Buy, Save, Hold, and Buy

 
I tweeted this Friday as the stock market was poised to fall:

BuyHoldTweet
While it’s true, it’s also a little too simple as tweets often are.
My real strategy is a buy continuously, but buy more when prices fall, and save (and hold) as prices rise.

Buy Continuously
This is your automatic savings and investing such as your 401k, Roth IRA, or 403b. Start young and do your best to max this out. Take full advantage of any matching funds and never, ever, take a loan out against these accounts. The money coming out of your paycheck on a regular basis is dollar cost averaging and captures both the ups and downs of the market and smooths out wild swings like the downside rout we’re having now.

Buy More as Prices Fall
When the market drops, that’s the time to buy. As Warren Buffet said, “be greedy when others are scared, be scared when others are greedy.” Don’t try to wait for the bottom, just dollar cost average more aggressively. Friday I invested less than 5% of the money I’ve been saving over the past year. As prices continue to fall I’ll buy more again.

Save as Prices Rise
Over the past year or so I haven’t been buying stocks (I buy stocks only in low cost index funds) and instead have been saving more aggressively. This doesn’t mean that I haven’t been buying any stocks, just not any above my set investment plan. Now I have more capital to invest and since prices are lower I hope to get better returns. Too many people don’t have the discipline to save like this but if you can then you’ll be prepared like I am.

It Paid Off Before

Do you remember how far the market fell in 2008? In 18 months the Dow Jones Industrial Average lost more than 50%. Many people sold, panicked really, but not me. I continued buying throughout 2008 but still I lost a huge amount of money, with my net worth diving 16.44% (check the chart below). In 2009, however, my plan and my discipline paid off. My net worth rebounded by 24.93%, more than recouping the losses of the previous year.

My net worth percentage change chart

 

 

 

 

 

 

 

So what’s your plan in this tumultuous time for the market? Panic and sell at the worst time or stick with your plan and take advantage of low prices?


Posted in General, Money, Success, Taking Action and tagged , , , , , , by with no comments yet.

Leave a Reply

Your email address will not be published. Required fields are marked *