Making the 'Right' Investing Decisions in 2009 — and Beyond
Having lived through the thrill of victory (the 2003-2007 bull market) and the agony of defeat (the horrendous 2008 bear market), people are finding it difficult to know the "right" steps to take going forward. They wonder:
“Is this a bad time to buy stocks?"
"If I sell this losing investment and buy something else, will I be better off?"
"How much of my retirement money should I put in bonds versus stocks?"
It's important to keep in mind that since we can't know the future with certainty, no investment portfolio will ever be perfectly positioned to profit from upcoming events. In retrospect, it is always possible to point to ways we could have made more money (or lost less money) than we did.
The human inability to make fully accurate predictions means it's pointless to think of the "right" investment portfolio simply in terms of making the highest possible profit. If that is your approach, you will always be second-guessing your decisions, and you'll end up frustrated and disappointed.
Instead, the "right" portfolio is one that realistically faces where you are right now, looks years ahead to where you want to go, and has a very high probability of getting you there on time.
Let me describe a few characteristics of the "right" steps to take — not only in 2009, but in the years to come.
• The right investing decision is one consistent with a specific, biblically sound long-term strategy you've adopted. I have discovered a common trait among many people I counsel: their current portfolio is simply a random collection of "good deals" and assorted savings accounts. Each investment appears to have been made on its own merits, without much thought of how it fit into the whole.
Their portfolios tend to be an incongruous collection of savings accounts (because the bank was offering a "good deal" on money market accounts), company stock (because buying it at a discount is a "good deal"), a savings bond for the kids' education (because they read an article that said they were a "good deal" for college), a universal life policy (because their insurance agent said it was a "good deal" for someone their age), a real-estate partnership (which their broker said was a "good deal" for people in their tax bracket), and 100 shares of XYZ stock (because their best friend let them in on this really "good deal").
Those who hold this kind of random assortment of "good deal" investments are what I call responders (i.e., reacting to sales calls, making decisions on a case-by-case basis). I urge you instead to become an initiator (i.e., one who develops an individual investing strategy tailored to your personal temperament and goals).
The right step is the purchase of an investment that you seek out purposefully, knowing where it fits into the overall scheme of things.
• The right investing decision is one you have taken time to pray over, and about which you have sought experienced Christian counsel. Because your decisions have long-term implications, you should take all the time you need to become informed. Don't be in a hurry; there's no deadline.
A good friend once commented to me: "The Christian life isn't a destination; it's a way of travel." Likewise, you're not under pressure to predict the best possible portfolio for the next six months, or make this year's big killing. Your goal is to settle into a comfortable investing lifestyle that will serve you well for decades.
You need time to pray, ask for the counsel of others, and reflect. You should consider the alternatives, examine your motives, and continue praying until you have peace in the matter.
If you're married, you should pray with your spouse and talk it out until you reach mutual agreement. You're in this together and, come rain or come shine, you must both be willing to accept responsibility for the decision. This will add to your steadfastness during the occasional rough sledding along the way.
• The right investing decision is one you understand. It's not likely that your situation requires exotic or complicated strategies.
In fact, the single investment decision of greatest importance is actually quite easy to understand. It is simply deciding what percentage of your investments to put in stocks (where your return is uncertain) as opposed to bonds and other fixed-income investments (where your return is relatively certain). This one decision has more influence on your investment results than any other.
Another aspect of understanding your investments is to educate yourself on the basics. When you're able to give a simple explanation of your strategy to a friend and answer a few questions, you've probably got at least a beginner's grasp.
The right investment step is the one where you understand what you're doing, why you're doing it, and how you expect it to improve matters.
• The right investing decision is one that is prudent under the circumstances. Does it pass the "common sense" test? How much of your investing capital can you afford to lose and still have a realistic chance of meeting your financial goals? Investments that offer higher potential returns also carry greater risks of loss.
Again, the right portfolio for you isn't always the one with the greatest profit potential. For example, it's usually best not to have a majority of your investments in a single asset or security. For that reason, people who have large holdings of stock in the company they work for often sell some of it in order to diversify.
Suppose the stock were to double after they sold it? Would that mean they did the "wrong" thing? No, they did the right thing. After all, the stock could have fallen dramatically as well as risen (just ask the former employees of Lehman Brothers). What would a large loss have done to their retirement planning?
The right investment step is the one that protects you in the event of life's occasional worst-case scenarios. Generally, this moves you in the direction of increased diversification.
I realize that many people find investing to be a nerve-racking, if not downright scary, experience — and the turmoil of 2008 certainly didn't calm any nerves. Unfortunately, anxiety and the fear of doing the "wrong" thing cause many people to "freeze up." They become frightened into inaction. In mail from readers, we get many variations of these three comments:
- "There's so much at stake. I'm afraid I'll make the wrong decision."
- "I don't have much experience. I'm afraid I'll make the wrong decision."
- "My savings aren't making enough now, but if I make a change I'm afraid I'll make the wrong decision."
What is the "wrong" decision, anyway? If you think a wrong investing decision is like saying 2+2=5, then you're off track; such thinking implies that investing decisions can be made with mathematical certainty. They can't.
It's not that the economy and investment markets are completely random — they aren't. But investing deals with probabilities, not with certainties and predictable events. We can know some things but not others. It's rather like the fact that scientists can predict with great accuracy when the next eclipse of the sun will occur, even decades into the future, yet they can't tell you if the sun will be eclipsed by a snowstorm next week that'll make it difficult to get to the big bowl game!
All of this is actually good news. It means anybody can play. It's like learning to drive a car. After a couple of lessons, you know enough to travel around town if you follow a few basic safety guidelines. After all, you're not trying to qualify for the Indy 500 — you just want to reach your destination.
In the same way, once you understand SMI's core concepts, you're fairly well equipped to make basic investing decisions — and to do the thing that's "right" for you, year-in and year-out.
Adapted from chapter 20 of The Sound Mind Investing Handbook, now available in a new 5th edition.
© Sound Mind Investing
Published since 1990, Sound Mind Investing is America's best-selling financial newsletter written from a biblical perspective. 
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Originally published January 15, 2009.
