Sunday, February 01, 2009

Broken advice - buy and hold

One popular advice offered to small investors like you and me is buying mutual funds in small amount and never touch it till retirement. The theory is that stock prices go up in long term and market timing doesn't work out in long run.

This advice clearly does not work to our advantage at a time like now. Take Vanguard 500 Index (VFINX) for example, its value dropped more than 30% between 2008-09-19 and 2009-01-30. In other words, if you sold it in mid September last year and kept the money in a checking account, you would come out 30% richer than if you had not.

It is a big difference between not sweat over normal market fluctuation and seeing a disaster coming and not get out of its way.

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