One reason some neophyte investors are relatively unworried about the possibility of falling stock prices is, as a few have told me, that’s what they’re paying the mutual fund manager to do — spy the future and sell before prices fall too much.
What they don’t understand is this simple fact: most mutual funds are always pretty close to fully invested in stocks. It’s rare for an equity fund to have less than 90% of its assets invested in the market. So if the market drops 40%, so, in all likelihood, will the fund. (Well, conservative "low-beta" funds will drop less, aggressive "high-beta" funds will drop more.)
If you think the market is overpriced, it’s your job to pull out of the fund, not the fund’s job to pull out of the market.
Having said that, of course, there are lots of reasons not to hop in and out of funds, especially in a taxable account. Stock market money should be long-term money; 25% and 40% dips, should they occur (and they always used to) are just part of the game. If you’re in it for the long term, it’s usually futile or counterproductive to try to "time the market."
Still, with the U.S. market having tripled or so in the last five years, it wouldn’t be imprudent, especially within tax-free accounts, to switch a bit of money into an overseas index fund that invests in a market, like Asia, that’s gone on sale.
Quote of the Day
In 1800, 75% of [an American's] working man's expenditures went for food alone. By 1850, that had dropped to 50%. Today it is a little more than 11%.~The Wall Street Journal, September 20, 1996
Request email delivery
- Oct 20:
Melvin Reddick / Andrew Sullivan / Richard Painter
- Oct 19:
- Oct 18:
Gregg Popovich: Teaching Software To Write Software
- Oct 17:
Hurtling Toward The Future
- Oct 16:
He’s Baaaaaack . . .
- Oct 13:
Mikey’s Last Breakfast
- Oct 12:
- Oct 11:
Why Corporate Tax Cuts Won’t Create Jobs
- Oct 10:
A Letter From Secretary Albright
- Oct 9:
- Oct 20: