Tapped Out
As the stock market has spiraled downwards the last few weeks, I've been trying to buy shares while they were on sale. This worked pretty well with Suntrust during its ups and downs. I had cash sitting in a number of different places: the credit union, PayPal, ING, and a money market fund with Vanguard. I had bought some Google after it dropped way off in February, bought some more in March after it dropped 20%, then sold some after it went back up. In September it was back down and I bought some more. Then Dell and Intel released bad forecasts and dropped a lot, so I bought some of that. As the rest of the market went south, those stayed around the same level until this week when they were both down 20% again, so I bought some more Google and some more Intel. Meanwhile, this week Suntrust was back down again, so I got some of that earlier in the week. Last week I put some money in Vanguard Index 500 and used last week's Suntrust proceeds to get some Apple, seemingly cheap at $98, but could have had it for $89 this week easily enough. Foreign markets were really hammered lately, so I bought some more Janus Overseas this week, then with the last of the cash I was willing to put at risk, I bought a little more today. Now I'm on the sidelines and the market is on its own. I'm tapped out.
I still have money that isn't in the stock market, like my Washington Mutual CD, my Series I Savings Bonds generating 5% and 6% returns, and a reserve in my ING account drawing 2.75%. The website Savings Bond Advisor has a chart comparing investing one dollar a month in the Vanguard 500 index fund or one dollar a month in Series I Savings Bonds since those inflation-indexed bonds were introduced in 1998. They also show the total amount invested and the Index 500 is about to go below the accumulated principle. This means that putting your money under your mattress would outperform the S&P 500 over the last 10 years. Accordingly, my deferred compensation account went below the level of the principle just today after 16 years of monthly contributions going to stock mutual funds (not quite true, see graph in comment below). Oh well. The good thing is that with my Roth IRA I can't take out any earnings without a penalty, but right now I can take out all of it if I want. In fact, it could go up about 40% and I could still take it all out.
I think the market has to be oversold, but it could also drop further. And the recession in general seems to have a while to go before it is over, many are saying a year or more. The total I've put back in the market this year roughly equals my losses on what I already had invested, so I think that's probably a decent strategy from an active timing approach. Today the market seemed to find a bottom and recover a little bit, so maybe things will start going back up. That Goldman Sachs stock looks like a really good buy though . . .
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Comments (6)
I bought some XM Sirius for 67 cents per share. I could have waited a few days and got it for 40 cents. I still think it will go up dramatically next year. Great product and now a unique niche since the merger.
When I finally started getting enough savings to ask such a question, I asked Dad, "Should I pay off the house or invest in stock indexes?" He said he would pay off the house. I invested in indexes.
We've lost more than the loan balance of our house over the past 6 months. (Can't you just hear Dad's reply to this?)
Posted by Jeb | October 10, 2008 11:01 PM
I found 3 quarters, 2 dimes, a nickel and some pennies while I was cleaning the house yesterday. I put them in my collection jar that has one of those automatic money counters on it. I have about $28 in there so far.
Posted by Carol | October 11, 2008 8:03 AM
Another thing that Dad always said was "You gotta know when to hold em, know when to fold em."
Posted by Mom | October 11, 2008 9:35 AM
One great thing that Dad was able to do was put all of Mom and Dad's retirement money in interest bearing accounts instead of in stocks, so that as the market has plummeted and people have watched their investments lose value, Mom's are unaffected. Financial pros would tell you that any money you won't need for 10 years could be partly in stocks and therefore should see better returns, but it's so much better if you don't have worry about the stock market.
Somehow my deferred comp is still making a small profit. But that profit has shrunk from $21,000 a year ago to $10,000 at the end of September to $329 today. The smallest decline next week will wipe that out. The graph below shows that I have been here before: in 2002 the Value (in yellow) dipped below the pink line of total contributions. It's also worth noting that in 2000 the gain (in blue) briefly went above the total contribution line meaning that I had doubled my money and had more in gains than in contributions. Those were good times.
Posted by UT | October 11, 2008 10:25 AM
I commend you for taking advantage of the bargains! It reminds me of Warren Buffet. He always has enough cash to take advantage of opportunities when they occur.
Posted by Ed L. C. | October 11, 2008 7:12 PM
Should have bought that Goldman Sachs. It closed Friday at $88.40 and is now 38% higher at $122.90. I was able to get 20% out of Suntrust again (the fifth time now) by selling it today.
Posted by UT | October 14, 2008 9:06 PM