In defense of indexing and single-stock risk

[runchman]

Some time ago I was 'invested' in novastar financial, NFI, because of the nice dividend yield. I got scared out and moved 100% to indexing because I couldn't stand the emotional roller-coaster.

Looks like I made a wise decision - look what NFI has done in the last few days:

http://finance.yahoo.com/charts#char...urce=undefined

I got out at an adjusted price of around $31, now the stock is at $8 and change.

Phew that was a close call !!

- John

[W2R]

OMG, that sure looks like a good call on your part!!!

Welcome back to the fold (those old, boring index funds that we all love)

[audreyh1]

Yeah, owning a few tech stocks through a couple of wild rollercoasters 1996 - 2000 was enough to cure me of wanting to hold individual issues.

Audrey

[brewer12345]

If you have the time and inclination, you can do well picking stocks and bonds, but you have to spend the t ime and you have to know what you are doing. Otherwise, stick with funds.

I'm pretty sure I have commented here in the past that I wouldn't touch that piece of excrement with someone else's 10 ft. pole. Nice to be proven right once in a while.

[runchman]

Yeah, I lost a bunch in the tech-wreck as well, watched my wife's rollover IRA drop from 100k to 30k.

Too bad I didn't learn the indexing/asset-allocation lesson back then! Oh well, better late than never. I lost something around 1.5 or 2k on NFI when all was said and done.

It's amazing reading the posts on the nfi message board at investorvillage.com - people that are still defending the company, the "you haven't lost unless you sell" crowd, and the "don't invest what you can't afford to lose" messages.

that last sentiment isn't investing, it's gambling.

- John

[runchman]

Quote:

Originally Posted by brewer12345 If you have the time and inclination, you can do well picking stocks and bonds, but you have to spend the t ime and you have to know what you are doing. Otherwise, stick with funds. I'm pretty sure I have commented here in the past that I wouldn't touch that piece of excrement with someone else's 10 ft. pole. Nice to be proven right once in a while.

Yes I remember that, when I brought up NFI quite some time ago. Good choice on your part !!

[ziggy29]

Quote:

Originally Posted by brewer12345 If you have the time and inclination, you can do well picking stocks and bonds, but you have to spend the t ime and you have to know what you are doing. Otherwise, stick with funds.

Agreed. I don't even need to "beat the market" at this point to reach my goals. What I need is to minimize my chance of falling short.

I was fortunate enough to be putting 10-15% of my salary into 401K plans since I was 22. And I was fortunate to have it fully invested through the late '80s and all of the '90s when the market mostly performed very well. Now I just want to make sure I don't fritter that good fortune away. I think I can get 4-6% above inflation over time with my current asset mix, and that's enough to get me where I want to be by age 50 -- and with a lot less risk than picking individual stocks.

At this point, I don't need home runs -- just a lot of singles and doubles. Not swinging for the fences also means I'm less likely to strike out.