Tuesday, July 15, 2008

Its the best time to invest

So you hearing bad news after bad news about the US economy and wondering where to put your money? You heard of IndyMac, the largest bank in California suddenly collapsing and went out of business. You think that your bank is going to do the same. Mortgage crisis is still looming and the housing market isn't that hot. Foreclosures are a common scene in America as more and more people are force to give up their homes because of bad mortgage lending. Oil prices are at an all time high, costing all goods and services to also go up.

Today, the DJIA fell below 11,000 points for the first time in over 2 years. What is an average person such as you and myself to do?

I'm no financial planner or investment advisor, but I would not let fear take control over my decisions. When prices of stock or shares of mutual funds are falling, what is the initial reaction for most people? They think "Oh my god! I'm losing money. I need to sell everything before it goes any lower and put it in the bank or under the mattress." By pulling out of the stock market, you are accepting loss. By not pulling out of the stock market, you are not accepting any losses. You will only realize your gains or losses when you actually sell your shares. Right now, the price per share or stock is low. What are your choices?

Well, this is what I would do. Though, I'm not hinting that you should do what I would do. I'm just saying this is what I would do in time of this crisis and my logical reasoning behind it
1) As a young investor and where retirement is 30 plus years away, I would continue to invest and to buy as many shares I can afford. I know that the stock market will worth more in 30 years than what it is today (base on the past history of the stock market in the past 50 years).

2) If I was a mature adult, say someone in the upper 30's to early 50's, I would still coninue to invest, but making sure my investments are diversified. I still have some time left to save money for retirement, so I wouldn't worry about the stock market conditions.

3) If I was retired, I wouldn't be investing at all. I would be withdrawing money from my investments. But I wouldn't withdraw too much during this time until the market is performing well. So I would watch my spending habits closely. After all, I don't want to outlive my money.

As any investment expert would say (again, I'm no investment expert. I just do what is logical), the best way to lower your risk to market exposure is to follow the 3 D's.
1) Diversify your investments. Don't put all your money into one company or one sector of the economy.
2) Be discipline. Don't let fear take over judgement and logical reasoning.
3) Dollar cost average. Invest on a monthly basis. This is a way to pay yourself first before paying others. By dollar cost averaging, you lower the cost per share you own over the long run.

Guess where I learn all this? From my own personal investment experience and through training at Primerica Financial Services.

No comments: