PurpAnd

On Thursday, October 9, 2008, the Dow Jones Industrial Average closed at 8,579, some 5,586 points lower than the all-time high close of 14,165, set on October 9, 2007. That’s a 39% drop (and it looks like it will be more after today). What’s worse is now we’ll need an approximate (depending on how things go subsequent to this posting date) 65% move upward to get back to that level.

Amazing, I know. Scary? Ya. Time to pull out of the market? Abolutely not. The time to pull out of the market was October 9, 2007. But since it is near impossible to time the market, you’ll just have to look ahead and plan accordingly.

Think about this analogy… You go to the Apple store to look for a new computer. It’s on the desk, looking all pretty and fancy. You mess with it for a while, read about all its features and neat little things it can do, and you decide it would be a good match for you. You must have it. Then, you look at the price tag - JEEZE! $1,800. You can’t do it… it just is too much.

So you leave the store and go about your life, and then one month later, you pass by the Apple store again and meander inside to visit your lost love. Well wouldn’t you know, the darn thing is on sale, $1,099. That’s like a 39% discount!! (See how neatly this math works out?) Knowing this is a deal that doesn’t come around very often, you buy it and feel good knowing you got a great deal. You’ll probably even brag to your friends when you show them, ‘hey, I got this awesome new computer, and guess how much I paid…’

Although you are probably pissed at the market for taking away your hard earned money, my suggestion is look at this as an opportunity to get some quality product at a very cheap price. Not trying to set myself up for blame, what i’ll say is this… if you invest in individual stocks (not index funds), look for companies with lots of cash, little debt, and start picking up little groups of shares now. Who knows how long the market will be on sale. If you invest in mutual funds in a retirement account, and have more than a few years until retirement, DON’T stop contributing.

If the market was good enough to invest in a year ago, at higher prices than today, it seems reasonable to want to buy now when prices are lower.