“In your recent article, you stated that if a person may need the money in 5 years do not consider putting in the stock market. Why do you feel that way? Five years seems to be a nice length of time for your stocks to grow as opposed to leaving it in a bank and getting 3-5% interest a year.” – JPNappy
A.T.: Well, say you have $10,000 you may NEED for something in the next five years and that when you DO need it, it’s only worth $6,300, because stocks are down. That would not only leave you short of cash but force you to sell at what might be close to the bottom. Better to have bumbled along in a bank or money market or Treasury Direct and have $11,500 instead.
Obviously, five years is arbitrary. If you will literally need the money in five years and one day, that doesn’t make the market a completely safe place for it, any more than at four years and 11 months it’s suddenly dangerous. But the notion that stocks can never go down and stay down for more than a few months — or even a few years — is a very modern one with little regard for reality. To me, for money you really can’t afford to lose, five years would be a sensible minimum — and even then there are no guarantees.
One reason “the rich get richer” is that they can afford more risk. They have that first $5 million safely in bonds. <grin>
(Hey, I hate “<grin>s” as much as the next guy — what a tragedy it would be if writers had to begin signaling <irony> or <humor> or <tears> with brackets. But I have this morbid fear one of you might actually think I don’t realize how preposterous $5 million IS to most of us — let alone $5 million safely in bonds. <downward-drooping envious pout>)
Quote of the Day
You see those charts that say if you put away $500 a year starting at age 20, by the time you're 50 you'd have a gazillion dollars. It just makes you ill that you didn't do it. You almost want to grab young people and shake 'em and say, 'Please don't make the same mistake I did. Please.'~James Carville
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