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10/13/2008 07:45:36 PM · #76 |
A one question quiz for you...
So if the market drops 10% one day and then goes up 10% the next, how did the market do? Are we back to where we started?
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10/13/2008 07:57:57 PM · #77 |
Originally posted by bassbone:
A one question quiz for you...
So if the market drops 10% one day and then goes up 10% the next, how did the market do? Are we back to where we started? |
If you buy on a regular basis, regardless of what the market is doing ... chances are, you bought while it was down and now you're 10% ahead.
If, instead, you were watching the market and bailed out when the market dropped ... you're now 10% down with no way to get back up (without a "real loss") unless the market dips LOWER than the point at which you sold.
Buy, buy, buy... it's the only way to keep it going up. :)
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10/13/2008 08:54:00 PM · #78 |
Let's say you own 1000 shares of a fund. Let's call it the SA30 fund. Each share of SA30 is worth $1.00. So, the total value of your shares is $1,000.00.
You see the market begin a dive, so you decide to move your investment from SA30 and put it in a safer fund called SA14. The SA14 fund has a long track record of maximizing interest earnings while maintaining principal. You no longer own any shares of SA30, but your money is safe and is even earning between 2% and 5% interest. At the same time, the value of shares in SA30 are steadily loosing their value as the market spirals downward.
Eventually, the share price of the SA30 fund is down to half of it's original price. But, the market is starting to recover, so you decide to buy back into SA30. During this time, your money in the safe SA14 fund has earned 3%, so you now have $1,030.00 to spend on shares in the SA30 fund.
So you buy back into SA30 at the lower price of $0.50 per share, and you now own 2060 shares of SA30. When the market eventually recovers and the value of an SA30 share is back to where it was originally, then the total value of your SA30 investment is $2,030.00. In other words, you more than doubled your money.
If you let your SA30 shares sit there throughout the market decline and recovery, you haven't lost anything. Then again you haven't gained anything either.
Right or wrong? Impossible? Can't get there from here?
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10/13/2008 09:14:41 PM · #79 |
Originally posted by bassbone:
A one question quiz for you...
So if the market drops 10% one day and then goes up 10% the next, how did the market do? Are we back to where we started? |
We are not. The markets are roughly 1% lower than they were when they started. |
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10/13/2008 09:50:14 PM · #80 |
Right...
If you moved your 401 money to the "safe area" a month ago, you are way ahead of the game.
If you time in right and jump back in and the market goes up 10% then you are way ahead of everyone else who simply "let it ride".
Originally posted by Mick:
Let's say you own 1000 shares of a fund. Let's call it the SA30 fund. Each share of SA30 is worth $1.00. So, the total value of your shares is $1,000.00.
You see the market begin a dive, so you decide to move your investment from SA30 and put it in a safer fund called SA14. The SA14 fund has a long track record of maximizing interest earnings while maintaining principal. You no longer own any shares of SA30, but your money is safe and is even earning between 2% and 5% interest. At the same time, the value of shares in SA30 are steadily loosing their value as the market spirals downward.
Eventually, the share price of the SA30 fund is down to half of it's original price. But, the market is starting to recover, so you decide to buy back into SA30. During this time, your money in the safe SA14 fund has earned 3%, so you now have $1,030.00 to spend on shares in the SA30 fund.
So you buy back into SA30 at the lower price of $0.50 per share, and you now own 2060 shares of SA30. When the market eventually recovers and the value of an SA30 share is back to where it was originally, then the total value of your SA30 investment is $2,030.00. In other words, you more than doubled your money.
If you let your SA30 shares sit there throughout the market decline and recovery, you haven't lost anything. Then again you haven't gained anything either.
Right or wrong? Impossible? Can't get there from here? |
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10/14/2008 03:00:00 PM · #81 |
Originally posted by kenskid:
Right...
If you moved your 401 money to the "safe area" a month ago, you are way ahead of the game.
If you time in right and jump back in and the market goes up 10% then you are way ahead of everyone else who simply "let it ride". |
Those are huge "ifs." Go read the article I posted a while back. If you miss only a few of the best days across a period of years, you lose a huge percentage of gain.
Maybe Mick has the magic touch. If so, he'll be extremely rich. But thinking you can time the market when pretty much every expert says you can't is a dangerous bet.
Message edited by author 2008-10-14 15:00:16.
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10/14/2008 03:05:44 PM · #82 |
Originally posted by DrAchoo:
Originally posted by levyj413:
Dow gained 11% today. I sure hope no one missed it because they'd pulled everything out and put it under their mattress. |
Don't go thinking it's all roses again. My guess is tomorrow brings a 4-6% selloff and then the real question is what does it do the rest of the week. |
Oh, I think I missed making my point by being too brief. I agree - the markets will continue to go up and down quite a bit in the short term. It's down some today, for example.
I didn't mean to say "everything's roses again," I meant to re-emphasize that you can't know when it'll go up or down, and by pulling out after it drops, you're quite likely to miss when it goes up.
Ultimately, it comes down to what you're shooting for (not you, DrAchoo, but the generic "you"). If the goal is absolute tip-top gain, then give market timing a shot. Who knows, you might get lucky. But if your goal is decent wealth in the long run, then invest a regular amount over decades and ignore short-term shifts.
I call my strategy "enough." I'm not shooting for megamillions. But with reasonable assumptions, like 8% market gain over decades, I'm going to have a whole lot of money when I retire in 20 years.
This strategy also has a side emotional benefit: I'm not getting ulcers as the market plummets.
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10/15/2008 04:53:10 PM · #83 |
Originally posted by DrAchoo:
Originally posted by levyj413:
Dow gained 11% today. I sure hope no one missed it because they'd pulled everything out and put it under their mattress. |
Don't go thinking it's all roses again. My guess is tomorrow brings a 4-6% selloff and then the real question is what does it do the rest of the week. |
Hmmm, well, I was off by one day and another 3-5%... :( |
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10/15/2008 06:33:17 PM · #84 |
Originally posted by levyj413:
Originally posted by kenskid:
Right...
If you moved your 401 money to the "safe area" a month ago, you are way ahead of the game.
If you time in right and jump back in and the market goes up 10% then you are way ahead of everyone else who simply "let it ride". |
Those are huge "ifs." Go read the article I posted a while back. If you miss only a few of the best days across a period of years, you lose a huge percentage of gain.
Maybe Mick has the magic touch. If so, he'll be extremely rich. But thinking you can time the market when pretty much every expert says you can't is a dangerous bet. |
Actually, they're pretty small "ifs" because that is exactly what I've done. I moved the entire balance of my old 401K into a guaranteed interest account almost two months ago. It's a sizable balance too because I've been making maximum contributions to the account for more than ten years and it's performed quite well over the years.
The entire balance of my new 401K is also in a guaranteed interest account. The balance from my old 401K is currently in the process of being rolled over to my new 401K. I probably should have rolled it into an IRA because that would give me more investment options, but I can always do that later. I'm still waiting for the rollover to hit my new 401K account. When it does, hopefully I'll be able to buy into some good investments at discount prices. Who knows, maybe I will get rich. I certainly expect to get at least a little richer. :D
The point, as I think others have pointed out, is that depressed markets are not necessarily bad news for investors. For smart investors, they can be opportunities for growth. And there's little or no gain to be had anywhere without some amount of risk.
As I said before, I'm not talking about bouncing around, constantly chasing the highest return. That is a low-percentage strategy, as most of the experts will tell you. However, "letting it ride" isn't necessarily the best strategy either. Something like 80% of 401K investors actually make less than 6% return on their investment over the life of their 401K. That's poor performance compared to the average for most professionally managed portfolios. Heck, even many amateurs do better than that. Most of the 20% of 401K investors that earn better returns use professionals to manage their investments. Why do you think they perform so much better, often averaging 15% or more? Do you think they just "let it ride" and hope for the best?
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