Thursday, October 9th, 2008...8:38 pm

Resisting the Urge to Invest

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Creative Commons License photo figure credit: zesmerelda

On Monday of this week, I had to leave the office early to visit the home of one of my company’s customers.  On the car ride, I listened to story after story on National Public Radio about the Financial Crisis, and more specifically the fact that despite the passage of the rescue bill over the weekend, stocks were falling through the floor.  The Dow Jones Industrial Average was set to close below 10,000 points for the first time in years.  And all the time I couldn’t think of anything else but to call ScrapperMom, who would likely be near a computer, and ask her to move some of our cash into equities.

Thank goodness I didn’t, because the market has lost almost 15% since then.  But now I’m just salivating more at the prospect of picking up some market index funds at such low prices.  Am I crazy?  I’m not sure.  Everyone is reacting to the market — and all in different ways.  But the truth of the matter is that the rational me knows that I probably should not change my long term investment plan based on what the market did today.  So it really requires me to take another look at my investment plan and then act accordingly.

Here’s where the problem comes in: I don’t really know what my long term investing plan is.  We’ve written here before about many of our financial goals and priorities. Since visiting a financial planner for a free consultation about a month and a half ago (Side story: The planner at the time had hinted at the suggestion of bonds issued by Lehman Brothers since they were paying something like 7% interest… I wonder why I haven’t heard from the planner since our meeting…), we finally decided to reduce the aggressive paydown of our low interest debt in favor of other priorities.

Saving for retirement is certainly one of those priorities, and given this, the current market is the perfect time to invest in order to capitalize on the “buy low” strategy.  Sure, the market could go lower still, but the rebound, whenever it does occur, will almost certainly end up higher than the current market within 20 to 30 years, and therefore money put into the market now should be a good investment.

However, building a substantial emergency fund is also one of our priorities, and given the current state of the economy, cash is probably not the worst position for our money.  While both of our jobs seem fairly secure over the next year or so, the truth is that anything could happen at any time.  I actually have no idea whether my paycheck is dependent on the ability of our parent company to borrow money, and if so, what will happen if it becomes unable to do so.  ScrapperMom works in a field that caters to higher-end tastes, and so far the only effect the slumping economy has had on her line of work is the choice of whether to build the garage to the vacation home now, or hold off until the market rebounds a bit.

I have considered our income position a number of times over the last year or so, and the diversity seemed to pretty much assure that we would continue to have at least 1 out of 3 major incomes at any given time.  I think that is still true, but I’m not as sure as I used to be.  It is unfortunate that it has taken a serious financial crisis to finally drill into my head the need for a substantial emergency fund.

To that end, I think that I will hold off on moving from cash to equities, at least for now.  But, if the market starts to rise quickly, soon, I know I’m going to feel a bit sick over not taking advantage of it when I had the chance.  What’s interesting is that people are often told to take on as much risk such that they will still be able to sleep at night.  For me right now, I feel like not taking on sufficient risk is going to keep me up nights…

What about you?  Are you hanging on tight to the roller coaster ride?  Did you get out of the market already?  Are you plowing cash in?  What would you do in our situation?  Let us know in the Comments Section below!


  • I’m with you: it’s getting really, really tempting. I haven’t reacted at all to the market… yet.

  • I’m tempted as well. When fear is at its peak, so is opportunity. But it takes some guts. I’m moving some more cash into equities and municipal bonds and keeping some on the sidelines.

  • It was Warren Buffett who said:

    “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”