plonkee money an english-er's thoughts on personal finance

August 30, 2007

investing for the nervous

Filed under: investment — plonkee @ 12:00 pm

You know those tv adverts for investments that always point out that the value of your investments may do down as well as up? They’re completely right. In fact, they understate the case. I reckon that every single serious investment (as opposed to say a savings account) held in a sensible manner will go down in value.

If you look at any graph of the stock market, you’ll see that its quite shaky. There’s a lot of noise, but the overall trend is up. This up trend is why it is usually recommended that people invest in the stock market. In the great scheme of things, the noise isn’t that important. But the noise does mean that if you hold even a relatively cautious investment for any length of time (as suggested by experts, bloggers and many other sensible people) one day, your investment will be worth less than it was the day before. This is the nature of investing.

If you are a day trader, you try and take advantage of the noise of the stock market, and so the noise matters. If you are a nervous investor, I cannot think of any circumstances under which it would be good for your health for you to try day trading. If you want to gamble, then you may as well head to Monte Carlo and drink Martinis. If you are not a day trader, but an investor, with a sensible and appropriate investment portfolio then remain calm. Short-term loss of value is an inevitable part of investing. Ride it out, it doesn’t matter what your investment is worth now as much as what your investment is worth when you come to use it.

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