Money Magazine Ask the Mole

Worried about losing it all

With all the wild swings in the stock market, wouldn't it make more sense to just get out?

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By the Mole, Money Magazine's undercover financial planner

Have future topics for the Mole to address? E-mail him at
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NEW YORK (Money) -- Question: I know I am not the only one worried, but I have my money in stock mutual funds. I was wondering if I should take them and move what I have left to a regular CD getting a small percent. I am very nervous as I am sure the world is but I feel I keep getting the same answers, leave it and it will come back. But it seems like our economy is in such a mess I don't want to lose it all.

The Mole's Answer: This email came to me when the market was down by about 10% over less than four days. You may remember the week when Lehman Brothers filed for Chapter 11 bankruptcy and AIG (AIG, Fortune 500) was saved by us, the taxpayer.

Well guess what happened for that entire week? The U.S. stock market was virtually flat - up about 0.01%. International markets did decline by 2.3% but it was no big deal - at least it wasn't for those who weren't watching it every minute.

Our economy certainly is in a mess at the moment, and I have my own thoughts of how we got there. The Federal Reserve turning a blind eye to ridiculous lending practices that enable short-term Wall Street profits would be one of those thoughts. And don't think for a minute that I'm going to defend these government bailouts.

Mole Confessions

But I digress. The point is that our current economic mess is not exactly a secret. And because it's not a secret, the market has already reacted to it. When you sell after a decline, you are systematically selling low. The fact that it's a time tested behavioral dysfunction of human investors doesn't make the economic loss any less.

Even though I'm incognito, I have to confess a couple of things. First, I was among the millions of investors watching the stock market on an hourly basis that week. I could try to convince you that I did so in the interest of my practice, but that wouldn't be truthful. The truth would actually be somewhere between morbid fascination and masochism.

My next confession is to reveal that I am as guilty as the next guy of some "do as I say not as I do" behavior. Sure, I preach long-term investing and staying the course regardless of what the market is doing and how it is making you feel.

But the wild ride of the past week has emotionally dragged me along with it. I'll admit that when the market does nasty stuff, I hurt for both my clients and myself. I am a human mole, after all. When our portfolios decline, we also see our financial future and our hopes and dreams decline as well.

What I have to tell you is the same thing I told my own clients: Our tolerance for risk is not stable. We tend to believe we are risk takers in up markets and very risk averse in down markets.

Take this opportunity to write down how you feel about investing in the stock market today and put it away. The next time the market collapses (and it will), or the next time you feel like putting more in the stock market (and you will), you can pull out this document and take a look. It's far more important to be consistent in your allocation than to get it right in the first place.

Doom And Gloom Is Good For Investors

In 1979, Business Week magazine ran a cover story article entitled "The Death of Equities," which gave some compelling reasons why stocks were no longer the place to be. The economy then was exactly as you stated it is now - in such a mess.

Of course that expert advice was just in time for the market to deliver an annual 18% return over the next 20 years!

My advice

It's okay to feel the fear and acknowledge the pain. It's not okay, however, to react to the fear. A bear market freak out is likely to cost you a heck of a lot more than a one-year decline in the market. Investing in a rough economy can sometimes turn out to be the best investments of all. I certainly don't recommend getting in at the top.

Pick an asset allocation that is right for you and STICK TO IT! Moving in and out of the market will only increase your risk and decrease your 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 him at To top of page

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