You’re right that treasuries have a 0% risk of losing your money. But the yield is low enough to match that risk. And the yield is barely above (or in many people’s opinions, significantly below) the rate of inflation. And yes, inflation does take into account the dropping prices of electronics.

Still, if you live is such fear that you can’t lose a single penny, maybe treasuries are for you. But I would pose there is also another risk — a risk of not having enough money to retire when you want to. If you only save at 4% returns, your money won’t compound very quickly, and you may not have enough money to retire. You will have to save a much larger amount in order to have enough.

For me, I invest in the stock market for two reasons:
1. I don’t have such an emotional attachment to money that I live in fear of losing even a single penny.
2. The 8% returns afforded by the stock market in the long run will better help me to have enough to retire when I want to.

The number one argument against doing it is inflation. Dominguez made his living as a Wall Street investor before he retired–at age thirty. He was aware of inflation as a hazard but he argued that consciousness increases faster than inflation, meaning that if you use your brain and look around yourself at the possibilities, you can find ways to save money on purchases faster than the prices go up.

One thing the “OMG inflation!” folks always, ALWAYS fail to point out is that the indicators we use to determine if inflation is happening, all assume that we buy things like cars, refrigerators, stereos, and televisions every year and that we buy them brand-new. Obviously that is not true. Also, prices don’t always go up. As we’ve seen with computer technology, they often drop as the means of production becomes more efficient or the product becomes more mainstream.

And another reason Dominguez suggested T-bonds is they’re easy. You go buy one and that’s it. At most you have to educate yourself about things like bond yield before going in, but the amount of time you are going to spend doing that will be a lot less than trying to learn to time the market or learn which stock-market-related investments are safer.

I’m not above investing in the stock market, mind you. But I think when I do it it’ll be with money I can afford to throw away. I know that as long as you hang onto a share and the corporation isn’t bought and doesn’t go out of business, you’re good to go, but I don’t want to see a crash happen right before I retire and be left with nothing. Treasury bonds are always in $100 increments and I’ll get that back when the bond matures. The only thing that will change is the interest rate, and for all I know, that might be greater when it’s time to reinvest. *shrug*

Timing the market only works for the 1% of the elite wealthy population who have access to inside information, extremely readily. It doesn’t work for you and I and the other 99% of Americans who don’t run in elite circles.

Basically, we end up buying high in an bull market and selling low in a bear market majority of the time when we try to time the market.

I agree I thought you were off your rocker for a second until I came to the page and sa it was a DA post

BTW, the fact that this is a Devil’s Advocate post doesn’t show up in Google Reader.

Sure it is easy to say in hindsight that it was stupid to buy S&P 500 shares 3 months ago. But at the time there were no guarantees that the market wasn’t going to start shooting up. If you “knew” that the market was going down, then shouldn’t you be advocating shorting SPY or Fannie Mae/Freddie Mac? And advocating that people buy art or horses is really not a good alternative. I have to say, one of my least favorite posts so far.

That said, look at Lehman brothers and Merrill Lynch. If even they were not able to successfully time the market, why do we think we can?

Just a point to ponder…