I recently wrote about having a reasonable investing plan and how important it is to have one, but It’s even more important to have an investment plan during times of market volatility than in bull markets. If not you may be investing speculatively and be unaware of it. Benjamin Graham once said The greatest danger investors face is acquiring speculative habits without realizing they have done so. This can happen so easily to many of us. The reasoning is simple. Because you see every battle is won before it’s fought and if you fail to plan then you will essentially plan to fail.
When I first started my investing journey I would buy quality stocks on sale whenever the price dipped for various reasons and headlines that would make the news. I would pride myself in picking up quality stocks at value prices, but I did not know when to sell. I would search for answers online and asked almost every stock market investor I would run into. I received about 10 different answers to my question. It ranged from always take profits to, cut your losers short and let your winners ride. I was told to place stop loss orders and then place limit buy orders to reenter the position at a lower price. I was so confused. Then I would listen to the white coat investor who would say investing should be boring. After receiving all these conflicting investment strategies, I essentially had none. So I decided to wing it. I began to dip in and out of stocks and would buy low and sell high and I thought I was doing something. Little did I know at the time that I was forming speculative investing habits. I was dipping in and out of the market like it was a slot machine in vagus. This was all because I didn’t know any better. I did not have a plan and I realized that I was failing at investing. So I essentially decided to leave my investment account alone and check it once a month or once every 3-4 months. I then began to see the gains of the bull market without all the daily price fluctuations. I stumbled onto a buy and hold investment strategy. I later found JL Collins and Jack bogle and Mr. Money Mustache and choose FI and then I realized that the white coat investor was right all along. That was the end of my unknowingly speculative investment journey. If I now decide to invest speculatively, I am completely aware of it and do so of my own choosing.
I now realize that I am a passive buy and hold investor and I am happy with it. It suits my personality and temperament well. It’s a natural way to invest for me. I am just happy that I discovered my path during a bull market and not a bear market. If my investing journey had begun in a bear market I might have given up on investing all together after a huge lost. I’m glad I now have a plan and I’m going to stick to it.
College will likely cost between $60K and 100K a year in the next 20 years. This is based on a 3% yearly increase from the current cost of $25K for public universities and $40K for private universities. The cost would increase to $240k and $400K respectively for a public and private college education. The thought of putting up to $400K in a 529 account when the future is unknown is just too risky for me. This is a huge sacrifice to make.
One of the great Jack Bogle’s most memorable quote is “Buy and hold, but don’t forget the hold”. What is the meaning behind this quote. Lets say you have a stock or ETF that you have bought thereby satisfying the buy part of the equation. You’re now contemplating buying more shares to add to your position of hopefully a total stock market index fund. What Mr. Bogle is saying is that holding is far greater than buying or selling. It doesn’t matter if or when you buy, but it makes the world of difference if you hold. It doesn’t matter if you buy at the top of the market or the bottom, if you continue to hold through the swings of the market you will come out on top.
Investing in stocks is like farming. There is a time to reap and then there’s a time to sow. It’s a great hobby to partake in if you have patience. That’s why the stock market is not the best place to keep your emergency funds. It’s the same reason why your personal home should not be viewed as an investment. The housing market has ups and downs just like the stock market. When the housing market is hot then that’s the time to sell high and when it’s low that’s the time to buy at a bargain price, but life is not going to wait until the housing market is hot for that promotion to occur that’s going to require you to move across the country or for some tragedy to befall your love ones that will require you to move closer to home help take care of your family.
The reason I hate investing in individual stocks is because at the end of the day there will be winners and there will be losers. All of your individual stock holdings will not win. To win at investing in individual stocks your winners have to outperform your losers. Your winners have to win bigger than your losers losses. At the end of the day they may just end up canceling each other out and that is why you have to cut your losers short and let the winners ride. I always end up wishing I had invested more capital in the winners and less In the losers.
1. Stocks will likely continue to fall for the next 1 month, 3 months, 6 months or 12 months
2. Stocks will likely hit all time highs again in the next 1 year, 3 years, 5 years or 10 years.
3. If you’re a long term investor and don’t need to touch your cash for the next 10+ years then how low the stock market goes and how long it will take before stocks find a bottom doesn’t matter.
4. Stocks will likely continue to trade at a discount relative to all time highs for the next 1-2 years. There is no need to stress if you can’t deploy a massive amount of capital into the market at the current levels. Don’t worry about buying the bottom or catching a falling knife, just continue to invest regularly and dollar cost average.
I just heard another sad story about someone who lost a lot of their nest egg during the Great Recession and can’t retire until they are 70 years old. This individual is now 60 and trying to figure out how to slow down and still maintain a sufficient salary to meet their goals. This situation likely occurred from either panicking in the middle of a market crash and cashing out or investing in risky assets. Stories like these still strike fear into the hearts of many americans as the doom and gloom mantra dominates the mainstream media headlines in this record setting bull market.
I believe our dollars should be broken down into three main categories. Present money, future money and retirement money. These categories should be contributed to after the elimination of debt, with the exception of mortgage debt.