Contact Info Subscribe Links

Cover 25

 

CURRENT ISSUE: april-may 2009

 

EveryOne:Reaching Farther Together

 

FWB HISTORY

ABOUT ONE MAGAZINE

ARCHIVES

 

 

Download the current issue in PDF format

David Brown

brown on green

Staying Balanced in a See-Saw Market

 

Brown on Green is a regular column written by Free Will Baptist Foundation Director David Brown. The column offers financial advice, addresses hot-button business topics, and answers your finance questions. Contact David with your anonymous question: david@nafwb.org.

 

 

The market goes up. The market goes down.

Lately it has all been down, but it is difficult to make decisions about the stock market either way. When it goes down should I sell or buy more? When stocks go up should I sell and take my profits, or should I hang on to see if it goes higher? Most people don’t invest in individual stocks but wisely choose a diversified portfolio in a mutual fund or a family of funds. Even in these situations, decisions about investing are trying.

Two opposite philosophies have emerged in this arena. One group believes you should buy and hold. When the market is rough you just ride it out, agonizing through losses, celebrating when it rises. The other philosophy is called market timing. The idea is to exit the market before it hits bottom and to buy when it starts to rally. In theory, the investor avoids much of his loss and will enjoy substantial gains when the market rally begins.

 

See-Saw Economy

 

While the market timing method works in theory, in practice it does not work well for most of us. The reason is that timing the market means investing a lot of time studying the market to determine the exact best time to sell or buy. Since most of us do not study the market daily, it is likely we could miss on both ends which results in poorer performance than the buy and hold method.

The stock market moves in cycles, both in a downward market and an upward direction. However the biggest gains in an up market cycle tend to occur early in the cycle, and the biggest losses tend to be in the early stages of the downward cycle.

Therefore, missing on either end can be disastrous for a market timer. The investor who buys and holds may see values decline dramatically but will also see a huge surge when the market turns. Unless you have the time to closely follow the market you should buy and hold but hang on because sometimes the ride can be wild.

 

Hang on! Sometimes the ride can be wild.

 

About the columnist: David Brown is the director of the Free Will Baptist Foundation. Learn more about how the Foundation can help you give more effectively at www.fwbgifts.org.

 

 

©2009 ONE Magazine, National Association of Free Will Baptists