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Reader Email - Investing
By JLP | September 12, 2007
I recieved the following email from a reader:
Hi JLP,
I have a question in regards to your recent post, Controlling Your Fear of the Market.
I’m 22 and have a degree in Business Administration with a concentration in Finance. I’ve grown up following the stock from market from the tech boom in the late 90’s, to the fall out a few years back, to more recent times. My question/concern to you is about controlling fear in the stock market as well as trying to create a unique investing solution. I have my 401(k) which I have about $3,000 saved up within a year’s time. It’s properly allocated and I don’t check it that often since short term bumps in the road are irrelevant. My main focus is that I have about $8,000 in a non-retirement account that I’m looking to invest but have been scared off in light of the recent news about credit concerns. It brings back memories of the late 90’s when people saw their portfolios get hit hard even though they were properly allocated. I’m sitting cash right now in a money market yielding 5%.
So, my question to you, whom I consider a financial guru, what are some options of investing that $8,000 in my non-retirement account? I don’t plan on touching the money for a few years, but I’m hesitant about the market (not really to fond of taking the generic advice of riding it out) and think sometimes sitting in cash is a more attractive position that equities. By the way, if it helps, I have no debt, except a mortgage which I have well under control. Thanks for your thoughts and opinions.
–
Alex
I sent him an email asking for some specifics on his time horizon on his $8,000 and this is how he responded:
Well, on the exact years, that’s hard to pinpoint. I don’t plan on touching it for a minimum of 3+ years. My biggest fear (geez, I hate to use this word) is investing it now, watching the market go through a down year (or two), and be starting at phase 1 all over again, but with $5,000. I second guess myself on how many more years we can possibly see returns in the black before a nice “correction” occurs. We all know how much timing plays in not only investing, but life in general.
I don’t have a main purpose of the $8,000. Basically, I’m trying to maximize return for whenever another investment idea comes along. A few main ideas I have tossed around are:
- Down payment on an investment property (not sure on the time line. Possibly whenever an investment pops up. This is mainly why I am hesitant on pin pointing how long I won’t touch the money for). This idea isn’t anything concrete, just something that I’ve entertained since Arizona (where I live) has a pretty high foreclosure rate.
- Start up capital for a business venture.
- Keep investing it to maximize return.
Here’s my response:
You should not let the market bother you because you shouldn’t invest this money in the market. Why? Because your time horizon is only three years. If you didn’t need the money for AT LEAST 5 years, then the market might make sense. So, if you think you are going to need this money in the three years that you specified in your email, then you should keep it out of the stock market.
One thing you might be able to do to get yourself a better return is to look into purchasing CDs. You could purchase one CD or do a 3-year ladder. I’m not sure what rates you can expect but they might be worth looking into.
One final word of caution: be VERY careful investing in real estate right now. Make sure that you have the funds to keep you afloat in case things don’t turn around soon. Real estate is far from being free of risk.
Those are my thoughts. If you (AFM readers) have anything to add, please leave a comment.
Topics: Investing |