top of page

Stocks are sky high now! So I should sell my shares and buy them back when they go down, right?

Updated: May 9, 2021

Fine idea, with two fatally flawed assumptions which torpedo it. First, the idea the market is overpriced at any particular time. How would you know that? And even if it is overpriced by some objective measure, how do you know that it will go down any time soon?

These assumptions are "flawed" by the truism that you cannot time the market or know where it is headed. And if you did, you would be a multi-billionaire by trading on your incredible crystal ball, and you’d be famous as well. And I, the finance shmoe, would be happily taking advice from you.

Needless to say, neither you nor anyone else can predict where the market is headed. That’s why you’re not a billionaire. The schmoe isn't either, nothing to be ashamed of here.

Finance shmoe strongly recommends the “buy and hold” approach. Why? Because the market, over long periods of time, goes up. The only way you can guarantee and harness that natural tendency for the market to go up over long periods of time, is to hold your invest ments for long periods of time.

How much does the market go up? Well, since the beginning of time, the S&P 500 has averaged a return of about 10% per year. Subtract inflation from that, and you’re looking at a “real” (adjusted for inflation”) return of about maybe 7% a year. (see link below)

I know that sounds weak. 7%? Boring! But really, it’s not. Let’s say I graduated high school in 1983 and retired in 2021 (that’s actually what happened). If I invested $3,000 in 1983 and earned 7% return a year, I’d have $36,671 in 2020, which is adjusted for inflation and in equivalent “purchasing power.” In actual real dollars, I’d have $102,012. upon retirement in 2020.

It gets even LESS boring…..the more you invest. If I just put in $3,000 each year into an IRA starting in 1983, in 2020 when I retired, I would have $520,250.

So, in short, stay in the market…stay invested…let the power of compounding, and the mathematical truism that the market may bounce around each year but it inevitably increases over the long haul…and get rich.

13 views0 comments

Recent Posts

See All

One of the shmoe's financial truisms is, that you have to be realistic about "job love" and stay committed to your job, even if it starts to suck in some ways, in order to maximize your success. Empl

Following are the most important things to do, to be a true finance shmoe: Spend less than you earn. That’s the only way to be able to save and invest. Don’t keep up with the Jones’s. Why should you

I saw a post today from a facebook friend who said he has a truck with 104,000 miles, drives hundreds of miles per week, and is considering replacing it with a “new” used vehicle with 60,000 miles. He

bottom of page