Today’s Fly and Dive Economy.  Where will the next random walk take us?

Let us first take a moment to reflect on the recent  journey that our stock market has taken (over the last 5 years).

Click HERE to view a chart of the S & P 500 for the last 5 years.

The phrase that keeps rattling around in my brain is a phrase that a Finance Professor once shared with the class.
“The market shall take a random walk”.  I try to keep that in the back of my mind whenever I make financial
decisions.

As a typical middle class family, we probably have some of the concerns that your family does.  So,  here is the short list of what we’ve been pondering lately.

• I have a 401K or a 403B retirement account at work, but what if I know little or nothing about the stock market. Whom shall I trust?
  • Our opinion is that nobody is going to watch our money like we will.  So we started spending time studying what we could on our own.  We found tons of free tools on the internet to help us figure out what to do. One of the web sites that started with was finance.yahoo.com.  As we began to educate ourselves, we tried to stick to web sites that weren’t trying to sell us financial products or services.
  • We also took time to seek out a flat fee certified financial planner.  We typically visit a planner once a year to review our investments and only pay him or her a flat per visit fee.  Fair warning, it’s not going to
    easy to find a good financial planner that is will to go this route.  In our experience most of financial planners we spoke with preferred to be paid a commission on the funds they recommend or be paid a percentage of the value of  the portfolio.  After quite a bit of searching, we financially located the
    planner that we had been looking for.
• What’s going to happen next in the stock market and what can I do to protect myself and my family?
  • We try to stay away from any financial expert that claims to know what’s going to happen in the next few months (or years).  It’s that random walk thing that will never be out guessed.  So, we try to plan as if we don’t know either.
  • We figure that it all comes down to a few basic considerations:
    • How much risk are we really willing to take?
    • How many years do we have until retirement (assuming that anyone will be able to afford retirement)?
    • Do we have our money spread around in enough different types of solid investments to protect us from an all or nothing financial scenario?
    • How often should we monitor the performance of our investments?
    • Should we set an exit strategy (how much of a market drop in a specified period of time are we willing to stomach before we liquidate our investment)?
    • If we liquidate, how much of an opportunity loss are we willing to endure because we’re unable to figure out when the right time to get back in is?
    • If we liquidate, are we willing to pay capital gains on our taxable accounts?
• Can we count on the federal government to get us out of this mess?
  • We figure that the best the government can do is to delay what is going to happen.
  • We believe that fundamental life principals never change. Here are a few that we could identify:
    • Greed and a myopic view of money will always end badly (for people, the market, countries and the world).
    • If we (people, companies, governments, etc) keep spending more money than we have or can afford, this too will lead us into a crushing realization of what’s really important in life.
    • If we care more about money than we do about others, we’ve already failed.
    • The problem with buying more stuff than we need is that non of that stuff ends up give us the long lasting happiness that most people are looking for.