Avoiding Qwestitis and Other Pitfalls in the Market

The #1 Money Fear today is—Will I be broke . . .will I be able to retire? The stock market roller coaster over the past two years made your mutual fund returns look like an endless downhill slide, coupled with the Enron/Arthur Anderson mess, the WorldCom mess, and now what looks like the Qwest mess. Is there any escape to the onslaught of negative financial news and business practices? Should you invest again or just pluck your money into savings, money market funds, bonds or annuities? What’s a savvy investor to do?

Government stats show that for every one hundred women and men who reach sixty-five, only two are financially independent. How do the remainder make it? By relying on relatives, the government, friends, or working until they die. What a yucky prospect—two years ago, most of us thought (and acted) as though we were in a society of overall prosperity.

Women live longer than men do. Which means in simple words, women are more likely to spend far more years just barely getting by than men are if they don’t get involved in the money maze. Forget about the White Knight rescuing you.

The reality is that whether you are rich, poor, or in-between, the person that you are going to have to rely the most on to keep you from the poorhouse is yourself. . .your creativity, your imagination, your intuition, your smarts.

Could you have avoided being snared by the stock market tumble? Could you have eliminated your losses, or at least reduced them? Whatever you do with your money, there’s risk—just leaving it in the bank has risk—not so much closing its doors. Rather, the risk that the measly interest you get today is often below what inflation is—your money faces some form of erosion, no matter what you do.

For investors—be it the mutual fund route or individual stocks, there are simple strategies to put into play NOW—forget about rewinding the clock. Do this—

When you buy a stock or mutual fund—determine your growth goal. Is it an increase of 25 percent—50—100—what, and within what period of time? Do this when you make your purchase. And, at the same time, determine just how low you can/will tolerate a decline in price. This is not the time you stick your investment list in the drawer and forget about it. You have to pay attention.

On the upside, let’s say your investment is doing OK—increasing in value and it hits your goal. Ask yourself—if I had more money, would I buy more? If the answer is yes, readjust your upside; if the answer is, I’m not sure—sell half and reinvest in something else and let the balance ride with a new goal; if the answer is no—sell, find something else.

On the downside, your investments have dropped in value to your decline tolerance (I use 25 percent—once it passes that, I’m out). Sell—it’s over. Now, do stocks and mutual funds turn around? Yes, but they also continue to erode. Your objective is to create a sane investment strategy that you can live with—sticking your investments in the “I hope it comes back” drawer is not going to get you to your financial independence goal. 

In early 2000, Qwest was selling for $64 a share. In July 2002, it was selling for $1.50 a share. Wouldn’t it have been better to bail out at $48 a share (after a 25 percent decline from $64) than to be stuck with it at $1.50? The savvy investor does the math.

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