Good article on the mindset of investors that are waking up. It is also a side effect of all of the deception that is going on these days. People just don’t know what they can trust and so they sit still and wait, uncertain of what ground is stable. This is what Christ spoke of and told us the parable of the house built on the rock (Christ and God). We must turn back to him to be saved.
Matthew 7:24-25 (NIV) – “24“Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. 25The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock.”
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Scared investors sitting on the sidelines
Take a look at the stock market these days, and it’s almost like investors are on strike.
For 20 weeks in a row, Americans have pulled money out of domestic mutual funds. They’ve taken their marbles – $70 billion worth during that time period – and essentially gone home. Some have gone into bonds, and some are just sitting in cash, but the idea of equities just seems to make them queasy.
People like Christina Cozzi. The president of Camelot Communications (pictured left), a Manhattan-based marketing firm, had the fear of God put into her by the financial meltdown of 2008, and has been skittish ever since. “I was extremely shocked and scared,” says Cozzi, 27. “I had invested wisely from a young age, and didn’t want to see my portfolio rapidly deplete already.”
So she started selling off some of her higher-risk stocks and mutual funds, and still hasn’t summoned the courage to dive back into the stock market. Especially since she’s starting her own business from the ground up, and every penny is dear. “It’s enough to scare me into knowing that I need to be really smart and safe with my money for the time being.”
Cozzi isn’t alone in wanting to ride out an unpredictable market in safer harbors. “People are just tending to sit still,” says Jeff Tjornehoj, research manager with fund-tracking firm Lipper, a unit of Thomson Reuters. “There’s a lot of anxiety out there, and investors are using bond funds instead of equities to prepare for the future. That’s what’s soaking up all their anxiety right now.”
To a certain extent, that kind of stock strike is perfectly understandable. The economy continues to sputter, the ‘flash crash’ in early May has many investors worried about automated trading, and the financial crisis that brought the banking system to the brink is still fresh in everyone’s minds. As a result almost $11 trillion in cash is now parked throughout the banking system, according to research firm Strategic Insight.
But know that sitting in cash forever isn’t a viable retirement strategy. With yields on money markets and Treasuries so slim these days, you’re probably making close to zero on your money, once you factor in taxes and inflation. That level of returns isn’t going to fuel a worry-free future on a Caribbean beach.
“You can’t bury your head in the sand and expect to win long-term,” says John Sestina, a fee-only financial planner in Columbus, Ohio and author of Managing To Be Wealthy. “If you’re behind in the third quarter of a football game, you’re not going to win if your whole team is sitting on the bench.”
Job One for nervous investors is to revisit your asset allocation, which may be wildly out of whack after the gyrations of the last couple of years. If you find you’re far overweight in bonds, for instance – which is likely, given the relatively strong performance of fixed-income investments – it might be time to trim those holdings and devote to other asset classes, especially if you have a long time horizon ahead.
The best way to get back on the proverbial horse is to dollar-cost average back in, advises Sestina. Devoting fixed sums at fixed intervals will let you buy more stock when the market is cheap, and less when it gets pricey. “That way you’ll actually benefit from the ups and down of the market,” says Sestina. “It offers more advantages than just jumping back in with a lump sum.”
Even Christina Cozzi is planning to get back in – but gingerly. After all, even seasoned market pros seem totally perplexed about what’s in store. “One day you hear the economy is doing better, and the next you hear only negatives,” says Cozzi. “So I don’t plan on jumping back in too hard, too soon. I will make small investments as I see fit – but certainly don’t want to jeopardize my future by making rash decisions.”
Once investors do start putting their money to work again, it could be a welcome boost for a fitful market. “People are getting very frustrated with low returns of money markets and savings accounts,” says Sestina. “People are going to be slowly moving into the market again, because they’ve got to do something. All they need is a little stability and encouraging news, and you’ll finally see them make their move.”
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myBlessedHope 