The Dangers of Buying and Holding

Maggie and Sam called my office last week, and I could hear the desperation in their voices. They have more than $ 1 million in the stock market since 2000 lost "conservative investing." Their broker assures them that buying quality investment and holding onto them through difficult markets will grow their money safe. Yet, they can clearly see that it does not work. In fact, they have a serious decline already looked for a while, and they start to panic.

Their problem is not making money to fund their retirement. Dreams Both Maggie and Sam are smart and successful: She is a heart surgeon and he is a wealthy lawyer. Yet they have lost a fortune, and they can see that no matter how much they earn, it can not possibly outweigh the damage by listening to the advice of their broker, so they turned to me to stop the bleeding.

These two are not the only intelligent, wealthy investors I've met who are frustrated and frightened by their investment results and 2000 was not the only bear market investors had to face. Based on 60 years of evidence, a bear market ravages investors every 3.3 years, and the average loss is 27%. That's enough to scare anyone. According to the AARP, 35% of all pensioners back to work after they retire. Could it be because the market cracks and scrambles their nest eggs?

I think of my Uncle Jim, who would not listen to me and retired in 1999 with $ 700,000. His plan was to use his retirement package revenue and after long and live happily. Interest rates were too low for Jim, so he decided to invest in growth funds for the income he wanted to make. By the end of 2002, $ 700,000 had dropped to less than $ 400,000 through an inhospitable market. His savings had lost 43% of its value. Then, instead of $ 700,000 to work for him, he had $ 400,000 to work for him. That meant less income - a lot less income. Faced with this disturbing reality, Jim sold to a small apartment to buy his beautiful home and had to go back to work. Jim had 70 years to not "think long term" as his broker and other financial "experts" suggested he should. Jim need income today.

What can Jim, Sam, Maggie and everybody do to protect against catastrophic loss in the future themselves? Because we know that a crash occurs every 3.3 years on average and the typical loss is more than 27%, it is crucial for investors to invest only when the risks of doing so are relatively low.

Of course when you invest in the stock market you on risk. But we know that certain times are riskier than others. Just as you check before you, I suggest that you check before the financial road to hit. Temperature of the market embark on a road trip, the forecast

There are a number of ways you can do this. The method I like best is watching the major indices such as the Dow, S & P 500 and NASDQ. Here are the specific steps:

1. I look for days when the volume explodes. For example, if the DOW trades 2 billion shares on average, and to the DOW trades 2.2 billion shares, that a considerable increase of shares.

2. If that happens, I watch what happens to the price of the index. Continuing with our example, if the DOW closes higher to start, I know that large institutions are trying to share about themselves, which means that prices have to move to buy up.

3. We know that a sign of a healthy market shares of a large increase in, in combination with the higher index motion. In fact, there has never been a bull market rush without a large increase in trade, along with a rise in the price index. When I see two or more of these powerful days, I am more inclined to invest.

I strongly suggest that you look at the major indices for clues about the health of the market before you invest. I can take more specific tips on how you can next month, especially how do you know when it's time to stop now and sell "take the temperature of the market".