Posted on 03/07/2005 9:40:23 AM PST by qam1
Be glad you missed the boom/bust
Andrew Ruppar laments missing the chance to make a killing in the go-go late '90s bull market. But he also knows that maybe that was a good thing.
At the time, Ruppar, a young Wachovia banker, didn't have money to spare on Wall Street -- even if the bets were easy. He was among the Gen-Xers investing a little bit in their 401(k) plans but feeling that that wasn't enough -- not with the Dow Jones industrials surging past 11,000 and the Nasdaq composite index past 5,000. Not when any company with dot-com attached to it scoring triple-digit returns.
"All my money was going to paying off student loans and car and rent and transitioning from khakis and a ball cap to a suit and tie," said Ruppar, now 28 and working in auditing for KPMG in Charlotte.
You might have felt like a Wall Street wallflower back in the day when Merrill Lynch analyst Henry Blodget predicted Amazon.com would rise to $400 a share. That happened, but now the Internet merchant is trading around $35. By not having the money to jump in and buy the moment's hot tech stocks, including North Carolina's own Red Hat Inc., you didn't lose it all when the market crashed in 2000.
The market's downward spiral continued through 2002 before finally posting gains in 2003 and 2004.
But the market hasn't fully recovered. The Dow is now trading around 10,900 and the tech-laden Nasdaq around 2,070. It's been five years since the Nasdaq hit its all-time high -- 5,048.62 on March 10, 2000.
And now many stock analysts and economists are calling for modest stock market returns -- something like 3 percent or 4 percent -- for the foreseeable future. That's a far cry from all the partying in 1999 when the market broke all sorts of records and the Nasdaq surged 86 percent.
Yes, it's a pity, but don't grieve over what might seem like a missed opportunity for big Wall Street gains. Consider yourself lucky. As you 20- and 30-somethings approach your peak income earning years, stocks are at sale prices compared with the dot-com premiums they once were at.
"It is easy to look back jealously and say, `Wow, those were the days.' They really weren't the days. The days are coming forward for you guys," said Jack Brennan, chairman and CEO of mutual fund giant, The Vanguard Group.
You're better off maxing out your 401(k) contributions and setting up individual retirement accounts than trying to pick hot stocks in raging markets.
"I have this argument with two guys I run with who are 35. They have now converted over to my point of view, which is they're so much better off to have their peak earning years coming at a point in time when they have the ability to invest at better valuations than someone like me did" at the peak of the last bull market, said Brennan, 50.
He tells his 21-year-old son to make regular investments and not try to time the markets fluctuations. That's called dollar-cost averaging, not irrational exuberance.
Dollar-cost averaging means investing a certain fixed amount every month or from every paycheck no matter the direction of the market or the relative health of corporate earnings. Often, such investments are made by automatic withdrawals from checking or savings accounts into IRAs or from paychecks into 401(k) accounts.
The idea behind this practice is that, historically, the stock market's advances have more than made up for its losses, producing a healthy return. It is also considered a safer strategy than investing or selling a chunk of stock all at once and possibly at the wrong time. In other words, you don't have to worry about whether you are buying high and selling low.
Younger investors also have time on their side. The earlier you start investing, the more money you'll have at retirement. That's called compounding. Pretty simple.
"If there are two assets -- time and money -- it is better to have time. It is better to invest a small amount of money over a long period of time than a lot of money in a short period of time," said Jordan Goodman, author of "Everyone's Money Book."
And you really don't have to save as much as you think to be able to one day trade up from office cube to beach house.
Even if the only investment you ever make is in your 401(k) plan, if you start by 25, you can have more than $1 million -- hey, more than $2 million even -- by the time you're 65. Start at 40 and you'd be lucky to have half that. (See chart.)
Don't worry about being a millionaire on paper today or even in 10 years. Consistency over the long term might not seem exciting but it can pay off.
That's Ruppar's approach these days. He's saving 10 percent of his pay in his 401(k), at least twice what he was socking away in that raging bull market.
And, he now wisely says things like, "I don't think sound investing changes whether it is a bull market or a bear market."
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I have always wondered about this advice. How many have a lot of money to invest all at once? Seems like most people would be more likely to free up a small amount regularly and wouldn't have a large chunk anyway. We all pity those who have a sudden large inheritance or if somebody wins a lottery. The agony of the sudden rich deciding whether to invest a large amount in stocks and bonds all at once or to stash it some interest-bearing place while doing some research must be noticeable to investment advisors.
By not having the money to jump in and buy the moment's hot tech stocks, including North Carolina's own Red Hat Inc., you didn't lose it all when the market crashed in 2000.
Not having money is the best!
Wish I had some money to invest. Tickles me when I listen to these shows via tv or radio telling people how to invest and when, especially the push to buy gold. The missing link is that a person's got to have some money to invest.
Didn't they say this in 1928? Nobody can predict the future...
-The missing link is that a person's got to have some money to invest.-
Indeed - just try investing $500; you'll get virtually nowhere.
This bears repeating.
... make regular investments and not try to time the markets fluctuations. That's called dollar-cost averaging, not irrational exuberance.
Dollar-cost averaging means investing a certain fixed amount every month or from every paycheck no matter the direction of the market or the relative health of corporate earnings. Often, such investments are made by automatic withdrawals from checking or savings accounts into IRAs or from paychecks into 401(k) accounts.
Or, perhaps, a portion of the Social Security taxes taken out of my paychecks???
The idea behind this practice is that, historically, the stock market's advances have more than made up for its losses, producing a healthy return. It is also considered a safer strategy than investing or selling a chunk of stock all at once and possibly at the wrong time.
Obviously it's not "safe" enough for the Dumbocrats, who want to keep the Social Security ponzi scheme intact...
Younger investors also have time on their side. The earlier you start investing, the more money you'll have at retirement. That's called compounding.
Another reason younger investors want Social Security reform.
You can open brokerage accounts with $500, as long as you commit to an automatic-deduction savings plan, which can cost as little as $25 a month. Anyone can do this, even a college student, with minimal sacrifice.
-ccm
You got to be kidding me. Then why are the commercials selling? When I heard the S&P hit a 3 1/2 year high I sold out too. If you had $10,000 five years ago and invested in the NASDAQ you would presently have $4,000. If you invested in Gold you would now have $16,000. Any questions?
Isn't it funny how all these things are popping up here and there that the liberals claimed were preposterous, but now are accepted? They insisted the stock market didn't tank untill 'W' was in office in 2001... also see: CHINA MISSLES shows the result of Clinton giving our top nuclear secrets to China for campain contributions...
Past is past. What do you do now? Still buy gold?
Not to brag, but dollar cost averaging over many years has put me into a certain category. I plan to continue doing it until I die.
It's not a one time thing. You need to carve out small biweekly or monthly investments, that you feed over the long haul. Always pay yourself first. Rich Dad 101 ... First step before all this. Write down all money out and money in weekly. Analyze your cash flow. See what you can cut in terms of the outbound piece. If you don't *need* (as opposed to want) it, then don't buy it until after you have paid yourself, and paid your bills. Doing what I have described over many years will, if not make you rich, at least vastly increase your net worth.
$500 initial investment
$1 a day added for 65 years
Put in agressive growth stock fund 10% return
At age 65 $2,210,008.82
RE: The missing link is that a person's got to have some money to invest.
Do you have cash flow? The answer is yes. Write down all your expenses and all your sources of income. Chart it out over the course of weeks / months. Determine what you can cut on the outbound. Pay yourself first (e.g. carve out a small sum and add it to a money market / mutual fund / IRA / stock portfolio / bond portfolio), pay your bills then if you have anything left, that's your fun money. Most people (and I really do mean most) do this in reverse - fun, bills .... oops, nothing left! Cut up credit cards if you are having a particularly difficult time turning this around. Rich Dad 101 ...
You have to look at the USD. Presently around 82 and 83. What I see it will continue to go sideways. If it breaks below 80 look out. All these fund managers will hit the panic button at the same time to try to get out. Now the title of the post is young investors...Sure if you are maybe 5 of 6 years old and are looking for a secure retirement go ahead and invest. If you are not comfortable with putting your money into a hard asset (Gold) then remember cash is always king.
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