Carmen: Why You Shouldn't Move Your Money to Cash
I wrapped up a wonderful satellite tour of local news stations this morning and each and every one, from Grand Rapids to Sacramento to Boise to Jacksonville, all started with the topic of fear.
Jitters, nerves, panic, dread, alarm. It all stinks. I’m not saying I’m a cucumber right now, but one of the quickest ways you can handicap yourself when it comes to managing your money and planning your investing outlook is to let hysteria be your guide.
If you pull your money out of the market, out of your 401(k), in panic now, you can ding yourself with future losses bigger than what the market will do. How? By missing the market upswing. In a fascinating study by the University of Michigan, they found that if an investor missed the 90 best trading days in the market between 1963 and 2004, he or she would have lost out on another 7.5% of return. That’s an 8% loss over 90 itty-bitty days! Who would want to miss those days? Granted, if you would have missed the 90 worst days, you could have made another 9% on your return. Super-snazzy number, but how can we possibly time the market that well? Almost no one can. By pulling your money out now, when the market heads down quickly, you’re guilty of market timing: trying to get out before things hit bottom, but then get back in when the market heads back up. Even the pros can’t predict when these things will happen. Why do we think we could do better?
Don’t let fear and confusion move your hand to click-click yourself out of your 401(k) or pick up a phone and give instructions to bail. If you need to make moves now, do them calmly, with the confidence of having found out as much as you can about what’s going on and what it means for you and your personal financial goals.
Let me know what’s keeping you sane about your money during these wobbly times and what you think needs to happen to calm things down. Also, what other questions do you have about what’s happening? I look forward to hearing from you…