One way you could sway him is to point to what I think is the key financial lesson of 2012: investing on the basis of gut or intuition is a fruitless exercise that's more likely to end up costing you money than making it.
If you'll recall, for most of last year, investors felt the prospects for U.S. stocks were pretty dismal. They were so convinced that the stock market was vulnerable to a setback that they pulled nearly $100 billion out of stock mutual funds during the first 11 months of the year.
So how did that work out for them?
Well, anyone hunkered down in secure cash investments like money-market funds or money-market accounts earned maybe 0.5% -- if that. Investors who fled to bonds gained about 4%. U.S. stocks, meanwhile, have returned roughly 16% through last Friday.
It's entirely possible, of course, that stock prices could still plummet, especially if investors react badly to the ongoing fiscal cliff saga. But there's always the potential for the stock market to take a big hit. That's the nature of stocks. If anything, recent research shows that stocks are even more prone to sudden setbacks than market pros previously thought.
But the way to deal with this uncertainty isn't to move in and out of the market based on a hunch. That's not an investing strategy; that's a guessing game.
The more prudent way to go is to set the amount you invest in stocks based largely on how long you plan to keep that money invested.
If you're investing money you'll need to tap in a few years, none of it should be in stocks, fiscal cliff or no. Stocks aren't a viable option for the short-term because your portfolio wouldn't have enough time to recover from a market downturn.
If, on the other hand, you're putting away money for retirement, then you don't need to worry as much about short-term setbacks. So you can afford to put at least some of your money in stocks. How much? Well, if you don't plan to call it a career for decades, then you can probably invest upwards of 70% or more in stocks, as growing your nest egg is still your primary goal.
If you're on the verge of retiring, or have already retired, then you may want to scale back to more like 50% or less in stocks so your savings can still grow but won't be as vulnerable to market declines. These percentages can vary, of course, depending on how willing you are to see the value of your savings swing up and down.
I realize many people have a hard time accepting this concept of setting a mix of stocks, bonds and cash and, aside from occasional rebalancing, sticking to it regardless of what the economy and the markets are doing. They can't help but think that they should be able to do better by reacting to conditions, getting more defensive when the markets appear fragile and more aggressive if it seems the markets are poised to soar.
But it's wishful thinking to assume you can be so nimble. Very few pros can consistently make the right call, and even when a few do, it's an open question as to whether their agility demonstrates skill or luck.
Ultimately, you and your husband are going to have to decide whether it makes more sense to go with a disciplined strategy of creating a diversified portfolio that can handle a variety of market conditions and thrive long-term or entrusting your retirement prospects to your husband's gut. I hope for your sake and his that he realizes that the latter choice is folly.
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