Why Investing in Stocks This Year Was Not a Financial Mistake

by David Ning · 25 comments

In a matter of weeks, I saw my portfolio erode at a rate that I thought was only possible in months/years instead days/weeks. The other day, I was looking at the disastrous performance of my stock investments through financial statements and asked myself one question: “Did I make a financial mistake by investing in stocks this year?”

These “after-the-fact” type questions usually does nothing but make me feel worst but I felt the need to give an honest attempt at answering because being invested this year was by far the most detrimental to my wealth.

As my thoughts race through my brain, the answer became increasing clear to me that starting to invest in stocks was not a financial mistake. The decline was definitely something I wish I avoided, but to call it a financial mistake was just not correct.

To carry on the discussion further, let me share with you some of the notes I took in my imaginary wall:

We Decide Based on Possible Outcome, Not Results.
When I chose to pour my savings into the stock market, it was based on the rational decision that:

  1. Stocks outperformed other asset classes in any 20-year period
  2. I was young enough to have many years of income to cover any potential losses
  3. My time horizon was long

Due to the fact that we can’t predict the future and there’s no “undo/retry” in life, we decide the path to take based on all the facts present.  My investing approach was based on past history and my circumstances. My wealth took a disastrous dive but short term performance was simply not part of my consideration. I’m looking for long term gain, and these types of short term decline was what I was willing to tolerate and should be expected.

I Actually Made the Choice
Indecision is always the worst mistake that one can make.  If I did not decide to begin investing during the good times, there would be no way that I would start now when everything looks dark and gloomy.  As a result, I may never start investing.  It would preserve my capital this year, but earning 3% a year (and being taxed every single year) is definitely not advisable over the long run.

What I Do Consider a Financial Mistake
Let’s face it, many of us lost more money this year than any other. However, financial mistakes should be left for those decisions that we make when the facts points to the likelihood of financial disaster (Taking payday loans, splurging on credit cards without the funds to pay them off immediately, buying a new car just to keep up with your neighbors etc come to mind).

Deciding to start investing in stocks will never be a financial mistake. Ever.

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{ 25 comments… read them below or add one }

Miranda December 2, 2008 at 9:08 am

I, too, am not sorry I have been investing in stocks. In fact, I’ve increased my retirement contributions to take advantage of the low, low prices. I’ll be much happier for it down the road.

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Jonha @ iJustDid.org December 30, 2010 at 8:23 pm

Hi Miranda,

Thanks for this post, in short term, the market maybe a little scary but in the long run, you will reap the rewards of such an intelligent decision and smart move. Happy investing.

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Chris May 11, 2013 at 5:34 pm

Hi, 2012 hindsight here. You did well by investing more when stocks were a bargain, today you see why.

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MoneyNing December 2, 2008 at 12:04 pm

Miranda: Good for you :) Increasing your contribution is the way to go in this market.

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Calvin December 2, 2008 at 12:07 pm

Nicely put. My wealth has diminished drastically this year and while I’m seriously in need of something good happening, I agree that investing is actually one of the better decisions I made through the years.

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Mike December 2, 2008 at 12:13 pm

Agreed precisely. Given how long you still have until you’ll need your retirement money, this current downturn (as large as it is) doesn’t hurt you at all.

Same thing goes for myself and millions of other investors. Now if we could just get the media to stop selling fear… :)

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Mark December 2, 2008 at 5:01 pm

Good post. I agree that investing was not a mistake. It is impossible to time this market. 5, 10 or 20 years from now the results should be better.

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George December 3, 2008 at 4:42 am

I think the other side of this too is that NOW is especially an important time to begin or continue investing for the long term. I’ve been watching many people STOP their 401(k)/IRA contributions in the past couple weeks or months and feel the urge to say, “the loss already happened…don’t stop buying now that prices are LOW.” stay the course people, stay the course…

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vilkri December 3, 2008 at 7:52 am

I agree with you. When you lose money with an investment, it does not mean that you made a mistake. As a matter of fact, you may even make a mistake when you make money. Just think about these folks, some of whom I know personally, who invested heavily in real estate ignoring all rules of proper asset allocation. They were on top of the world making money two years ago. It is all too apparent that this money making scheme was a big mistake even if you got out early enough and ended up making money overall. It is better to stick with sound strategies than to chase the next “big thing”.

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Andrea December 3, 2008 at 8:37 am

Shoot, any time you’re saving is a good time. I tripled my retirement contribution and doubled my husband’s. I’m fine if we hover at this level for a couple of years, really.

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Caleb December 3, 2008 at 3:54 pm

The biggest profits are usually made by the wealthiest ppl during “economic down times”.

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the moneygardener December 6, 2008 at 8:30 am

Well put. In fact I have made a concerted effort to invest more than I have ever invested during October, November, and this month. These levels are great for long term investing in dividend growing stocks. I’ve even employed a moderate amount of leverage in order to do so.

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Beyond Paycheck to Paycheck December 8, 2008 at 6:45 am

Indeed, investing this year was no more a poor decision than investing in 1999 was a great decision. In both cases, if you are far from needing the money (as you are), it’s the right call. So easy for others to say they have a long-term time horizon and aggressive risk tolerance while things are going up. Glad you’ve hung on and will benefit from this dip, no matter how severe or protacted.

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The Happy Rock December 19, 2008 at 8:04 pm

MN I love seeing your thought processes on paper and I think you nailed it, although I don’t think I would be gutsy enough to say that the US stock market will forever be a good investment.

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hisham June 19, 2009 at 7:41 am

i bought stocks that pays good dividend. its very good to receive checks once in every several months. also, stocks that pays good dividend do not fluctuate much..

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printable fake money July 1, 2009 at 9:11 am

buy stock of good companies when it is in its low, like this time. this is what warren buffet does, he is the richest now.

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Forex Coach March 9, 2010 at 3:21 am

Hope you’re slowly recovering your losses now that the market is somehow back on its feet.

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Tiffany June 1, 2010 at 5:40 pm

Well it seems like you took quite a risk, but learned a lot in the process. Thanks for posting.

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Dan Klaus June 17, 2010 at 2:08 pm

We invested for the long-term based on fundamental trends. Our strategy is three things: dividend paying stocks, individual chinese companies, and gold. While I get the ‘oh no’ twinge looking at short term performance, I remind myself that I’m in this for 10 years minimum. Nice reminder.

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Ryan DeLeon January 23, 2011 at 9:32 am

Lets not forget when it comes to the stock market, you dont actually lose money unless you sell and realize the loss. Your portfolio is simply valued less, but it if you left your money in the stock market you know it came back, not all the way yet but almost. If you know the history of the stock market then you know this happens all the time and that overall the stock market makes money, you just have to think long term.

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The Marketeer March 14, 2011 at 12:54 pm

Buying stocks is buying into a highly liquid asset *usually*. Not only is it a prudent way of investing your hard earned income, it also carries with it many benefits. Having a lot of assets in a portfolio can make it easier to get loans at good rates, give you a lot of investing options, and until you actually realize gains, a good way to manage taxes.

Stocks are good, very good, that’s why we blog about them at The Weekly Marketeer.

Cheers. The Marketeer.

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GoodTrader January 29, 2012 at 7:20 am

Investing has become a necessity in these times. Save and invest, learn from mistakes and reinvest profits for growth.

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DayDreamz April 29, 2012 at 9:11 am

Investing in stocks is about making the right decision. Nobody can determine how is the stocks up/down. However, during market crisis- Its the best time to invest. Patience is the key to determine- why a lot people lose money:
When the stocks up by 10 cents, they sell.
When the stocks up by $2, they sell.

They can hold till stocks down $2, but only can hold till stock up 10cent.
No Patience= Not suitable to invest in stocks.
All great stock investor are all able to hold stocks for years and years.. Till the time is right.

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Gavin June 1, 2012 at 7:51 am

David, I would encourage you to learn the basics of options trading. Buying some put options is very easy and helps protect you from the massive drawdowns that the market can be prone to from time to time.

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Kevin Ashwe July 20, 2012 at 8:40 am

If you ask me I will say stocks are still one of the best places to put our money to grow, though its more technical investing in the stock market today than ever.

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