Why do stocks go down more than they go up?

Answer 1

That's not necessasarily true - depends on what you are looking at and out of which window. Stocks tend to move randomly in the short term, and there's essentially an equal chance that a stock will go down or that it will go up. Over time stocks have a tendency to go up, assuming competent leadership, a thriving sector within a growing market, and a healthy, if not strong economy. Stocks can go down - and down - and even die. This is where the wise investor has the all important exit strategy to protect him/her. You need to be diversified and also consider you horizon. Given a horizon of 5 years or less, stocks can be a risky proposition. When working with longer horizons you will generally fair well as long as intelligent exit strategies are in place to keep the 'dawgs' from biting. No one can 'time' the market - predict the 'highs' & 'lows' - winning is more about 'time' in the market. Constant vigilance (are your selections/assumptions still valid), active management (out with the 'dawgs', are you having 'opportunity' losses on the stagnant, & are the 'high-flyers' still right for your portfolio), and a risk strategy (<5 years = very low risk, 5-10 years = low risk, 10 years+ = high risk, or where ever your particular risk boundaries are) that closely parallels your horizon will generally keep you in the black. And it is 'your' responsibility - no one else's - to protect your own investments. Social Security Privatization is probably going to become an isue in the near future so I will say this. What can you gain from privatization with a short horizon? Nothing but high risk with a chance at low gain. You already have Tax Sheltered accounts available to you. Open or add to those. Retain your Social Security account as a HEDGE for your retirement. Especially if you can not afford to invest more than is being deducted for your Social Security. With a short horizon all you would be doing is adding risk. Now if you wear the clothes of a younger sort with a healthy horizon (15-40 years), privatization under the right circumstances would be something to look at. But once again, theres nothing wrong with a HEDGE, and if you can not afford to open an additional Tax Shelter account, maybe there's too much risk to be out of the hedge anyway. It is YOUR responsibility. The snakes do come down to the waterhole to feed occasionally - no matter what it's called.