Tuesday, September 23, 2008

My favorite kind of sale

I'm not much of a shopper.  Perhaps that is one of the reasons that I generally do a pretty good job of managing my money.  Not to say that I don't have my weaknesses, but generally speaking, I don't like to buy things.  However, if I am buying things, I really like to get them on sale.

My absolute favorite thing to buy on sale is investments.

If I go to the grocery store and see that my favorite food (fresh berries of any kind) is on sale, I stock up.  If it's a good sale I will buy much more then I otherwise would have.  This is a natural reaction and a reasonable thing to do.  It makes sense to stock up while the price is low.  While most people have no trouble seeing this logic when it comes to fruit, cans of tuna, or salad dressing, many resist doing so when it comes to far more important purchases - investments.

If you are investing in the stock market, either through individual stocks or better yet through mutual funds, these are great times to be adding to your investments.  Currently, the S&P 500 - a broad index of five hundred major U.S. companies - is at about 1200.  The last time that anyone had an opportunity to buy into this basket of stocks at this price was in mid 2005.

True, the S&P 500 is down almost 25% from its high so your portfolio has likely taken a bit of a tumble.  However, if you are in it for the long term - and you should be if you are investing in stocks - your day-to-day balance shouldn't be a concern.  It can be nerve-wracking to watch the market and your retirement savings lose value day after day.  But you never know just where the bottom will be or when it will be your last chance ever to purchase a stock or a fund at these low prices.  The market might keep going down.  That can be a great thing if it gives you the opportunity to make more investments at relatively low prices.

You will never know exactly when the stock market has bottomed out.  The only thing that you can know for sure is that everyday the market goes down, your investments are on sale and are a better deal than the were the day before.

1 comment:

WiseMoneyMatters said...

I completely agree. A lot of people are scared off by stocks right now. I say the stock market is on a clearance sale. Half off all merchandise. Now is the great time to buy.

Also, buying houses is a deal as well. With house prices so low, if you have the capital, now is the time to buy.

I basically have a theory that the best time to buy is when the media is covering how bad the economy is. Usually, right around the time they freak out about it is the time it's starting to turn around.