Transcripts

"Money File"-Don't Hibernate From The Bear Market

SUSIE GHARIB: In the "Money File" tonight, lessons we can all learn from the current bear market. Here's Eric Schurenberg, editorial director at BNET Moneywatch.

ERIC SCHURENBERG, EDITORIAL DIRECTOR, BNET MONEYWATCH: We're probably not through this bear market yet, but you don't have to wait for it to end to learn from it. So here are two lessons: one that would be good to take away from this sorry mess and one that would be the wrong one to learn. The right one first: we all understood the intellectual concept that stocks return more than bonds or cash in the long run because they are riskier. Higher return is your reward for taking higher risk. Problem is, we interpreted this to mean that you can't lose with stocks if only you hold on for the long run. So if you're patient, there's no risk. Well, depends on your definition of long run, I guess. If you've held for 10 years, you'd have made nothing in U.S. stocks, nothing. The lesson: you do get paid as an investor for taking risk, but the risks are real. The wrong lesson: you should have seen this one coming. If only you had, you tell yourself, you could have taken your money out just in time and you'd be fine now. This is a trap. Every single equity mutual fund lost money this year. That ought to suggest that virtually no professional investor saw the crash coming, either. You can't manage your money hoping to be the one in a million investors who can see around corners. You can, however, manage it while showing a healthy respect for the risk in the markets, especially when that risk seems slightest. That's when you have to be the most careful. In fact, both these lessons right and wrong, point to one new approach to investing in an uncertain world. The way to win isn't to get the highest returns. It's to get to your goal while taking the minimum risk needed to get there. I'm Eric Schurenberg.