So I'm seeing a lot of expert saying stuff like even though the stock market tanked 30% you should still have your faith in stock, because stock always make money on the long run and so on. That to me seems to be how we got into a mess in the first place. In my first company's 401K plan they basically say something like 'if you put $X in 401K and you earn 10% per year you'd have $Z million dollars by the time you retire!" Now 401K is usually a good investment anyway when you factor in the matching, but who guaranteeds that it has to go up by 10% per year? Just because it's the way things always has been? Nasdaq hit 5000 at one point, and let's say you bought it at 5000 and it dropped to 3000. At this point you lost 40% of your money, so should you hold onto it because it's got to get back up to 5000 eventually? Nasdaq closed below 1800 today, so if you're waiting for it to get above 5000 in the long run, you might be waiting for a very long time. Likewise I see no inherent truth as to why the Dow must get back to say 14000. Maybe a big recession kicks in and it takes 20 years to even get out of 10K again. I don't think Nasdaq will be getting past 5K in the next 20 years just because it was at 5K at one point.
Now obviously it's easy to say this in hindsight. Sure stock market is probably quite reliable as a steady investment during the good times. But the current time is anything but good. To me the guys who say you shouldn't sell basically assuming tomorrow we return to the good old days and you continue raking in your 10% per year average. Back in college one of the Macroeconomic classes I took has this viewpoint: "Most economist will argue progress is inevitable so economic activity always trend upward, but I argue that economic activity is cyclical." Obviously the book accounts for stuff like technological or population increases that increases overall GDP, but it says that basically the economic output doesn't go up even constantly after factoring in population growth unless you know next year someone's rolling out some cyborgs that are going to triple your production rate.
It seems like it'd be unpopular to say 'OMG sell and get out before you can!', but sometimes I think that's the right advice. Now I'm not saying this is what you have to do, because I'm operating on a guess here too, but I think there's a reasonable chance things will get even worse and it's better to lose 30% of your money than 50%, or even 100% of your money. Am I right? I have no idea, but I see no reason to assume that there's some fundamental truth that prevents me from being correct because what goes down must always go up.
Now obviously it's easy to say this in hindsight. Sure stock market is probably quite reliable as a steady investment during the good times. But the current time is anything but good. To me the guys who say you shouldn't sell basically assuming tomorrow we return to the good old days and you continue raking in your 10% per year average. Back in college one of the Macroeconomic classes I took has this viewpoint: "Most economist will argue progress is inevitable so economic activity always trend upward, but I argue that economic activity is cyclical." Obviously the book accounts for stuff like technological or population increases that increases overall GDP, but it says that basically the economic output doesn't go up even constantly after factoring in population growth unless you know next year someone's rolling out some cyborgs that are going to triple your production rate.
It seems like it'd be unpopular to say 'OMG sell and get out before you can!', but sometimes I think that's the right advice. Now I'm not saying this is what you have to do, because I'm operating on a guess here too, but I think there's a reasonable chance things will get even worse and it's better to lose 30% of your money than 50%, or even 100% of your money. Am I right? I have no idea, but I see no reason to assume that there's some fundamental truth that prevents me from being correct because what goes down must always go up.
