Am I a fool for keeping my IRA invested in stocks?

.I get questions all the time from investors, on all manner of topics. Over the past weekend, a bunch of emails stacked up in my inbox. Many were generated by the Federal Reserve’s announcement that more economic pain is in store—and of course the stock market’s 1,000-point tumble on Friday, Aug. 26.

My husband thinks I am a fool for keeping my IRA invested in stocks these days. He sold most of his own stocks late last year, and he tells me that if he hadn’t done that, he would have lost more than $75,000.

I often disagree with how he handles his personal investments, and I have been careful to make sure to keep him from managing mine. I know we are supposed to take the long view and stay the course while we keep adding to our IRAs regardless of the market. (My husband and I both have good salaries in the medical field.)

However, he seems to have a point. My account is down $37,000 so far this year. I hate to think how hard I worked to earn that money—and then see it vanish.

The news these days seems particularly dreary, with inflation and interest rates heating up just when stock prices are tumbling. My husband and I don’t talk much about our investments. I asked him last night if he is going to keep all his money in cash permanently, and he said “Of course not.”

But when I asked him how he will know when it’s the right time to put his money back into stock funds, he got an angry look on his face and ended the conversation.

Maybe he’s right and I’m wrong. Sometimes a situation strays outside the bounds of “normal,” and you have to do things you wouldn’t ordinarily do. Do you think I should take my husband’s advice?

—Perplexed.

Perplexed, 

First, let’s get this out of the way: I don’t think you are a fool.

Second, you are far from the only investor who is afraid that the current situation may be beyond the bounds of normal.  

However, I think your husband’s approach is asking for trouble. Your question to him was very astute, and his reaction suggests he knows it.

When the stock market turns around and heads upward, that will probably happen when few people are expecting it. Nobody will ring a bell to announce that “all is safe.”

The truth is, nobody can know that.

It’s also true that last Friday’s stock market decline was startling, with the S&P 500 SPX, -0.41% down about 3%. However, by historical standards, that is mild. In the fall of 1987, probably long before you and your husband were paying attention, the market lost 23% in just one day.

So my advice to you is simple: Keep doing what you are doing. And for sure, keep adding to your IRA if that is your plan. If anything, consider increasing your regular monthly investments. That’s always a good idea, and if you do it now, you’ll get the advantage of buying assets at their current low prices. 

I can’t help adding this: Have some empathy for your husband. Whatever you or I might think of his selling decision, it was an attempt to achieve some peace of mind. Apparently he has achieved it—at least for now.

Unfortunately, when the market starts to recover and his portfolio is still in cash, peace of mind may elude him. Whatever he does at that point, it is likely to feel wrong—and there’s no easy way out.

That’s when you may be tempted to remind him that emotion-driven decisions almost always produce grief. I hope you will resist that temptation, because he will figure this out for himself.

Dear Paul, 

My son, who is 31, has lately come into some money, about $20,000, from his aunt and uncle. He has asked my advice on how to invest it, but only after the market stops falling.

I tried to tell him that a falling market is a good time to invest, because prices are generally lower. You know, the whole “buy low and sell high” thing. But he isn’t comfortable doing that and wants to hold off.

What should I tell him?

—Want to be a good mom

Dear Mom,

As you undoubtedly have observed, many people have to learn important lessons the hard way. Your son may be in that spot now.

You can show him my answer to the previous question. You can lecture him all you want, and in the end he will do what he’s going to do. Presumably, your son will have that money invested for at least the next 30 years, and quite possibly longer.

With that in mind, I have two ideas for you.

First, find a line graph of the U.S. stock market for the last 60 years or so. It will show the ups and downs, with a few noticeable dips in years like 1974.

Ask your son to look back at those past times when the market suffered major losses, and to consider that mid-2022 will likely turn out to be one of those periods.

Looking back, would he have advised somebody in 1974 to hold off? Or can he see that, nearly half a century later, 1974 would that have been a fine time to invest money?

The point is this: The long-term bias of the market is upward, and bear markets have always presented buying opportunities for long-term investors.

Second, give your son a copy of the book referenced at the bottom of this article. It will show him that success is made of many ingredients that are much more important than what the market is doing at any given time.

You can’t make your son do something he doesn’t want to do. But you want to be a good mom, and my suggestions will help you do that.

Learn how to shake up your financial routine at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. Join Carrie Schwab, president of the Charles Schwab Foundation.

Richard Buck contributed to this article.

Paul Merriman and Richard Buck are the authors of We’re Talking Millions! 12 Simple Ways to Supercharge Your Retirement. Get your free copy.

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