Getting Back Into The Market; The Sane Way

By Fiscal Sanity
Published on September 19th, 2008
6 Comments

With the recent market turmoil, you may be wondering what to do with your portfolio.  Should you sell your  stocks and funds, or should you be buying more?

Well, if you listen to the world’s greatest investor, Warren Buffett,  you would be buying.  The market is essentially on sale.  With stocks and funds plummeting, now is the time to buy.  Wouldn’t you rather run to your grocery store during a sale?

If you already have money in the market, now is probably not the best time to sell.  The secret to success in the stock market is buy low and sell high.  Selling now would be selling low.  But don’t fret.  The world  economy will grow.  It always does.  And so will your investments.

After the stock market crash of 1987, the market experienced a remarkable rebound.  As you can see from the chart below, by 1990, the Dow Jones Industrials was setting new highs.

So how do you get into the market the sane way?

Well, first let’s cover a very important point: You will never be able to time the market.  The chances of you buying at the lowest point and selling at the highest point are very, very low.  But you can buy “near” the low and sell “near” the high.

If you believe the market is near its low point then you should start dollar cost averaging your way into the market.  Take the amount of money you want to invest and divide it by six.  Then invest that about every months for six months.  For example, if you have $6000 to put into the market. Put $1000 in every month for six months.  If the market goes down, you’ll buy more shares for your $1000.  If it goes up, you’ll make more on your previous investments.

If you’re not sure what to buy, consider an S&P 500 Index Fund.  You will own shares of the 500 largest companies in the US.

Please use the comment form below to let us know what you think.

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6 Comments

Comments

6 Responses to “Getting Back Into The Market; The Sane Way”

  1. Hani Says:
    September 23rd, 2008 at 1:54 pm

    Great article. I love dollar cost averaging though I would say that one should DCA every month until they retire, even if it’s just $25 per month.

    Also, I would recommend a low cost total market index fund (like the ones from Vanguard). Since the whole market is on sale right now, it makes sense to ‘buy’ the whole market and not cherry pick a stock, or a sector since it’s easy to get into trouble that way (not a sane way to get back into the market).

    But your article is a great way to get back into the market. I like to keep a couple of thousand in a high interest savings account that I can use at times like these to buy the market on sale! It really helps boost returns over the long run. :)

  2. Steve Bruner Says:
    September 24th, 2008 at 10:36 pm

    @Hani -
    Thanks for the comments and the ideas. Vanguard funds are a great way to get back into the market.

  3. Patricia Says:
    November 24th, 2008 at 5:10 pm

    I am freaking out! I retired at age 52 from my last employer. I worked there for 27 years. I rolled my pension & 401K into an IRA and since August I have lost about 20%. At this rate I will have lost my lifes savings in just a few more months. What should I do?

  4. John Says:
    November 25th, 2008 at 8:51 am

    @patricia:

    52 is pretty young. Don’t panic. First, you’re not going to continue to lose 20% every few months and 2nd, don’t worry about what may happen in the future. Focus instead on what you can do now.

    Have you consulted with a financial advisor? Every persons retirement account are different so you should consult with an expert for specific advice on your particular situation.

    Do keep the following in mind: The market is on sale (super clearance blowout) and you should continue to invest more every month (dollar cost average). Because the stocks are cheap now, you will be buying more of them and as a result, your recovery will be that much faster when the market recovers.

    If you can’t pick a particular stock or all seem to risky, then a low cost vanguard fund is the way to go. Other commenters may also have favorite funds to recommend. The bottom line with any fund however is to make sure they have very very low fees, otherwise they will eat into your returns.

    Lasly, and I can’t say this enough, stay calm. Don’t panic (panicking never makes a situation better). Instead, keep an eye out for what you can do to make it better . Cut back on spending, save more, invest more. It’s gonna be OK.

    Good luck.

  5. Steve Bruner Says:
    November 25th, 2008 at 9:24 am

    @Patricia -
    Patricia,

    No need to freak out. The Market goes up and down. Remember, you don’t lose money until you sell. Here’s a good article that may help you: Retirement, your 401k and an Insane Market

  6. Mike Says:
    April 1st, 2009 at 4:26 am

    Very interesting article.

    I have never heard of Index Fund.

    Is there a website, article or blog that talks about it in more detail?

    Sounds like a great investing option.

    Thanks….

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