Tuesday, October 18, 2011

GUEST POST: Riding the Stock Market Roller Coaster


Guest post written by Dr. Jason Landry
Jason is a phenomenal Emergency Medicine Doctor who resides in Jacksonville, FL.  Even more astounding, however, is his incredible knowledge regarding the ever-changing stock market and overall financial success!  With the wavering situation we are finding ourselves in economically, I asked Jason to give his insight and wisdom on how to handle it, and what to do!  I'm sure you'll enjoy his hands-on strategies as much as I have!


Let me start by saying that I do not have a degree in Business, nor am I employed by any Trust Funds, Banks, or even the little talking baby you see on TV who has become a day-trader.  I am just like everybody else who wants to know that if I put money away for retirement, it will be ready for me to use one day.  For decades, the most accepted way to do this was by systematically putting money into a Roth, 401k, or other equivalent plan and just watching it grow like magic.
However, over the last few years, it has become increasingly difficult to justify putting money into the market, only to see your account shrink and shrivel.  Sometimes it can even make me a bit angry and frustrated.  I feel like I could do better by just burying the money in my backyard or just setting up a simple savings account.  That way, I know that, at least, my money is growing a little.  Every time I start thinking this way, however, I am reminded of some very simple principles.  Maybe they will help you find the courage to deposit that next check into the retirement fund, even when the market seems to just fizzle it away.
1.     DOLLAR-COST AVERAGING: This is the most important principle.  It means that you put a fixed amount of money into your account at fixed time intervals, regardless of how the market is doing.  In the end you will make money, even if the market ends up at the exact same point as where it started.  For example, let’s assume you  put in $100 every month for 30 years (360 months).  If you buried that in your backyard, it would be worth $36000 when you dug it up 30 years later.  If you put it in a savings account (right now with an interest rate of 0.1%), it would be worth a bit better at $36,647.19.  However, let’s assume that you put it in the market.  And, just to make the math easy, let’s assume 1 share is worth $100.  Over the 30 years, it stays at $100/share 50% of the time (including the ending price).  But, it also is valued at $50/share 25% of the time and $150/share 25% of the time.  In 30 years, if you were diligent, you would own 420 shares, or $42,000.  That’s 14.6% better than you would have done by putting the money in a savings account!
2.     THE POWER OF TIME: If you look back at the last few years, the market looks pitiful.  All it does is go down!  But if you graph out the value of the Dow, for example, over the last 20-30 years, a much different (and more promising) trend strikes you.  Just in the 1970’s, the Dow was valued around 1000.  Now it’s around 11000!  Over time, the markets grow and people make money….if they can stomach the “Down Years”.
3.     Inflation: One big problem with burying your money out in the yard, or even placing it in a savings account, is that the dollar becomes increasingly less valuable over time.  This is called “Inflation”.  If you ask your grandma, I’m sure she will talk your ear off about how she used to be able to buy a hamburger for a nickel, for example.  Good luck finding that burger now!  If you bury $100 outside, it’s not going to be worth nearly $100 in 30 years.  You need to find a way to make it grow faster than the rate of inflation.  Time and time again, the only method that has proven to beat inflation is the market.  If you like hamburgers as much as me (just ask my wife), you’ve got to find a way to save up so you can afford them in 30 years.

      Again, I’m not a financial planner, nor did I stay at a Holiday Inn Express last night.  I just want to be a good steward of the money God blesses me with.  I know this stuff is not simple in the least.  That’s why you really ought to get in touch with a Certified Financial Planner who can figure out what is the wisest plan for you specifically.  Speaking from personal experience, they also make really good therapists when you start stressing out about this crazy Stock Market Roller Coaster.

Find more information about Dr. Jason Landry by clicking HERE.

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