I used to love the stock market. I loved to research companies and pick new stocks to invest in. I created an entire ETF portfolio for my fiancee’s Roth IRA. I even did some very risky options trading.
I don’t do any of that now. My fiancee and I both cashed out our Roth IRAs for the purchase of our first house. I sold every single stock I owned outside of my 401k for the down payment. Now when you exclude my 401k, I have exactly $0 invested in the stock market.
Your typical financial planner would probably say I’m crazy to have so much of my wealth tied up in my home, Lending Club, precious metals, and a lot of other things that aren’t equities.
I don’t care.
I don’t trust the stock market.
I have a substantial amount of money in my 401k, and that’s all in the stock market. That’s more than enough exposure to equities for me.
But why? People have been making money in the stock market for years. The answer (among many other reasons) can easily be found in my stock market experiment from last year.
Market Experts Don’t Seem to Know Very Much
Have you ever heard a financial advisor or an investor suggest that they can pick stocks better than anyone else? They usually offer very convincing evidence that shows they know how to make money best.
But if they are really that smart, why don’t they stop trying to invest your money, and just invest their own. If they are so confident in the stock market and their stock picks, they could just take out a loan, buy these great stocks, make boatloads of money, pay off the loan and be rich.
But it turns out these people probably don’t know any better than you or me.
Part of my stock market experiment was using the recommendations from “10 money managers, market experts and financial journalists” in this Forbes article. Surely these experts should be able to outperform amateur personal finance bloggers. They should DEFINITELY be able to beat a random selection of stocks.
Too bad they haven’t.
After 18 months, the “experts” portfolio has only returned 20.56%. Compare that to my random picks that have returned 29.16%, the personal finance Money Pros who have 41.15%, and my friend The Hoff who is getting 34.91%.
That tells me that the stock market is nothing more than a gamble. If amateurs and random picks can beat people who spend their lives researching and studying companies to invest in, how much “skill” can there really be?
My Stock Investment Theory = Wealth Preservation
As I mentioned before, I have a large amount of money in the stock market through my 401k. Unfortunately stocks and bonds are my only options, so I have to put them somewhere.
My goal in my 401k is not to beat the market. My goal is invest in the safest things I can find.
That means investing in non-American companies (because I don’t trust the dollar). It means investing in raw materials as much as possible (because those companies hold real assets that are valuable no matter what the economy is doing).
I will never get rich from the stock market. Lots of people certainly will. Good for them.
I plan to get rich from working hard, getting promotions, and eventually having my own business somewhere down the line. The stock market won’t be a big part of the equation.
Readers: When you want to invest money, where do you put it?