Oh boy! What a rollercoaster it has been in the stock market this month! From the Coronavirus, political campaigns, and now a crude oil crisis, this is probably one of the most uncertain times since I began investing in the stock market. In a time where you don’t know what direction the market will go next, what is there for a new investor to do?
Since February 14, 2020, the S&P 500 is down an incredible 19%. These are losses that are comparable to the massive correction that happened at the end of 2017 and approaching the losses that occurring during the Financial Crisis of 2008. However, should that mean that you should stay far away from buying stocks rights now? The answer may surprise you.
How I’m Reacting to this Market
One of my favorite investors of all time says to “be fearful when others are greedy, and be greedy when others are fearful.” This investor is Warren Buffett. Greed has been incredibly inflated for the last year and a half and this is the first time where we actually have a cause for a downturn in the economy. This downturn came in the form of a coronavirus that has been blown massively out of proportion by the media.
As a new investor, I am deciding to be greedy during this time. I have started a Roth IRA and funded it with $12,000, maxing it out for both 2019 and 2020. I also started a custodial account for my son and an individual brokerage account that I funded with $500 and $5,000 respectively.
The plan is not to buy at the bottom of the “dip” because the market still has plenty of room to continue dropping. We could see a greater correction of 10%-20% before this turmoil is all said and done. However, my goal is to dollar cost average my way through the rest of this uncertainty by adding more to my portfolio every week/month.
This dollar cost averaging approach will allow me to shelter myself from trying to time the market. Over the course of history, the stock market has recovered from every single downturn and continued to make higher highs, and I want to ride the turn around of the market no matter how long it takes.
I have an extremely long time horizon of 40+ years that I foresee myself being invested in the stock market. This time horizon allows me to take more risks with my investment portfolio.
What Am I Buying Right Now?
Right now, I am not trying to buy individual stocks. This overall stock market is down in every industry so I think that it is a perfect time for index funds.
I have opted to purchase an Index Fund that tracks the S&P 500 by the name of SWPPX. SWPPX is offered by Charles Schwab and has a good track record of tracking its index with a very low index ratio.
If you want to read more about SWPPX read here: Schwab S&P 500 Index Fund (SWPPX): What is it exactly?
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As I am not a Certified Financial Adviser, any information that you read here is purely for educational and entertainment uses only. For professional legal advice, contact a CFA.