It's not often that this happens, but it looks like I made a really good call... on March 3rd, just 3 or 4 days before the S&P reached its most recent low, I published a post urging folks not to give up on the stock market. Boy, was that a good call or what?! In the same post I wrote about one of my colleagues who was so stressed about the market collapse that he decided to put all his new 401K contributions into a stable value fund. So here's what happened: not only did his 401K get decimated in the stock market collapse, his decision to "play it safe" caused him to miss out on the dramatic rally of the past couple of months. Talk about a double whammy...
As I said in my previous post, if you are so stressed about the market that you can't sleep at night, it doesn't matter whether you win or lose, you need to get out of the market. Peace of mind and sanity are more important than money. More than anything this is an indication that your asset allocation does not match your risk tolerance. Remember that next time you feel like jumping into the market. However, if you are not down in the dumps when the market heads south and don't dance with euphoria when the stock market goes on a bull run, your asset allocation probably matches your risk tolerance. Good for you. Your rewards will come in time (possibly in a LOT of time).
As long as we are on the subject of the stock market, let me risk another call. I think that the stock market rally is for real. Although we may see a correction in the near term (10% to 15%), I don't think we will be seeing anything like the lows we saw in early March. I think that the economy is on the mend, or more accurately, I think that the worst case economic scenario that people were bracing for is no longer very likely. Things are going to get better over the next year. I just hope we don't get hit with a dollar devaluation and / or a nasty case of inflation in the next 3 to 4 years.
More about investing and the economy from other bloggers:
Dividend's Value gives advice on how to select dividend paying stocks. I don't subscribe to this notion, but you might.
Some advice from Spiffy Links on how to detect investment fraud.
Back to basics, Invest Wisdom explains the concept of a P/E ratio.
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