Review What You Need to Do in this Economy – Good hidden in Bad Time, Bad hidden in Good Time

After witnessing much tumbling in the stock market for the past few months, the gain from last six weeks is probably making many people all warm and fuzzy.

I cannot help but feel ambivalent.

On one hand, it is nice to see the numbers going back up when I do my monthly tracking. It makes us feel like we are moving past the bottom of everything (probably not yet).

On the other hand, the problem of excess runs deep into every bones in the economy and financial system. That means to completely get rid of the ill in the system, because it is so large, must take its own time and pace.

Albeit nice to see a recovery now, if there appears to be a recovery so soon, it is most probable that the problem in the system is merely being swept under the rug for a few years — meaning a worse crash in a few years. Not a real recovery. A long bear market to shed the excess in system suddenly seems not so bad in place of a worse crash (implosion of the system) than what we have seen.

That is what I believed anyways.

As a result, I think it is really important to see how things work out this year and plan one’s investing strategy accordingly. If we do recover by the beginning of next year, a bigger crash seems imminent. And what about inflation? It almost seems like there is no place to put our money, but this only means the understanding of the market AND yourself the more important.

At this point in time, if a person truly value [long-term] financial security and personal finance, one must review carefully what is important, and therefore, what is enough in life to decide what to do and then the amount of % in cash, bond, and stock he wants to hold for the years down the road.

What do I really NEED?
What can I live on with? And without?
Does it really take a million?
Do I really need to be completely not working (AKA. retirement)? <-- 'Tis a bigger topic later. What is truly important? Happiness? Peace? Relentless excitement? What does it mean to be healthy? (medical cost) What does it mean to live? Last thing, I believe one must be careful to consider if he wants to fully risk obediently chasing after the ghost of 6-8% average gain in stock market. I thought of this when I kept reading people in their late 40s and 50s losing almost half their portfolio... if they truly had diversified, meaning not holding everything in equity, would they yet lose half their portfolio? I am thinking maybe 30% instead of half. I guess it could be the problem of some fund managers.

3 Responses

  1. Muzie says:

    Does it truly matter Piggy?

    You said yourself you’ve tried to trade markets, and found it didn’t work. Thus I assume you are investing this money for the long term. 10, 20, 30 years from now, most of us will look at this time like a blip on the radar, an episode of little or no consequence.

    I went through the same process. I was thinking “do I really want to place my whole life in the hands of others who may or may not be willing to buy these stocks I have now, for a higher price later on?” or “Does “financial independence” really mean anything when it is essentially tied to the fickle mood and nature of a mob of people?

    On the other, I can see this same mob is extremely cautious now. Yes, yes, stocks are up 25%. They are still lower than twelve years ago. I find that saying people are being exuberant in any shape or form is very much stretching the reality.

    I took action in November and got 100% invested again. I will take no further action and have discovered I can live with the consequences should the money disappear.

    The crash made me discover I can live with a feeling of abundance if I realign my values. Which doesn’t mean selling everything and calculating every possible scenario of doom, as I did back last summer.

    True financial independence, I now think, is realizing if the money I have now completely disappears, I am confident in the value of my skills and my will that I can make money again.

    I also agree that retirement isn’t nirvana. In fact, feeling disengaged from society and unable to contribute is what I imagine can put many seniors in depression. Retirement goals have become a psychological burden for all of us and it’s very liberating to have an “I’ll be OK” attitude. I stil think aiming to gather a million $ is a worthwhile goal. It’s very satifying to know one has enough money to have extra freedom from financial ties. But I view it more as a “gift” now than a pre-requisite for further happiness. I still think stocks will do their 7-8% over time – but I don’t think view it as “a waste” if it doesn’t happen.

    It is good to stand back, observe these things and the market, but one must not get himself influenced too much by other people who, at the end, don’t know any more than we do what will happen. The world and its economy is a supremely complex machine, and even those that say inflation is a given I think are slightly arrogant and over-confident in their abilities.

  2. Muzie says:

    One last think… I disagree it is important to see how this year is and act “accordingly”.

    No one can predict very well the behavior of crowds. I view everything as probability curves. Let’s say one thinks there is a 80% chance we will crash again and a 20% chance we recover. Then the market recovers. Was that person wrong? No. The future isn’t fixed (macro-economists I find are the only ones who seem to think the future is pre-ordained). In fact, it’s impossible to separate error due to “chance” events vs. error due to faulty analysis.

    It is not our job to become mini-macro-economists. We cannot be. One has to look the market in the eye, see how willing they are to actually take a chance losing money, and act accordingly.

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