Wes Moss: How a market plunge can help you

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His regular guest post appears here Monday mornings, but filed this entry in light of Monday’s market plunge.

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Nobody wants to talk to his or her financial adviser when the market’s humming along. But, man, just one little slide in the Dow of 600 points-plus — like we saw Monday — and everybody wants their money guy on the phone now! That’s completely understandable. In fact, it would be understandable if, after the market performances of Monday and last Thursday, investors wanted to talk to their mommies or even curl up with a favorite stuffed animal. It was scary stuff.

There are lots of reasons to be pessimistic about the economy and the short-term future for the market. But remember this: No one builds wealth buying at peaks. You build wealth buying when there is blood in the streets. (If the S&P downgrade’s still heavy on your mind, see my Monday post.)

If you acquired real estate in 2006 or 2007, for example, chances are it will take more than a decade for you to just break even. But buying property today, and holding it for a decade, will likely make a very positive impact on your net worth.

The same thing goes for investing in your 401(k). Let’s say you’re contributing a few hundred dollars per month to your company’s retirement plan –- the same amount each paycheck. Well, with this paycheck you’re putting in the same amount of money as you did last pay period, but now — if you are invested in a stock-oriented mutual fund — you are buying a full 10 percent more. That’s good old-fashioned “buying low.”

If markets fall another 10 percent, your buying program gets even better: the same companies, at lower prices. It’s like a sale at your favorite store. And, depending on your circumstances, you have years, maybe even decades, for those bargains to regain and expand their value.

What if you are already on the cusp of retirement, or actually in retirement?

How often do you talk with your financial adviser?

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I hope your retirement investment strategy included a move away from stocks as you drew close to retirement. Bonds can provide some calm in a storm like this along with a steady, predictable stream of income.

Speaking of income, make sure your investment and retirement assets are generating an income, regardless of market direction. Most portfolios should have a mix and balance of dividend-paying stocks, interest-producing bonds and energy-related companies that pay distributions.

It shouldn’t take a “market event” to prompt a conversation with your financial adviser. Stay in touch with the people who manage your assets on a regular basis. Make sure they are up to speed on what’s happening in your life and any needs or concerns you may have about your investments. I guarantee this will help you sleep well at night, regardless of whether the market is soaring or swooning.

So, regardless of how the market ends up today, what’s your investment thinking for the rest of the year?

Does the current market volatility rethink your definition of “long term”?

– By Wes Moss, for Atlanta Bargain Hunter

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9 comments Add your comment

[...] Atlanta Journal Constitution (blog) [...]

CHUCK UGA

August 9th, 2011
10:30 am

The statement that it will take at least a decade to break even on property bought in 2006 or 2007 in only a half-truth. If you bought property in the “right area,” you will be beyond break even within five to seven years, possibly less. No one can predict the market, but Atlanta is and will remain a hot area for relocations.

Truth

August 9th, 2011
12:56 pm

My 3 pronged strategy has and will continue to be:

1. Buy blue chip, dividend yielding stocks. Once there is “enough” cash, buy more blue chip, dividend yielding stock. Repeat. Repeat. Repeat.

2. NEVER sell the stock. If you get in a pinch and need some money, limit yourself to the cash account.

3. Live within your means.

ATL4REAL

August 9th, 2011
1:12 pm

I’m an investement banker and i trade on inside information that i come across at work. Of course, not in my own account, its a friend of mine’s. we split the profits and he writes me a check for my share.

ecas001

August 9th, 2011
1:34 pm

just remember it is really not a bargin if you can buy it for half the price 2 weeks later.

Archie Karas

August 9th, 2011
1:43 pm

Because I dont have the kind of information ATL4REAL is privvy to, I have to come up with my own plan which is as follows:

I seperate all their money into 3 areas, risky,riskier, riskiest of all.

Risky involves money for things like sportsbetting and card playing. This involves strategy, research, and skill. While being the least risky of the portfolio, I’ve found it to be most profitable.

Riskier encompasses the money I use for my coinflipping. I’m not opposed to using my opponents quarter when coinflipping, as I’ve found it really doesnt matter whose coin is used as the results are nearly the same regardless. I actually prefer doing a set amount of coin flips per session rather then freezeouts. I’ve found this limits the volatility of coin flipping and can be quite profitable if you know what you are doing.

Riskiest encompasses my stock/option purchases. Riskiest because before you even start, you are dealing with a market that is manipulated, so the deck is stacked against you even before you make a move. In other words its run by criminals. Unlike what most people think, investing in the stock market involves no skill, talent, or brain power. This has been proven time after time by that monkey who throws a dart at the wall street journal stock page to pick his stocks. in fact, the monkeys results often outperform “analysts” that are paid tens of millions of dollars a year. So if you are in the market to open a hedge fund yourself or are even looking for personal investment advice, I’d recommend hiring monkeys if you dont find cleaning up their messes because otherwise they are pretty low maintenance. Now I cant go into details on how to obtain the smartest monkeys, but its safe to say they are way cheaper then the Wall Street suits.

Truth

August 9th, 2011
1:57 pm

Whole Life with increasing cash value and death benefit is the way to go.

Mr. Ed

August 9th, 2011
2:24 pm

“This has been proven time after time by that monkey who throws a dart at the wall street journal stock page to pick his stocks. in fact, the monkeys results often outperform “analysts” that are paid tens of millions of dollars a year.”

That must be some strong weed.

Carl

August 9th, 2011
5:52 pm

Archie: Funniest thing I’ve read all day. I need to do some “market research” on this coinflipping thing.

Mr. Ed: For the most part, Archie is not wrong. Read “Unconventional Success” by David Swenson. Us mere mortals can make some money in the market, but not by paying fools a ton of money to lose ours.