I read this article in Washington Post about how “Many Small Investors Have Sat Out Rally” and found it sad that so many of these investors got burnt and will probably swear off investing again only to come back to it when the market is near the highest point. Another article from the Wall Street Journal, “Surprise! That 401 (k) Account is Looking Good” is perhaps the antithesis or solution to the first article, whichever you prefer.
The key lesson is that it is hard, almost impossible to know where the market is going in the next minute, at the end of the market day or even at the end of the week.
The only thing you have to do is to put as much time as possible in the market and keep investing in small baby steps. This will help you build your investment from almost negligible to something substantial.
If you had been listening to the naysayers of market doom and meltdown, so far it hasn’t happened yet. Will it happen? Who’s to know? And will you know who knows?
I remember reading that when the market is bad, it is bad for retirees and those about to retire, however it is very good for people who has just entered the job market and looking to buy their investments.
The article in WSJ reinforces this point. Those who are younger and did not have as much in the market fared relatively well compared with those in the higher age ranges.
Another key point that was reinforced in the WSJ article is that dollar averaging is a disciplined way to invest, especially in a bear market where people fear to tread. If you stopped investing in September 2007 after putting $10,000 in a fund, you would have lost 10.6% at the end of September 2009. However, if you have purchased an additional $200 each month, you will be down only 6% at the end of September 2009.
The United States leading economic indicators are up again today. It could be the signal to buy more, but i would rather buy bits and pieces regularly and get pieces of good companies at good valuations.
What would you do?
Dollar cost averaging is the way to go. I always tell my younger friends to start early. If you can only spare $100 a month, commit that $100. If you have $500, even better. It is a better form of saving, as compared to putting it all into a bank.
ReplyDeleteBuying unit trusts with distributors that charge low fees is my preferred mode.
W
Hi W,
ReplyDeleteThank you for visiting.
Yep, using dollar cost averaging is the way to go.
When I was with a bank, the trainer showed us a news clip of a lady clerk in Singapore who was a multi-millionaire from dollar cost averaging upon retirement.
Hi Wireworks,
ReplyDeleteThank you for visiting. You have a very professional looking site yourself.