Friday, February 8, 2013

Would you advise someone to invest in stocks?

A few days ago someone asked me if in all honesty I would advise someone to invest in stocks after the 2007-8 Crash.

Taking a second to decide I said "Yes. Definitely."

The person was taken aback and unleashed a tirade on my stupidity. He had held friends hands as they cried at the latest news from Wall Street. Stocks free falling wiping out their worth as the panicked to sell during the crash. The story is probably familiar to many of you. The market was great as they rose. But vicious when they turned bad.

This person was too emotional in his belief that markets are bad. They are neither good nor bad, they just exist.

The questioner held the very hands of friends whom he had encouraged to buy a "sure thing",, he was embarrassed that they had been hurt, but had he even asked the friends if they were considering the risk?

No he hadn't. He had promised rising returns and an endless bounty. No risk.

How can someone forget that there is always a risk in investing? We do get a reward. I stopped buying for myself in late 2007 while the stocks were free falling, but by late 2008 I was happy to jump back in and begin buying again.

Some of my stocks bought before the crash were almost penny stocks, Bank of America for instance. I lost hundreds on my initial investment of BAC but after the dust settled it was easy to step back in and build a greater investment. Now the average cost and the market price at about breakeven levels. I won in the Crash.

The name of the game is to make money. My portfolio returned 7% in 2012, not as much as the market in general, the S&P returned about 12%. But my 7% by far outweighed the 0.1% earned by my best paying CD at my local bank.

Why then would I not say "Yes. Definitely"? When asked the question. "Would you advise someone to invest in stocks?"

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