Time Machine Investing – DJI Take 2



That was the cry of the financial news media in the first few weeks of 2016.

Report after report were calling this a bad time for investing.

What journalists call a correction – I’m calling an opportunity.

Let's Take the Stock Market Wayback Machine

The DJI (Dow Jones Industrial Average) has been steadily gaining ground since the low of 6,547.05 in March 2008.

It was a very scary time. The news was consumed with foreclosures, bank closings, and 401(k)s that looked more like 201(k)s.

Many people cashed out a portion, or all, of their investments. “The Great Recession” scared millennials from even starting to put money into their retirement plans at work.

peabody's wayback machine per wikipedia

Image Courtesy Wikipedia.org

If they had a Wayback Machine like Mr. Peabody and Sherman they might have made a different choice.

Fast Forward To Today (February 2016)

The DJI (Dow Jones Industrial Average) closed on February 12th, 2016 at 15,973.84. Compare that to February 12, 2014 – exactly 2 years earlier – when it closed at 15,963.94.

DJI 2 year performance 2014-2016

What does this mean for us?

Your retirement accounts and mutual funds might indicate there is a problem, but all I see is an opportunity!

It means we don't need a time machine to take us back to 2014 prices.

We have a second chance to buy into the market. Sure, there are some real difference between then and now, but overall this is a great time to STAY invested.

Except for one thing…

Reinvested dividends

One feature of many mutual funds and stocks are dividends. This is a portion of a company's profits that are returned to you on a regular basis.

We let those dividends re-invest to purchase more shares of the same fund.

Then, when values increase our overall portfolio increases as well.

For instance, I'm doing an experiment where I put $100 a month into a Betterment account. Each time a dividend is cut, the proceeds are put towards buying another share (more like a portion of a share, really).

And when prices are lower, I can buy a larger fraction of a share than if prices were higher.

Growing Wealth Even When Times Are Bad

My dividend payout for the Vanguard FTSE Developed Markets (VEA) in December bought me another .209 shares. The price for this ETF is down from two years ago and would have only purchased me .148 shares back then.

Let's pretend the ETF was priced at $40 in 2014 and $30 today. My new .209 fractional share is worth $6, but if the price goes back up to $40 a share then my fractional share will be worth $8.

Not to mention the fraction of a share that a fractional share will throw off over the next few years.

Pennies growing more pennies.

None of this matters if the price drops indefinitely, but I'm placing my bet on the future.

The Juxtaposition of Daily Financial Reporting

If your investment decisions are affected by what you are hearing in the news then keep in mind you are only hearing a snapshot of the market's activity. It's like judging the Empire State Building by the condition of a square on the sidewalk outside the entrance.

Let me show you an example: Here are some of the articles from Yahoo Finance.

Yahoo Finance articles February 2016

Notice the first two articles from Friday contradict the messages you may have received the day before.

“Tumble, Risk Grows Sparking Recession, DOOM LOOP, Stocks Tumble, Investors Flee to Safety”. Holy smokes – run for the hills!

But then Friday comes: “Rally in U.S. Stocks” and “Stocks will likely be higher in six months”.

Why the juxtaposition? The market had regained 313 points that day.

Had we stayed out of the market on Thursday we would have missed the rally on Friday.

Rejecting the Fear of Falling Prices

If you are nearing retirement, then falling prices are a serious concern for you. But take comfort knowing that you've survived high inflation during the 1980s, the Tech Bubble from the turn of the century, and the most recent Great Recession just a few years later.

Those opportunities challenged your resolve and likely assisted you in growing the wealth you have built. Don't let the fear of falling prices stop you now.

If you are young, take this message to heart. You have a long time to make mistakes and grow past them. Don't let the fear of falling prices dissuade you from investing.

Stick to your moneyplan.


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