How safe is the stock market?
 

I apologize for the ultra noob question, but better safe than sorry so I need to ask.

I've had most of my money sitting in online savings accounts for the last few years and have been told I am a fool for not investing it. So I finally decided I am going to buy a bunch of ETF shares as recommended in the "Investing for trout 101" thread in the FAQ here.

My question is, can I feel safe investing all of my savings into this? Is there any realistic risk of a market crash that I should be concerned with? Is there any reason I'd want to leave a portion of my money in government insured savings accounts earning less interest?

Also, a bonus question for anyone friendly enough to advise me. I figure I will invest in all 4 of the suggested ETFs (DIA, QQQ, SPY & VTI) and possibly even more. Could anyone recommend which %s I might want to put into each of them, or if I'd have any reason to want to avoid one or more? If not I'll just go 25% for them all like the donk I am.

Thanks for the help guys!

Re: How safe is the stock market?
 

Here is a table offered by author Larry Swedroe, based on the 1970s bear market, showing the amount of decline for various stock/bond allocations:

Max Equity - Exposure Max loss
20%...............5%
30%..............10%
40%..............15%
50%..............20%
60%..............25%
70%..............30%
80%..............35%
90%..............40%
100%.............50%

This table gives you a worst case scenario for market declines. In general if your investments are for the "long term" you should invest in equities as your time horizon would allow you to weather the volatility of the stock market. Being forced to cash out to access your money at the heart of a decline would be a very undesirable circumstance.

What you classify as long-term savings is ultimately up to you. Personally, if I think I am going to be using the money in 5 years or less I keep it in a short term savings vehicle (i.e. online savings account) - this includes savings for a home down payment, an emergency fund, and money for a car purchase. Anything longer than 5 years (generally retirement savings) I'll invest in the stock market.

If you are young your retirement savings should be close to 100% equities with an increasing bond % as you age. This is another large discussion we can broach if you are interested.

Hope this helps.

Re: How safe is the stock market?
 

have a good rummage around www.fundadvice.com

Re: How safe is the stock market?
 

All 4 of those ETFs are the same asset class: US Large stocks. Buying all 4 of those is unnecessary overlap. VTI is the best one for US Large stocks.

If you are going to use more than 1 fund, you should use other asset classes: US small, International, Emerging markets, and so on. Try this thread for my discussion of what kind of losses you can expect, and which asset classes to use.

-Tom

Re: How safe is the stock market?
 

I thought you'd get better answers than this with all the posters here that knock "beta" as a measure of risk as I was hoping they'd share their insights.

Re: How safe is the stock market?
 

VTI is the best of those four funds. It's well diversified and cheap. The others are redundant. I would also suggest to diversify into other asset classes, such as foreign stocks, to reduce your risk.

Re: How safe is the stock market?
 

Thanks for the very helpful replies guys.

Gull, could you possibly recommend any foreign asset classes I should buy? I wouldn't even know where to look or how to decide between them.

Re: How safe is the stock market?
 

[ QUOTE ]
Is there any realistic risk of a market crash that I should be concerned with?

[/ QUOTE ]

Of course there is.

[ QUOTE ]
Is there any reason I'd want to leave a portion of my money in government insured savings accounts earning less interest?

[/ QUOTE ]

Yes, if you want to spend any of it in the next ten years. Or, if there's a crash, you can buy into the market more at a lower price.

Re: How safe is the stock market?
 

anyone have any tips on accessing risk for a particular stock, sheerly based on it's numbers?

Like if i were to look at the financial + charts in the span of 1 minute on yahoo or google finance, what would be good indicators for a noob to look at?

Re: How safe is the stock market?
 

[ QUOTE ]
anyone have any tips on accessing risk for a particular stock, sheerly based on it's numbers?

Like if i were to look at the financial + charts in the span of 1 minute on yahoo or google finance, what would be good indicators for a noob to look at?

[/ QUOTE ]

What you want to know is the volatility of a stock.

Generally, stocks with lower market caps are more prone to big swings because it takes less money to move them.

However, to actually quantify that volality is IMO impossible because investor psychology plays such a big factor in price movement.