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"Mom, we're supposed to be rich!"
Linda Goin
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It's been a little over a year since I wrote my first column for the "Mom Chronicles." During this time, I've learned a lot about the stock market, and possibly more about how to conduct my life in general.
Mostly, I'm pleased my daughter understands more about financial matters than most children her age because of this experience. Some of this learning process was difficult, as I found some material to be over both our heads. On the other hand, Cora taught me a few things. Her youth lends an air of simplicity when I want to complicate issues.
Sometimes I've made things a bit too simple for her sake, however. For instance, the other day we went over our portfolio choices to see how we fared over the past year. The first words out of Cora's mouth were, "Mom, I thought we were supposed to be rich!"
Long-term investing means an investor holds onto their stocks more than a year. Long-term investors want to look at five years before we see any appreciable gains. Five years to me is a blink of an eye. For Cora, it's FOREVER.
Her response to this point was to immediately lose interest in the subject at hand.
I didn't drag her back into the discussion, because it occurred to me that perhaps this is what we need to do in the long haul...just go on with life and let the portfolio take care of itself. This is tagged with the caveat that we've done our work on the front end with objective research. Of course, it doesn't hurt to take inventory more often than five times in five years...
We used the DRIP method to add money to our portfolio on a monthly basis. We managed to purchase stocks in healthy companies at some rock-bottom prices, due to the overall economic situation. In consideration of that last factor, we were pleasantly surprised three out of four stocks made some profit. The fourth stock kept going downhill, and we stopped making investments in this one after six months. Since this is a strong company experiencing some rough times, we decided to stay with it. However, this one stock almost leveled our progress. It's just about eliminated any profit we might have made.
Since we're anticipating our vacation in a few months, we might sell this declining equity. We don't have to pay taxes on dividends, because we haven't made a profit. In fact, we can take a loss on our taxes in 2003. The second reason is our nerves...after some of the financial fiascos we've witnessed over the past year, we're a little leery of a "good" company that keeps falling to lower lows and lower highs. This is one time we won't wait five years to see what happens. After all, the bad times keep going on, and on, and on....
Plus, if you remember our lessons from a few weeks ago, the volume is still high on this stock - that's a huge warning sign. When volume is high, and the stock is still sliding, it's time to let go.
The third reason to eliminate this stock from our portfolio is to see some progress in our other choices. Cora said it succinctly when she stated it wasn't "any fun" to make money when something else was taking it all away. I agreed with her. Surprisingly - even with this one company pulling us back - we still increased our portfolio a whopping 10 percent over the past year. Wow! Where else can you make 10 percent annual increase on savings? This was an incredible discovery, and we're both totally convinced a diversified portfolio is the best vehicle for our savings. A money market fund, a savings account, or a bundle of cash stashed under the mattress doesn't take as much work...but we're sure we won't see as much profit from those practices, either.
Within fifty-two articles, Cora and I have shared our lessons with you. During this time, we talked about some history, when to buy and when to sell, and how to take care of financial assets during changes we make in our lives. When Cora and I reviewed some of the past years' articles, she remarked that it does take a lot of work to keep us safe financially. I agreed with that. She said it was like learning how to change the oil and tires on a car. I agreed with that statement, too. She also said that she was angry it took so much work, but in the same breath she said she felt good to be "so smart."
I love being a mom.
Thanks for being with us!
Linda Goin
The securities markets are subject to the risks of fluctuating prices and the uncertainty of rates of return and yields inherent in investing and past performance is no guarantee of future results. Savings
accounts are FDIC insured.
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