Jeff  Carter

This post isn’t designed for the active day trader. It’s designed for the average investor. The American that works a job, saves their money for retirement in a 401(k).

You open the newspaper or turn on the business news and you read headlines that are not optimistic. When you look at the economic indicators on a macro level, they aren’t positive. World wide, you see Europe imploding, India slowing, and China slowing. This isn’t a bullish scenerio.

US Unemployment Rate data by YCharts

Ask yourself a few questions? First, what’s your time horizon? How soon do you need the money? If you are in your early fifties or younger, the odds of you retiring in the next ten years are slim. If you are in your later fifties, you may see retirement coming. Older people should have less money in the market, but now isn’t the time to pull it out.

US Unemployment Rate ChartThe second question you have to ask yourself is this, “Am I smarter than the market?”. Everyone thinks they are pretty smart. However, do you know more about a particular stock than the market does? The stock market has millions of players each acting in their own interest on their own information. How are you smarter than all of them combined? The answer is you aren’t.

A long time ago, back in 1965, Eugene Fama proposed a theory. Over the course of time, many academics have tried to puncture his theory. Market analysts and Wall Street types had an economic incentive to disprove the theory. If you follow Fama, you win. You beat everyone else in the market, but you don’t beat the market itself.

Don’t pick individual stocks. Making money in them is like doing heroin. It feels good for awhile, but then the habit gets ever more expensive. Eventually, you lose.

Instead, take your money and put it in a no load mutual fund that replicates the broad indexes, like the S&P 500, the Russell 2000 or something like that. Over the long haul, you won’t lose. You also won’t pay many fees. Investing is practically free.

Jeff Carter

Jeffrey Carter is an independent speculator. He has been trading since 1988. His blog site, Points and Figures was named by Minyanville as one of The 20 Most Influential Blogs in Financial Media.