Some of you aren't going to agree with me, but let me be candid -- I don't like what I'm hearing and reading from financial advisors about the value of being patient and buying and holding. After all, the major indexes are testing multi-year lows, investors' disgust level is bubbling over the top of the thermometer and this market is now being compared to the crashes of 1987 and even 1929.
Do these advisors truly believe that invested capital that has lost 50%-75% of its value must come back if you just let it sit long enough? Is it
lifetime they are thinking of? Or do clients need to be reincarnated to finally recoup their losses?
These losses can't easily be made up and there isn't plenty of time left for all those early baby boomers who have taken big hits to their retirement and savings accounts, nor for all those in their sixties who jumped into the market when it was hot. Too many older investors are now realizing that the "long term" is no longer so far away, or that it has already passed them right by.
Psychologically, these advisors don't understand the power of what, over a 28-month period, has settled into long-term fear and loathing and is now sitting on the brink of panic. They don't appreciate the depth of the insecurity that accompanies having your retirement security rug pulled out from under you. Or what it means to live without the savings account you hoped would earn you a nice return but instead has been sliced in half. If they did, they would have given up this "hold stocks forever" mentality a long time ago.
Many advisors seem unable to let the actual trends of the market alter their rigid buy-and-hold thinking -- a mentality that was based on another era and political landscape, and a very different market-mind. Along with the usual suspects, they have, unfortunately, become just one more group to mistrust.
The Market Complex
These people should know better. But they don't, because they're too fixated on the dogma of the past and their own self-interest. They think with the same buy-and-hold, don't-time-the-market litany that comes out of the mouths of everyone else on the sell side. They repeat this mantra no matter what the market is doing or how much their clients have lost. They are every bit as much a part of the problem as are all of the other people in what I have referred to as the "
This complex is made up of brokers, analysts, investment bankers, corporate accountants and attorneys, fund managers, media cheerleaders and all the ancillary roles that support and benefit from more and more money being pumped into the system. And this includes financial advisors, who now sound too much like fund managers, and analysts who have a bill of goods to sell the public. They all have a stake in the game continuing, and it doesn't go on if you withdraw your funds.
With the exception of the client needing money in the next three years, they won't tell you to sell, no matter what. They will tell you to stay fully invested so you don't miss some "future opportunity." They will advise you to diversify, which means you get to lose your nest egg in a whole bunch of sectors and asset classes rather than just one. They will maintain that too much money held in cash means you won't keep up with the cost of living or meet your retirement goals. Who cares about the cost of living? When things get this bad, it is the preservation of capital that matters, not the cost of living!
Too many advisors worship the god of dollar cost averaging. And it's always in the downward direction. Right now, you can be sure, many are eagerly telling their clients who still have any capital left to commit more because it's a "tremendous buying opportunity."
Watch Out For the Roach Motel
Following the guidance of these advisors is like investing in the Roach Motel.
Your money checks in but it doesn't check out.
To hear these people, you'd think it was a crime not to have retirement money in the stock market at all times. You'd think there was no other way to increase your net worth. Well, since purchasing my home four-and-a-half years ago, it has doubled in value. With that kind of appreciation, I can afford to wait until the market trend changes. I realize there will be plenty of time to come back in down the line. I can say "no" to advisors and brokerage sales people encouraging me to let this deep black hole of a market suck in any more of my money.
And so can most of you.
Steven J. Hendlin, Ph.D. is a clinical psychologist in Irvine, Calif. He has been in private practice for the last 26 years, investing for the last 20 years, and actively trading online as a position trader and long-term investor since 1996. He is the author of
The Disciplined Online Investor and maintains a site at www.hendlin.net. He is pleased to receive your comments and questions for publication in his public forum columns at
email@example.com , but please remember that he is unable to provide personal counseling or psychotherapy through the mail.
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