ANCHOR: WITH THE MARKET ON A ROLLER COASTER, HOW DO YOU KNOW WHEN TO BUY AND WHEN TO SELL? WGN’S MONEY SAVING EXPERT ILYCE GLINK IS HERE WITH SOME SUGGESTIONS …
ILYCE: UP 300 ONE DAY, DOWN 300 THE NEXT, EXCEPT THAT OVER THE PAST 18 MONTHS, THE U.S. STOCK MARKETS HAVE HAD MANY MORE DOWN DAYS THAN UP – AND NOW, SOME ECONOMISTS ARE TALKING ABOUT A DOUBLE DIP RECESSION, WHICH COULD MEAN MORE DOWN DAYS FOR THE MARKET IN THE MONTHS AHEAD. HOW DO YOU INVEST IN THIS KIND OF UNCERTAIN MARKET AND FEEL GOOD ABOUT IT?
DOLLAR COST AVERAGING IS THE OFFICIAL TERM USED TO DESCRIBE REGULAR INVESTMENTS IN THE STOCK MARKET.
PUT MONEY IN EVERY MONTH, EVERY QUARTER, OR EVERY YEAR.
DON’T WORRY ABOUT TRYING TO TIME YOUR PURCHASES TO HIT THE STOCK MARKET LOWS. INSTEAD, BY REGULARLY INVESTING, YOU’LL PURCHASE MORE WHEN THE MARKET IS DOWN, LIKE IT IS NOW, AND LESS WHEN IT GOES UP,
BUT OVERALL, YOU’LL GET MORE FOR YOUR MONEY.
I’M OFTEN ASKED WHAT INVESTMENT IS BEST. CLEARLY, THE STOCK MARKET OUTPERFORMS ANY OTHER TYPE OF INVESTMENT OVER THE LONG RUN. TAKE A LOOK AT THESE NUMBERS FROM A RECENT IBBOTSON STUDY.
IF YOU INVESTED ONE DOLLAR FROM 1925 TO 2001 IN THE STANDARD AND POORS 500, THE 500 BIGGEST COMPANIES IN THIS COUNTRY, YOU’D END UP WITH A LITTLE MORE THAN $2200. ON THE OTHER HAND, IF YOU INVESTED $1 IN TREASURY BILLS, AFTER 75 YEARS, YOU’D ONLY HAVE $17 DOLLARS AND 20 CENTS. CLEARLY, YOU WANT TO INVEST IN THE STOCK MARKET. BUT WHERE?
FOR MOST PEOPLE, THOSE WHO LEAD BUSY LIVES AND DON’T HAVE ANY DESIRE TO BE DAY TRADERS, THE BEST STOCK MARKET INVESTMENT WILL BE A MUTUAL FUND. I’M PARTICULARLY FOND OF INDEX FUNDS, BECAUSE THEY’RE VERY EASY, NOT TO MENTION, CHEAP TO OWN. IF THE INDEX CHANGES, THE FUND AUTOMATICALLY CHANGES, AND YOU DON’T HAVE TO DO ANYTHING.
MORNINGSTAR.COM HAS EXCELLENT INFORMATION ON THE 12,000 MUTUAL FUNDS AVAILABLE, BUT YOU SHOULD ALWAYS READ THE PROSPECTUS AND DO YOUR HOMEWORK BEFORE MAKING ANY INVESTMENT.
TO MAKE THIS WORK WELL ENOUGH TO SURVIVE ANOTHER BIG BEAR MARKET, LIKE THE ONE WE’RE IN NOW, YOU HAVE TO DIVERSIFY YOUR INVESTMENTS. THAT MEANS OWNING A MUTUAL FUND THAT HOLDS BIG COMPANIES,
A TOTAL MARKET INDEX THAT HOLDS AT LEAST 4,000 TO 5,000 COMPANIES, A FUND THAT SPECIALIZES IN SMALL TO MEDIUM-SIZE COMPANIES AND ONE THAT HAS INTERNATIONAL EXPOSURE.
IT’S GOING TO TAKE SOME TIME TO DECIDE WHERE TO PUT YOUR MONEY, BUT ONCE YOU GET GOING, YOU WANT TO MAKE REGULAR CONTRIBUTIONS NO MATTER WHERE THE MARKET IS. THAT’S WHAT DOLLAR COST AVERAGING IS ALL ABOUT. AND FINALLY, IF YOU CAN’T EXPLAIN THE REASON WHY YOU’RE PURCHASING AN INVESTMENT SO A TEN YEAR OLD CAN UNDERSTAND, YOU DON’T UNDERSTAND IT WELL ENOUGH TO BUY
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