Nate @ Money Young

Ramit, thanks for the data. This is exactly why I continue to invest my money in the market. I can’t wait for the uptick. Patience is key.

-Nate

Stop Getting Cheated

Ramit, I think this past year has offered one of the best climates for continued investing. Collective fear has hammered the market to discounts we may never see again. I have been heavy long in UYG, UWM and DXO. Both DXO and UYG were under $2/share. I know my view is not for everyone, but I think there is going to be a huge upside.

Thank you for your excellent post.

Chris

Whenever I hear people these days acting like it’s completely stupid to invest in the stock market right now because it’s “obviously going down every day”, I ask them why they aren’t just shorting the whole market. When they stare at me in confusion and ask what a “short” is, I know they have no idea what they are talking about.

Then again, I also laugh at people saying it’s an “obvious” discount. No one can predict the future. The current price is just the current price, neither a discount or overpriced.

Neal Frankle

A great piece to remind investors that perspective and understanding has to trump emotion if you want to stay on track financially.

Goal Hunter

Ted: Tell us why the argument is illogical — I’m interested to hear. It’s pretty common knowledge that stock market returns are not normal, but have lots of “improbably large” swings.

Ramit, your comments are spot on in when you qualify them by saying “If you believe … then …” but where do YOU stand?

I believe that the recovery will come quick. It will come too quickly for most of the cautious investors who will miss some of those huge up-ticks. I think now is the time to put your money at risk — risk of a profit. I’ve moved money out of real estate to increase exposure to stock market.

Jeremy Freelove

I’m guessing Ted’s problem is that they are ignoring the potential benefits of also missing the 25 days when the stock market performed the worst.

lump sum investing

I’m not discouraging anyone from investing in the market, but this is nothing more than a biased marketing pamphlet. It appears to me that they’ve shown how a single time, lump sum investment performs over an arbitrary 32 year period. Who invests like that?

How about the same analysis over a 10 year period ending in March 2009?

Where do they account for gains through other investments made by the investors who sat out of the market?

rich @richlikeyou.com

I have 2 friends who both recently told me that they recently cut their 401k contributions. One was maxing out his annual contributions, and the other was putting 28% of his income in. They both dropped down to 4%. This move struck me as odd but they both insist it is the right move since their accounts have been dumping. I have always believed in dollar cost averaging and the fact that when stocks are cheap it is the best time to invest. I think some people get to emotionally tied to watching their investment accounts and fear that they will never recover. This fear gets the best of them and they miss out on great opportunity. I wish I was in a position to max out my annual retirement contribution limits, I would be all over it.

Molson

To me this is the same fallacy that financial companies have been shouting for years. Over the long term, the stock market will only go up. If you believe in the basic principles of the market you would see a fundamental flaw in this logic: if over the long term the market will only go up, then there is no risk.

chris

I already received a copy of your book from Amazon…. I thought it hadn’t come out yet. Strange!

Great read so far!

Carlin

I tell my friends and people I work with this each time they start freaking out about the stock market. If the Dow goes to 0, you’re going to have much bigger issues to deal with than the amount of money you lost in your 401k. I think it puts things into perspective – there are things you could lose that are much more important than a few thousand dollars of investment value. Instead of obsessing about whether or not the market is crashing, leave it alone, and focus on working your ass off to make yourself more valuable at work – just in case.

Danielle

I think a more useful example would involve parties that start out investing the same dollar amount each month.

1) S&P 500 – continues to contribute the same amount per month
2) S&P 500 – contributes $x more per month than they were before when the market drops 10%
3) S&P 500 – Stops contributions temporarily anytime the market drops 10%
3) 60% S&P/40% Bond – continues to contribute the same amount per month
3) 60% S&P/40% Bond – Contributes $x more per month anytime the market drops 10%
4) 60/40 – Temporarily stops contributions anytime the market drops 10%

Personally these ideas all sound great, get the stock while its cheaper, but as one of the multitude of unemployed folks, I have had to redirect my funds elsewhere.

For those who have friends pulling out of their 401K’s, ask them if they are using the money to create or bolster their emergency funds, because you really can’t argue with that!

Generration Millionaire

It seems people are always doing it backwards – buy high – sell low, dollar cost average in during the ups and downs – unless our total system fails – this is still your best option for keeping up with inflation and hoping for a secure retirement

SJ

I’m confused by the point of the first article.

Why would you ever sell if you were planning on buying back in when the market broke even???

I don’t even have to run simulation on market to tell you that the last two will fail…

JMW

It’s my feeling that your approach to discussing this topic has some key drawbacks. That isn’t to say you are necessarily wrong on a factual basis, Ramit. Your analysis is keen and rational. But the issue, in my view, with teaching people how to invest is that people are not rational; in fact very rational people approach investing in the market with their emotions first.

I am not sure that your article addresses how someone overcomes the emotional component of investing continually as the market drops. People really need to feel comfort with their investing decisions as the market declines, and too often in my experience smart people — such as yourself — put forth rational cases that make sense “in the long run” but there’s no emotional support behind it. Benjamin Graham himself readily admitted to the passions that fuel investors’ actions and the level of stomach it takes to hold on while your stock’s value drops.

Personally, I completely understand why so many have pulled out of the stock market. The drop has created a great opportunity for investors with stomach and extra cash to spend. But few people have those qualities, and in fact I suspect that will fuel a crisis of confidence in the market for some time.

There’s a soft side to the question “why would anyone keep investing …”? How does someone keep investing after watching 40-50% of their money disappear in a few months, money they don’t have, money they might need if they were laid off? The answer isn’t charts or an appeal to reason or the long-term. The fact is most people need to be “coached” directly through these times; good financial advisers know this, they call whenever the market moves, but unfortunately they won’t be available for most people. I’d suggest as an alternative (just trying to be creative) that people who invest, even passively, form groups and help each other keep their resolve. It’s interesting in our society that people support and coach each other through personal tragedy, but not through something as basic as investing for retirement. It’s a thought, anyway …

Weekly Dividend Investing Roundup - March 14, 2009 | The Dividend Guy Blog

[...] Why would you possibly invest when the market tanks [...]

The Masked Financier

I’ve stated similar views on other posts before, but I think blind investing of money into the market is not a good idea.
If the objective is to teach people how to be rich then there needs to be some effort to teach people how to invest wisely not only with respect to timing of getting money into the market, but how to invest. After all, Ramit’s method is simply a way of enforcing discipline onto an investor rather than subjecting oneself to the emotional trauma of the markets.

As an example, one could make some effort to replicate a strategy like Warren Buffett’s in terms of getting money into the market i.e. only invest when certain criteria of valuation are met with respect to the whole market. This wouldn’t perhaps help an investor achieve WB’s returns, but it would probably help to outperform the general market indices and provide some downside risk protection. it would also do so in a mechanical way, a little like Ramit’s method but with some more intelligence.

Just instructing people to blindly put money into the markets in a gradual way is somewhat irresponsible IMHO.

Christophe Keller

Hi Ramit,

Any thoughts on ETF vs index funds? I read your book and would like to invest in index funds but I live in Europe (Belgium) to be precise and I don’t have access to Vanguard or Fidelity index funds as an individual. It seems however that I could buy ETF’s from those via an online broker or my bank. Oh yes in Belgium we don’t have capital gain taxes