How individual investors grapple with their choices since 2008 is a phenomenon new to the market, particularly since the individual investor himself is relatively new to the market. After all, it’s only been a relatively short time that individuals could actually trade the components of their portfolio in the market. In that “short” time, much of the ugly side of the market has come out for full view, and the sight ain’t pretty. In the past the years alone we have seen
- the dot-com bubble and its crash,
- the accounting frauds that brought down some of our largest corporations (e.g., Enron, WorldCom),
- the “tainted research” scandal that exposed the conflicts of interest among sell-side financial analysts,
- the scandalous behavior of the ratings agencies in 2008,
- the Bernie Madoff Ponzi scheme,
- the market timing and late trading mutual fund scandals,
- high-frequency trading and its role in 2010 Flash Crash and;
- the current SEC arrests, trials, and investigations into insider trading.
Add the above to the 2008 financial collapse and one wonders how or why individual traders/investors do it. Well they are, and they are concerned.
I put my 401k investments in 100% cash August 2008, because of my uneasiness of the markets and news sentiment at the time. However, after the selloff in March 2009, I didn’t have the knowledge and courage to reinvest in the markets until the beginning of this March. Now, I read the retail investor is beginning to enter the markets again, just as the market is beginning a correction after a two year run up. Now I feel fear again, so I have reduced my holdings back to 35% invested and 65% cash. I switched my usual holdings to a retirement trust fund that invests in the S&P, Bonds, Int’l funds, U.S. Treasury Tipps, and large cap stocks. Is this preferable to holding the funds individually?
Given what you have told me, I suggest that you have a professional handle your retirement fund, as what you invest in depends on a number of factors, including your time horizon for retirement, as well as your overall financial picture. Generally, though, when one wants broad, diversified exposure to the market, it is best to invest in a “family” of funds that provide this. What you pay for this is a consideration, and it is part of the answer to your question. However, if the cost is fair and the fund family is reputable, the big advantage is that you get professionals making decisions instead of you.
Now, this will not alleviate the justifiable fear you have, but it will reduce your responsibility to paying attention to the market, learning about the market, and then discussing what you know and what you see with your advisor. Keep in mind, the day of “buy and hold” investing is dead. For maximum protection and maximize return, you need to move your money around, even if it is from one fund to another. You need to know what is going on in the market. It is like having a child in this sense – have you hugged your money today?
Trade in the day – Invest in your life …
