Tuesday, July 31, 2012

It's just free money

A true investor purchases shares in a fund/stock for the long haul (10, 20, 30 or more years). If you can't commit cash for such a time period, it shouldn't be in the market in the first place. If you can commit cash for such a time period, all this nonsense really becomes meaningless. Just make sure you have 6 to 12 months worth of cash on hand in a money market account. And, make sure you have additional free money on hand for things you know will take place within the next 5 or so years - such as a child going to college, new car, down-payment needed for a home, etc. After that, just pump free money into the stock market and relax and don't listen to all the nonsense in the media. And... this part is important... LIVE FRUGALLY!  Another point for consideration... Do you need money now? The Dow closed at 11,578 at 12/31/2010. The Dow closed at 11,143 on 8/11/2011. That's a 435 point (4%) drop over a 7 1/2 month period. Let me translate that. A hypothetical $100 investment at 1/1/2011 experiencing a similar drop would be worth $96 today. Sure, it would be better to turn $100 to $104 but $100 turning into $96 should not be anything to lose sleep over (UNLESS YOU'VE OVEREXTENDED YOURSELF INTO THE MARKET WITHOUT AN ADEQUATE CASH CUSHION ON HAND). Think of items in terms of the time it takes to earn the money to buy them. Time is a scarcer commodity than money for many of us. A thousand dollars is abstract, for example, but imagining a week at work is not.
It's just free money!