My Daily Dollars

Yesterday was one of those absolutely perfect fall days.  The sun was shining; the leaves were near their peak; our little campus was as picture-perfect as it can get.  Homecoming is this weekend, so everyone was bustling with preparations.  Three interesting, successful alumni spoke to my freshman class.  My students were attentive and engaged.  I was able to enjoy a nice lunch with a good friend.  I could afford my lunch.  I’ve got more money in my savings account than I’ve had in a long time.    I’m married to a wonderful man.  All our family is healthy.  Our house is warm and cozy.  The pantry is stocked full.

Clearly, I’m at a very lovely phase of my life.  There has been tragedy and turmoil and debt, but the fundamentals of my life are strong right now.  What made me stop and take stock?

Rather than look at my financial portfolio, I decided to take an accurate snapshot of my life’s portfolio. These last two weeks have had most of us on edge.  At lunch, as my friend and I watched bikers zipping along a nearby path, it was hard to imagine that the financial world is imploding.  While I do think we’re going through some much-needed correction of a completely unregulated industry, I can’t help but think that we’ll all be OK.  Sometimes, immersion in the constant news cycle can make us forget the reality, and the blessings, of our day-to-day lives. In the weeks after September 11th, even though I lived in a city that had been “under attack,” I made a conscious effort to take a walk, listen to good music, have a nice meal. The event was tragic and scary and intersected with my life, but it did not affect me the way it did victims and their families. Sometimes, we have to consciously put it all in perspective.

Many personal finance bloggers have weighed in about their own investments and losses.  I’ve decided NOT to look at our investments until January.  I could rush and reallocate my 401(k), which is 75% in stocks right now, and we could sell off my husband’s investments and sock the money away in cash.  It looks like plenty of people are doing just that.  Then, I read this article in the New York Times yesterday.  In “Switching to Cash May Feel Safe, But Risks Remain” by Ron Lieber, I found the most compelling reason to just ride it all out.  H. Nejat Seyhun, a professor of finance at the Ross School of Business at the University of Michigan, did a study to see what would happen to investors if they missed the relatively few days with the market makes really significant gains: 

From 1963 to 2004, the index of American stocks he tested gained 10.84 percent annually in a geometric average, which avoided overstating the true performance. For people who missed the 90 biggest-gaining days in that period, however, the annual return fell to just 3.2 percent. Less than 1 percent of the trading days accounted for 96 percent of the market gains.

To me that was stunning, and something I had never thought about.  In a forty year period, just 90 days accounted for 96 percent of market gains.  So, if you missed those days, you didn’t reap the rewards.  For lay investors like myself, it was an important reminder that the market will not plod along making predictable gains in an orderly fashion.  If you make an emotional move and pull money out, it’s very unlikely that you’ll know when to put the money back in the market. 

So, for now, I’m sticking with the predictable, boring advice.  We don’t need the money we have invested in stocks for another thirty years.  If we pull it out now, how will we know when it’s “safe” to put it back in?  And will we miss those magic single days when huge gains are made?  The current debacle on Wall Street has hurt many speculators and traders. The stalled economy, job losses, and mortgage meltdown have seriously affected many more people. But, for those of us who have balanced, sensible investment strategies, this is a moment where the news cycle intersects with our lives, but events will not permanently alter our lives.

In the blogoshpere, the reality is that most of us who are blessed beyond imagination: we have jobs; we have family and friends; we have our health.  We can stroll down a quiet street and watch the leaves drift to the ground while sipping a steaming cup of coffee.  Talk about luck!