I know what I wish I could do, anyway: Dump a bunch of money into my funds while prices are low. Seriously. I just put a few grand in last week, and I’m wishing I’d waited.
When markets are down and many investors get cold feet, I see bargains and want to jump in. But not badly enough to put unplanned money into my retirement accounts. And here’s why.
Ninety-nine point nine percent of people should not attempt to base their investments on market timing. Whether you’re a bear-market type like me, or only like to invest when it’s bullish, the best thing to do for most of us is to buy low-cost, indexed funds and put in a set amount of money.
Case in point: I didn’t know the markets would fall drastically this week, otherwise I would have held back my planned purchases of the past week. And come to think of it, I don’t know where the bottom of this fall is, so how will I know the best time to buy if I want the cheapest shares possible?
Likewise, if you try to react to plunging markets by getting out, you’re going to help facilitate further losses for everyone — and you’re going to sell what you’ve got for less than what it was worth last week. If you wait for the market to get better before you put your money back in, you’re buying at a higher price than what you sold.
Index funds are better performers than actively managed funds over time, and it’s for the same reason: They remove the human element, which has proven time and again to be illogical, risk-taking at the wrong times, cautious at the wrong times, etc. As this great overview says, “Since an index fund owns all of the investments in the index, there is no picking winners and losers.”
Think about it this way: According to this article (and many others), those who got out of the market in 2009 have still not recovered the value they lost. Those who stayed in have gotten it all back and then some.
Do some people get rich by timing their buying and selling? Sure, and that’s why trading is such an attractive profession for acquisitive sorts. But if it’s not your full-time job (and I don’t recommend it, because it sounds like a dirty and stressful game), then just keep putting away for retirement as if nothing is happening. In a couple weeks or months, it likely will be as if nothing happened.