Love and the Stock Market

By July 1, 2011Main

by: Rob Schulz, CFP
September 13, 2010

I read an interesting article in the New York Times the other week. The article by Graham Bowley entitled: In Striking Shift, Small Investors Flee Stock Market, the first line states “Renewed economic uncertainty is testing America’s generation–long love affair with the stock market”.
My question is, was there EVER anything to love about the stock market?
I never had a financial advisor until I became one. My first investment was the Gabelli Growth Fund in 1988 and it went nowhere but up for several years. Because of my early success as a do-it-yourself investor, I always believed this to be a viable alternative for those who did not want to hire a pro.
Now after 15 years of experience and a couple of significant market corrections, I truly believe that most do-it-yourself investors are doomed for failure. Why? The complexity, emotion, volatility, tax implications, recordkeeping, and advanced planning considerations are just too much when you add them on top of the average American’s hectic lifestyle.
There is nothing to love about the stock market. The market, to me, simply represents an inventory of risk and reward operating at optimal efficiency. It’s not a toy or a cute puppy, rather it’s a tool used by professionals for a variety of reasons like arbitrage, hedging, speculation, and real return generation. Real return is what we are after, and is defined as the return on your investment over inflation.
In order to have a successful financial plan, your investments must beat inflation. Historically, the stock market has been one of the best places to get real return and is likely to continue into the future. However; there are many complex factors, risks, and costs that must be analyzed, mitigated, and minimized in order for an investor’s portfolio to succeed.
There is no shortcut.  Move quickly in the other direction when offered high guaranteed returns or ask the question: “Guaranteed by whom?”. If the answer is anything but the federal government, then the investment includes a component of risk (just like the stock market has risk).
I guess the market can be fun if your idea of entertainment is gambling with serious money.  For the rest of us, it’s a necessary ingredient added into our investment portfolios so we can achieve our long term goals.  Recent market volatility in our generation has thrown back the curtain and exposed the risks of investing that have always been there for many generations. My job as your advisor is to tackle these risks head on and use the long term return opportunities they create for your benefit.
As always, I am available and at your service. Please let me know if you have any questions or concerns.
Rob Schulz, CFP®

** The views expressed are not necessarily the opinion of Cambridge Investment Research and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only. Please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.

By Rob Schulz