One of the worst things anyone, but especially a retired person, can do is chase last year’s stock returns. Whether it’s in individual stocks or mutual funds, this trap has been proven time and time again to be one of the best ways to lose money, especially in mutual funds.
And we are in a situation now where this kind of decision-making is going to really get out of hand and cost a lot of folks a ton of money. I have seen it too many times.
Since the 2008 crash, most people have been sitting on a lot of cash. The beating most took from the collapse has kept them out of the market -waiting for who knows what, but they haven’t put their money back to work.
Now these same sideliners are looking at the huge year the stock market just had and are beginning to realize they made a mistake by holding too much cash. Too many will jump into stocks with both feet thinking there’s another 30% coming in 2014.
Don’t get me wrong. You have to own stocks. I recommend stocks for seniors all the time. But dumping a lot of money into stocks after a virtually uninterrupted five-year run-up – immediately after a huge year in stocks – in an effort to play catch-up historically is a guaranteed loss.
Yes, there are still buys out there, and, yes, if you use time-proven stock strategies, long term you will make money in stocks. But what I am warning against is the all-too-common move of plowing too much into the market in the hopes 2014 will be another 2013.
The Wall Street marketing machine is already pushing the idea that it’s time to get back in, five years too late of course. Where were Prudential and Merrill Lynch when P/Es were in the single digits and dividend percentages were triple what they are now?
If anything, when the TV is full of ads telling you it’s time to get back in, it is a guarantee you missed it.
So, what do you do now?
Well, you’ve been patient, or scared, for five years and counting. Give it some more time. There are very few people who don’t think we will have better buying opportunities down the road than what the market is offering now.
Don’t be a victim of the Wall Street marketing machine, again!
For a retired person or, someone who is trying to accumulate enough to retire, buying into last year’s good news is about the worst thing you can do.