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Ignore the doomsayers?

By Barbara Whelehan ·
Friday, July 16, 2010
Posted: 2 pm ET

You may have heard predictions of gloom and doom for the stock market lately. The ruckus emanates from market forecaster and technical analyst Robert Prechter, who was profiled in a recent New York Times article. He predicts the Dow will drop to below 1,000 over the next five or six years. He advises everyone to take cover.

Buy-and-hold investors with big stock positions will lose their shirts, he says. It'll be worse than the crash of the Great Depression; he likens the upcoming crash to the collapse of the South Sea Bubble in 1720.

That bubble financially ruined a lot of people, including the composer Handel. But Handel didn't have to worry much about retirement planning. For composing the Utrecht te Deum for Queen Anne, he received a pension of £200 at the age of 28 -- not a bad royalty payment in those days.

Anyway, Prechter's prediction certainly does have tongues wagging and bloggers blogging. Many say he'll be proven wrong, while others are taking heed. I took cover with a significant portion of my assets back in February, when the market hiccupped for a couple of days.

But in my 401(k) plan I'm nearly 100 percent exposed to equities. Why? Because I'm investing regularly with each paycheck, and if the market does drop substantially, I want to take advantage of the fire sale. I blogged last October about what happened during the Great Depression when investors continued to buy stocks through the adverse market decline. They made out like bandits. (Read the last four paragraphs at least.)

The advantage of youth

While retirees and imminent retirees may want to think about reallocating assets in light of this prediction, young people shouldn't worry. They should just dollar-cost-average into the market no matter what. When the market was tanking, back in 2007-2008, I would turn around to my younger colleagues in the cubes behind me and say, "Boy -- you guys are really lucky that this is happening. Scoop up as many of these bargains as you possibly can. You won't be sorry!"

Of course, Warren Buffett was very optimistic about stocks right about then, so I felt confident in making those assertions.

And I should have heeded my own advice.

(Note to young readers: If you're in your 20s and you haven't already done so, sign up for your 401(k) plan or an IRA. Don't delay. You can really make some serious money no matter what happens -- because you have time on your side.)

(Note to boomers: If you don't have enough saved up for your retirement, maximize your contributions to your 401(k) or IRA. Don't delay. You still have time to shore up your retirement funds.)

If he's right, Prechter will be considered a genius. If he's wrong, he'll still be considered a marketing genius.

So how would you handle a 90 percent decline in stocks? Are you planning to pull out of the market just in case? Or are you sticking it out through thick and thin? Share your thoughts.

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1 Comment
July 17, 2010 at 12:08 am

the author was right on buying after adverse crash, but why buy now if I agree DOW will go to 5000 or 1400 (10% of all time high)

I stop investing equity or bond funds in 401K. I turned my existing 401Kinto FDIC money fund (almost 0% interest)

cash is king for now