Ask Carrie by Carrie Schwab Pomerantz

The drop in the stock market has understandably made many investors reluctant to put new money into their accounts — and some are considering pulling out entirely. In fact, one investor recently confessed to me he was wondering "if I should just take the money and invest in myself, perhaps more school, a business or something I have more control over."

Believe me, I understand investor frustration and the desire to end the pain. And I am a firm believer in investing in yourself if that investment gives you more options, more earning power or more job satisfaction. But I can't condone abandoning the markets completely to finance that investment, especially now, when stocks are at a particularly low point.

I'm not saying stocks have reached the bottom, but values are such that for most investors, selling now means selling at a loss. So to my mind, this is likely not a good time to be thinking of exiting the stock market.

Still, you may believe that an investment in yourself will reap bigger returns than an investment in the market. But test that assumption with a little math.

Estimate Your Potential Returns

When we evaluate financial investment opportunities, we look at potential returns and the risks they entail. You can do the same with more personal investments.

Say you decide to sell your portfolio to pursue an advanced degree or train for a new career. It's easy enough to figure out what that investment will cost in real dollars: Just add up tuition costs and the other expenses you'll incur while you're in school. But you also need to calculate your opportunity costs. First, there are the earnings you would forgo by being in school and not working. Second, there are the potential earnings from your portfolio you would lose by not being in the market. Obviously, this is much harder to predict, but you could make a few reasonable assumptions, like what you would earn putting all your capital into a CD for the years you'd be in school.

Next, figure out what your earnings potential would be after completing your training. What does someone in your new field make? Now you can start to see if the financial trade-off is worthwhile. In effect, are you getting a reasonable rate of return on this new investment in yourself?

Obviously, we don't always make educational or career decisions based solely on the financial return they represent — and we shouldn't.

A job that's psychologically rewarding is precious, especially if your current occupation is less than fulfilling. So if you're interested in going back to school to expand your horizons, you don't necessarily need a financially positive "expected value." But it's very useful to understand the true costs of pursuing your dream.

Investing in Your Own Business

You can apply the same kind of analysis to the possibility of opening your own business. Starting a business can be a great and profitable endeavor, but it is also risky. In fact, I would not be surprised if the risks were even greater than those of the stock market. You have to do your homework. What will it really cost to get up and running? How much business will you need to stay cash-flow positive? To earn a profit? What will you do if things don't go well?

And I caution you not approach becoming an entrepreneur with the thought that you'll have more control over your financial future. Your business is still at the mercy of forces over which you have no control. You can't control the customers you serve, the competition for those customers, or the economy as a whole. If you succeed, more power to you. And most likely a large part of that success will be your ability to withstand downturns and remain open to change — not too different, really, than the attributes required of a successful stock market investor.

Don't Give Up on the Markets

Whatever you decide, I urge you not to abandon the stock market entirely. As compared to other asset classes, it has historically delivered solid long-term returns, and provides a relatively easy, inexpensive way to get exposure to a broad variety of companies, industries and markets. I don't know if the recent market rally will continue, but I am still steadfast in my conviction that the markets offer a strong opportunity for long-term growth.

I hear every day from co-workers, friends and clients just how frustrated they are with the whole business of investing. And the desire to pursue some new investment opportunity is understandable and, in many cases, healthy. But I caution you against betting your entire portfolio on any investment, even an investment in yourself.

Carrie Schwab Pomerantz is Chief Strategist, Consumer Education, Charles Schwab & Co., Inc., Member SIPC. You can e-mail Carrie at askcarrie@schwab.com. To find out more about Carrie Schwab Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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