As Thomas Edison once said: “Opportunity is missed by most because it is dressed in overalls and looks like work.” The work that opportunity presents comes in numerous guises. For instance, we see a continued investment in our retirement future as an opportunity that only comes once. And while it might take some work, the long-term benefits are clear.
On any given day, opportunities abound. In spite of yesterday’s amazing stock market swing (actually, almost every financial indicator around the globe took a dive at almost exactly the same time) the opportunity was there to re-examine what you are doing.
As investors, you are driven by market moves, be it up or down. You still are expected to follow the market up – if listening to the folks on the business channels tell it – and are chided for selling on the way down. This simple flaw of human nature is exactly what propels the markets in either direction.
So what can you do? Set boundaries. The same electronic system (one of many of the problems that have been identified as a culprit) is the very one you can use to control your own investments. These boundaries, set well in advance of the very first investment you make, can save you enormous amounts of money.
For most of us, in retirement plans of all sorts, the regular contributions we make are governed by these boundaries. Once set, the contribution will not allow you to purchase more shares as the price of those securities goes up. On the flip side, these contributions will actually buy more shares as they become cheaper. Stepping in at any point derails the process and does not allow you to take advantage of these opportunities.
In fact, the one opportunity we have to get involved, the increase or decrease in contributions is usually botched because we allow our human nature to get involved. Keeping a minimum of 5-6% in the market at all times will give you at least a fighting chance at beating back that maniac that wants you out when the opportunity knocks. Smart money has more committed dollars in place understanding that long-term is longer than next month.
Henry Paulson, in concert with Timothy Geithner (Paulson, who was Treasury Secretary at the height of the 2008 financial meltdown, and his successor, Geithner, who was president of the Federal Reserve Bank of New York) said as much when asked about the shadow banking system that led to the fall of Lehman and Bear Sterns. In a report by Ben Rooney for CNNMoney, he quotes Paulson as both men testified before the Financial Crisis Inquiry Commission in Washington: “Many mistakes were made by all market participants, including financial institutions, investors, regulators, and the rating agencies, as well as by policy makers.” The investors he spoke of where much larger than you. But not always.
“This was a pure failure of market discipline” according to Giethner that began a cascade of events, some of which worked, most which uncovered how little we may know about the system as whole.
The next opportunity rests with the Senate. Some sort of financial reform seems destined to emerge. But it remains to be seen whether they can provide enough protections based on what they already know. While their focus is on the response to what happened and how to prevent it from happening again, the real opportunity will be missed if the package doesn’t permit the creation of the bailout fund.
It looks as if Richard C. Shelby (R-Ala.), the conservative who co-wrote the amendment with Christopher J. Dodd (D-Conn.), chairman of the Senate banking committee will not push the matter to get some sort of law passed. The bailout fund, pegged at $50 billion would create a sort of insurance pool funded by the very banks it was intended to help. What it was replaced with relies on the ability of the federal government to recovered borrowed money based on the liquidation of remaining assets.
So while we are living in an age of ever-shifting opportunities, the one best opportunity remains in your hands: keep investing in your future as if it were a long way away. Looking at your portfolio in the short-term will not do any market any good. That’s not to say a rebalance every now and again isn’t worth doing; it is. It just that opportunity is, as Edison suggested, not what you think it is when you see it.
The article from the Washington Post can be found here and the piece from CNNMoney can be found here.
Related posts: