New Financial Plan

With the market already down a good chunk for the year, and a big drop on Tuesday, it looked like a great buying opportunity.  A common feeling is that when things are cheap it is time to buy more of them.  That is why stores have sales.  It is the reason people suggest buying stocks when everyone else is selling.  There is a bit more to it than that.  Everyone believes the market will go up over the long term, and most people feel the market will move up relatively soon, as several quarters of back to back declines are considered unlikely.

I also assume those are true.  I agree that indexes are the way to go, that over time they will go up, and that large dips are buying opportunities.  If I had enough free money to play with I would trade on big market moves.  The trick is having enough money with enough flexibility to make up for transaction and account fees while keeping the right risk strategy.  Unfortunately I am not in position yet to have money for that type of investment.

I believe that you should time financial moves when you can.  If you itemize taxes it can make sense to pay taxes early, or to delay income.  It can pay to sell losing investments to offset gains.  When buying or selling a house you hope to find a relative bargain when buying, to get a high price when selling, and to meet the criteria for tax exemption of profits.  When buying and selling investments you also have to look at the prices when buying and selling, along with distributions, gains, and taxes.  Those are all types of timing, although for slightly different reasons.  With investments you have to invest according to your goals.  My goal is aggressive allocation, timed deposits, and frequent evaluation with adjustments as needed.

My investment strategy is all about retirement.  The retirement funds I hold use a two day delay to discourage timing.  They also have restrictions on moving back into a fund within so many days of selling it, and many funds now charge fees for selling within so many days of purchasing.  I know the limits and fees I have to work with.  For those reasons this week was not a buying opportunity for me.  Without those restrictions, if I had free money to invest, I would have looked at buying some index ETFs on Tuesday morning and been watching for a bounce back.  Even yesterday, if you had money to invest in the morning, could have been a very quick gain of a couple percent.

Since I know the limits and delays in my retirement accounts I put my investments in last week.  You could say I missed this bottom by a day or two, but I wasn’t trying to find the bottom.  I am investing according to my plans.  Being relatively early in my investing plan I am able to be aggressive.  I invest throughout the year and fully fund IRA accounts.  But I do not simply throw money in as it becomes available, or at set points each month.  Instead I buy when the price seems right.  I thought about investing throughout October, November, and December.  I decided to wait then.  With the nice discount January had already brought it was good enough for me.  Very soon the market could move down again and go for a full correction.  In that case I will do everything I can to come up with money to invest more while it’s down.