    There’s also the issue of why she’s invested exclusively in growth stocks.

    Also, it looks like most of the comments agree with you regarding market timing.

  3. Moneymonk Says:
    August 22nd, 2007 at 12:44 pm

    “Or I can just close my eyes and hang on” she has anwsered her question.

    I see Trent is not a risk taker. The market goes up and down it is a part of life. He should know that.

  4. GeekMan Says:
    August 22nd, 2007 at 12:46 pm

    I agree with you. Investing your money in the stock market (or almost any investing for future benefits) means removing your emotions from the equation as much as possible. If you cannot do that, then you should not be investing at all because your emotions will lead you to make bad choices.

  5. Punny Money Says:
    August 22nd, 2007 at 1:00 pm

    Rreeowr. I smell a blogger cat fight! :)

    I would tend to agree with you, JLP. I haven’t touched any of my investments since the market dipped; they’ll recover eventually. For now, I don’t even check them out to spare myself the pain and temptation of selling.

  6. Trent Says:
    August 22nd, 2007 at 1:03 pm

    You say that it’s wrong to NOT invest in something that scares you? I honestly do not understand that. You SHOULD invest in something that keeps you up at night?

  7. Trent Says:
    August 22nd, 2007 at 1:05 pm

    That advice, if targeted to a novice investor, tells them to invest in something that they don’t understand and that they could potentially lose a lot of money at. If you do not understand the stock market and can’t stomach the volatility, don’t invest in the stock market. I can’t believe you honestly think that is wrong.

  8. elizabeth Says:
    August 22nd, 2007 at 1:13 pm

    I completely agree with you. When I read Trent’s post I too was disappointed. (And almost as confused as the time he wrote that he saves money by washing his towel every other day instead of everyday. Who needs to wash their towel more than once a week?!)

  9. JLP Says:
    August 22nd, 2007 at 1:15 pm

    Trent,

    What I’m saying is that you should CONQUER those fears and not cater to them. Twenty years from now, what happened in August 2007 won’t matter.

    In your second comment you said:

    “That advice, if targeted to a novice investor, tells them to invest in something that they don’t understand and that they could potentially lose a lot of money at.”

    Trust me, they’re at risk of losing a heck of a lot more money if they buy and sell based on their emotions, which seems to be the approach you recommend. What I advocate, is buy and hold, adjusting only to rebalance a portfolio.

  10. Trent Says:
    August 22nd, 2007 at 1:29 pm

    But you’re saying she should conquer these fears while her stocks are tanking. That’s like telling someone who is afraid of roller coasters that they should not be afraid right as they’re screaming down a giant dip on the coaster.

    Emotions shouldn’t be a part of investing – I never once said that they should be. I told her to GET OUT of stocks if she’s having emotional issues. She should have never been on the coaster in the first place until she understood the market and understood the risks. Instead, she should stick with the log ride (like bonds or money markets) until she understands that there’s no real danger over the long run on the roller coaster. That’s why she should get out of stocks right now, so she’s not sitting up all night worried about her investments.

    Your post is actually advocating the opposite, which comes off as very, very risky to me.

  11. Victor Says:
    August 22nd, 2007 at 1:36 pm

    Wow, what a bunch of short term memories everyone has around here. Remember something called the dot com bubble. The Nasdaq is still in NEGATIVE territory from the golden days so if someone bought at the top in 2001 and they’re still “buy and hold” bag holders they’re STILL at a LOSS 7 years later. Will it finally barely recover 20 years from now? Who the hell knows.
    http://finance.yahoo.com/q/bc?s=%5EIXIC&t=my

    Warren Buffet’s two rules of investing:
    1. Don’t Lose Money
    2. See Rule #1

    If the market looks like its going to tank, get the hell out before you lose your shirt. It’s not rocket science people.

  12. JLP Says:
    August 22nd, 2007 at 1:38 pm

    Trent,

    Nobody said anything about the market tanking. Yes, we have had a bad August but the market is far from tanking. I’m saying she should conquer her fear of what is happening with her portfolio right now and think long-term. Moving her money to a money market account is not the answer.

    Buying and holding with a 20-year time horizon is FAR from risky.

  13. Spokane Al Says:
    August 22nd, 2007 at 1:42 pm

    I agree with your thoughts. Someone once said that if our investment portfolio does not consist of some investments that make us nervous, then we are not properly diversified.

    I would recommend that the writer with the question search out a professional to analyze her portfolio. Having everything in growth investments is not proper diversification. Rebalancing might be a good idea, but not for the reasons suggested by Trent.

    The other problem is how to determine when to go back into the market. We read over and over again that missing just a few important investment days can have a very detrimental effect on one’s portfolio. Many people pull out and watch from the sidelines as the markets rise and then when these same people become become comfortable enough to re-enter the market, it drops like a rock and they swear off anything except CDs for the rest of their lives. That is truly investing with emotion.

    I also think we check our portfolio values way, way too often. Imagine how we would feel if we were able to watch the rise and fall of our home values day-to-day. The solution – create a well diversified portfolio and then ignore the day-to-day noise. A look every six months or once a year is plenty and then only to rebalance if needed.

  14. Trent Says:
    August 22nd, 2007 at 1:47 pm

    You people are going way too far down the road of investing here. You all already understand the market, but are failing to understand that it’s possible for people to /not/ understand it, and that makes your advice great for investors but not very good for the layperson.

  15. Trent Says:
    August 22nd, 2007 at 1:49 pm

    “I’m saying she should conquer her fear of what is happening with her portfolio right now and think long-term.” I agree, but she shouldn’t stay in stocks while figuring this out, or she’s not going to be thinking rationally about it.

    That is the only real disagreement here. I don’t think you should be in stocks if you don’t really understand the ups and downs – and if they’re making you scared about a long-term investment, you should step into something with less potential gains for a while and educate yourself. One should NEVER be up all night scared about their investments.

  16. Cindy Says:
    August 22nd, 2007 at 1:53 pm

    Two things disappointed me most about Trent’s post:
    1) I didn’t think the tone of her letter sounded like she was staying up all night in worry. 2) Trent’s did not say that she should FIRST make sure she was fully educated.

    She was honestly asking whether she could time this market. I think many people get into their 401k’s, learn a bit to pick some fund in there, then much later start thinking about how to tweak returns. Buy low, sell high sounds so reasonable, so logical, so we all wonder if we could do this.

    Bogle said it best in a recent BuisnessWeek interview… that to time the market means you have to make TWO extremely good timings…. knowing when to get out and knowing when to get back in. Pretty hard even for the professionals.

  17. JLP Says:
    August 22nd, 2007 at 1:55 pm

    Trent,

    So you’re saying that the layperson deserves layperson advice? The whole reason this lady wrote to you was to get your opinion, not to get your opinion for a layperson.

    Explain to me what is wrong with having an asset allocation plan based on age, goals, etc, and sticking with it?

  18. FMF Says:
    August 22nd, 2007 at 2:26 pm

    Ha! You’ve kicked the hornet’s nest now!!! I’m adding this post to my roundup this week!!!!!! ;-)

  19. Dylan Says:
    August 22nd, 2007 at 2:45 pm

    Trent,

    Yes, maybe she should not have been on the roller coaster in the first place, but she’s on it and climbing out while you’re “screaming down a giant dip” is just as dumb as going to cash because the markets take a dip. Riding it out may be scary, but the certain injury from jumping on the way down is worse.

  20. JLP Says:
    August 22nd, 2007 at 2:56 pm

    Oh and FYI – the market (Dow Jones Industrial Average) is up nearly 3% since Trent’s post. Sure, it could just as easily be down right now, but that’s the point!

  21. Trent Says:
    August 22nd, 2007 at 3:01 pm

    JLP, you are telling a person that, by your own statement, is either emotional about stocks, doesn’t understand the stock market, or doesn’t have a good asset allocation that they should stay in the stock market. That is simply bad advice to give a layperson, or any person, and it’s the opposite of what I’m saying. I say that if your emotions are keeping you up at night about your stocks, you need to move out of them into a more conservative investment.

    You are proposing the opposite of conservative investing. You are encouraging a random person to overload their personal risk tolerance, and that’s dangerous.

  22. FMF Says:
    August 22nd, 2007 at 3:15 pm

    BTW, JLP, I agree with you. My own answer would have been along the same line as what you’re saying. Then again, we all write about PERSONAL finance and Trent says:

    “This is a very conservative approach, but it’s served me incredibly well so far.”

    In other words, he’s telling her what he’s done and has seen work for himself.

    I suspect that as Trent gets older and becomes more experienced in financial matters, his answers will change, and they’ll likely move towards what you’re saying. I know my thoughts on money sure have changed since I was 30-something (I know — don’t remind me I’m older than you are.)

  23. JLP Says:
    August 22nd, 2007 at 3:33 pm

    Trent,

    Moving all your money into cash when your goal is 20+ years away is not conservative!

    Your post did nothing but pander to her fears. What’s more scary: a market drop now or not having enough money when she retires? Over the long run, stocks have proven superior in building wealth. Read Jeremy Siegel’s “Stocks for the Long Run.”

    Good luck building a retirement portfolio in bonds and cash.

  24. Dylan Says:
    August 22nd, 2007 at 3:40 pm

    “You are proposing the opposite of conservative investing. You are encouraging a random person to overload their personal risk tolerance, and that’s dangerous.”

    Trent, I think you are way off here and reading something into JLP’s remarks that is just not there. You suggested getting back in when, “feeling confident about the stock market again.” This is does not address risk tolerance because the markets *will* go down again! YOU are encouraging someone to exceed their risk tolerance, and getting in when it feels good then getting out when you get nervous will have people constantly buying high and selling low.

  25. Andy Says:
    August 22nd, 2007 at 3:44 pm

    If she gets nervous clearly her asset allocation is too aggressive. It’s hard to tell, but it seems that she is 100% stocks. She should probably go down to something like 70/30 or 60/40 until she is comfortable with the volatility that will give.

  26. fivecentnickel.com Says:
    August 22nd, 2007 at 4:29 pm

    The biggest problem with what Trent wrote in his original post is that he very clearly advocated jumping in and out of the market. Worse yet, he advised someone that was admittedly unsure of herself to do it.

    Trent: No matter how many times you try to twist your words around and mis-direct the subject, this is what you wrote:

    “If I were Lila, I’d move everything into a money market account for a while and sit on it for at least three weeks, then wait until I started feeling confident about the stock market again – or at least until I felt it was close to the bottom…”

    What people were reacting to was this and nothing more. Your followup posts were actually much more well-reasoned, but they didn’t reflect at all what you wrote in the first piece. You’re right… If someone is uncomfortable investing in the stock market, they probably shouldn’t do it, at least not until they educate themselves. But to advise someone to get out of the market for a period of weeks and then re-enter as soon as they feel confident is totally different advice.

    I for one have a really hard time respecting someone that can’t own up to their own mistakes and bad advice, say that they’ve thought better of their position after getting called out on it, and then move on. Denial and mis-direction are not the solution, although they seem to have gotten you a lot of attention.

  27. Trent Hamm Says:
    August 22nd, 2007 at 5:33 pm

    I stand 100% by my original statement, by the way.

    Let me state it again in case you missed it.

    If I were Lila, I’d move everything into a money market account for a while and sit on it for at least three weeks, then wait until I started feeling confident about the stock market again – or at least until I felt it was close to the bottom.

    Lila is a person without confidence in the long term stock market. Lila should back out to a more conservative investment and spend some time watching, reading, and learning. She should not be in stocks right now if she doesn’t have the appropriate mentality, and the fact that she’s discussing jumping out means that she’s too jittery.

    Now, if I were Lila, and I had spent some time learning about the stock market, I would eventually jump back in. You know what? Given how I think the market is going, if she takes some time to actually learn about the market and adjust her own risk tolerance, it’ll be just about time to jump in at a market bottom! She’ll also be able to start off with a good asset allocation, too.

    Think about it: Lila’s interested enough that she’s reading personal finance blogs. She’s likely going to learn a lot in the coming months, but if she’s sitting there in despair of her stocks without understanding the wider picture, it does her no good at all in terms of actually building a healthy risk tolerance.

    How is that in any way a denial or misdirection? That’s me standing by EXACTLY what I said.

  28. Accumulating Money Says:
    August 22nd, 2007 at 5:56 pm

    I strongly agree with you JLP. After all the wisdom personal finance bloggers give about thinking long term, not trying to time the market, choosing an appropriate asset allocation and sticking with it, etc., it’s been kind of amusing to see some singing a new tune when the market has a little slump.

    Jim from Blueprint is liquidating accounts and Trent is telling people to pull out and wait until they feel confident about the stock market again. Yikes.

    I wrote a post a several weeks ago about a husband and wife who invested the same amount in the same mutual fund. The husband followed Trent’s line of thinking: When the market worried him, he pulled out and waited until he felt confident again. Years later when he and his wife, who wasn’t sophisticated enough to be trading in and out of the fund, compared balances, hers contained more than $70,000 more than his. By waiting until he was confident, the husband had missed all the market upswings.

    I think people might be surprised to see how large a percentage of their total gains come on a small number of days. It’s incredibly dangerous to be out of the market for a period of time because you don’t feel confident, and risk missing those days.

  29. JLP Says:
    August 22nd, 2007 at 6:06 pm

    Trent said:

    “How is that in any way a denial or misdirection? That’s me standing by EXACTLY what I said.”

    Going down with the ship, I see.

  30. Josh Says:
    August 22nd, 2007 at 6:34 pm

    Both JLP and Trent run great and helpful blogs, I am a fan of both of these sites, I can never seem to get enough of personal finance.

    Trent, I think the advice was not good advice, but I still love your blog and read it daily.

    I think the longer these comments go on the more emotions are going to stem from them.

    If either of the sites become critical of the other, I will just stop reading either site because of emotions.

    JLP you are right, now lets get back to finance :)

  31. fivecentnickel.com Says:
    August 22nd, 2007 at 6:48 pm

    Trent, you stated clearly that if you were Lila, you would get out of stocks for at least three weeks until she’s comfortable. Later in the comments on that same post, you said “Lila should get out of stocks permanently – I thought that was fairly clear.” Yet you never said anything else in that post pertaining to the length of time Lila should be out of stocks. That’s where the denial/mis-direction bit is coming from. You then went from there into your followup posts under the assumption that you had never brought up the topic of market timing, much suggested that it’s a good approach for a market like this.

    As for disagreeing about investment strategies, I take no exception to your advice. You and I disagree about the best way to invest in a choppy market, and that’s fine. Had you either stuck with your original assertions, stated straightaway that you said something you hadn’t intended, or recognized that perhaps you were wrong, then that would be fine, as well. What frustrates me is when someone so steadfastly denies saying what they so clearly said.

  32. RichSlick Says:
    August 22nd, 2007 at 7:14 pm

    The heavy weights are all sitting in cash waiting for the hurricane to blow over, we’re in the eye right now and everyone thinks everything is peachy. Buy and holders are about to get smacked by the tail.

    See what the rich bloggers are doing…
    http://www.1stmillionat33.com/2007/08/a-few-important-notes-on-bank-and-money-market-accounts/

  33. beachbum Says:
    August 22nd, 2007 at 7:17 pm

    Let’s put this in perspective. Lila’s question was:

    “I’m wondering if it would be a good strategy to move a portion (25-50%) out of these growth funds into a money market fund and wait for the correction to be over before buying back in. I’m not talking about withdrawing from the 401k, just reallocating the money within it, so I can avoid the potential downside and buy back in closer to the bottom. Or I can just close my eyes and hang on, mentally preparing myself to see the decline in value and waiting patiently for it to begin to grow again.”

    Since that statement, she’s been upgraded from “nervous” to having stocks “keep her up at night”, to being “up all night scared about (her) investments”, and finally, “in despair of her stocks”. At this rate, I’d say by Friday she’s going to be on par with Jim Cramer.

    Dude. She was clearly asking if it’s a good idea to try and time the bottom of the market, and your advice /very/ clearly stated that you thought this was indeed a dandy notion.

    Now I know that later you clarified saying it was not exactly buy high sell low, but get out of the market completely. Which is neither what the question was about nor frankly what the advice describes.

    If this is layman’s advice, then Lila would be better off with blissful ignorance.

  34. Amber Yount Says:
    August 22nd, 2007 at 7:27 pm

    I’m not hopping into this fight but let me just say : Selling LOW and Buying HIGH (basically what Trent told this girl to do i.e sell NOW because the stock market is low, and buy LATER when it comes back up) Is the fastest and most sure way of losing money. Why do people constantly do this??????? Its one thing to sell a stock or fund that has been consistently losing money, another to do it on a “whim” just because the stock market is temporarily crapped out.

  35. Dylan Says:
    August 22nd, 2007 at 7:44 pm

    Trent,

    Perhaps, before keying in another word, you ought to take a day or two to reflect on all of this and the idea that you possibly made an error.

    Consider that the dozens of comments disagreeing with you were made by folks more objective about the way your post reads than you could be, and that some number of these folks could potentially be more savvy than you on the subject.

    There is no shame in admitting you gave misguided advice, but you’ve clearly been trying to unring a bell.

  36. JLP Says:
    August 22nd, 2007 at 7:53 pm

    Okay, I think we all need to calm down.

    It’s fun to discuss this kind of stuff but I think we are getting a little out of control.

    After this topic has run its course I’ll turn off the comments. In the meantime, let’s TRY to be nice to each other.

  37. Velvet Jones Says:
    August 22nd, 2007 at 8:15 pm

    Girls, girls. You’re both pretty…

  38. beachbum Says:
    August 22nd, 2007 at 8:19 pm

    @Trent.

    “Lila (and Lila’s risk tolerance) should get out of stocks permanently.”

    Respectfully, I have to ask: Why do you insist that she get out of stocks permanently? She was asking if she should get out of stocks /temporarily/ and jump back in when the gettin’s good, metaphorically speaking.

    You speak of risk tolerance. In her own words the worst case scenario would be to wait “patiently for it to begin to grow again.” She doesn’t strike me someone who’s at wit’s end. She sounds perfectly willing to accept the market ups and downs; she was simply asking if she should try and time the bottom. You gave her the thumbs up.

    Just because she’s not a pro stock trader is no reason to jump out completely. You’re advocating that people who don’t understand the stock market shouldn’t invest in their 401(k)s, or should only invest in money markets. That’s nuttier than squirrel crap, as the saying goes.

  39. J.D. @ Get Rich Slowly Says:
    August 22nd, 2007 at 8:20 pm

    What should I do with a bunch of over-ripe bananas?

  40. Ed Says:
    August 22nd, 2007 at 10:34 pm

    @J.D.
    Make banana bread.

  41. lovebug Says:
    August 22nd, 2007 at 11:04 pm

    Dipping a toe in the ocean here… if her original question was about moving a “portion .. out of these growth funds” in terms of rebalancing her portfolio, then I think it’s a good idea. Whether or not now is a good time to do that is another story. It doesn’t sound like her portfolio is diversified enough. Rather than “(avoiding) the potential downside” she’d be reducing her exposure to risk/volatility. You can’t eliminate risk… investing solely in a money market is risking the ability to fund retirement… which one is worse – no money in 20 years, or a bad August ’07?

  42. Andrew Says:
    August 22nd, 2007 at 11:50 pm

    If this 401k investor wasn’t smart enough to see the correction coming before it happened, how are they going to know if the “market has bottomed out” and when to get back in?

    It’s time in the market, not timing the market.

  43. Tyler Says:
    August 23rd, 2007 at 7:07 am

    JLP: Your block now officially sucks. Nice attacks on the other personal blogger. I don’t read a blog for personal attacking but rather for investing advice. You knew all along your post would stir up emotions and for that you suck. I’m out.

  44. JLP Says:
    August 23rd, 2007 at 8:37 am

    Tyler,

    This was not a personal attack. If it were, I would have called Trent names or something along those lines. Rather, this was an attack on his advice to his reader.

    I hate to lose you as a reader but after going back and looking at some of the comments you have left in the past, I get the feeling you don’t care much for this blog.

    I wish you the best.

  45. Cathy Says:
    August 23rd, 2007 at 10:13 am

    I think the biggest problem is that Trent never mentioned asset allocation. Based on her question, it sounds like the reader’s 401(k) is entirely invested in growth stocks, so it would be a great idea to move some of that money out – not into a money market, but rather into bonds. Her peace of mind needs to come from diversification – otherwise, she’ll just end up stressed from not having any investments!

  46. FMF Says:
    August 23rd, 2007 at 10:17 am

    Ha! JLP got rid of a troll! Cool!

  47. Aaron Says:
    August 23rd, 2007 at 1:08 pm

    I agree with Cathy that asset allocation is the first thing that needs to be discussed in this situation. Even if she wants to keep the money in the market, maybe move some into a value fund, or an equity income fund that is more conservative. Pulling out of growth mutual funds after a huge drop in the market is not the answer, that is more of a panic response. Panic responses do not serve the individual investor well at all.

  48. Kevin Says:
    August 23rd, 2007 at 1:48 pm

    I would have to agree with you. You should never invest in something that makes you feel uncomfortable. You should stay in the market during a correction period only if you are comfortable with that. I am comfortable with that so I am keeping my money in for the time being.

  49. Elizabeth Says:
    August 23rd, 2007 at 2:05 pm

    @JD You can also freeze overripe bananas and use them to make banana bread or ice cream sundaes at a later date. (They’ll turn black, but they’re still good).

  50. Kevin Says:
    August 23rd, 2007 at 2:13 pm

    Oops I mean will not agree with you.

  51. JLP Says:
    August 23rd, 2007 at 4:27 pm

    Kevin said:

    “You should never invest in something that makes you feel uncomfortable. You should stay in the market during a correction period only if you are comfortable with that.”

    Yes, it’s this kind of thinking that causes so many people to underperform the market and even the mutual funds that they are in.

  52. db Says:
    August 23rd, 2007 at 6:05 pm

    Getting out when a correction (or even an interesting dip) is really following the scared money — it’s how people go broke.

    If you are in a mutual fund or ETF and the thing is going down and the market is going down — gosh, stay in! Buy more if you can!! You can always use that time to study the market, if you are undereducated about it.

    If you’re in a stock hopefully you know enough to figure out if the stock is going to recover or is really heading for the tank. But the mutual fund or ETF should recover, unless it’s just really turned into a stinker (and thus correcting itself independent of the greater marketplace.

  53. db Says:
    August 23rd, 2007 at 6:09 pm

    JD:

    you could drizzle the bananas with maple syrup and stick them under the broiler. Or make a banana milkshake

  54. Free Money Finance Says:
    August 24th, 2007 at 5:19 am

    Star Money Articles for the Week of August 20

    Here are some recent interesting posts from the MoneyBlogNetwork and beyond: MightyBargainHunter hopes to make money by journaling. Five Cent Nickel says TIAA-CREF got canned. Blueprint for Financial Prosperity discusses identity theft insurance. Consu…

  55. chaddz Says:
    August 25th, 2007 at 12:21 am

    if i woke up in her shoes this morning, yes i WOULD rethink my allocation…
    i’d change it from where it is now, to
    25% Growth
    25% Aggressive Growth
    25% Growth & Income
    25% International

    as far as the market being down, I look at it as the “market” is having a “sale”.. you buy EGGS when EGGS are on sale.. I’d be buying more shares of whatever Fund i was in, because im looking long term, I know over the next 20 years it is going to make money more often than its going to lose money.

  56. Kevin Says:
    August 25th, 2007 at 11:22 am

    How does that type of thinking, investing in what you understand, make people “under perform the market”? You should only invest in what you know. I know that the stock market takes time, which is why I am not putting my money into money market accounts. There are some people out there that just put their 401k money in whatever mutual fund sounded good. I also know that to buffer yourself in down times is to diversify your investments. Some people do not understand diversification. They do not see the different in sectors.

    If you are investing in Washington Mutual or in the financial sector in general, it would be a good idea to reevaluate your holdings. I am personally invest in companies that don’t hold a lot of debt so I don’t think my investments will will be too impacted by the impending credit crunch. I am also diversified in sectors in which people cannot live without.

  57. Bob Says:
    August 25th, 2007 at 1:47 pm

    My paraphrased summary of this issue…

    Lila: “My portfolio is going down and I’m nervous. Can I time this market?”

    Trent: “Sure, all you have to do is move everything to cash now, then jump back in once the market hits bottom. It’s easy!”

    Everyone else on the internet: “You are advising her to buy high and sell low. If she was unable to time the top of the market, why do you expect that she will be able to time the bottom of the market?”

  58. Bob Says:
    August 25th, 2007 at 1:52 pm

    It’s also worth mentioning that getting out of stocks and into cash exposes an investor to both inflation risk and tax risk. Even using a high interest online savings account, staying in cash for the long term causes a person to LOSE money after taxes and inflation. With a 20 year investment horizon, there should be little to no cash in a person’s portfolio.

  59. dimes Says:
    August 25th, 2007 at 2:08 pm

    This is one of the pitfalls of people asking for financial advice from people (or bloggers) who have NO FRIGGING CLUE what they’re talking about, and who SHOULD NOT be dispensing advice. Trent has proven time and time again that he has no idea what the hell he’s talking about. He’s like RK, popular and charismatic, but totally ignorant to matters of finance. I hope he’s well-versed in issues of liability insurance, as they’ll come in handy if he doesn’t stop with this BS.

  60. fivecentnickel.com Says:
    August 25th, 2007 at 3:34 pm

    Kevin: If you’re uncomfortable during a correction, you shouldn’t have invested heavily in stocks in the first place. Obviously, not being in stocks will make it much harder to reach your investment goals, so you better be prepared to save a lot more to make up for the lower returns. However, exposing yourself to more risk than you’re comfortable with is a great way to ensure that you’ll lock in your losses when the market zags instead of zigs.

  61. jpsfranks Says:
    August 25th, 2007 at 8:07 pm

    I don’t really see what emotional comfort bailing on the market gets you. If you’re like me you’d be kicking yourself every day if the market recovered, or agonizing over when and how to get back in if it kept dropping.

    I think the only path to semi-peace-of-mind besides total obliviousness for people who have trouble stomaching volatility (just about everyone) is sticking to your asset allocation.

  62. The Div Guy Says:
    August 27th, 2007 at 11:51 pm

    It’s funny how peope ask for advice from people who have little investment experince other than reading a couple of books on the subject but are excellent communicators. You see the same thing in sales every day. The best sales person is the one that can gain a person’s trust.

  63. getting a good night’s sleep : plonkee money Says:
    October 1st, 2007 at 2:14 pm

    […] So Trent (the simple dollar) and JLP (all financial matters) had an argument about investing, on JLP’s blog caused by a post on Trent’s blog. Only in the geeky world of personal finance blogging should that ever be a big deal. In my honest opinion (and of course I am always right ), what Trent meant to say and what everyone read him as saying are two completely different things. […]

  64. » Weekly Roundup: Fogo De Chao Edition on Blueprint for Financial Prosperity Says:
    August 3rd, 2008 at 3:29 pm

    […] Looks like JLP has something to say about Trent’s financial advice. […]

  65. Mapgirl’s Fiscal Challenge / My Own Nervousness Says:
    August 6th, 2008 at 9:53 pm

    […] happen agree with JLP’s basic principles, which I have slightly modified to be affirmative in statement and re-jiggered the […]

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