Friday, October 24, 2008

The Silver Lining on the Stock Market

Yeah, the stock market is not doing that well. A lot of people have seen the value of their investment portfolios decline by tens of thousands of dollars. The loss in value is gut wrenching.

For the vast majority of investors, the absolute worst thing you could do would be to convert your stock holdings to cash. As long as you hold on to your stocks and mutual funds, you haven't lost anything...yet. Sell in a down market and you lock in the losses.

That's not much reason for hope. For some of us, the current downturn does have a silver lining. If you have more than ten years until you expect to retire and you're still investing, you may find that the current downturn will be a good thing.

The monthly contributions you're making toward your retirement are buying a lot more than they did a year ago. When the market turns around...and it will own more shares than you would have without the decline. That's dollar-cost-averaging in action. With regular contributions, your money buys less when the market is up, and more when the market is down.

That's what I'm holding on to as I watch the value of my portfolio drop. I'm still contributing each month, and those contributions are going into primarily stocks and large cap mutual funds. I have at least twelve more years to go before I can retire, and that's plenty of time for the market to turn around. When it does, I'll end up with a lot more in my portfolio than I would have had without the current downturn.

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