CNNMoney features an excellent column by Paul R. La Monica today contrasting the “overly emotional teenaged girl with an unrequited crush. OMG! My life is over!” stock market investors with the seemingly apathetic and “too-cool-for-school kids that don’t get bothered by anything” bond market investors. I encourage you to read the column as Paul, (who has a really great first name), hits the nail firmly on the head. You can find it here: The United States of Apathy.
Investing in the stock market is a long term process. In any given year the market may rise or fall significantly and, so far, nobody consistently knows what it will do in advance. Many investors spend a great deal of time attempting to beat the market in the short term by investing, or not, in the individual stocks, sectors, or markets that they feel have the best short term prospects. Typically, this is a losing strategy simply because, sorry for the repetition, nobody consistently knows what an investment will do in the future.
As Paul points out, the really cool bond investors are actually flooding into what they believe is a safe haven when most professionals, myself included, have serious concerns over probable returns on bonds when rates rise. Anybody read the news over the past few years? The bonds they are buying are issued by Uncle Sam and bond buyers are buying more after the S&P downgrade, the “super committee”’s failure to reach an agreement, and in an environment where rates have very little room on the downside and a great deal on the upside. Quick reminder: Bond values fall when interest rates rise.
So, in reality, the nervous Nellies and the cool cucumbers are both behaving irrationally.
Here’s the takeaway. Your time and your life are worth substantially more than any amount of money. Investing in exchange traded funds or mutual funds can allow you to gain time and enjoy your life more if you have the discipline to remain invested, regardless of market conditions, over the long term. Live like the cool cucumbers but invest in a diversified portfolio of funds and let the managers do the work. That’s what they are paid to do and it’s worth every penny if it allows you to enjoy your life.