By Stephanie Berenbaum – August 5, 2011
Taking Stock of a Wacky Week
For me, yesterday’s 500 plus point fall in the stock market was just the icing on a financially f’d up week…
After experiencing electrical problems, I realized our former contractor had botched a rewiring job – and then disappeared – leaving us to pony up $10,000 to fix his mess. We were then informed that the french doors leading to the backyard are literally rotting away and need to be replaced – another $3,000. So, when the stock market dropped 512 points yesterday, I started looking forward to the one thing I knew would make me feel better – some serious TGIF cocktails! But first things first – let’s talk econ before we get tipsy…
Worldwide Economic Woes
The stock market volatility shouldn’t be so surprising – you probably know that things are not looking so rosy right now in the global economy. Not only have there been major European financial problems in the news lately, but of course there was the recent debt ceiling crisis right here at home. And you probably don’t need a professor to tell you that the economic recovery process here in the U.S. is moving at a snail’s pace, right?
Even the jobs report numbers out this morning, while heralded as sort of a relief, were not great numbers – just better than the dismal ones that came before. All that talk about the world’s financial powerhouses not being able to pay their bills, combined with so many Americans unable to pay their own bills, well – it doesn’t exactly make investors feel peppy.
Long Term Investing
Rather than feel completely overwhelmed by all this negative news, I figured we could take away a positive lesson or two from the recent stock market dip. So I thought it would be helpful to think about the idea of long term investing. Why – and what does it have to do with yesterday’s stock market slide?
Well…if you are invested in the stock market, having a reasonable “investment horizon” makes the difference between yesterday’s news leaving you feeling a bit nauseated, or literally having your head in the toilet puking. And if you don’t have a dime invested anywhere yet – listen up – this is important for when you do start investing.
What is An Investment Horizon?
In simplest terms, your investment horizon is how much time you have until you need the cash that you have invested – which, in most cases, is largely based on your age. You have to balance the risk in your investments with the amount of time you have to invest.
All stock investments are risky – meaning that any of them could all go to zero at any point. This inherent risk in the stock market is why young people generally have more of their money in stocks than older people – they have a longer time to spread out their risk and recover losses. Conversely, it’s also why folks nearing retirement age usually do not have any of their money in stocks – they have a short time horizon – they’re going to be needing cash soon.| Print
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