Much has been made of the fact that the Dow Jones Industrial Average hit record highs this month. The response of investors has been to pour millions into the stock market. Don’t get me wrong. The fact that the Dow hit a record high is really good news. For those who bought or held stocks in 2008 and 2009 it is great news. For those buying today, it is still good news if they have a good strategy—and patience.
The irony of investing is that behavior for most people is almost the mirror opposite of other transactions. The record high for the Dow means that if you are buying, the price is at an all-time high. What is the response to this news? Buy stocks! Imagine if we were discussing gasoline or clothing. If we got news any other commodity cost more than it ever has before would we rush to see how much we can buy? “Hey Joe, come on. Gasoline is up to $8 per gallon. We should fill up now!” “Mary, don’t buy that dress on sale now! You can get it for 20% more next week.” Really?
In 2002 stocks were cheaper than they had been in years. Bonds were at 50 year highs due to the low interest rate policy at that time. The response of investors was to pour record amounts of money into bonds and exit stocks. Logic would lead a rational person to buy stocks and sell bonds. Logic, for most investors, is not the basis for their decisions. After all, “If the baby on TV can do it, so can I.”
When you think about your investments—slow down. Ignore the noise of the media as they try to drum up a sense of urgency. Develop a process for decision making that allows you to see all aspects of your financial picture. You will need money now. You will need money in the near future. You will need and for the long term. Learn to deploy your resources to meet current needs, prepare for emergencies, and save for the future all at the same time.. Establish your priorities and systematically work toward your goals. When things get noisy and the Dow hits a new high, your plan will work. When things get nasty and the Dow takes a tumble, your plan will work. The plan is to make consistent, intelligent decisions about your finances. You will adjust with the times, but the process must continue.
If you don’t know what you are doing, get some help. There are professionals available to guide you to good decisions. You can do it yourself, but it will take time energy and money. Financial security is not child’s play. It is one of the most serious projects you will ever attempt. Most do not attain it. You will earn a fortune in your lifetime. What you do with what you earn will make all the difference.
Submitted By David M. Wheat, CFS, ChFC
