ostrich underground
I am willfully not looking at my IRA balance, especially on days like yesterday, when the market goes down almost 700 points. I just don’t want to look. I keep telling myself that I’m young, and I’ve got many years between now and retirement. That the market will eventually go back up once this correction/crisis/whatever-they’re-calling-it-this-week is over. That my shares have a long way to fall before they’re worth absolutely nothing. I keep trying not to think about how hard I worked to finally get up the minimum amount required to finally get my money out of a money market fund and into a stock-heavy mutual fund. I keep trying not to kick myself for not leaving my money in the money market fund, because I really did have no way of knowing that the nervousness in the market at the time was going to develop into an all-out global panic. This is where the rubber hits the road when it comes to the concept of "risk tolerance." When you’re a beginning investor, as I am, and you’re learning about how all this investing works, you’re advised to consider your risk tolerance as it relates to how long the time horizon is between when you invest and when you think you’ll be able to stop working. And when investors like me are young, you are virtually told that your risk tolerance is high if for no other reason than that your time horizon is long. "You have plenty of time" to absorb the fluctuations in the market and still make gains by the time you retire. So goes the conventional wisdom.
You know what scares me? According to the news and the markets, conventional wisdom doesn’t seem to be working lately.
And I don’t want to log on to look at my balance.
And maybe I should just put my little bit of IRA money into bonds, but wouldn’t that be "locking in" my losses? And isn’t that against the conventional wisdom? You know, the same conventional wisdom that isn’t working lately…
This post made me look at mine. I was not happy to see a 35.2% drop for this year. I have stopped my contributions. I won’t take anything out b/c I can’t afford the tax implications. But I’m not continuing to contribute either.
Comment by S23 — October 10, 2008 @ 4:05 pm
Conventional wisdom does work if you’re in it for the long haul. Assuming you plan to stay invested for years to come, you will regain your losses and then some. But it will get worse before it gets better so you just have to have the stomach to ride it out.
@ S23 - IMHO, stopping your contributions isn’t a good idea. In essence, you’re trying to time the market which almost never works. By maintaining your current level of contribution, you would be taking advantage of DCA. When the markets rebounds/corrects itself as it always does, you will have missed out on a prime buying opportunity.
Comment by GeckoGirl — October 10, 2008 @ 4:59 pm
@gecko girl - sorry but im sick and tired of hearing that conventional mumbo jumbo -stop scare mungoring - remember risk tolerance, if people are having sleepness nights its simply not worth it
Comment by Claire — October 10, 2008 @ 7:58 pm
Well, risk-tolerance is easier to talk about when the market is going up more slowly now than in the past. It’s a heck of a lot harder when the market and one’s retirement funds are sinking like a stone! My timeline is far shorter than yours, but I’m holding my breath, biting my tongue, and BELIEVING that things WILL get better over the next few years if I just hang in there and keep contributing. Dang! Why do I feel like Tinkerbell? And why am I worried that the world isn’t clapping hard enough?
Comment by Grace — October 12, 2008 @ 8:39 pm
@ Claire - You’re right that it’s not worth it to have sleepless nights. However, if someone doesn’t have risk tolerance, they shouldn’t be investing in the stock market. They should stick to T-bills, CDs and bonds so that there is no risk of losing their investment (except to inflation). But to each his own.
Comment by GeckoGirl — October 13, 2008 @ 9:26 am