SOCIAL: money trouble!

[Manish Champsee]

Hi Palak,

A basic way to make money is the slogan "buy low, sell high".  If the market
has gone down and you decide to sell, you are selling low.  If you then
decide to wait until the market has recovered to get back into the market,
then you are buying high.  Generally speaking, buying and holding
investments through thick-and-thin will see your investments grow.  Think of
it as Barack Obama running a steady campaign as opposed to John McCain
running from one position to the next.

Having said that, for many people watching their portfolio drop almost 20%
in a week is a bit daunting.  Obviously, at the end of the day, you have to
be able to sleep at night, and no investment strategy is going to work for
you if the bumps are going to affect you.

Its likely that your friend has a lot of mutual funds that are invested in
stocks which offer a high return, but do go up and down at a more rapid
rate.  Bonds give you a smaller return, but don't go down as much either.  I
would suggest that your friend do a risk tolerance test (here's one
example):
http://fc.standardandpoors.com/calculators/jpm/asse/calculator.jsp?toolid=000003

which will give him a sense of where to invest his money based on his own
risk tolerances.  This should ensure that the value of his investments won't
go below a level that he is comfortable with.

As to the value going to 0, if his portfolio goes to 0 then we'll have
bigger problems than that.  It would take a pretty big event (think meteor
wiping out half the world) for the value of the entire US stock market to go
to nothing.

Manish


On Mon, Oct 20, 2008 at 10:08 AM, palak joshi <palak.joshi at gmail.com> wrote:

> dear social,
> so a friend of mine had about 13,000$ in his 401k plan. He got a letter
> yesterday saying he is on -12.8% and has lost about 3000$. He kind of lost
> 2000$ in one week. This way he will lose all his money. He cannot NOT INVEST
> his money in an 401K right? Can anyone tell me if its wise to take the money
> out, pay the penalty in taxes and put it in a safe savings account? I guess
> people who have more money can wait for the economy to get better but with
> small amounts its not worth taking the risk right?
> thank you.
> palak.
>
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