The Stock Market is Tanking… What Do I Do?
BUY! Yes you read right… BUY… especially if you have your money in Broad Based Index Mutual Funds like Vanguard’s 500 Fund… and YES it’s Tanking badly too.
Will they drop further in Value??? I’m Betting it will but that’s not going to stop me from buying NOW.
The Stock Market is a Betting Game. If you go into it hoping to make a killing in a short time frame you almost invariably lose, but if you leave it alone it invariably bounces back and goes up.
Time is your Friend… and I can think of no better example than one of my own.
Thirty Six years ago when I was 15 my father sat me down with a stockbroker friend and he explained to me how the system worked. We did all the things one would normally do setting up an account with a brokerage house including determining my Risk Tolerance (“Poor” by the way, which is why I prefer Mutual Funds now).
I took $1000 and invested it in a half dozen stocks (which I still own) including $150 that bought me a whole 3 shares of Monsanto Chemical.
Back then they didn’t have Dividend Reinvestment Plans so the dividends have been sent to me in a check every quarter for 36 years.
In those 36 years, despite a VERY bad patch and some reversals of Monsanto fortunes, the stock has split several times leaving me with 60 shares… TWENTY times as many as I bought.
Yesterday, the share price closed at $116.99.
Just in Capital Appreciation my $150 has become worth $7019… imagine how much more it would have been if they had a Dividend Reinvestment Plan back then.
So am I worried about the current drop??? Yes, but only so far as it might affect any abrupt need for a large amount of funds… but that’s what the Emergency Fund is supposed to cover.
So while we’re in for a rough ride so far it hasn’t been as bad as the 70’s yet… all you need to do is Hold On and we’ll clear these rapids in a year or three.
Meanwhile Learn the Lessons about Spending Less and Saving More and stop depending on Credit.
Photo credit: stock.xchng.
Roland: I typically use the “buy and hold” strategy with rental properties. When time is on our side, most investments pay off in the long run.
Thanks for the reassurance, Roland. The past two weeks have been rather depressing. And it’s good to hear someone express faith in the stock market.
Serena – past two weeks?! I think the past year has been very depressing…
Good post Roland, and I agree with you. It is always good to evaluate your portfolio, timeframes and objectives and act accordingly. But, as they say, it is best to buy when there is “blood in the streets” – especially if you are contributing regularly and take advantage of dollar-cost averaging, such as in a 401k or Employee Stock Purchase Plan. Yes, it is depressing to see values decrease, but there is no real rationale behind a lot of the stock valuations right now except panic on the streets… Once everything is sorted out and the gov’t figures out the specifics of the bailout, things will get back to “normal” – whatever that is these days!
Yes its depressing Serena…but the readers of Queercents “should” have less of a problem out of it.
After all if you read this blog you KNOW you should be saving…and even if its a small amount you probably are..and living below your means.
It means you are partially isolated from the problems other face when say..the mortgage rate resets to a price you can’t pay..you will more likely have a fixed rate one and not have to worry.
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“Blood in the Streets”…I’d forgotten that saying Scott and its very appropriate…
You don’t have to spend a lot of money to eventually make some…its Time that matters.
~Roland
Roland and Scott, you’re right that this is more than the past two weeks. I think that it’s just been mind blowing (for me anyway) to see just how extreme things have become on Wall Street. But you both make good points – if you’re saving and haven’t over-extended yourself, you’re going to be fine. Unfortunately, too many Americans haven’t and that’s what’s gotten us into this mess in the first place.
On NPR this morning they were discussing the bailout on the Diane Rheme show. One caller suggested that we shouldn’t have a bailout because American NEEDS to have another Great Depression so that people will reassess their attitudes to credit and saving. I think it’s a little extreme to say that, but I do think this country needs an attitude adjustment.