Wednesday, July 16, 2008

Madd Money: Up Market? Buy! Down Market? Buy!

I'll not mince words, if you have invested any money this year, you are probably not seeing much in the way of returns. If you are like me and your primary investment is done through growth mutual funds, then you are also seeeing much in the way of negative returns in your portfolio. A lot of people are talking about selling, and getting out of their positions. Well, I'm no expert, and I have nothing other than personal instinct and history to look at, but I would say that, if you are truly investing for the future, you may well be glad that this current situation is happening.

I've adopted a philosophy of steady and regular contributions to vehicles like my 401K, ROTH IRA's and some 529 plans for my kids' education. These contributions happen during each pay period like clockwork. The only time that they stop is if our emergency fund has to be used and drops below our agreed to level (which is six months of our families expenses). So far, that has not happened, and to be frank, I hope it never does.

Whe the market is going down, it may be hard to justify continuing to buy into mutual funds or stock shares on the surface, but if you are talking about long term investing (meaning where the money will not be tapped for ten years or more) then right now is the *best* time to buy shares. Instead of looking at the market as though it is "down", I treat it as though it is "on sale". For most of us, when we se that something we desire is on sale, what do we do? We tend to stock up on it (pun intended). What do we do when stuff is really expensive? Typically, we tend to buy less of it or just do without it entirely. So why do we look at the stock market any differently? the reason is that greed and fear tend to drive us, and we end up becoming irrational with our investments (an by we, I'm saying "Me" in a big way; I've made this mistake in the past and regretted it).

The definition of purchasing regular and recurring lots of shares with the same dollar amount each time is called "dollar cost averaging" and it's a principle I do my best to always follow. I decided that timing the market was something that I would avoid doing, and that slow and steady investments into the vehicles I've chosen would be the best way to reach my goals. I have to remind myself that my time horizon is rather long (i.e. I'm planning to be investing over the next fifty years, if I live that long). Any money that I need to access in less than five years shouldn't be in the market at all, and any money I'll need betwen five and ten years should likewise be exposed to less risk. Beyond that, almost all of the ten year periods in the stock moarket's history have made money, and I think it's likely that those norms will continue (those norms also include every recession that we've been through and also including the Great Depression). Anyway, long story short, I'm planning to keep on my slow, boring approach as I go forward. It's not very sexy or glamorous. but then, I'm not doing this to be sexy or glamorous, I'm doing this so my family can be taken care of when I'm old and grey. Statistics point to this being one of the best ways to do that, so I'll heed the statistics :).

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