Is it Time to Get Out of the Stock Market?

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Unless you’ve been living under a rock lately, you know that the stock market is all the talk recently. Whether you watch CNBC, CNN, or MSNBC everyone seems to be talking about the stock market and the fact that the Dow is at historic highs and that the S & P 500 is flirting with their high. Whether this is truly newsworthy is a different topic for a different time, but this optimistic talk has all of a sudden made everyone a pro at stock market speculation. This is understood to a certain aspect as many people are concerned about their retirement portfolios and do not want to return to the 201k days that summed up about what many felt about the 2008-2009 period. This all begs the question of whether now is the time to pull money out of the market or if it’s time to get in.

What Goes Up Must Come Down

This is a well-known axiom in the investing community. If life were all lollipops and puppies, then the stock market would just continue to go up and up. Unfortunately, there is a little something called reality and a continued, unceasing trajectory is impossible. While I may dislike seeing investment losses as much as the next person it is vital to come to grips with the fact that you will lose money when investing in the stock market. We can never truly know what exactly is going to happen, but if we read the tea leaves, then we can see some indicators that might make some pause. Key among them is the fact that piles of money are going into equity based funds and the fear index is low. This generally means that people, in general, are feeling good about the prospects of the stock market and feel so good in fact that they’re jumping in head first.

When done for the right reasons, I generally do not have issue with that. However, when it’s done to follow a herd mentality then I began to have an issue with it. It reminds me of when I was growing up and when I asked to do something that was not the wisest thing to do, my Dad would always come back with the same saying, “If everyone jumped off a bridge would you do it?” I hated hearing this as a kid because I just felt like he was not allowing me to do something I wanted. I mean, how could I be the cool kid if I did not do what everyone else is doing? The moral of my rambling story is not to jump in head first just because everyone else is doing it. I am not an expert at speculating on the stock market, but I do know that what goes up must come down. I don’t know if that is 5% or 25%, but it will come down. This is also not to mention the fact that I agree with Warren Buffett when he says that he’s greedy when others are fearful and fearful when others are greedy.

Who Should You Listen to?

If you read many personal finance blogs, then you’ll know that this is a topic that has been discussed ad nauseam lately. Everybody seems to have an opinion on being in the stock market, so that makes me truly original I know. That said, there are many voices vying for your attention when it comes to investing. You can watch TV or read on the internet and find such divergent opinions in a few short minutes which, in the absence of a clear consensus, leaves some wondering what on earth to do. While the noise can make it difficult for many to decide what to do when it comes to their investing strategy, I will say to be very careful of who you listen to when it comes to making an investment decision of your own. Only you truly know what is important to you and only you will look out for your best interests when it comes to investing.

Know How Being in the Stock Market Plays in Your Future

I have written before about having an investment plan and the current state of affairs in the stock market is one of the very reasons why I think it’s so vital to have one. If the stock market does make a correction, then do you really want to lose money because you did not have a stop loss in place? On the other side of the coin, as the Free Financial Advisor so aptly put it a few weeks ago now is the perfect time to invest as it was a week ago and so forth.  Don’t let the talking heads on TV scare you into thinking that the sky is going to fall and that we’re going to see Dow 5,000. Understand that their job is to sensationalize to get ratings and that in general, they do not care about your retirement portfolio.

I often find that times like these are a great time to look at your overall portfolio and assess where it’s at. Are there some dogs in your online brokerage account, like Scottrade, you need to get rid of in order to cut losses? Are there some winners that you should take the gains on? Or, do you need to do nothing? These are all questions you should be asking yourself in times like this. This requires a long term view of one’s investments and not what you fear might happen tomorrow. If you make a decision based off this fear then you’re inclined to negatively impact your portfolio. Speaking personally, this is where the importance of saving for retirement comes in, along with making sure that we’re making wise decisions as we look at what winners we should be selling and how we might need to rebalance our overall portfolio some. So, to answer my headline…Is now the time to get out of the stock market…Yes AND No!

 

What are your thoughts on the current state of the stock market? Are you making any changes in your portfolio, or are you staying the course?

 

 

 

Photo courtesy of: Theseoduke

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About the author:

I'm the founder of Frugal Rules, a Dad, husband and veteran of the financial services industry. I'm passionate about helping people learn from my mistakes so that they can enjoy the freedom that comes from living frugally. You can connect via Twitter / Facebook.

64 comments on “Is it Time to Get Out of the Stock Market?

  1. Great post John! Investors need to have a long term plan and view when investing in the stock market and review that plan on a regular basis. You are going to lose money over the short term because stocks never just go up. But if you stick to your plan and ignore all of the doomsday scenarios, you will be OK. Case in point is 2008. Investors were crushed. But if you stuck to your long term plan and stayed invested, you would be ahead of the game now, just 5 years later. I know of too many people who after the market tanked sold everything and went to cash. They are still in cash and they still have hardly anything to show for it. While they think their money is “safe” as in they aren’t seeing their balance decline, they are taking a huge risk by letting inflation eat away at their savings.
    Jon @ MoneySmartGuides recently posted..How to Use Groupon to Save on Your VacationMy Profile

    • Thanks Jon! That is a great point about investors cashing out in 2008 only to fid themselves with very little now. I have spoken to way too man that are in that very situation and it’s saddening to see them lose out as a result.

  2. Nice post! Honestly, you can’t time the market. Although I believe that it will probably correct itself sometime soon, the fact is nobody knows what it is going to do. Over the years, the stock market has always gone up over the long term. Therefore, it is my belief that you should only be putting money in that you plan on having invested for at least 5 and probably 10 years. If you do that, you don’t have to worry about timing the market because time is your friend.
    Greg@ClubThrifty recently posted..Are You an Extreme Cheapskate?My Profile

    • Thanks Greg and I totally agree! I’ve seen way too many people try to time the market and just lose their shirts as a result. Having that long term view of things is vital, otherwise you’re just setting yourself up for heartache.

  3. This is one of those situations where your damned if you do, damned if you don’t. I think logically it makes sense that the market will drop or correct in the future, but what if it doesn’t and you miss out on gains? I know some people who pulled out of the market in the past but didn’t get back in time for the uptick. Long-term investing is the only way to go, unless you want to take on some significant risk.
    DC @ Young Adult Money recently posted..3 Reasons You Should BlogMy Profile

    • I don’t know that I’d say that you’re damned if you do or damned if you don’t, but I do agree that the long term approach is the best view to take. Too many people did pull out only to try and get back in now, only to lose out on a lot of gains.

    • Thanks Roger! I am in the same camp and is one that should be well thought out as opposed to jumping out of fear. I agree, those who baled are in poor spots due to missing out on those gains since 08-09.

  4. very few of us are smarter than the market and for a majority it is like flipping a coin. It is not an all time high if you factor inflation. And it historically rises some more. But you can get out and wait for a dip to come in again. With the risk the dip doesn’t come and you get in at a higher price.
    pauline recently posted..Making ends meet when on welfareMy Profile

    • I agree Pauline, very few are smart enough to be able to outsmart the market and it always makes me cringe to watch investors make decisions to buy a certain stock after little to no research.

  5. I totally agree that there are far too many “experts” out there voicing their opinion about this actually very serious topic. My mentality on the stock market is to keep pushing money in during the highs AND lows. I hardly ever look at the charts, and I never watch the news (I get my news from NPR) because of their inflationary nature.

    I would love a dip in the market so I could buy a little bit of stock on the cheap :)
    Johnny Moneyseed recently posted..Setting up a passive income streamMy Profile

      • Great point Mr. 1500! No one likes the slow and steady approach, it’s no where near as “sexy” though it does generally get you much, much farther.

    • I agree, there are way too many so called experts and you have to do what is best for your situation and make sure it’s done with some measured reason. We actually get a good bit of our news from NPR ourselves. My wife has loved them for years and has turned me on to them and tend to be fairly solid.

      I am with you on the dip, I have cash in all of our IRA’s for that very reason.

  6. Unless any of us can tell ahead of time what the market is going to do tomorrow, then today is perfectly fine day to invest. Sure you can read the metrics and look for signs. But countless universities and other professionals have tried to build computers and software programs that take all these variables into account and predict tomorrow’s outcome. And they’ve all been wrong. So really the best we can do is stop worrying about what will happen tomorrow and focus on getting our act together today.
    MMD @ IRA vs 401k Central recently posted..What Are My 401k Investment Options and Choices?My Profile

    • Great point MMD! Stop worrying is something that way too many people need to take to heart. I know it can be difficult to say no to, but that worry will generally just cause you trouble.

  7. I invest regularly, regardless of how the market is performing. Every month when fresh capital hits my account, I try to find the most attractively valued stocks that fit into my investment plan and purchase them. Because I’m buying stocks that produce consistently rising dividend income, I can screen out all the noise about whether the market is too high or too low. I just look for value. All a higher market means is that there are less attractive options out there.
    My Financial Independence Journey recently posted..Microsoft (MSFT) Dividend Stock AnalysisMy Profile

    • That’s a great approach to take MFIJ and one that so few actually do. I find that that approach really helps take the emotion out of the investment decision and can make decisions much easier to come to.

  8. “This is also not to mention the fact that I agree with Warren Buffett when he says that he’s greedy when others are fearful and fearful when others are greedy.”

    This is probably my favorite investing quote of all time. In 2009, the S&P 500 dropped all the way down to 666. I know people who freaked out and jumped out of the market. Fast forward to today where this index has more than doubled! Forget about timing and stay the course, as long as you’re in it for the long term.
    Mr. 1500 recently posted..Net Worth of $160,000,000 and Working in Food ServiceMy Profile

    • I would definitely say that Buffett’s quote is up there for me to and is one that I do my best to live by. I view it as the stocks I am looking at are on sale so why not buy some? The sad thing about so many of those people is that they never made it back into the market and missed out on so much in terms of gains.

  9. Well put John. I have a pretty aggressive strategy in the stock market at this point. I have a 80/20 split between stocks and bonds. I know that what comes up must come down, but I am young enough to absorb those losses. If I was older, I would take a more proactive approach. I don’t think we will see what many media types are hyping as a massive fallout, but there will be losses. It happens all of the time. You can’t win without playing the game and you can’t win every game all of the time.
    Grayson @ Debt RoundUp recently posted..Tips on Saving Money in College: Textbooks, Food, and EntertainmentMy Profile

    • Thanks Grayson. I am taking a similar approach myself and agree that if I were older I would be a little more conservative. I don’t think we’ll see the feared meltdown either, but will see some sort of a pullback.

  10. Since I’m not going to need my IRA money until I’m at least 59.5, that can stay in mostly stocks. Otherwise, it’s a great time to invest in rental properties! I also used to hate the old “If everyone was jumping off the bridge” saying, but I’m sure I’ll use it myself at some point. I think we all turn into our parents a little bit as we get older.
    Kim@Eyesonthedollar recently posted..March Madness: How Much it Costs to Follow Your Team in the NCAA TournamentMy Profile

    • Lol! I feel the same way Kim, it’s just a matter of time to certain extent. Rental properties are great, they bring greater diversification. :)

  11. I think each person has to customize his or her own strategy based on a host of factors–age, income, retirement ambitions, savings, etc.–so I don’t recommend my strategy for anyone. But we are sellers. In my opinion stock investing has evolved into a far riskier proposition over the past 20 years, and we’re no longer comfortable with the risk. Two bubbles followed by two crashes since 2000, followed by another steep run-up (in progress)–my vertigo tells me to look elsewhere for investments more appropriate for our circumstances.
    Kurt @ Money Counselor recently posted..5 Big Tax CreditsMy Profile

    • That’s a great point Kurt and one the talking heads on CNBC don’t often mention. Your investing needs to be based off of all those factors in order to make them right for you. If it’s not personal, you’re only lining yourself up for more potential herd following.

  12. Well said – “Understand that their job is to sensationalize to get ratings and that in general, they do not care about your retirement portfolio.” So many people run around chasing after what everyone else does or what the so-called experts say to do. The reality is everyone’s situation is unique. They have their own personal goals, risk tolerance, etc. For some, it’s absolutely the right time to pull back and for others full steam ahead. I know you’ve talked about this before John, but you also have to remove emotions from investing. It’s easy to get caught up in either fear or exhilaration when investing but neither help you reach your goals. Knowing what you want your money to do for you (when will you retire? What will you do in retirement? Buy a home, pay for kids colleges, etc), and following a well-though out plan and investment strategy is what will help you achieve your goals.
    Shannon Ryan @ The Heavy Purse recently posted..A New Day in Financial LiteracyMy Profile

    • Thanks Shannon & thanks for your insight! I agree that each investor has their own unique situation and need base their decisions off of that as opposed to what the pundits suggest you do. Thank you as well for reminding us about the emotion, you’re exactly right, those do have to be removed in order to help you reach those goals. Having a plan is great, I have one and suggest it for many, but will do you no good if it’s disregarded in exchange to follow emotions.

    • Wow, 90%, I guess I need to pull out and sock my money away under our mattress. ;) I like to tune it out as well, otherwise it’s just unnecessary noise.

  13. I wouldn’t mind a nice correction in the near future. We’re planning on focusing on our retirement after the debt is gone later this year. A good dip in the market would allow us to invest at lower rates. Timing the market is a waste of time. You usually end up having the opposite effect that you intended. Plus ups and downs are going to happen and since my horizon is so long it doesn’t have much impact on me.
    Justin@TheFrugalPath recently posted..A-Z of Saving Money Book Launch GiveawayMy Profile

    • I agree trying to time the market is simply a fool’s errand at the end of the day. A pullback, to some extent, would be nice and one that would be good to take advantage of. We keep certain percentage back in our IRA’s for that very reason so we don’t have to wait if we want to move fast.

  14. Not sure what happened to my earlier comment but I’ll sum it up in a few words. I don’t try to time the market. When I did, I lost money. Those that got scared by the crash of 2008 and pulled out of the market missed one of the biggest comebacks in market history. The market fully recovered in about 2 years so if you missed just part of that, you never recovered your losses. I use dollar cost averaging so I buy more shares when the markets are down and less shares when price are higher. Rebalancing quarterly helps to keep sector risk balanced. Of course if you are less than 5 years to retirement you should be moving towards a more conservative mix.
    Paul @ The Frugal Toad recently posted..5 Frugal Ways to CelebrateMy Profile

    • That’s a great point Paul. I have spoken to too many people who’re in that same situation and missed out on too much in terms of gains. I agree that if you’re inching closer to retirement you should likely be moving your portfolio much closer to a more conservative mix.

  15. John, great post, and yes I have made some changes to my portfolio. I had 3 bond funds that have done pretty well, paid a nice dividend. I got out of those and going to put that money into a self-directed IRA to buy cattle. Got a friend who is a cattle broker, has been for 18 years, I am going to by 40 head of cattle with calf in May and sell the calf in Sept/Oct. Hope for a 10-12% ROI, will keep ya posted.
    Jim recently posted..Medical Concierge Service, Affordable And Unmatched Personal ServiceMy Profile

    • Thanks Jim! I’ve never heard of being able to invest in cattle within an IRA, who do you have to go through in order to do that? That said, great way to get some good diversification.

  16. I’m still learning about investing and certainly am far from investing on my own and buying stocks but maybe one day. Everyone has to start somewhere I guess. I know that when we invest our money it will be long term and I also know that with investments comes risk and I’m ok with that. I think we may start saving up to invest in the real estate side maybe buy some investment properties for long term.
    Canadianbudgetbinder recently posted..The Grocery Game Challenge #12 March 18-24,2013- Pass The Salt Please!My Profile

    • We’re not making any changes either, save for some possible rebalancing that I need to look at. We have a good chunk of cash in our IRA’s as well to use when/if there’s a pullback.

  17. John, Good post and a topic that’s been on my mind these last few months. I’ve had several posts on the run (Running with bulls or lemmings) and one on the stop loss, which I think is one of the most important tools to be using right now to protect your gains. My strategy? I’ve taken some money off the table and am using ever narrowing trailing stops to protect gains in parts of my portfolio.
    Jose recently posted..When Death Do You Part – Is Your Family Prepared?My Profile

    • Thanks Jose! It’s been on my mind as well and one that’s important to think rightly about as opposed to following the herd mentality views being communicated everywhere. We’re staying the course by looking at possible rebalancing and keeping our stop losses in play.

    • Thanks CR! Being cautious while everyone is ecstatic is a great way to go in my opinion. We’re pretty much staying the course and looking at possible rebalancing opportunities.

  18. Great point about what goes up must come down. There are always too many bulls offering advice when the market is flush. Even the great financial guru Mila Kunis is touting stocks right now. Lover her in The 70s Show, but not as a source of financial wisdom. Hopefully, when the market corrects, it will not drop so much that people lose their original investment amounts.
    Jerry recently posted..Hidden Aspects Of Mortgage RefinancingMy Profile

    • Lol at Mila Kunis! I saw a headline about that the other day and it was just too stupid for me to read. I agree, hopefully the market will not contract too much as investors have been through an awful lot in the last five years.

  19. If I was to do anything it would be to maybe review your portfolio allocation a little more frequently and re-balance accordingly. Obviously depending on your acceptable risk levels and age, market changes might mean more to you in the short term. I am curious about how a market that seems to be reactionary to the global economy compares in volatility to earlier eras that maybe were not as globally connected or reacted slower.
    Ian recently posted..Take Awesome Photos To Sell Your Used Stuff!My Profile

    • You’re right on Ian. I’ll be checking our allocation to see if there is any rebalancing needed, but nothing really beyond that. You bring up a great point about the reactionary nature of the market. I would probably say that it was not as bad decades ago as news is instant today and reaction falls in kind. Then again, I could be completely wrong in that. ;)

  20. Nice post John! We are not changing anything right now with our investments. I’ve always gotten into trouble in the past when I tried to time market, especially the ups. (I think the downs are a little easier to diagnose though.) We follow a simple plan of continuing to invest through the ups and downs mostly because our time horizon is so far out.
    Brian @ Luke1428 recently posted..When Was the Last Time You WOWED Yourself?My Profile

  21. The market has been absolutely amazing this year. It has weathered all of the government dysfunction from the fiscal cliff to sequestration to shut down. We still go higher. There is no rationale to the market. It is completely psychologically driven. Right now everyone is a cheerleader, but hold on when the music stops
    Chad | The Stock Market and I recently posted..Know When to Fold ‘emMy Profile

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