question for the financial heads

[speakeasy]

I think I'm about to jump into the market since it's down so low. I thought about jumping in a month ago when it was really low but listened to a lot of people saying they think it's going to go way lower so I got spooked and held off. Now I wish I hadn't.

Anyway, some have told me that I should get ETFs over Mutual Funds. I'm really not a financially saavy person, but what my strategy is is to buy and hold for the long term(probably at least 7-10 years or more. I also would like to diversfy into some commodities because I think inflation is going to eventually shoot up as the government devalues our dollar by printing so much money. Might even look into buying money market or CDs in foreign currency just to diversify.

What would you recommend for someone like me, mutual funds or ETFs and can anyone explain why one is better than the other?

 

[Wiesman44]

80% of mutual funds underperform the S&P 500 index and they have high maintenance fees.

 

[Wiesman44]

I would not be buying anything now. It is like trying to catch a falling knife; why catch it? Just let it fall to the floor and then pick it up. I believe things are going to get considerably worse. Forclosures are running at 2 million a year and as unemployment continues to go up, these newly laid off people who are living check to check will add their homes to the foreclosue list. Add to this that the next crisis is projected to be the nearly one trillion dollars in credit card debt and the multi-trillion dollar market in credit default swaps which are teetering - no way dude.

My biggest fear is deflation as people begin to hoard cash. That is when things get very, very ugly.

My opinion is that the potential reward of investing now does not offset the risk. We are just in the early beginnings of this crisis; I believe there is no reason to think corporate profits are going to do anything but down.

And as the other poster said, mutual funds are ineffecient.

agree 100%

 

[speakeasy]

I would not be buying anything now. It is like trying to catch a falling knife; why catch it? Just let it fall to the floor and then pick it up.

Nobody knows where the bottom will be and it's difficult to time it. We may have already hit the bottom for all we know as the market is well above it's low that it hit last month.

One thing that makes me think that the bottom may close or even past is that you aren't seeing the wild 600pt swings up and down anymore and also bad news is starting to have less impact on the market. A few nights ago when the auto bailout flopped, "experts" were saying that the market is going to crash hard the next day. It actually gained.

Another thing. The market tends to be a leading indicator. It's the first thing to fall, and the first thing to recover in a downturn. Plus the fact that P/E ratios are now looking close to historical norm.

So I think there is good reason to buy now. By the time everyone thinks it's a good time to buy, it'll be too late, everyone will have bidded the market back up.

My opinion is that the potential reward of investing now does not offset the risk. We are just in the early beginnings of this crisis; I believe there is no reason to think corporate profits are going to do anything but down.

I wouldn't say we are at the beginning, the recession started about a year ago. We'll only know how far along we are at this moment when it's all over. Most recessions last a year or two at most, so we may see some recovery by 2010.

And as the other poster said, mutual funds are ineffecient.

What do you then, just buy ETFs or individual stocks?

 

[speakeasy]

I got burned bad in the dotcom bust too. I feel you on that. I also got taken advantage of in the past by financial advisors more interested in their commission than in my financial interests. I don't trust any of these guys.

 

[LowPlainsDrifter]

DonS:

Although I agree with the sentiment, doesn't "catching a falling knife" refer more to selling holdings at a loss?

 

[Bible_Belt]

DonS:

Although I agree with the sentiment, doesn't "catching a falling knife" refer more to selling holdings at a loss?

fwiw, I worked in the markets for a few years, first as a broker, then as a trader, and I never heard that expression used that way. Catching a falling knife refers to the danger of entering after a steep drop. It is a common way for new people to lose money and its philosophy is well summed up in the OP:

I think I'm about to jump into the market since it's down so low.

Regarding the rest of the OP:

Anyway, some have told me that I should get ETFs over Mutual Funds.

ETFs or Index Funds have very low expenses, next to nothing. Mutual Funds pay a manager, and this is shaved off of your yearly return. Some money managers are well worth their pay; obviously a lot of them are not.

Also, your prediction here is very bearish:
I think inflation is going to eventually shoot up as the government devalues our dollar by printing so much money.

That would be bad for stocks, and if you think that inflation and currency devaluation are on the horizon, there's no reason to want to buy now.

I am no investor, and can only tell you (at least a little) about trading. But if you have a belief that certain markets will move one way or the other, then get a small futures account and start making some disciplined trades. Read charts, follow trends or predict reversals, use stop losses, and do it like a pro. Don't pay much attention to what people you talk to tell you to do as far as specific investment choices, learn to make you own decisions.

 

[backbreaker]

i got burned in the dot com boom simply becuase the internet companyI had, could not get a dime of VC money becuase of fear of anything ending in .com. more than one VC firm told us that had we came 18 months earlier they would be throwing money at us.

 

[speakeasy]

Edit: The link is to the predictions of 8 seasoned grey-beards. Click on each of their pictures to get their take. It was very interesting.

Yeah, I'd actually read that last week. Sometimes you have to listen to the doomsayers and the bulls and figure that the truth probably falls somewhere in the middle.