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Is It Safe To Go Back Into Stocks? Dumb Question, Wrong Answer

By: Frank Armstrong

By: Frank Armstrong, CFP, AIF

As the Dow creeps back toward the 10,000 mark, we are beginning to see and hear the financial press speculating about whether it’s safe to go back into the market. For instance, Roland Jones’ article “Is it safe to get back into stocks?” on MSNBC poses his own inane question and then predictably botches the answer. By even posing the questions, Mr. Jones does readers a disservice. Public thrashing is strongly indicated, but perhaps that would be too kind. MSNBC should be ashamed for publishing such drivel.

The question misses the point. Stocks are never “safe”. There is always market risk. That was true on 9/10, and it’s true today. There is neither more nor less risk today than any other day.

By phrasing the question the way he has, Mr. Jones assumes that investors left stocks after 9/11. (Hopefully that’s not true.) Now, having realized their losses through the traditional buy high-sell low technique, they wish to purchase the same stocks back at higher prices. Evidently, Mr. Jones’s investors are anxious to repeat the process until they have nothing left.

Market risk is why, for as long as we can re-construct the data, stocks have had higher returns than “safe” savings and fixed income investments. Those additional returns exist because of the risk. Risk and return are forever joined and directly related. To believe otherwise is delusional. To believe that risk can be predicted is absurd. A predictable or avoidable risk does not exist. If we could avoid it, it wouldn’t be risk. To suggest otherwise is dysfunctional.

Is Mr. Jones unaware that risk is priced into stocks? After a risk has manifested itself is not the time to sell. After the recovery is not the time to buy. Investors that don’t understand that or who for valid reasons cannot bear the risk, have no business in the market.

Comments like: “But market analysts say the road ahead for stocks is far from certain,” are ridiculous on their face. When, I might ask, is the road for stocks certain? Will someone tell us so we can all get rich in a risk-free transaction?

By suggesting that there is a meaningful answer to Mr. Jones’ question, articles like this encourage investors to engage in market timing, a distinctly self destructive behavior. MSNBC’s readers would be far better served to construct an appropriate asset allocation plan tailored to their unique requirements and then stay the course through the inevitable market noise and turbulence.

Not all the media is clueless. Somebody over at MSNBC gets it. Check out Anne Thompson’s article: “Planning a financial future” as an example of responsible advice. All is not lost! Perhaps there is hope for the media after all.