Stock Market is In the Toilet

I got a quiet (furtive?) voicemail from my sister yesterday saying that the market was way down and that it was a good day to buy.  The tone of her message was really rather exciting!  I felt like I was getting a "hot tip" from a cabbie who had just dropped off a fare at Morgan Stanley Dean Witter in Manhattan.  (Where I interned for one summer by the way!)  Apparently her tone was just subdued because she was calling from work.

However, she wasn’t acting on any insider knowledge (somewhere Martha Steward breathes an exasperated sigh about the fact that we still remember…) but just on the daily market reports.  You see, in our family, something we’ve been having fun with lately is keeping an eye on the stock market and "buying on the dips."

Dad, Laura (my sister), and I have fun watching for days when the market tanks and putting a little money into our accounts on those days.  This is sort of a combination of market timing and dollar cost averaging.

Now, I’m not a big fan of market timing, day trading or any of that.  I have no idea whether it works for other people, but my sources say, "no."  (Of course, if your Magic 8 ball has a different opinion, I’d be glad to hear it.) 

I am a practicing dollar-cost average girl, with my retirement funds all funded blindly on a weekly or bi-monthly basis.  (Weekly is probably a bit of overkill, but my husband gets paid weekly, so a portion of his pay check (10% to be exact) goes directly into his 401(k) each week.) 

We also save an additional $200/week in non-retirement accounts … that’s the money I use to make these Mutual Fund buys, as well as real estate purchases, and so forth.  I store it all in our Money Market Account until we decide where to place it…  But I digress…

When it comes to "buying on the dips" we generally know how much money we want to place in a fund in a given month, quarter (or whatever time period we’re looking at).  And when the market goes down we buy on those days.  How much of our monthly fund we’ll place depends on how big that particular "dip" is, in relationship to how volatile the market is, or how much further down we expect it to go in the near future.

For example, I have been buying on the dips for the last quarter of 2007, placing money once or twice a month, and easing my investable funds into the market (I picked up a nice chunk of cash recently).  However, the tanking that we’re seeing in the market this week makes it look like I was WAY overspending.   On the bright side, my Dad likes to remind me that it will be worth more than what I paid in 20 years or so… (Probably much sooner than that). 

Dad’s attitude is exactly right when it comes to long term buy-and-hold stock investing (the only kind I practice).  You have to plan on being able to keep the money in the market for at least 5 years.   If you can’t do that, you shouldn’t be putting it in the market at all… stocks and mutual funds tend to be too volatile for short term investments unless you really do a lot of research on a particular stock and know exactly what you’re doing.

Unfortunately, I got my sister’s voicemail too late to be able to "buy on the dip" yesterday.  However, I think the market will experience many more "down days" before it really starts to come back up again.

Based on what my friend Tom, the Economy Guy, has been telling me lately, the market could be in for some really tough times ahead.  Stay tuned, stay smart, and remember to buy on the dips.

Emily

Popularity: 7% [?]

Related posts:

1. Foreclosure Group – Helps you buy foreclosed homes at auction.