Tuesday, February 27, 2007

Investing is not Entertainment.

Stocks closed dramatically lower on Wall Street today. The pundits are preaching. The analysts are analyzing. The CNBC investotainment machine is on a roll. The DOW closed down 416 points. The NASDAQ is down 96. Fear in the streets.

What does all that mean to you? If you are smart and have a long term investment horizon it means absolutely nothing. Why should you care? The stock market goes up, the stock market goes down. Just as you should not uncork the champagne on good days, you should not go into mourning on bad ones. All that matters is the long term expected return. If your portfolio is well diversified, your long term investment outlook should not change based on today's market results (or indeed, based on this year's investment results).

Build a diversified portfolio, hold it, and ignore the hype. Expect up years, expect down years. In the long run your investments will probably do OK. The best way to drive down your returns is to invest based upon market fluctuations.

Sit tight, friends. Ignore the hype. Investing is not about entertainment value, it is about long term expected returns.

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