Tuesday, September 16, 2008

Meltdown

I have had several people gchat me asking what this "meltdown" means for them. There is a good column in the NYT along those lines. I think this is the most important piece for young folks:
As for the long term, it rarely makes sense to sell everything or to stop contributing to a 401(k) in the hope of knowing when the market has hit bottom and it is time to invest again.
Since most of us under 40 have 25 or more years left in the labor market, this will turn out to be a blip. Perhaps a nasty blip, like a spider bit, but will even out. The major short-term impact is that the stock market dropped an awful lot. Since it's smart to buy-and-hold, that shouldn't matter much to long-term investors. In the medium term, this kind of industry consolidation may restrict competitive pressures and drive up fees. We will need tough regulation to prevent that outcome.

Don't panic that your bank account will suddenly vaporize. All that money is FDIC insured (up to $100,000, more for retirement accounts) and will be fine unless the government collapses. If that happens, you'll have a lot more trouble than your bank not releasing you checking account funds. The US govt should be fine. This may be the one major advantage of having an army vastly more expensive than other countries, no one can call our loans in.

All this to say, don't panic. You are in it for the long-haul. Make sure you put your monthly investments into your retirement accounts. We don't know if this is the bottom, but if it is, you don't want to be the guy who panicked and missed some of the best recovery days ever.

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