Thursday, June 7, 2007

Markets Head South

We haven't seen market declines like this since February. As I noted recently, interest rates are rising. This has pushed treasuries up to 5%, and as a result will or has already pushed up rates on everything else that is based off of treasuries (mortgages, car loans, personal loans etc...).

In theory, this makes people sit back and say to themselves "Self, the stock market has been going gangbusters for a while, maybe that guaranteed 5% yield is a good deal for now. I'm going to sell my stocks and buy me a bond instead."

Should you do this with your 401(k)?

My answer is no. If you have at least 5-10 years before you retire, you have a long term outlook and you should own some stocks. If you have only 5-10 years, you shouldnt be heavily weighted in stocks, but I don't see the current weakness as a reason to sell.

If you have like 30 years before you retire (like me), just keep your contributions pouring in. You won't regret it as your money compounds over the next 30 years.

Stock prices and bond yields both currently reflect a ton of optimism. A bit of pessimism every now and then is a healthy thing.

1 comment:

think like the rich said...

money man, i like your blog, im adding a link to it on mine.

im in a similar position to yours as far as age and long term perspective, lately ive been wondering about the 'sell in may and go away' strategy and how i should have followed it this past year. ive also recently read some articles following it over many years, and sell in may won out rather largely.

any thoughts?