A 9% Drop for the Market, More Money into My Roth IRA

by Kevin on September 30, 2008

As most of you know, the stock market tanked 9% yesterday. Let’s take a quick look at the chart for the S&P 500 for yesterday:

Ugly, huh? The House decided to not pass the bailout bill which set the markets into panic mode.

Is this a good time to invest? Will the market go down again? Will it skyrocket today? I’ve said it before, so I’ll say it again: I have no idea.

What I do know:

  • I have 30+ years until retirement and can ride out the current bumps in the market
  • I have an investment plan; I can review it and decide to make decisions based off of non-emotional thinking
  • I have a monthly amount we invest into our Roth IRAs. This goes along with the investment plan decision — do I keep investing it regularly?

My decision:

  • Yesterday I made the move to put a portion of our monthly contribution in a little bit earlier than normal. I didn’t put the full amount in, actually a little less than half. With Vanguard my Roth IRA transactions go through at the closing price of the next business day. So if I put the order in at 3PM yesterday afternoon, the transaction goes through at today’s closing price. If the price jumps up today, I didn’t want to put all my eggs into that one price basket.
  • I may add the rest of the monthly contribution today (for tomorrow’s close) or perhaps the next day. We will see.
  • It sounds a bit like market timing, which I suppose it is. Then again the market dropped 9% and I think the market as a whole is on sale. So why not buy now when I can? Remember, buy low and sell high. I’m apparently in good company because Consumerism Commentary did the same thing.
  • We’re sticking with the plan and continuing to put money into our IRAs on a regular basis. Again, long term view… not short term. No matter how painful the short term might be.

We’ll be back to talk about buying our first home tomorrow. I figured a huge drop off in the market was worth talking about.

So, what are you doing? Did you invest anything yesterday or today? Are you scared? Pulling money out of the markets? Leave a comment and share with the group.

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Kimberly September 30, 2008 at 10:30 am

I put an extra $5000 in yesterday, at yesterday’s close price. It’s not money I’m pulling from anything I need now, it fit with my investing plan and seemed like a good choice.

I IM’d a friend yesterday mid-day, “Stocks are on sale!” – his wife wouldn’t let him put any money in though.

Shaun Carter September 30, 2008 at 12:30 pm

Yesterday was one of the best returns in one day I have ever experienced in the market. Last week I moved into put options in the financial sector and they performed wonderfully.

Matt @ Steadfast Finances September 30, 2008 at 2:50 pm

I think you made an excellent decision. I’m not sure where the market is headed short term, but buying on the dips is a proven strategy. Well done!

Maybe we really can turn you into a trader one of these days!

Tina September 30, 2008 at 9:48 pm

I’m buying up a lot of good stocks, thinking long term. I also recently have increased my 401k. In 30-40 yrs I’ll be glad I made these investments. Keep up the great job with your website.

Kevin October 3, 2008 at 9:52 pm

@Kimberly: That was the basis of my thinking, I just didn’t have $5k laying around to put in 🙂

@Shaun: I know nothing about options. What would happen to the value if the market went the opposite direction?

@Matt: Haha… need to build up some capital I don’t mind losing, first. Should be a while on that one.

@Tina: Thanks and best of luck with your investments. Buy low, sell high. Rinse and repeat.

Shaun Carter October 3, 2008 at 11:18 pm

@Kevin – The value of put options fall as the price of the underlying stock increases. Since the ban on short selling in the financial sector, this is the only way to make money when a stock falls.

The tricky part with options however is that they also lose value the longer you hold them because of their expiration date. I have been using them more lately to take advantage of the large swings in the market.

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