If you haven’t heard yet, this week has been a roller coaster for the stock market. Between Wednesday and Friday, the market saw quite a drop and you can feel a level of uneasiness spreading. But, don’t lose sight of the prize!
The drop, as most are, can be attributed to several circumstances including the political climate and trade woes, the weather and disasters, and even the Federal Reserve interest rate hikes. As you can imagine, with all this turmoil going on, fear is an easy bandwagon to find yourself on if you’re not careful. The ups and downs that the market has seen this week can certainly be called symptoms of bigger problems.
But, we’re not going to stay on that fear bandwagon long!
Don’t Time the Market
One of the most common pieces of ‘advice’ (read: common sense) around the investment world is to NOT try to time the market. If someone as smart and intellectual as Warren Buffet agrees with this statement, then why wouldn’t you? Since this is our approach to investments, we don’t want to try to time the market and get burned.
But, we did.
Yes, we timed the market this week. Gasp!
One of the main arguments about not timing the market is that you should have just invested when it was at that price beforehand. However, this has an assumption attached to it – namely that we were/had the ability to invest at that time.
“This is great!” I’m thinking to myself as I make my transfers and buys.
This whole FI journey is new to us as we started it back in May, but we hadn’t done maintenance on our investments until the end of August. We also hadn’t started investing in a brokerage account until September.
Given the above information, we didn’t have a chance to capitalize on that ‘lower’ price point in the past. Because we are in the market now, we were able to buy in to the market at those ‘lower’ price points.
For example: If we invested $1,000 into a stock that was at $150/share before the drop, but was at $125/share during, we could buy almost 2 more stock. More bang for your buck!
Automatic Investing is the Standard
The counter argument for timing the market is in that general, if you regularly and automatically invest in the market at set intervals, you’d also capitalize on these dips.
That’s a great idea, and not just for the investing component. Setting up your accounts to automatically invest will help keep those funds ‘out of sight, out of mind’ in a sense.
Both of our 401K accounts are receiving contributions each pay period, and we recently increased our contributions to those accounts up to 10%! Mrs. Pocketchange was originally contributing 6%, and I was originally contributing 2%, so this will be a bit of a change and a stretch for us to continue to do better with our expenditures.
Of course, there’s no telling what will happen to the market over the next few weeks. If it continues to drop, we’ll continue to keep our investments going. We trust that the system will work and that system usually has a correction.
Sell Only When Necessary
The worst thing you can do during a dip is to sell – especially out of fear of the unknown. Selling secures your losses, and in turn doesn’t give you the opportunity to ‘regain’ value if/when the market corrects itself. Research your investments and how they operate, as well as their historical performance. Take note of when the markets dipped and what happened. Then, make your best educated decision!
NOTE: This is for informational purposes only, and should not be considered advice. This is simply for reference and is part of our story and progress through our journey to Financial Independence.