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This ain't no party
Commentary: Enthusiasm for stocks has no place in long-term investing
By Chuck Jaffe, MarketWatch
Last Update: 12:04 PM ET Nov 25, 2009
BOSTON (MarketWatch) -- Investor optimism and consumer confidence numbers have been ugly for ages now, so it was hardly a surprise that a survey released last week by PNC Wealth Management found that a majority of "America's wealthy" are "hesitant" about investing despite improved market conditions.
In fact, it's hard for anyone -- wealthy or not -- to fully commit to the market right now. Talk to financial advisers and they will tell you that clients are coming up with any excuse to take money off the table: college tuition; the kids' weddings, pre-planned funerals -- just about anything.
According to PNC's sixth annual Wealth and Values Investors' Outlook, just over half of the affluent Americans surveyed are optimistic for the prospects of the stock market over the next six months (up from 25% a year ago).
Only 6% say they're "enthusiastic" about investing. That's OK. Most investors need to show enthusiasm for the market about as much as a moose needs a hat rack. What you really need is to stay invested and plod toward your goals -- like it or not -- because it's the only way you are going to reach them. Coming to a dead stop because you're not sufficiently enthused is not an option.
Moreover, the market doesn't care if you're enthusiastic, excited or, given the season, thankful.
It's a job, not an adventure
"Plenty of people aren't enthusiastic about their job and the place they work, but they keep on going," said Herbert Daroff of Baystate Financial Planning in Boston. "You don't have to be enthusiastic to invest, but you have to get away from the fear of 'Whenever I get into the market, it will turn down again,' and the only way to do that is to invest, diversify and maybe use a variety of hedging techniques."
Investing only when you are enthusiastic and confident makes sense only if you are set for life -- at which point you have to protect what you've got -- or you are an outstanding market timer. That's not an appropriate description for most average investors, or even the affluent folks studied by PNC.
The market-timers and the anti-timers have an interesting back-and-forth when examining investor behavior over the last two years. The timers will talk about avoiding the pain of last year and say they're still ahead of the game even if they stayed on the sidelines during this year's rebound; the fully invested crowd likes to talk about how people who bailed out of the market have missed a strong snap-back this year.
Both sides are right; the people who got most hurt were the ones who didn't head for the exits early, who waited until they had zero enthusiasm and confidence and bailed out near the market low, and who are still on the outs today. They experienced the loss, locked it in and then missed out on the recovery, meaning they got the worst of both worlds.
Got to be real
"You don't have to be enthusiastic about investing, you just have to be realistic about what you are trying to accomplish," said adviser Diahann Lassus of Lassus Wherley & Associates in Providence, N.J. "When you have mattress returns in money markets and bond yields have come down about as far as they can come down and you have risk in all of those markets, the only way to build wealth and keep pace with inflation is to have at least some of your money invested in equities, whether you like it or not."
"I'd be worried about anyone who is really enthusiastic after what we have been through the last year," Lassus added. "They might need to see their psychiatrist, more than their financial adviser, but I think that there's a difference between finding a way to be comfortable investing in these market conditions and investing because it excites you right now."
Indeed, many financial advisers say that investors have lost the stomach for risk, which has many consumers looking at annuity products and other solutions that can offer some upside and peace of mind. They're not products that will get anyone excited and jumping up and down, but they can help push a nervous investor through the tough times, said Daroff.
Others noted that wild market conditions should have an investor looking inward, trying to gauge their own needs.
"Many people have arrived financially, they just don't know it," said Brian Grodman of Grodman Financial Group in Manchester, N.H. "They have been investing a long time, they have been chugging it out and even though they took a big hit last year, they are better off than they realize. They can afford to play it safe, keep very little in equities and know that they are on track, rather than feeling that every little move is throwing them off track because they have invested the same way for the last 20 years."
He added: "Until someone finds a better way for the average person to reach their goals, like it or not, you're going to need to be invested. Throwing your hands up because the market doesn't make you happy right now is probably the worst strategy of all."
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