The Dangers of Buying and Holding

Maggie and Surface-To-Air Missile called my office last week, and I could hear the despair in their voices. They’ve lost more than than $1 million in the stock market since 2000 by “investing conservatively.” Their broker guarantees them that purchasing high-quality common finances and retention onto them through unsmooth markets will turn their money safely. Yet they can plainly see it isn’t working. In fact, they’ve watched a serious diminution for a piece now, and they’re starting to panic.

Their problem is not earning money to fund their retirement dreams. Both Maggie and Surface-To-Air Missile are smart and successful: She is a bosom surgeon and he is a well-heeled attorney. Yet they’ve lost a fortune, and they can see that no matter how much they earn, it can’t possibly offset the damage done by hearing to the advice of their broker, so they’ve turned to me to halt the bleeding.

These two aren’t the lone intelligent, flush investors I’ve met who are frustrated and frightened by their investing results, and 2000 wasn’t the lone bear market investors had to face. Based on 60 old age of evidence, a bear market ravages investors every 3.3 years, and the average loss is 27%. That’s sufficiency to scare anyone. According to AARP, 35% of all people travel back to work after they retire. Could it be because the market clefts and scuffles their nest eggs?

I’m reminded of my Uncle Jim, who wouldn’t listen to me and retired in 1999 with $700,000. His program was to make income from his retirement package and to dwell happily ever after. Interest rates were too low for Jim, so he decided to put in growing common finances to make the income he wanted. By the end of 2002, his $700,000 had dropped to less than $400,000 thanks to an inhospitable market. His nest egg had lost 43% of its value. Then, instead of $700,000 workings for him, he had $400,000 workings for him. That meant less income--a batch less income. Faced with this distressing reality, Jim sold his beautiful home to purchase a small condominium and had to travel back to work. Jim didn’t have got 70 old age to “think long-term” arsenic his broker and other financial “experts” suggested he should. Jim needed that income today.

What can Jim, Sam, Maggie and everyone else make to protect themselves from ruinous loss in the future? Since we cognize that a clang come ups every 3.3 old age on average and the typical loss is over 27%, it is critical for investors to put only when the hazards of doing so are relatively low.

Of course of study whenever you put in the stock market you take on risk. However, we cognize that certain modern times are riskier than others. Just as you check the weather condition prognosis before you ship on a route trip, I’m suggesting that you check the market’s temperature before you hit the financial road.

There are a number of ways you can make this. The method I like best is watching the major indices, such as as the Dow, S&P Five Hundred and the NASDQ. Here are the specific steps:

1. I look for years when the volume explodes. For example, if the DOW trades 2 billion shares on average, and today the DOW trades 2.2 billion shares, that is a important addition in shares.

2. When that happens, I pay attention to what haps to the terms of the index. Continuing our example, if the DOW folds higher today to boot, I cognize that large establishments are falling over themselves trying to purchase shares, which intends terms are moving up.

3. We cognize that one mark of a healthy market is a large addition in shares traded, coupled with the index moving higher. In fact, there have never been a bull market stampede without a large addition in trading along with an addition in the index price. If I see two or More than of these strong days, I’m more prostrate to invest.

I strongly suggest that you watch the major indices for hints on the market’s wellness before you invest. I’ll be providing more than specific tips on how you can “take the market’s temperature” next month, most notably how you cognize when it’s clip to halt holding and sell.