So the market is falling – or has fallen. I don’t want to use the word “crash,” but dropping from 14,000 in October 2007 down to 8,350 today (markets are still trading as I type) is pretty dramatic no matter how you phrase it.
If you believe history – and Warren Buffett – now is an excellent time to be buying stocks. Yes, things could get worse, and yes everything in uncertain, but remember how the whole premise of investing is “buy low and sell high?” Well, stocks are lower than they’ve been in years. Therefore, now is a better time to buy than we’ve seen in years. So if you had no problem loading up your portfolio when the Dow was trading around 11,000, you should have even less of a problem now – unless of course you have no confidence in the markets and you think the whole stock market is going to crash and never recover.
I’m on Team Buffett and see no choice but to assume that eventually, the markets will rise again (given the alternative of stocking up on food staples and hoarding any valuables with which I can barter when our financial systems collapse forever). Of course, “eventually” is the key word. I have no idea if it will be next month, next year, or next decade when the markets recover their losses.
So with regard to my long term (i.e. “retirement”) portfolio, I find some comfort in the fact that my bi-monthly 401(k) contributions are picking up more and more shares as the markets decline. I find so much comfort in that fact that I feel the need to buy as much as possible.
In the last couple of weeks I have invested around $1,000 in stock market index funds outside of retirement accounts (international and domestic) by adding $100 or $200 each time the market set a new “low.” That money would have otherwise gone into cash savings. I also boosted my 401k contribution from 8% to 10%. But I still feel the urge to do more. So I came up with a plan.
I’m breathlessly considering increasing my Roth 401(k) contributions from 10% to 20%. That would mean that in 2009 I would max out my 401(k) – which would be so exciting! I wasn’t planning to do that anytime soon, because it would require the suspension of all non-retirement savings.
But the thing is, all those non-retirement savings will eventually be spent – either on vacations or a car or furniture or a wedding, etc. So while it’s prudent to save for those expenditures, I feel like I’d really benefit more from maxing out my 401k because I really won’t touch it for decades. And besides, I may not work for many years at a job that offers a 401k – and Roth 401k’s may not even exist for very long as congress struggles to balance the budget, especially since they allegedly only benefit rich people (God forbid). So I should take advantage while I can – right?
Should I do it? My emergency fund would currently get me through several months of living if I lose my job, and of course I can always lower or suspend contributions if I get in a tight spot. Plus I’ll put any tax refund and bonus checks into my liquid savings in ’09, so it’s not like it won’t grow…
What do you think??