Thursday, November 13, 2008

Buy, Hold & Lose! What Are The Options?

More Than One Option
investing options
I started investing after the dot-com boom/bust cycle and was feeling pretty pleased with my performance till last year. Regularly buying index funds and having a balanced portfolio was starting to make sense. Returns were decent and the 10% average annual return mantra was looking doable.

Then this market crisis hit and my portfolio is back to where I started a few years ago. So I wonder - is this how you invest? Is this the road to financial freedom?

Past performance may not be a harbinger of future returns but there are lessons to be learned from history. Japanese investors are still at the losing end after more than a decade of depressed economic growth. The S&P is back to the levels of 1998. Ten years of gains wiped out in a few months. If you count inflation, the cost of investing and opportunity loss - you start to question this strategy. So what are the options?

Cash & Fetal
That was the recommendation of Fast Money trader Mr.Macke. In other words hoard your cash and stay put. Great advice for the short-term but this is obviously not an investment strategy since over a long term your money will lose value - thanks to inflation.

Blind Faith
Buy and hold and pray. This strategy has been shown to work over a 100 year time period so you may have to give it more time. Maybe the returns will a lot different in 10 years. I guess we will know in 10 years how staying invested in the market pans out.

Value Hunting
The holy Grail of investing. Buy undervalued businesses and reap the dividends. Success comes to those who figure out how to value a business using facts and financials versus gut instinct.

What Else
Small business, career development, passive income via renting, gold, oil ... there are other options for investing your money if you are truly disenchanted with the equity markets.

I am spreading my bets by investing in most of the above options. What will work - time will tell but in the interim I plan to stay invested.

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