13 February 2008 169 views No Comment Print This Post  Email This Post

Lately the economy has been talked about by virtually anyone from your co-workers to presidential candidates. The jittery stock market has gotten a lot of people on the edge of their seats. It’s not fun seeing your portfolio deteriorate 3% or more in a single day, yet we are told that these are the opportunities for fortunes to be made. I fully understand that it makes no sense to buy high and hope to sell for higher, yet many of us do precisely that. Now is the time to buy low so we can sell high in the future, but it’s easier said than done. I invest a lot in broad index funds, which is what many people these days advocate because they have lower expenses and allows you to diversify. However, in this market, even index funds can get scary. So how do we stomach this ride? How can we convince ourselves to keep investing during these uncertain times? We have to look deeper, and realize what we are really investing in.

Problems we face today

As much as stocks are based on numbers, I believe the growth of broad markets go hand in hand with what’s going on in the world. Take global security. In order for economies to prosper, we must have a safe environment that allows it. With average Americans investing in the stock market these days, its easy to spark a sell-off during the aftermath of a scare. It just takes a click of a mouse nowadays. Notice after 9/11 the world was put on notice, and the markets tumbled. No one would care about buying stocks in undervalued companies if we’re on the verge of World War 3. Other problems include climate change, oil, consumerism, credit crunches, natural disasters, and political unrest. These factors affect our generation’s ability to accumulate wealth in the stock market.

Investing in Faith

We are essentially investing in faith, not in the religious sense, but faith that our country and emerging countries will continue to thrive and our economies will continue to grow. We are investing in faith that our peers will come up with a solution to climate change and the dependence on finite energy sources. We are investing in faith that peace will prevail. We are investing in faith that the average American will borrow responsibly and prevent another credit meltdown. A lot of these things are out of our control, and all we can do is believe that things will work out and our economies will continue to thrive. We made it this far.

How I stomach the ride

I am currently maintaining my investments in index funds and I will continue to invest regularly while looking for other global funds and REITs. Like I mentioned earlier, its not that easy for new investors to stomach the ride. I tell myself several things that keep me motivated and confident. I understand that markets do go up and down , as history shows, so I remind myself that I’m in it for the long term. These volatile trading days won’t really affect my portfolio 20+ years from now because I am investing in faith that our economy as a whole will grow. I remind myself that people are smart and ingenuity will solve any problems that arise in the world. I also realize that if doomsday were to ever come and the broad indexes are crushed, we’d be in a world of trouble anyway. At that time money won’t really solve anything, we’d need guns and knives.

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