Saturday, December 5, 2015
The Markets and Dr. Strangelove: How I Learned to Stop Worrying and Love the Stock Market
For those of you who aren't familar with Dr. Strangelove, you may want to stop everything you are doing, Netflix, Stream or Amazon Fire, Dr. Strangelove and revisit this post, only after basking in the glorious irony of the 1964 Stanley Kubrick classic. This movie, is a timeless and hilarious depiction of how awry things can go. The movie tells the story of one army man, General Ripper, that goes more than a little crazy. Convinced during the cold war, that the USSR was using fluoride in the drinking water to endanger Americans through 'precious bodily fluids' ( a line that comes up repeatedly), he sends nuclear bombs into the USSR in effort of starting a nuclear war. Hilariousness ensues as the various generals and politicians scramble to determine how to react to the impending 'doomsday'. But what does Dr. Strangelove and the Cold War hysteria have anything to do with stock markets and investing you ask?
If you have followed the stock market over the past ten years, you may be all to familiar with the alarms and warnings of calamity. For many folks, raised and coming of investing age during the great recession, there appears to be a grand mistrust of the financial sector ( http://money.cnn.com/2015/03/11/investing/investing-millennials-stocks-markets/index.html). Afterall, many of us, saw parents needing to push off retirement due to a suddenly shrinking portfolio. Some of us struggled finding jobs at time of graduation due to the economy, and on the news every night were stories of investment bankers and financial companies lies exposed. A favorite book of mine, The Big Short (soon to be a movie!), is all about the lies and frauds of big banks and the housing crisis. It's probably not suprising that many in their 20's and 30's place much more of their funds in cash than in a stock, money market, bond portfolios.
Even today if you follow the 24 hour news cycle there are daily warnings of impending calamities. The infectiousness of investor confidence (or lack there of) can make or break a company. It can be hard to follow the market news without feeling a little like General Ripper, ready to pull the trigger sure that doomsday is already upon us! It's no wonder that many choose to stay out of the investing game entirely.
I remember after investing my first significant amount outside of my retirement account, weathering my first down turn. Logging into my account that night, and seeing my returns reduced and the amount lost in one day and thinking, "I must be doing something wrong". It took a seasoned investor to remind me, that my balance sheet today was just one step towards the one I wanted in retirement. I was reminded that when the stock market dropped, my money that I invested actually went farther. For example, if the stock market goes down, I may be able to afford more of the stocks I wanted, increasing my chance for income in the long-run. Investing is a marathon, but the daily reports, market watch updates often make it feel like a sprint!
A shocking number of folks will admit to not knowing much about their finances or investing. According to a 2015 Pew Charitable Trusts survey, only 51% of American households felt financially secure and only 27% of families felt that they were making the right decisions with their money. It's a startling low number, and while their are whole companies related to helping plan your financial retirement, you can hire investment managers, financial planners, etc. Many make huge amounts of their money, by managing your money for you, when studies show, they often underperform compared to well-set index funds (check out this fun article over at Motely Fool http://www.fool.com/investing/general/2012/03/20/the-cold-hard-truth-about-brokers-and-financial-a.aspx). Their business model thrives on our lack of confidence in how to handle our own money!
I am a BIG believer that no one cares as much about your future, your finances and your family, as you do. So it's time to build some investor confidence. Seek out personal finance blogs (like this one!) and other helpful ones (GoGirlFinance and MrMoneyMustache are some personal favorites of mine) to get a well-rounded perspective. Check out finance books from the library (for heaven-sakes don't buy them- this is Frugal Rock Finance- emphasis on the frugal!!!). While I've checked out my share of finance books, there has never been a strictly finance book that seemed 100% what I was looking for. You may be better offer looking online for the information you need.
Some large financial firms offer helpful articles and webinars that can provide a good amount of knowledge. I personally like Vanguard's online video streams.** Vanguard's webinars offer the ability to watch them live and message in questions or you can read or watch the playback later. While some are incredibly specific- a look ahead to 2015 financial markets for example, others like the benefits/drawbacks of EFT versus mutual funds can be very educational (https://investor.vanguard.com/investing/webcast-videos).
Check out information on index funds and portfolio management- these were really important for how I developed my investing philosophy! They also have videos on estate and financial planning. Total disclaimer, the goal of these videos is to promote their specific products, so while the information regarding global markets or retirement is helpful, take their promotion of their products with a grain of salt! You do not need to have a Vanguards account to watch the webinars and they are all about an hour or less- I've put them on while making dinner to gleam some additional financial knowledge.
Does it surprise you that most people don't feel confident managing their money? How confident would you say you are in managing your money?
**Disclaimer: while I use Vanguard for some of my investment accounts, I am not reimbursed by Vanguard in any way and do not benefit from you educating yourself about investing, other than, you know, the satisfaction of one more financially-literate person out there in the world!