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Stay the course!

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  • Stay the course!

    Markets had a big drop today and have had a lousy year to date and a lousy last three months. This happens from time to time. It is part of being an investor in stocks. You should expect to pass through 5-10 bear markets (a 20% drop) in your investing lifetime and three times that many "corrections" (a 10% drop).

    TSM (Vanguard Total Stock Market Fund VTSMX) is down from $53.86 a share in July to $46.48. That's a drop of 13.7%. It's actually a little less since it has paid two dividends (totaling 50 cents) in that time period.

    I have no idea whether the market will go down or up from here, or if it continues down how far it will go down and when it will start going back up. But this much I can tell, it is highly likely that the market will be MUCH higher when I spend the money I am investing now.

    If you invest in a taxable account, this is a great time to learn about tax loss harvesting. I invested $130K this Fall in a taxable account. It has lost about $15K. But I have also captured taxable losses of $7,000 for 2015 and $9,000 already for 2016. That's right- I lost $15K but get to deduct $16K from my income (although only $3K a year against earned income- but that can be carried forward indefinitely.)

    There are many investing plans that are just fine. However, in order to be financially successful, you have to follow it in times like these.

    Stay the course. If it is hard for you, console yourself with letting Uncle Sam share your pain. If it is still hard for you, start reading up on market history. When you realize how often this sort of thing happens, it makes it a lot easier to see that the world is not ending.
    Helping those who wear the white coat get a fair shake on Wall Street since 2011

  • #2
    That is a great post. Bear markets have occurred, on average, every 5.5 years since the end of WWII. The average intra-year drop is 14.1%. Since 1926, small cap stocks have returned 12 % annually on average and large caps have returned 10%. We have had it easy for the last 6 years and tend to become complacent. We may be another 5 years from a bear or we may be on the edge of the cliff today and NOBODY knows, not even Jim Cramer :-). However, if you are invested in a well-balanced equity mutual fund/ETF portfolio, you regularly rebalance, and you don't have any money in the market that you need to access in the next 5 years, this is the time to invest in your taxable portfolio or convert any tax-deferred IRAs to your Roth IRA.

    If you find yourself getting sucked in by predictors, read The Idiot Makers' Rally and the attached piece that Bob Veres just put out.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


    • #3
      The timing of the latest drop is pretty good for me.  In the first 6 weeks of the calendar year, I make the following investments:

      $18,000 in frontloaded 457(b)

      $11,000 in 2 backdoor Roth IRAs

      $20,000 in 401(k) from profit sharing / true-up 401(k) match from 2015

      $10,000 in 529s

      $10,000 or more in taxable

      I can expect to pick up ~  $70,000 worth of funds at a discount.