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Speculating vs. Investing: We Have a Choice

It’s hard to remember a time when the securities markets fluctuated so rapidly and so reactively to headline news throughout the day. First of all, ten years ago we may have been able to receive news via 24-hour news channels and the internet throughout the day, but today’s media is far more omniscient and detailed. Our world is smaller now, more connected – so things that happen in lands far away that we may never have visited nor will ever visit sometimes have the capacity to rock our world, our investments, and the very security of our future.

How can news about Greece and Italy have so much impact on our 401(k)s, stock portfolios, and even short-term CDs we hold at a local bank? It does. We worked towards a global economy for so long, stringing together real-time wireless communications that span the earth in mere seconds, and now we’re left wondering if that was the right direction for our future. Is that progress?

The fact is, the potential for sovereign default in European countries can reverberate globally with a freeze on credit and short-term lending while stock market prices drop all over the world – and such financial woes will continue to create serious implications for the economy here in the US.

CLICK HERE to read the CNN article “Stocks Tied to Europe Hopes” and view video of Federal Reserve Chairman Ben Bernanke explaining the impact of Euro Zone default on US stocks (“We are not insulated from Europe”); November 11, 2011.

CLICK HERE to read “Week That Began With A Bang Ends with A Whimper” at BusinessInsider.com; November 11, 2011.

The good news, of course, is that last week the Italian Senate passed austerity measures and Greece named its new Prime Minister. CNNMoney has a stunning graphic (see link below) on just how well the Dow reacted to this news last Friday.

CLICK HERE to view the CNN graphic and article “Stocks jump 2% on progress in Greece and Italy;” November 11, 2011.

It’s truly amazing just how much impact the global economy, European politics, and this generation of modern-day technology has on stock market prices and the earning potential of our investment portfolios. In some ways, a stock’s price movement may have no relationship at all to the company’s health or prospects.

Jack Bogle, the founder and former CEO of the Vanguard Group and a long-time proponent of indexed mutual fund investing, has recently sounded off on this phenomenon, saying that investing these days more resembles speculation. In fact, he recently spoke with Morningstar about the enormous volume of daily activity in today’s markets.

Says Bogle: “This is short-term speculation and all its follies, and long-term investment with all its wisdom is kind of back in the rumble seat there somewhere forgotten. So my advice to an investor would be, first decide whether you’re an investor or speculator, and if you are an investor, I’d try to ignore all this noise.”

CLICK HERE to view the Morningstar video report (and transcript): “Bogle: Speculation is in the Driver’s Seat;” August 12, 2011.

Perhaps it is time to get back to the basics of being an investor – not a speculator. Indeed, if you’ve been trying to roll with the punches lately, attempting to benefit – or flee – from short-term activity, it may behoove you to take a more long-term look at your current holdings. Depending on the time you still have in the “growth” phase of your financial life, and the longer you have until retirement, the more you can hold on to that long-term perspective for the future. If so, please contact me to schedule a comprehensive evaluation of your portfolio and help you create an asset allocation strategy designed to meet your long-term personal goals.

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