My financial education as been non-traditional at best. In fact, I follow a much different path than the majority of the people. I do not save my money; I invest it. I do not invest in stocks for the long term; I'm in and out in a matter of days to maybe weeks. I do not pray for the market to go up; I can make just as much if not more when it goes down. I purchase real estate for cashflow; I pay little attention to appreciation.
If you follow a different path, investment wise, my strategies may upset you. I may seem irresponsible. Well, from my side of the fence, the way the vast majority of people invest, does upset me. I recently purchased a Canadian personal finance magazine. While reading it, I found myself yelling at the pages as if the author could hear me. They have been referring to the impending drop in the market. It's no secret that the market as been going almost straight up since 2008-2009. The market normally moves in wave, but this one as being going almost straight up. It's been tempered with. It's not sustainable. We are due for a correction, and that is what the authors of the magazine are referring to. In fact the market can drop 40% and still be in a upward trend. The question is can you handle such a drop?
Well that is what they are covering in this magazine. The one article is preparing for the "couch potatoes" investors to brace themselves. The author describe the couch potato investor as someone who holds a variety of investments in stocks, and bonds for the long term. He describe how that investor as being enjoying an amazing up move and is preparing them for the down move to come. He suggest that the best investor will demonstrate discipline in the time coming. And the discipline he is referring to is to maintain the couch potato strategy and keeping everything in the same investment without touching them.
That is right! He is suggesting you stand by as your investment disappear by 40%. So if you have $100,000 in investment and it drops by 40% you would be left with $60,000. From that starting point if would need to go back up 67% just to get back to $100,000. That is the problem with large drawbacks on your investment account; and I am not even looking at the fees occurring during the drop as well as on the way back up.
The truth is, I don't believe that the author is trying to help his client lose their money or retirement savings. I would believe that he is providing the best advise he can. If the average investor pulled out their money in a moment of panic, they will have the tendencies to do it near the bottom when they feel they can no longer take the pain. In most situation our emotions leads our investing actions, and we are emotionally wired to lose it all.
It is also a fact, that this particular author is an investment adviser and he gets paid by the commission you pay on your investments. It is in his best interest, and the best interest of his company for you to continue paying those fees. The magazine's top ad buyers are banks and investment companies.
I feel the best solution would be for the investors to educate themselves, following the same non-traditional methods I have before trying to take over their investments. I agree with the author that jumping from one type of investing strategy to an other will only cause you to lose. Learning to manage your own investment is not rocket science but it does require some time. The majority prefer not to take on such responsibilities. Some of us, don't even realize that's its out there.