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Markets

Fear of Investing

My father's generation viewed investing as speculation. I'm afraid that same state of mind is back.

The real tragedy of the market meltdown we went through in 2008 has scarcely been addressed.

Yes, there really is something worse than standing helplessly by as your savings are depleted by forces over which you have no control. Those of you who have patiently invested in your future retirement all these years, you'll get by. What went down will eventually bob back up. It's our sons and daughters -- my term for the people who are now too scared to invest -- that I'm worried about.

My dad was truly a child of the Great Depression. He finished high school in Kansas in 1928 and college in 1932. Pop was as traumatized by the stock-market crash as everyone else, waiting more than 30 years to become an investor. My father's generation viewed investing as speculation.

Flight to safety

I'm afraid that same state of mind is back. Investors today are fleeing the stock market. Net redemptions from stock mutual funds for the 12 months ended November 3 totaled $245 billion, reports TrimTabs Investment Research. That all but erased the net inflow of money into stock funds in 2006 and 2007. TrimTabs foresaw another $48 billion leaving stock funds in November.

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The money is going primarily into money-market funds (which earn almost nothing), CDs (which don't earn you much) and under mattresses. Even bonds are too hot to touch.

You may wonder, given how volatile and ugly the stock market has been lately, what's so bad about a flight to safety. You may even have taken that leap yourself. If such is the case, answer me this: What will be your cue to get back in? Do you ever plan to get back in? And just how do you expect to achieve your financial goals now?

Twice in late 2007, I tried flights to safety in my stock-trading account. Each time that I went to cash, I was soon lured back into stocks. So much for my market timing. I question whether you can do any better. You'll either be drawn in by the first decent rally or still be waiting on the sidelines two years after the bottom for some definitive sign that the coast is clear. If you have an investing plan that made sense a year ago, before this whirlwind began, you should stick with it.

Sidelined

I suspect a lot of people, having been burned by two ferocious bear markets in less than a decade, would reject that advice. They're out and they're staying out. But 80 years of experience tells us that stocks provide the best long-term returns. I believe that more than I do the doomsayers. This is still a great country, working through its problems, and we'll emerge a lot better off for having done so. When will that be? Perhaps sooner than you think.

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The last question -- reaching your financial goals from this point forward -- is the biggie. I imagine your goals haven't changed. Achieving them without the long-term help of the stock market is like driving a car on a flat tire or piloting a 747 on one jet engine. In other words, you may get where you're going, but you'll arrive shaken up or in a cold sweat. If you now regard stocks the way my father once did, you had better double or triple the amount you once put aside because you'll need to buy bales of CDs.