Why Investing in Stocks This Year Was Not a Financial Mistake

by David@MoneyNing.com · 29 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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{ read the comments below or add one }

  • Mike McDermott says:

    I agree that investing is a wise financial decision especially in the long run. Many people are caught up with news, market events, and emotional reactions though. In addition, so many people want to get into investing but for whatever the reasons, they are not educated or savvy enough to manage their investments alone. It often is a better choice to have some guidance/advice – which can be provided at low costs these days thanks to robo advisors.

  • Satish Mruthyunjaya says:

    Yeah, it looked foolish that time, but you when you look back, everyone recovered the investment. But the biggest loss it opportunity loss when we had the option to invest at rock bottom prices

  • SAM says:

    It is important to keep in mind that while investing in stock, one is actually investing in a business and no business can do wonders in few days or even few months. Longer duration is better to even out market fluctuations and better returns.

  • Jonathan Craig says:

    I’m a big fan of putting my money to work, especially in the hands of those with more expertise in fields I’m interested in!

  • Kevin Ashwe says:

    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.

  • Gavin says:

    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.

  • DayDreamz says:

    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.

  • GoodTrader says:

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

  • The Marketeer says:

    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.

  • Ryan DeLeon says:

    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.

  • Dan Klaus says:

    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.

  • Tiffany says:

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

  • Forex Coach says:

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

  • printable fake money says:

    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.

  • hisham says:

    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..

  • The Happy Rock says:

    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.

  • Beyond Paycheck to Paycheck says:

    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.

  • the moneygardener says:

    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.

  • Caleb says:

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

  • Andrea says:

    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.

  • vilkri says:

    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”.

  • George says:

    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…

  • Mark says:

    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.

  • Mike says:

    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… 🙂

  • Calvin says:

    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.

  • MoneyNing says:

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

  • Miranda says:

    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.

    • Jonha @ iJustDid.org says:

      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.

      • Chris says:

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

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