Here is my favorite headline from Sept. 6, a day on which the major markets all gained more than 1% in their respective marches toward new highs:
“Investors yank $3.7 billion out of stocks”
The headline comes courtesy of a CNNMoney article reporting that “investors pulled another $3.7 billion from U.S. stock market mutual funds during the week ended Aug. 31, according to the Investment Company Institute, bringing the 2012 outflow total to more than $76 billion.”
And while there’s a good argument that some of the money pulled out of equity mutual funds actually is going into equity exchange-traded funds, that didn’t play out this week, either — particularly in the SPDR S&P 500 ETF (NYSE:SPY), which saw investors pull out more than $6 billion in the weeklong period ended Sept. 5, its worst week since late last year.
Well, congratulations. You managed to completely mistime the market, which is the exact opposite of what most investors hope to accomplish.
Why the heck are investors running away from the market, and why aren’t more investors getting in? I can think of a some reasons, one of which is simply nuts, and a few of which just boil down to fear:
“I don’t have enough money to get started.” Are you nuts? Of course you do! Only have $10,000 to get started with? We’ve got you covered. Just a measly grand? You’re good there, too. Heck, you can put yourself on the road to profitable investing on just $1 a day. You might not have much, but little or a lot, there’s few better places to grow your money than the stock market.
“The game is simply rigged, and not in my favor.” Well, you have me on that one just a little. It’s easy to be scared. You’ve got high-frequency trading, banks setting their own rules, computers running the show … but as long as you invest with a long-term mind-set, time actually is on your side, and you can get past this truism.
“The market will drop off the table and I will be stuck forever.” If you sell all your holdings at the bottom, yes, you will be stuck. But nobody is forcing you to that action, so think before you act. The market tanked in 2008, and has numerous ups and downs before that, and when people lose money, they get scared. But think about this — even once you include the damage done by the 2008 crash, the S&P 500 still has returned 60% in the past 10 years — not including dividends.
In the long term, stocks are still your best bet.
Sure, there are opportunities to try to time the market, but take a look at the shortcomings of even the much-ballyhooed “Sell in May and Go Away” phenomenon. Selling in May? It happened, and those who got out earlier were better off. But if you sold in May, then took vacation from your brokerage account June 1 (before the market hit its summer lows, no less), you missed out on roughly 10% gains for the market since then.
My advice? Don’t even try to time the market. Get in, and think about the long term.
It’s not hard. A good way is just to start by looking at companies who offer products or services you use every day. Obviously, you’ll have to then do your due diligence, but you’d be amazed at the number of solid businesses you can discover by just doing a little popularity test.
For instance: McDonald’s (NYSE:MCD), Coca-Cola (NYSE:KO), Exxon Mobil (NYSE:XOM), Johnson and Johnson (NYSE:JNJ). All are familiar to even the least stock-savvy investors on the planet. Yet all have been ludicrously successful for decades, and as a bonus — all of them pay decent dividends, which again helps you consistently build your wealth in the long run.
And even tech companies fit into the “household brand.” How about Microsoft (NASDAQ:MSFT), Cisco (NASDAQ:CSCO) and Intel (NASDAQ:INTC)? You probably use products they make every day and don’t even blink an eye while doing it. In the long haul, they have the brainpower and funds to remain solid businesses. And as many — including even Apple (NASDAQ:AAPL) — show, they’re becoming increasingly dividend-friendly, too!
Find a level or a price you like for your favorite stock, and let the long-term power of time be your friend. But trust your instincts, because there are times to sell. If you hate a stock you bought because it changed management or stopped selling your favorite brand of toothpaste, it’s OK to bail … just remember that your cashed-out funds would be put to better use in another stock than back under your mattress.
The point? Stocks will go up. They will go down. But unless you expect America to head into long-term decline (and then you’ll have bigger problems than the stock market), they’ll go up more than they’ll go down. And if you’ve got patience and some years to play with, finding the right investments for steady long-term growth isn’t easy — but it’s easier than you think.
So buy a friggin’ stock already.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he was long AAPL, MSFT, XOM, JNJ, and INTC.