Tuesday, March 11, 2008

Rethinking a Recession Portfolio

When you buy stock, your money becomes imaginary. You don't have it anymore--you have, instead, a share of stock, which you will eventually sell at a market rate later. It's like any other investment object, really, except less tangible. The asset is the stock, not the money.

To that end, I think I should start thinking of my investments, for the time being, not as an ever-declining balance, but as an ever-increasing number of shares of stock. It will help me to see the real truth of the "you're buying stock on sale!" argument and remind me that I am still making progress, even if the balance is dropping, dropping, dropping.

To that end, I have the following shares:

Fidelity Freedom 2050 Fund: 317.15 shares
Fidelity Total Stock Market Index Fund: 29.06 shares

Roth IRA
Vanguard 2050 Target Fund: 358.31 shares

Yep, that's it! But with the market down, I'll be buying more shares for every contribution to these accounts, so when it comes back up, I'll see bigger gains. This is just a reminder to myself to hang in there.


PiggyBankBlues said...

excellent post! that is exactly what i started doing, looking at the number of shares. that's the great thing about dollar cost averaging, when you buy every month, you snap up more shares when the price is low. it's like a tag sale out there :)

Andrew Stevens said...

Especially given your age. If you were in your 50s, perhaps you should be worried. However, unless you think the NYSE is going to go into a complete meltdown and never recover, which has got to be a four or five sigma possibility, then you'll still be well off in the long run.

In my opinion, if you are an investor in your 20s, you should get down on your knees and pray for a market crash. A many year long bear market (like, say, 1966-1982) should be just fine from your perspective as long as you have the guts to stick it out and keep buying and so long as it is followed by a big bull market eventually (like, say, 1983-2006).

Personally, I'm an optimist. There are some problems in the financial sector right now and that's a big deal, but the fundamentals of the U.S. economy are still quite strong. There's no reason on earth why we shouldn't recover pretty quickly. But no question there will be some short-term pain.

Fashionably Frugal said...

I was curious if you had a referral link for Pinecone Research, I'm really interested in signinu up but you have to be invited :(

Anonymous said...

Very wise, encouraging post.

mOOm said...

That's the correct approach in investing unless a company's business is permanently impaired or goes to zero (bankruptcy). This happens, has happened to me more than once. With such broad funds and long-term perspective (retirement accounts) as you have this isn't very relevant unless there is a fundamental impairment of the economy. There is no sign of that yet despite rising commodity prices, climate change etc.

Badger said...

Excellent post. It never hurts to hear stuff like this--as much as I might logically understand that unrealized losses (such as my retirement accounts have suffered lately) aren't really losses, it's sometimes hard to keep that in mind. Like Andrew said, a market crash would be just the thing for those who are planning for the real long term...

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