Wednesday, November 9, 2011

The Stock Market Thriller

“Make sure your seatbelt is securely fastened and keep your hands and feet inside the vehicle at all times.” 

This is what you hear as you get on an amusement park roller coaster. Maybe your stock broker or financial advisor should also say this when you begin to invest in the stock market. In the spirit of full disclosure, should we formally address the stock market by its thrill ride name?

There is Disney’s The Twilight Zone Tower of Terror, Kings Island’s The Beast, Six Flags Great Adventure’s Kingda Ka, the Stratosphere Hotel and Casino in Las Vegas has Insanity, and the king of amusement park roller-coasters, Cedar Point in Sandusky, Ohio has Disaster Transport, Iron Dragon, Maverick, Mean Streak, Millennium Force, Raptor, Top Thrill Dragster and Wicked Twister. Any one of these names fit the gyrations, the ups and downs of the stock market.

Even with your seat belt securely fastened, it is a good time to reassess your risk tolerance and which investment options best fit your personal goals and ‘ride’ tolerance. Monday’s Wall Street Journal (11.7.11) has an entire section titled Investing In Funds which examines mutual fund investing and different opportunities. How to Rest Easy in a Crazy Market provides seven tips to help you “enjoy” the ride and make sure your portfolio stays on the tracks. Here are the seven points:

1. Get real about your tolerance for pain. We have all heard “the higher the risk, the higher the potential return” but we don’t hear “the higher the potential for loss.” Risk involves the ups and downs, and if we are in risky investments, we better be prepared for the downs and possible total loss of our investments.

2. Favor funds that cast a wider net. Spread your risk out by being diversified in your holdings or in funds that are more diversified. In other words, don’t put all your eggs in one basket, but diversify in different baskets composed of different eggs.

3. Hire a pilot who charts a smoother ride. All of the funds are going to have their ups and downs, but look at funds managers who reduce volatility to smooth out the ups and downs. Unless you like the ups and downs, make sure you have on your shoulder belts and HANS devise.

4. Don’t try to wager on where stocks are headed. Face it, you can’t time the market for peaks and valleys. Be a continuous investor, putting money in the market monthly where you don’t have to worry about the highs and lows and trying to time the market. Also rebalance your portfolio periodically to make sure you stay on track.

5. Fine-tune your cash stash to your family’s needs. With any investment, you need to think about when you will need to convert it to cash. Would you need to cash in your investments if you were to lose a job, buy a car, down payment for a house or pay for college? Everyone’s circumstances are different, but money that you will need with a short time horizon should not be in volatile investments.

6. Don’t assume that a stock-free portfolio is risk-free. Bonds, precious metals, commodities, houses, pork bellies as investments all carry risk. Know the risk of the investment and your investment objective before investing, not after the investment has declined in value and it is too late.

7. Don’t be ashamed to seek help. Investments are complicated and if you need help, there are personal finance classes offered at your local colleges and universities as well as financial advisers and planners that can help you determine and reach your financial goals. This is not to say that you don’t need to be concerned with your investments. No one is going to be more concerned about your investments and wellbeing than you. Be financially knowledgeable, financially literate, and monitor your progress towards achieving your goal.

You have the decision whether you are on one of the top 10 thrill masters or want to go for an easy ride in the park. Be knowledgeable, make wise decisions, go for your goals and enjoy the ride.

What is your favorite roller coaster name to best describe the stock market? We invite you to post your response in the comments.

20 comments:

  1. Incredible hulk at universal studios is the best ride ever-rob s

    ReplyDelete
  2. Steel Venum, it goes from 0-60 in .2 seconds... just like stocks it can go from great to rock bottom in just a click of a button

    ReplyDelete
  3. i think the Intimidator Roller Coaster at Carowinds best describe it.

    ReplyDelete
  4. Rocking Roller Coaster, hold on tight!

    ReplyDelete
  5. The Tornado at Adventureland, located in Des Moines, Iowa. A seemingly endless climb to the top, followed by a jaw dropping, fist clinching, "HANG ON IT'S ALMOST OVER!!" plummet straight back down to the bottom.

    ReplyDelete
  6. Hersheypark, PN has the Fahrenheit, featuring the steepest drop in the U.S. which illustrates the stock market pretty accurately.

    ReplyDelete
  7. There is the The Big Shot at the Stratosphere Tower in Las Vegas, NV. - Amanda Ruppel

    ReplyDelete
  8. The Wild Thing at Valleyfair in Minnasota is a scary ride much like the stock market. - Sarah Roth

    ReplyDelete
  9. Bizarro from Six Flags New England. No one knows how the stock market is going to act.

    ReplyDelete
  10. Rock'n Rollar Coaster in Orlando. "Smile for the camera at the beginning"!

    ReplyDelete
  11. The Outlaw at Adventureland in Des Moines, IA...may not look the sturdiest but can take you for a good ride!

    ReplyDelete
  12. Take the roller coaster ride for less

    ReplyDelete
  13. Pandemonium at six flags california. = )

    ReplyDelete
  14. Splash Mountain at Disney World

    ReplyDelete
  15. I would also say that the Tornado at Adventure Land accurately reflects the stock market. It rises to great heights, plunges in an instant and returns to the same point it started at.

    ReplyDelete
  16. Superman at six flags! Takes you for a crazy ride like the stock market can

    ReplyDelete
  17. Hi,

    I am Myrina Stein and I am a member of some financial communities. I just visited your site http://frugalfunandfinancialfitness.blogspot.com/ and I am a frequent reader of your blog.The articles of your blog is really worth reading. The quality of your content is excellent.
    After seeing this, I would like to request you something. I love to write financial articles and I would like to contribute article for your site if you’ll give me the permission. I can give you an original guest post and I assure you that it will be published only in your site. If you want, you can suggest me the topic also and I will write accordingly.

    Please let me know your thoughts. Waiting for your positive reply. Reach me at: myrina (dot) stein (dot) 888 [at] gmail (dot) com


    Thanks,
    Myrina

    ReplyDelete
  18. Very nice site. Its very helpful site for fitness. We have also a very beautiful site for stay fitness and well as like this site. We are throwing challenge to you to give you back your fitness.
    Another very good news for Australian, that is we are going to start our new service as soon as possible in Australia.
    So, visit our site and Join with us and make your body fit by our vi freedom team.

    ReplyDelete