Lin Hersh, a 61-year-old small-business owner in Bearsville, N.Y., about two hours north of New York City, called up her stock broker two weeks ago and gave the order to sell everything.
She dumped nearly all of her individual equities and her stock mutual funds, moving almost completely into cash. Ms. Hersh is haunted by the market plunge of 2008, when her $432,000 in savings dwindled to $150,000.
“What I’ve got left after the last downturn is about a third of what I started out with and I’m not in the mood to play anymore,” she said. Pointing to the weak American economy and concerns about Europe, Ms. Hersh said she would most likely steer clear of stocks through the end of this year.
Not to offer any financial advice, but —
So unless she gave her advisor permission to sell “everything” piecemeal, rather than all at once (when the market took that downturn last week), she has succeeded in locking in her losses. Yes, the stock market and investing are risky (some parts more than others), but the concept of dollar cost averaging makes sense for selling as well as buying. It reduces the chance that one sells everything at the low. Furthermore, if she was invested in any mutual funds, she could have had her advisor transfer out of the riskier funds in the same family and into the same mutual fund company’s Treasuries or money market fund (in the latter, she would lose the value of the rate of inflation).
What is supremely unfortunate is that a lot of (small) investors got the misbegotten idea during the boom times of the ’90’s that the only direction for the market was “up.” (A lot of financial advisors had the same misbegotten idea, and they should have known better…) Just as one should never gamble with “scared” money, one should not invest what one is not willing to risk; furthermore, a potential investor should remember, when considering an investment, that most people feel more pain from an x% loss than satisfaction from gain of the same percentage.
I wonder what recent events convinced her that the US dollar was likely to be a good investment.