The Stock Market is on Sale

15May08

It is a great time for young investors. The smell of a recession…ahh. You might think I’m doped up or plain out of my mind, but listen. Sure gas prices are at an all time high, the cost of milk could’ve bought you a really cheap haircut, and interest rates flat out suck. Recessions are no fun, but shopping is. If you don’t believe me, ask your girlfriend, and if you’re a girl, don’t lie to me – you enjoy shopping.

The Stock Market is Having a Sale

So many people are afraid to invest during a recession. You hear quotes like “wait until it’s over” or “take your money out of the market and put your money in cash.” The people who say that are emotional, not diversified, and not money smart. You might argue that even if you are fully diversified in a recession you will still incur losses. True – but here is the real kicker. If you are fully diversified you will have the confidence of buying stocks/funds at a bargain price. It’s like scoring a $5 t-shirt that is normally marked up at $25. Once the recession is over, and prices of equities begin to rise, you’ll see that you’re making money once again. This time however, your gains are exceptionally higher because you bought at such a low price. Now think about the people who stopped investing, or converted all of their assets to a cash position. If the recession lasted say a year, they would only be gaining a low interest rate if they were saving cash in a high yield savings account. They would be missing out on a perfect buying oppurtunity which would reward them if they had just invested over the long term.

Recessions Are Not Quick Wins

If you want to make a quick buck, take your money somewhere else, like Vegas. It’s tough to win that chicken dinner in the stock market, because you’re just gambling. Unless you trade stocks for living and have the resources to do true technical analysis, buy and hold is the key to making money over the long term. If you have a lazy portfolio just put your investments on auto-pilot. Don’t look at your portfolio until the end of the year. Hopefully a recession is out of sight, and you’ll start to see the huge gains you’ve made by investing smart, during a recession.

Don’t Sell

If you are selling your funds during a recession you’re dumb. If you aren’t at a loss, it might scare you to lose your earnings, but never sell at a loss. Buy and hold. Unless your stock or fund is really bad don’t sell out. Another reason why I recommend solid index funds. You don’t have the problem of wanting to sell out.

Classic Buy Low, Sell High

A recession is the perfect time to buy low. You will have months of low market prices which give you great purchasing power. When the stock market bounces back, your investments will grow and that is how millionaires are made. It’s not rocket science.

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Tags: buy low, investing, recession, sale, sell high, stock market