May 8, 2013

When to Pull Out of the Market

You may have heard that the Dow, an old and reliable measure of stock market performance, recently surpassed 15,000 for the first time in history. The media is making a big deal each time we hit one of these milestones, and it’s generating a lot of water cooler talk and frenzy among the most novice of investors.

As a result, I decided it was prime time for a frank discussion about getting out of the market.

There are a few “truths” about the stock market, or so we’re lead to believe.

Truth #1 is that the majority of people (a.k.a. “the herd”) buy stocks when the market is hot, and sell off when the market tanks.

Truth #2 is that the “smart” people sell when the market is in a frenzy and buy when everyone is panicking.

Reality is probably somewhere in between. Truth #1 is based on human emotion (fear & greed), habits, low-information investors, etc. Truth #2 assumes that reason can trump emotion and that somehow the “smart” people can keep their strategy a secret from the herd (otherwise, it would obviously fall flat).

And so if you consider yourself a smart investor (doesn’t everyone?), the problem becomes discerning whether we’re making smart choices, or if we’ve somehow become part of the herd. These days (early 2013), since the market has been bullish for quite a few years, most of us are facing the same decision: is it time to pull out?

When to Pull Out

Timing a sell is more of an art than a science. However, I tend to live by some simple rules when selling:

  • If I’m selling in a panic, it’s already too late. Selling at the top will feel uncomfortable and like I’m missing out, because I don’t have the benefit of hindsight. It’s true, we can miss “the top” of the market, but I also invest with broad trends and not specific timing.
  • Investing with a broad mindset means looking at bigger timeframes. Instead of “today, we pull out,”  I say “this year, we pull out” and plan accordingly.
  • I look at macro and micro trends before deciding to sell. In other words, how is the broad market doing (Dow Jones and other indicators), and more specifically how is the sector or company that my fund or stock invests in performing? I’m quite likely to own poor performers in an awesome market and vice versa.
  • I study popular long-term investors and model my decision-making on the choices they would likely make in the same situation. The Warren Buffet Way is one possible book to start with.

How to Pull Out

You may be familiar with a term called dollar-cost averaging. In simple terms, you buy a set amount of stock (say, $100) every set period (say, 1 month) from your broker (see also CSS Partners). When the stock or fund is priced low, you’ll get more shares, and when the price goes up, you’ll get less shares (same $100 every time, remember?). The idea is that your purchase price averages out over time, avoiding high and low price spikes.

I practice something similar on the back end of investments, pulling out over time rather than all at once. If you have an account where you have to report sales to the IRS at the end of the year, this could be an bookkeeping nightmare, but for the purposes of accounts like IRAs, it seems to work fine, as long as you keep in mind any penalties that might apply to your particular fund or any required balance minimums.

Dollar-cost averaging, on the buy or sell side, allows you to ease your way in and out of markets based on how strongly you feel about buying or selling at the moment.

Another strategy is what I call the “gambling” method because I’ve heard of many gamblers practicing something similar. Suppose I’m unsure about the future of an investment, and my initial $10,000 capital has grown to $16,000 in a few years. I can sell off exactly $10,000 of my position, recouping my initial capital and leaving only pure profit exposed to market forces.

Be Proactive

However and whenever you decide to get out of the market, don’t put off planning until the bottom falls out of your investments and panic selling ensues. Have a strategy in mind and execute accordingly!

This post is not intended as investment advice and is for informational purposes only. Consult with your financial advisor before making any decisions about your investments. 

Filed Under: Investing 1 Comment
April 17, 2013

4 Years of Fiscal Fizzle

The first post on Fiscal Fizzle was published on February 1, 2009. In four years, the personal finance space in the blogosphere has changed considerably, expanding from a few hundred blogs to literally thousands with more starting up every day. I feel privileged to have been part of the growth of this space and see so many people get interested in personal finance and start sharing their stories and their knowledge.

As Fiscal Fizzle moves into its fifth year, 2013 has thus far been a quiet year on the blog. Behind the scenes, our family was busy welcoming our second child into the world, and executing on a goal that we set back in 2012 of buying our first home. Big changes in my professional career (all for the positive) are also taking up some time and energy. All of these milestones are now behind us, and life is slowly returning to what resembles a “normal” state. My desire to write and the time to do it are coming back.

2013 is looking to be a really good year. The local economy appears to be in a strong recovery, real estate prices are moving back up, and our personal income is returning to all-time highs. I’m excited to bring you back into the journey as a new homeowner, an experienced parent, and someone who juggles a professional career with an online business.

Before we move forward, I want to glance back and see what really worked. What content really resonated with readers? Here are a few of the top posts of the last 4 years:

Curiously, almost all of my top posts have to do with cars and transportation. In part, that’s a reflection of what people are searching for online and the fact that many of my other posts have less relevance to a search audience. On the other hand, it’s also a reflection on how attached and focused our society is on transportation, and just how big of a percentage of our income we spend on getting around.

I sincerely hope you continue reading this year. Personal finance is not something you learn and forget–it’s a lifelong journey!

Filed Under: Administrative 1 Comment
March 25, 2013

Keeping Your Focus in Economic Recovery

This post originally ran on the blog in 2009, when it seemed recovery was around the corner. Nearly 4 years later, recovery is still slow in coming, particularly in my sector of the economy, but we’re seeing positive signs everywhere, including the housing market.

I wanted to revisit some of the principles that I published because they will become more and more important the faster we begin to recover out of the recession. 

A lot of people are talking about recovery–you can feel the buzz in the air, and the excitement of many of us who have felt the pressure of the economy take a direct hit on our ability to earn an income and maintain a basic lifestyle.

However, and it’s a big however, research and consensus around the web and major money magazines seems to indicate that we have a very short memory. So short, in fact, that our national savings rates and other major spending/savings indicators correlate exactly to the economic conditions of our time.

In other words, when the economy is tight, we spend less and save a lot. When it gets better, we tend to spend more and save less.

I was speaking to a fellow blogger a few days ago, who remarked that he “doesn’t buy into the economy.” In other words, he believes that doing the right things on a personal level should be our primary concern.

Continue Reading

Filed Under: Recession Leave a Comment
March 5, 2013

Seasons

If you’re shooting for consistency in your financial plan, you are bound to be disappointed. Instead, I try to find a sense of balance between different seasons, seasons that can vary widely at times from incredible highs to incredible lows.

For starters, there are times of flat growth or stagnation, times of accelerated growth, and times of spending.

When we moved in with my in-laws more than a year ago, it was the start of a new season–an opportunity to greatly increase our resources. When we had a new baby and bought a house within the last two months, it was another season entirely–one of many expenses, investments, and change. We’re now entering a new time, one with flat and steady growth expected for some time.

This all might seem self-evident, but I point it out because when times are good, really really good, we tend to feel like we’ve hit the Lotto. When times are bad, we feel like we’re on the edge of poverty. In between, we feel like we’re stuck and spinning our wheels. In reality, every season has a place, time and purpose. And every season ends, bound to change and test our ability to adapt quickly.

Consistency helps and wins in the short-term. Staying on your toes and minding the big picture is what wins the war.

Filed Under: Paradigms 3 Comments
February 1, 2013

Adaptu Alternatives

Over the years, I’ve heard more good things about Adaptu from readers than I did about almost any other software or tool out there. It seemed that people who used it really liked it. It was their partnership with Man vs. Debt during his RV tour around the country that initially got me turned onto them, and I could see what the buzz was about, though I never fully migrated over to the system.

At its core, Adaptu was a financial aggregator–one of perhaps hundreds that exist on the Web. All perform the same core functions–pulling all of your financial accounts and data together into one system, but what sets them apart is what they’re able to do with that data once they have it, and how well they fit in with your system, personality, and technological abilities.

Unfortunately, Adaptu recently announced that they will be discontinuing their service after February 20, 2013. All existing accounts and data will be deleted and Adaptu will be no more. A lot of people who have relied on Adaptu as their primary financial tool are now scrambling for what to do next.

Here’s my quick list of suggestions:Continue Reading

Filed Under: Tools 2 Comments
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