January 18, 2005

Riding the Roller Coaster

Occasionally, I go to Yahoo! Finance to check on the market, as my only investment outside my retirement stuff is in an S&P 500 index fund that tracks the market. Every time you go there in the middle of a trading session, there is an article talking about what the major indices (Dow, Nasdaq, S&P) are doing that day. These articles always crack me up. Now, the articles themselves aren't funny, so don't go reading them looking for a chuckle. It's the authors that make me laugh. Someone is sitting there writing two and three stories a day talking about this stuff, as if the everyday fluctuations in the market have anything to do with long-term stock market performance. It's quite a racket these brokers and financial journalists have going. They get everyone all in a tizzy about what happened that day or week when only a tiny percentage of investors (daytraders) are affected by it. Everyone else should have at least 3-5 years ahead of them before they need the money in the market, and many, with IRAs and 401(k) plans, are looking much further than that. Of course, there's a reason for this level of reporting. They wouldn't be able to sell any financial magazines if all they ever said was invest for the future, buy an index fund, and try to avoid short term capital gains taxes on your stocks. The magazines don't say that, and for good reason. People will continually make bad decisions with their money, so they think they need "The 10 Hot Stocks for Right Now" or "The Next Walmart!" People are still buying stocks on a tip from an acquaintance at a party or from the dentist without doing any independent research. This is why your broker (why don't you use a discount broker?) calls you at dinnertime to try to sell you some fund or stock, because that tactic works in generating commissions.

Wow, I think I've been thinking about this stuff too much, and I've definitely been hanging out at Fool.com a lot. Maybe you should just go there and click around, then go pick up The Motley Fool Investment Guide. Maybe then you can understand the thrill I have in understanding that the stock market isn't some overly complicated beast that no mere mortal can tame. You don't invest in stock, you invest in companies that issue stock. There's a world of difference between the two. I'm frankly feeling pretty ripped off that I spent four years in college supposedly learning information that is important to my life, but I only found out what a P/E ratio was in the last month. Every college should make their seniors take some sort of personal finance course that includes a big unit on investing. The best way to avoid being a drain on your kids in your old age is to start saving for retirement as soon as possible to let the magic of compounding do its work.

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