Investing during a rough economy

Don't invest impulsively

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NEW YORK (Money) -- Question: With the economy being as bad as it is and no sign of getting any better, I feel people are reluctant to invest or even unable to save. Do you agree? With keeping that in mind, what do you think people look for in a financial adviser?

The Mole's Answer: I'm afraid I'll have to disagree that now is a bad time to save and invest. I'll explain why and then tell you what to look for in selecting an adviser.

I agree that the economy is slumping and may continue to do so for a while. But don't make the mistake of thinking that this translates into a stock market decline. Unless you have any insider information that Ben Bernanke passed along to you and only you, then you can't know how the stock market will perform tomorrow.

A mistake that many of us make is thinking that the stock market acts in ways that are predictable or even understandable. Let's take a look at the economic events during the five-year period of 2003-2007:

• The U.S. gets bogged down in an expensive war
• Price of oil triples
• U.S. deficit spending soars
• Sub-prime lending crisis spreads worldwide
• U.S. dollar plummets

This seems to me like some pretty depressing economic news. Yet how did the stock market react? Well, U.S. markets went up by 82% and international stocks were up by 168%. Anyone want to join me in some head-scratching?

Now if you had known these events were going to happen, you might have made the same assumption that this wasn't a good time to save and invest. And said assumption would have had you missing out on a global portfolio more than doubling.

It's easy to get caught up in the tide of doom and gloom currently being preached by the market gurus, and to let that anxiety scare you away from the stock market. Last October, however, those same "experts" were claiming stocks were undervalued, just as the stock market was hitting new highs and about to take a huge dive. Most experts merely predict the past. Ignore those gurus who don't know that they don't know what the market will do in the short-run.

As for finding the right financial planner, don't pick one that tells you what you want to hear. Find one that will tell you something like "I have to disagree that now is a bad time to save and invest." Find a planner who will provide some discipline, rather than just a salesperson.

You need objective advice rather than a "yes" person. Your planner shouldn't be worried about a bear market and should be providing discipline and focus to stay the course in order to reach your financial goals. Make sure your planner knows finance rather than just sales, because what your planner doesn't know can cost you.

If your planner pretends to have a crystal ball and know what the coming months hold for the market, then you should probably walk away.

My advice: First, it's always a good time to save. Though, like dieting, it can be hard because it involves giving up some pleasure today for enjoyment years later. It's a lot easier to make excuses, like your investments won't perform well. Sometimes you can trick yourself into being a better saver. Now if only I could take my own advice when it comes to eating.

Second, don't kid yourself into believing that you are smarter than the market. By saying now is not a good time to invest, you're trying to time the stock market. Many people have tried, and the data is compelling on our market timing skill - we buy when the market is up and sell when it is down. So in the end, trying to market time usually ends up accomplishing two things: increasing your risk and decreasing your return.

Now is the time to start saving and investing. The longer you stay in the market, the greater the chance you will be rewarded with a handsome return.

The Mole is a certified financial planner and certified public accountant who - in the interest of fairness - thinks you should know what goes on behind the scenes in financial planning. Want to make contact? E-mail themole@moneymail.com.