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.

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.

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.

Most Popular

The 11 Most Expensive Cities in the U.S.
real estate

The 11 Most Expensive Cities in the U.S.

From metro areas on both coasts to the middle of the Pacific Ocean, these are the priciest cities in the U.S. to call home.
August 9, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
You'll Save More on Green Home Improvements Under the Inflation Reduction Act
Tax Breaks

You'll Save More on Green Home Improvements Under the Inflation Reduction Act

Tax credits for energy-efficient home improvements will be extended and expanded by the Inflation Reduction Act.
August 12, 2022

Recommended

Stock Market Today (8/12/22): S&P, Nasdaq Rack Up Longest Weekly Win Streak of 2022
Stock Market Today

Stock Market Today (8/12/22): S&P, Nasdaq Rack Up Longest Weekly Win Streak of 2022

Preliminary data from the University of Michigan indicated consumer sentiment is improving in August.
August 12, 2022
Stock Market Today (8/11/22): Disney Earnings Keep Dow Above Water
Stock Market Today

Stock Market Today (8/11/22): Disney Earnings Keep Dow Above Water

Thursday delivered another upbeat reading on inflation, which helped boost investor sentiment early on.
August 11, 2022
3 Dated Rules of Thumb Retirees Should Think Twice About
investing

3 Dated Rules of Thumb Retirees Should Think Twice About

The tried-and-true investing and saving rules of thumb retirees depend on may no longer be as reliable as they hoped. Don’t let dated “rules” steer yo…
August 11, 2022
The Good News About Recessions for Investors
investing

The Good News About Recessions for Investors

Yes, an official recession is possible, but based on previous recessions, there could be reasons for investors to smile. With that in mind, here are t…
August 11, 2022