I particularly enjoyed Why Investing in Stocks This Year Was Not a Financial Mistake, a posting in this week’s Carnival of Personal Finance. Money Ning’s post gets right to the heart of the issue for anyone who lost money in the stock market in 2008 (Yes, this roughly translates to the entire population of worldwide investors.): While this was a terrible year for investments, your decision to participate doesn’t mean you made a mistake.
If, like Money Ning, you had a long-term time horizon from which to recover from a poor year and, correspondingly, had a meaningful understanding and acceptance of the inherent risk involved with investing, then you made the right call.
You: How can “making the right call” mean losing 40% of my 401(k) balance?
Because, again as Money Ning explains, you only have the information available to you at the time you make the decision. No one knows what the market is going to do going forward. Risk works both ways, as we’ve all learned/remembered this year. Investing is a long-term game, not an annual one, and 2008 – thankfully – ends in about three weeks.
You: And what will 2009 bring?
I have no idea. Neither does anyone else. So invest according to your time horizon and risk tolerance, not someone’s thoughts on the market’s short-term performance.