Suze Orman's Action Plan by Suze Orman Read Free Book Online Page A

left it in the market through good and bad times, you would have ended up with more than $73,000. Sure, that’s a lot less than $800,000. But it’s also a lot more than $11,500. Granted, none of us think in terms of a 57-year time horizon, but please know that myriad studies similar to this one come to the same conclusion over shorter time spans too. Buy and hold is the sweet spot between elusive perfect market timing and tragic poor market timing.
    SITUATION: You have time on your side, but you still don’t trust history this time. You just can’t shake the feeling that this time is different, that buy-and-hold investing is not the way to go.
    ACTION: Push yourself to keep the faith. But if at the end of the day you can’t function because you are so worried, then perhaps it is best for you to get out of stocks. However, you need to understand the serious trade-off you will make.
    Let’s start by stripping away your emotions for a moment. My best financial advice is for you to stay invested.
    Below are the 10 most recent bear markets (periods of major losses when the stock market indexes go down at least 20%) prior to 2008.
    So this is not the first (or last) scary time. What’s crucial to understand is that despite all those bad times, patient investors did fine. More than fine, actually. From 1950 through 2007, the annualizedgain for the S&P 500 stock index was more than 10%. The big takeaway: There are bad times and there are good times, and history tells us that over time, the good times outweigh the bad.
BEAR MARKET
LOSS
August 1956–October 1957
-21.6%
December 1961–June 1962
-28%
February 1966–October 1966
-22%
November 1968–May 1970
-36%
January 1973–October 1974
-48.2%
September 1976–March 1978
-19.4%
January 1981–August 1982
-25.85%
August 1987–December 1987
-33.5%
July 1990–October 1990
-19.9%
March 2000–October 2002
-49.1%
Source: The Vanguard Group; Standard & Poor’s
    So now you know my best financial advice: Stay the course. That is what I would do if it were my money. But it’s not my money. It’s
your
money. And no one will ever care about your money as much as you do. So if you know that the only way you can get through these tough times is to pull your money out of stocks and into a stable-value fund or a money market, then you need to do that. I just ask that you consider everything you read in this Action Plan. From a financial point of view, you are putting yourself at the risk of never making up the losses and not making big enough gains to beat inflation. Perhaps you can strike a compromise with yourself: How about you move a small percentage of your money out of stocks and into a stable-value fund? That will make it easier to get through the rocky times, but it will keep a portion of your retirement funds invested in stocks.
    I respect the emotional component of investing—something that too many professionals dismiss. All I ask of you is to try as hard as you can not to let your emotions completely derail your long-term strategy. Compromise could be the ticket for you: By moving a portion of your money into a stable-value fund—say, no more than a third orso—you should be able to sleep better during volatile times without derailing your chances of sleeping well in retirement too.
    SITUATION: You want to stop contributing to your 401(k), even though your company matches your contribution, so you will have more money to pay off your credit card debt.
    ACTION: Don’t do it. If you work for a company that matches your contribution, I don’t care how much credit card debt you have or how messy your financial life may be. You cannot afford to miss out on a company match. Do you hear me?
    When your employer matches a dollar of your money with a 25-cent matching contribution or gives you 50 cents for a dollar invested that is too good a deal to pass up.
    SITUATION: You want to stop contributing to your 401(k) after you reach the maximum employer match so you will have more