This is a follow-up to yesterday’s post regarding the down grading of the US debt.
…I think I made the right decision! While most of news articles regarding the effects of the US debt downgrading on the US stock market focused on people pulling OUT their money, I was putting money IN to my IRA, in the form of an index mutual fund. I’ve got a LONG way to go before retirement, so my long-term strategy is to acquire as many shares of as diversified funds as I can and hope for a nice return 30 years from now. So while I don’t tend to try to “time the market” like investors who are looking to make profits in the short-term, I usually try to time my IRA contributions to days when the market is down, so that I can pick up more shares. Well it seemed to work out well, as in the rebound that occurred today, I made over $300! Woo hoo! While I do expect the market to continue to rollercoaster, I feel that today’s gains justify my timing approach – buy low in order to acquire a greater number of shares, and over time profits will come.
I feel for all of the people who are trying to retire right now…I’ve seen a huge chunk of my parents’ retirement savings disappear with the market downturns. Not an easy situation. But I am learning some valuable lessons from all of this, and the biggest one is asset allocation: The closer you get to retirement, the greater the percentage of your retirement account should be held in bonds, cash, money markets…the less volatile options, in other words! So many people close to retirement age have kept most of their money in stocks and the craziness of the market has led to huge losses for them lately. Planning for retirement sure is a lot harder than I thought! Say you allocate more money into bonds as you get closer to retirement, but find yourself healthy with another 20-30 years life expectancy? You will still need money invested for growth in that case, it seems….I’m not sure what the best option for someone in that situation is!