The Worst Financial Advice I've Ever Heard: Part 2

Go back about a year and a half ago, just after the stock market took a nose-dive in October 2008.

If you were like most people, your retirement accounts took a nose-dive as well because they were full of stock investments.

Some bad advice I heard: Get out of the stock market now!

Why is this bad advice? It is contrary to a "sleep well" (as Dr. Sudweeks at BYU calls it) buy-and-hold investment strategy. Unless you were all set to retire that year, you definitely should have stayed in the market. In fact, this would have been a perfect time to buy.

A buy-and-hold investment strategy means (1) diversifying the types of investments, and (2) holding for a long time. The reason is that even though the stock market is cyclical and sometimes takes nose-dives and seems risky, over the course of a number of years, it is generally always a positive investment.

Lesson: If you are young, invest in stocks now, but don't monitor your stocks performance everyday - you'll be tempted to trade if they are having a bad day. Hold them! You'll notice that over your lifetime they will likely always grow. If you are closer to retirement, most of your investing should be in more "fixed" investments, such as bonds, from which you always know the payout. In the long-term, you will usually receive a higher payout with stocks; however, they are much more risky in the short-term, which is what you want to avoid when you are nearing retirement.

Let's say you had a stock that normally had a price around $50 per share during the previous summer. And say it went down to $20 in October. Well, by the time Summer of 2009 rolled around, stocks had been steadily climbing back up. So say your stock had gone back up to $35 by summer. It might not have reached its previous price of $50, but your stock is worth $15 more than if you had sold in October '08.

Now let's say you bought the stock on the day it tanked at $20. By the next summer, your stock is now worth $35 - up $15! That's a 75% gain! And if you understand the stock market, you know that if you hold it for a long time, it will likely go well above and beyond that. When it comes to investing, always remember the old adage: Buy Low, Sell High!