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Think Happy Thoughts When the Market is Down!
By JLP | August 20, 2007
While putting together my roundup last night, I ran across a couple of posts that were quite timely. The first was over at FiveCentNickel, who was lamenting the current state of the market and the economy. Nickel’s post then linked to a piece by Jim over at Blueprint explaining why he sold out of his Vanguard Target Retirement 2050 fund.
I’ll be the first to admit that it is difficult to keep emotions in check when it seems like everything is going to hell in a handbasket. However, if you are currently investing in the market via a 401(k) or IRA, in which you are contributing the same dollar amount each time, you should rejoice in the market’s current drop.
Why?
Because you now have the opportunity to purchase MORE shares with each dollar you invest. Let’s say you are currently investing $100 per month in in a mutual fund that traded at $100 per share. So, each month you are buying one share in that mutual fund (assuming the price doesn’t change from month-to-month). Now let’s say the market hits a rough patch and this particular mutual fund loses 25% and is now trading at $75 a share. Now you get to purchase 1.33 shares or 33% MORE shares than before.
Sure, it’s no fun to see your account balance drop but that’s what you have to accept when you are in pursuit of better returns.
And please, for the love of God, if you are in your 20s or 30s, DON’T move your money to “safe” investments until “things cool down.” If anything you should be investing more!
Learn to embrace volatility because over the long run, it’s a great tool!
Topics: Investing |
