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September 30, 2008

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Personally, I would only invest with money right now that you don't foresee the need to access in approximately 10 years (give or take 5 years). If you're hoping to have a down payment on a home in 2 years I wouldn't be risking that money in today's volatile market.

What I would recommend is transferring the money you intend to use for a down payment from your low-interest savings into either a high-interest savings (no lower than 3%) or look into setting up a series of laddered CDs spaced 3-6 months apart.

If you have any money left over, consider determining a dollar amount you would feel comfortable investing each month and make small monthly investments into a diversified portfolio of 3-6 funds. Most people would recommend index funds and/or unmanaged ETFs, although I personally have had better results over the past 10 years with my low-cost managed funds. Avoid anything with a load or high annual management fees.

Don't do it. The market is going to fall a lot further. If you want to invest in something, try gold.

At the moment, I don't care so much about whether the bill was or wasn't passed.

What's most disappointing to me is that the House wasn't able to develop a bill that would (a) fix the problems and (b) also pass the House.

That failure to find a *successful plan* on *common ground* is an indictment of our representatives' leadership and collaboration skills. With leaders like this, it's no wonder that our economy is going to pot.

Gold has peaked. I would say invest if you can, but I would be smart, and realize that you could lose it all.

If you need the money in a couple of years, keep it out of the market for now because it may take longer than that for a recovery. A ladder of short term CD's would be a good alternative. The suggestion to move this money to gold is hilarious. Gold futures are down today and if anything is more volatile than equities right now, it's gold. Why buy something that needs bad news to thrive? How depressing.

I think he's right on the money, and should definitely take those funds out of low-interest savings (which is taxable and will eaten up by inflation) and invest in an index fund for the long term. He can also dollar-cost average into the downturn over the next 3 months, but either way he's young enough to see far better returns than staying on the sidelines with cash or gold.

The money I don't need soon (10+ years/retirement) is going into an index fund each paycheck.

When talking about stocks, my dad always said "Never invest more than you can afford to lose".


The money I will need in the next couple of years is going into CDs and a money market account.

I was talking about this with co-workers the other day, and here's my conclusion:

One of two things is going to happen:

1) The market will recover and net 8% increases on average per year until you retire
-or-
2) The entire financial system of the USA will collapase, taking much of the world with it, leaving all our money worthless, and life becomes a daily fight for survival.

If 2 happens, no matter what you do, you're screwed. If 1 happens, you'll make a nice tidy profit!

So my vote is to keep investing - remember, you're buying stock on sale!

In case of Trent D's #2 scenario, buy guns and ammo, not gold.

Seriously though, move the money into the highest interest savings account you can find if you need it within a couple years. Stocks become more and more attractive as they decline in price and dividend yields get better, but it's only prudent to invest in them if your time horizon is 10 years or more. I'm buying equities all the way down though my 401(k), but I don't expect to retire for at least 35 years. In fact, I view it as great news that this crisis is happening when I'm so young, because I get the chance to buy low for a while and have plenty of time to wait for it to come back.

Now why would you put money into this market EVEN IF you won't need it for 10+ years?? Why lose money for 1, 2, 3 years? All that means is that you'll need extraordinary returns beyond that time to break even.

I will never understand why people want to put their retirement on autopilot. I mean, just keep putting the money in there even if average returns are -17% or worse. What if the market doesn't "come back" whatever that means? Get a good return *today*, don't throw away money and wait for a good return in 3, 4, 5 years.

@Sue

I didn't catch what your recommendation for the good return *today* was. Any pointers?

@Matt H.

I think your guns/ammo comment was facetious, but I know people like that. They are sure that the US is going to collapse and they're going to be ready. They've got or are trying to get food supplies, their CB radios, enough camp equipment and fuel to support a small army for several years.

Well one reason is that your donation limit is capped per year to your IRAs. If you wait a few years for recovery, you miss out on your chance.

Sue, please see my earlier comments - either the market will recover (as it has for more than 100 years), or the end will come, and it won't matter what you do. I personally believe we'll recover.

The Great Depression was much worse than what we're experiencing now, and the stock market only took 5-7 years to recover every bit of the losses.

Keep investing if you can afford it. Google "Dollar Cost Averaging" if you don't agree.

Sue said: :::"Why lose money for 1, 2, 3 years? All that means is that you'll need extraordinary returns beyond that time to break even. I will never understand why people want to put their retirement on autopilot. I mean, just keep putting the money in there even if average returns are -17% or worse." :::

You haven't made or lost a penny until you sell the stock. People who can't take the ups and downs shouldn't invest in the stock market. People who are invested should be patient and keep their eyes on the long view. It will either recover, or the world will basically come to an end, and the good money is on it recovering.

Trent:

I think the market will recover to but your time frames for recovering "every bit of the losses" in the Great D are off by a large margin.

The DOW peaked at 386 in Oct 1929.
The DOW troughed at 40 in Jul 1932. Not quite 4 years down.
The DOW passed 386 for the first time in Nov 1954.

That was 25 years and 1 month to get back to the high on the DOW before the crash, not 5-7 years. So to be fair its not always a quick recovery.

Apex,

Thanks for correcting me. The website I found looked very reputable, but had some very misleading information. I did some more looking, and found that information was based off an earlier start year, and therefore not quite as far of a fall.

I guess I should modify my point - something as horrible as the Great Depression took quite a few years - this is nowhere near as bad as the Great Depression.

There was a bear market rally in 1937 or 38. If you bought in 1932 you would have made money.

A big difference between then and now is so many average people now are invested in the market.

I don't know if that's a good thing or a bad thing.

FWIW I still will maintain my 60-40 allocation and continue to invest every month.

As others have said, if you plan to use the money within the next few years for a house downpaymnt then I'd keep it in high yield savings or CD's. Theres too much of a risk of losing large % of the money in a couple years to put it into stocks. If you don't need money for 10 years or more then right now is a great time to invest in stocks.

Jim

I was trying to remember the economic climate 30 yrs ago when there where gas shortages and what happened next. I would buy a great foreclosure house and borrow the down payment from family if possible. Pick a house that has room for an expanding family because in the past, housing costs did not increase that rapidly after the gas shortages but interest rates reached 14 1/2% for a home loan. Plan on staying in the house for 10+ years. I remember CD rates at 18%, this was around 1981.

We have all known about the great depression. If this curent crisis impacts your desire to continue to put money in the market then you don't believe in the market and you shouldn't be investing in it. In that case, put your money in high interest savings or bonds. If you believe in the market, keep buying a diversified holding because things are on sale.

Having said that, you should always think long term when investing so I agree with the advice above: don't move your money from high interest savings to the stock market unless you don't need to see it for long while.

I would develop a regular plan for investing and stick to it. Trying to time the market isn't a game you should think you can win. Remember, i-bankers on wall street work 100 hour weeks and still don't win.

I'm still investing regularly. If you use Dollar cost averaging, then you automatically buy more shares (of whatever it is you buy - index fund, individual stock, bonds, gold, etc) when the price is low and less when the price is high.

Regular investing with an asset allocation plan will weather ups and downs (unless there's a complete financial collapse, in which case you'll be more worried about food and shelter than the market).

I've been putting extra money in index funds over the last week or so, but I don't need that money for many many years. Don't gamble with your home savings and other short term goals. Most young people only need 2 investment accounts: a retirement fund, and a money market fund or savings account. Unless both are seriously maxed out, you don't need other (taxable) stock investments.

So if you really want to take advantage of the down market, open a Roth IRA and invest some cash in a stock index (don't forget to include 20-30% for international stocks). But don't plan on using it for your home.

in my case, my employer matches my 401k contributions dollar for dollar up to 6% of my salary.

many people talk about limited their investments during this bear market or even pulling out the market entirely, but for those of us with matching contributions from our employer, that would be positively sillys....

-for the sake of nice round numbers, lets say 6% of my salary is $1000
-with employer contributions, my 401k increases by $2000 each paycheck
-even if the market loses 25%, my $2000 contributions are only worth $1500, which still equates to a 50% INCREASE on my personal pre-tax contributions despite a falling market.

i will continue to invest at least the amount necessary to get an employer match and think this is prudent advice to anyone with a matching employer contribution.

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