The Stock Market Is Just One Piece of the Puzzle

A few years ago, I had the delightful experience of paying two college tuitions at the same time, as my daughter was a freshman while my son was a senior.

My wife and I made good choices by saving and investing hard for our kids’ educations from the moment we found out we were expecting. But we were also lucky.

The money we invested grew during long and strong bull markets.

Sure, we had to endure the Great Recession (during which we diligently continued to invest). But knowing the long-term history of the stock market – that it goes up – made it easy for me to invest in aggressive growth stocks for many years.

As my kids advanced through high school, I started easing off the gas in their college funds and became more conservative. And as the kids approached their senior years, I hit the brakes, taking much of the money out of stocks and placing it into investments that would be there for us when tuition was due.

In other words, I didn’t want to risk the funds anymore. The money had to be available at that point.

So I missed out on some gains. But I also missed out on the COVID-19 crash in 2020 and the 2022 bear market. And I was fine with all of it, because I could sleep at night knowing that the money was safe and we’d be able to pay the tuition bills when they came due.

That was how I handled the kids’ college money. As for my own money, I’m still invested in the stock market with some bonds to provide ballast and generate income. I also have some real estate investments and keep some cash on the sidelines to be able to take advantage of new opportunities. I’m not all stocks all the time like I used to be.

Back during the dot-com boom, the stock market became the national pastime. Financial journalists like Maria Bartiromo became celebrities, appearing on late-night talk shows. All anyone could talk about was stocks, stocks, stocks. And it pretty much stayed that way over the next 25 years.

It makes sense when you think about it. Stocks can make big moves in short periods of time, which makes for great media stories. You won’t see any headlines about how a bond matured today and paid investors the par value as agreed upon or how it’s the first of the month and landlords collected their rent.

But those things, along with precious metals, are important for a portfolio.

Every so often, the stock market reminds us of that, as it did earlier this year.

Bond investors weren’t affected by the S&P 500’s 12% drop in a week back in April. No matter what happens with stocks, bond investors will almost certainly get their money back at maturity, as bonds have an extremely low default rate.

Similarly, a real estate investor will get paid the rent that is due or dividends from their real estate investment trust regardless of whether the market tanks 1,000 points or 5,000 points.

I’m a stock guy. I love investing in and writing about stocks. Investing in stocks has been lucrative for me over the years. But I’m not as young as I once was, so I need to start reducing my risk here and there. There are no guarantees on Wall Street, which is why owning other assets most definitely helps me sleep at night. They continue to perform and do what they were designed to do whether stocks are surging or collapsing.

If your portfolio is too heavily weighted in stocks, strongly consider diversifying into other assets.

Good investing,

Marc

P.S. What are your best stories or tips about investing? Feel free to share them in the comments. You never know how your experience could help someone else!