Hi there! Mrs. 1500 here to do last week’s wrap-up, then the Mister takes over to ask this week’s question (with some prodding from Buck over at Bucking-the-Trend) What would you do if the market took a big hit?
But let’s review last week’s question, Do you give money to the homeless? If you recall, I drove past a man and two children on the side of the road with a sign that said they were hungry. I went into Target and bought them a loaf of bread, peanut butter and jelly, and a bag of apples. When I gave it to the man, he was disappointed, and asked me to go buy his kids some food from Panda Express.
Scooze learned from DCFS and passed along to us that begging with kids is dangerous for the kids, and if you see children being used in this way you should call 911. Thanks for letting me know, Scooze. I had no idea. It makes sense when you think about it, but still.
Allie from Allie’s Everyday Adventures reminded me of a news story that said some of these “homeless” people actually make $60K a year begging. I have heard this too, which also makes me less likely to give.
Emily over at Evolving PF said she gives to homeless shelters rather than to individual people. She feels it goes farther this way. This sentiment was echoed by Grandy, Jen over at Jen Spends (welcome back to the blogosphere after baby #2!) Kelly, and This Life on Purpose.
But I think Micros over at Micros Missions summed it up best: “…I always become suspect when someone asks for money for food but then refuses food.”
And now over to Mr. 1500, who will take care of this week’s question.
I really dislike the idea of trying to time the markets. The smart investor stays in for the long term. That’s really all there is to it.
However, I need to call myself out too. Buck asked me an interesting question in the comments of his recent performance update. I had mentioned that I’d consider deploying extra money should the markets take a huge hit (I guess I may be a market timer after all) and he asked me this:
What are your rules for deploying after a shot to the groin?
In other words, if a black swan did come along, how would you deploy your money?
This is a really difficult question. If the market lost half of it’s value tomorrow, what would your state of mind be? As Buck points out, would you ‘have the stomach to plow additional money in?’ I know what my answer is, but I’ll save it for next week.
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I wouldn’t necessarily change my philosophy too much by continuing to invest in companies whose financial stability hasn’t changed, only the value of the shares. An example would be Coca Cola. Say the share tank tomorrow along with a black swan event to $20 per share. What does this scream to me? An awesome company on sale for a great price, with the caveat that the fundamentals of the company haven’t changed.
Buffet made out like a champ in the past few years not because he was running with everyone else, but because he was diving in. How did that Goldman Sachs or Wells Fargo investments work out for him? Not too shabby if I remember correctly.
Contrarian investing takes balls, and after a swift shot to the groin to remind you that you have some, stay in the game and stick to your guns by investing.
writing2reality recently posted…Prosper – June 2013 Update
Jen @ Jen Spends says
Thanks for the welcome back 🙂
I do very little investing beyond our retirement accounts, but the times I have dabbled in the stock market with other money, it was when lots of other people were abandoning ship. I agree with writing2reality above–I look for solid companies that I’m pretty certain will recover. I jumped in when the auto industry collapsed. Unfortunately I was too naive about GM, but investing in Ford worked out quite well. I think it’s a good tactic.
Done by Forty says
I’m actually rooting for this to happen, and the rough plan is to deploy some of the cash that’s in our “next home” bucket (50% cash, 30% bonds, 20% stocks) to buy index funds. I know it’s folly to time the market but, my dumb brain can’t be convinced otherwise. The rub it figuring out when to deploy it.
And, of course, having the chutzpah to actually buy more when everyone else is screaming “sell”.
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Color Me Frugal says
We are young enough (30s) at this point that I think a black swan event would be distressing, but not to the point of making us want to sell equities. We would certainly continue to invest per usual in our 401(k)s and Roth IRAs, and we might consider putting some extra money into the market depending on which stocks were looking like a good buy. Great question!
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I’m also rooting for this to happen. Unlike Mr. 1500, I don’t yet have a huge portfolio in the stock market. But I do have a home paid off. And sinc we don’t have a mortgage we are investing more than $4,000 in the average month into index funds.
I was working as an investment advisor in 2008 when the market was dropping like crazy. I actually just got promoted to do investments right at that time. I know, right. I spent all my day simply keeping people from selling all of thier investments and buying CD’s. I also didn’t earn a commission after being sucessful in that conversation. Good times.
At the end of one trying day my wife pitched me on the idea of making a big play now that stocks were ‘on sale.’ I lashed out. Something to the effect of ‘I’m out there fighing for my life in this market. You don’t know how bad it is. This economy may never come back.’ Then the famous words… ‘this time it’s different.’
Boy do I have egg on my face. It wasn’t different. The market did bounce back.
Long story short, as soon as I see the market drop more than 30% I’m getting a nice, fixed 15-year mortgage on the house and making a six-figure play. Phooey on dollar cost averaging – it’s getting thrown into an index fund.
Mrs. Pop @ Planting Our Pennies says
I’m not a gambler… I’m more of a stick to the plan with a bit of “bargain hunter” thrown in. So I guess this is my way of saying that I wouldn’t withdraw funds, but I don’t think I would stretch insanely to try and time a market. However, if stocks looked like a bargain and the schedule had me making another purchase before too long, I would probably go ahead and do it ahead of schedule.
Sound confusing? I guess this is my round about way of saying I like what I did in 2008.
In late 2008, I left a job that I had been with for a little over a year while the stock market was crashing. I had a Roth 401K that had about $10K in it (less than what I had put into it via contributions), so I could have taken it out of the market and put it into my checking account. Instead I rolled it into my Roth IRA, bought some more of my Target Date funds, and then went ahead and took another $10K and dropped that into my Roth IRA during January 2009 for my 2008 and 2009 Roth IRA contributions. (So I bought my 2009 shares about a year before I normally would have according to schedule since I liked the share prices in Jan 2009.)
I didn’t go nuts and make giant bets with everything I had, but I just stuck to the plan, and allowed for buying a little bit ahead when it looked cheap. That’s about as much gambling as I like.
Mrs. Pop @ Planting Our Pennies recently posted…PoP Income Statement – October 2013
This Life On Purpose says
Thanks for the mention!
I’m a pretty novice investor, and so I haven’t experienced any real market swings yet. My plan as it stands would be to just continue doing what I’m doing, and try not steer off course. Easier said than done. I’d possibly look at rebalancing my portfolio if my asset allocation were to be knocked out-of-whack.
This Life On Purpose recently posted…The Alternative to Binge Traveling
As much as I’d like to think I would invest more if the markets took a nose dive I don’t have the extra capital to do so. My money is budgeted for investments, debt payment, and living expenses. The only way I could invest more is to lessen my debt payments and I don’t want to change my timeline for being debt free. So I would probably just wind up staying the course and investing the same amount every paycheck. At least I could smile that I was getting more for my money.
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Mrs Y says
First is to stay calm since even blue chip stocks can sink with the market. Before digging in and buying more at the low price, it is good to look at some financials. Taking a peek at the cash flow statements can be helpful. Once you decide the stock is still valuable, more should be purchased at the low price. It is true you should never time the market. Reason is being the market is unpredictable and investors are irrational. Money is made based on market inefficiency. Learn from past experience, this is what we will do going forward. Don’t be scared and do the research, then march on and buy.
Mrs Y recently posted…No More Counting Dollars
1500!! What marvelous questions you pose! I have many years until I retire. I can afford to leave my money alone and continue to contribute in any event. And I’d be in a position to invest even more, so here’s a good pint of Founder’s to that!
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I’m a bit late to this party but I think the follow-up question is this…
Situation: The market goes down big (say 5% in one day). You’ve been waiting for a correction of sorts and have some money set aside to invest.
When do you invest? Do you have any rules/thresholds?
Of course we’d all like to buy at the bottom of the valley, but the problem is you never know when that is going to be. I’ve been in situations like this in the past and the voices in my head go something like this. “Dang, big hit to the market today. Maybe a buying opportunity for that bit of cash I’ve got stashed for such an occasion. Now would be a good time to jump in. But wait, what if the market drops a bunch more tomorrow? Yeah, I should probably hold off to see how the market responds. Oh, it went down another couple of percent. Good thing I didn’t buy yesterday, I think we’re heading into another recession. I’ll wait a bit longer. Crud, a 3% increase – should have bought yesterday.” Rinse and repeat.
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Mom @ Three is Plenty says
I’m more of a dollar cost averaging kind of person – I wouldn’t pull out of the market in a down period, but if a purchase was going to happen, it would continue on schedule. I would shy away from buying individual stocks though, and make sure I got a broad market fund or ETF – everything’s down anyway, no need to take chances on one company.
Mom @ Three is Plenty recently posted…More decluttering, donating, and selling
Wise advice Three is Plenty. I buy some individual stocks, but don’t like myself for doing it. More on that later.