Stock Market Freefall

Written by Nickel - 21 Comments

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Yikes. Not quite a month ago, the Dow Jones Industrial Average (DJIA) set a record by closing over 14,000 for the very first time. And now? Well, we’re in the midst of another substantial drop, and are now looking up at 13,000 while wondering how much worse things will get. In fact, the S&P 500 is now below where it was at the beginning of 2007, and there hasn’t been much in the way of good news.

The thing that worries me the most is this: I’ve never been one to pay too much attention to or worry about market performance. Rather, I’m a die hard buy-and-hold investor, and market gyrations have never really factored into my thinking. The simple fact that I’m paying close attention to the current situation suggests to me that there are many others who are flat-out panicking. How far things will fall is anybody’s guess. But with normally level-headed people liquidating their market positions, it makes me wonder…

So where does that leave us? We’re sitting tight, and will continue to make our regular purchases via retirement plans and other automated investments. However, I’ve been planning on making a sizable SEP-IRA contribution in the immediate future, and might hold off a bit longer before putting that into the market.

Published on August 16th, 2007 - 21 Comments
Filed under: Saving & Investing
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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Comments (scroll down to add your own):

  1. It’s a correction. Time to buy. Buy, buy, buy! :)

    Comment by Patrick Szalapski — Aug 16th 2007 @ 12:53 pm

  2. If today’s performance holds up, it will probably end the day as an official correction (i.e., 10% drop from recent highs). The real question is whether it will go from correction to bear market. The good news is that P/E ratios aren’t sky high like they were back in .com heyday.

    Comment by nickel — Aug 16th 2007 @ 12:57 pm

  3. I only have one advice for everybody, do not look at the market. Keep your position and wait a good 6 months before you run your stock update. If not, panic will grow in your mind and you will sell sell sell instead!

    Comment by The Financial Blogger — Aug 16th 2007 @ 1:19 pm

  4. Oh, I’m not going to sell. I’m just musing about whether or not we should put more money in right now or wait a bit.

    Comment by nickel — Aug 16th 2007 @ 1:28 pm

  5. I haven’t been paying attention, and just letting my automatic investments go in…

    Now that it’s low again, I’m thinking of pumping a grand or two into my roth. What are the chances it will be this low at the end of the year when I planned on making up what I lacked from the auto-investments?

    Comment by Blaine Moore — Aug 16th 2007 @ 1:47 pm

  6. Ditto your worries, nickel. I am not taking any evasive action, but I also am a little cash-poor so I can’t throw much money in right now either. I’ll sit back, collect a little more cash and watch the market wiggle for a little while. I wouldn’t mind if it floundered around for a bit as long as it eventually rebounds as it has historically. There is a big buying opportunity in here somewhere– but the best (worst?) may be yet to come.

    Comment by Brad — Aug 16th 2007 @ 1:48 pm

  7. I would definitely put more money into the market right now… If I had any! darn!
    At least, I have a monthly investment plan setup. This will average my cost down for most of my investment.

    Comment by The Financial Blogger — Aug 16th 2007 @ 2:09 pm

  8. Why not start that SEP-IRA contribution over time – buy a little this week, a little next week, etc? You won’t be able to call the bottom, but at least you’ll be getting it on the way down, which is much better than getting it on the way back up.

    Comment by Lazy Man and Money — Aug 16th 2007 @ 2:44 pm

  9. I agree with people who say this is a great time to invest. Compared with a month ago, your dollar goes a lot further. I really can’t imagine the market going down TOO much more … but you never really know, do you?!

    Comment by FamilyFinanceBlog — Aug 16th 2007 @ 3:01 pm

  10. I agree that it’s just time to hang in there. I’ve taken the stance that I’m not going to check my portfolio daily anymore. My investments all have strong fundamentals and I believe this is just merely a blip on my long term stock chart…

    Comment by Matt Wolfe — Aug 16th 2007 @ 3:02 pm

  11. Always use this sort of thing as a buying opportunity. In 5 years the market will have bounced back. Read Jeremy Siegel’s Stocks for the Long Run for the analysis on historical rebounds. Lately though, I think he’s off his rocker with his new fund, but the stock market at a low like this is the best time to buy.

    Some folks are advising sell offs and rebalancing, but I find that kind of advise somewhat contrary and useless. By selling in a down market, all you are doing is locking in your losses.

    Comment by mapgirl — Aug 16th 2007 @ 3:22 pm

  12. Put money in now or wait? Well, after a plummet is always a good time to put money in. Whatever happens, it was much better timing than other times earlier this year.

    Or you could put in half (or more) now and save some to try to guess the bottom. Guessing is fun, but too hard to count on. And things tend to move much more quickly than you want them to.

    Or you do some dollar cost averaging, but dude! It just plummeted! Seriously, that is very good timing if you already have “a sizable amount” ready.

    I wish I had some extra long-term money lying around right now. (Must not put short-term or mid-term money in market. Must not put short-term or mid-term money in market.)

    Comment by Debbie — Aug 16th 2007 @ 3:33 pm

  13. even with the downturn, the market is still not at it’s 52-week low. so, there is merit in thinking long term. you have to go back on why you have your positions in the first place. there are plenty of companies that have no exposure to the subprime mess and prices are decreasing. nothing else has changed for them except that their prices are very attractive now. so buy, buy, buy. i did, but i bought stocks that took a beating for no apparent reason except out of panic.

    Comment by Tim — Aug 16th 2007 @ 5:21 pm

  14. So, in other words, you are thinking about waiting until prices go up to buy?!?

    Comment by Dylan — Aug 16th 2007 @ 5:23 pm

  15. Ummmm, no, I’m not necessarily waiting for it to bottom (and potentially start rebounding) before I put more money in. Rather, I was really just thinking out loud. It wouldn’t surprise me at all if the market takes an undeserved beating as people panic and over-react (all the while locking in their losses). For what it’s worth, late today I exchanged a chunk from our Prime MMF into my SEP (Target Retirement 2035). This was actually about a week earlier than I had intended to make the exchange, although I didn’t move the entire amount.

    Comment by nickel — Aug 16th 2007 @ 5:34 pm

  16. I’ve been selling for the past couple of years. I didn’t like the market then, and I like it less now. I probably won’t buy stocks anytime soon.

    Comment by mbhunter — Aug 16th 2007 @ 9:27 pm

  17. This credit crunch is so overblown.. just a ploy for the greedy investment bankers to urge the fed to lower rates. A small part of 1% of mortgages are going bad.. and thats supposed to derail the economy… Please..

    Comment by mb bryce — Aug 16th 2007 @ 9:43 pm

  18. Now is the time to at least start buying.

    Comment by Market Flavor — Aug 16th 2007 @ 11:48 pm

  19. Buy on the way down as long as the equity you are buying into is a sound investment :)

    Comment by MoneyNing — Aug 16th 2007 @ 11:52 pm

  20. I am very excited that my automatic Roth IRA investments start this week! :D

    Comment by MITBeta — Aug 18th 2007 @ 9:26 pm

  21. During the time that I’ve been investing my untold zillions, market volatility has always presaged a correction (by that we mean a potentially gut-wrenching drop…). But it’s not a reason to panic. Sooner or later the market goes back up.

    If you’re feeling uncomfortable about buying stocks now, there are other investments where you can put your monthly savings. For example, if you bought your home for a price that was not unduly inflated, use your investable dollars to pay down the mortgage principal for a while. Or just stash savings in the money market until you feel more confident, and at that time move it into a more active financial instrument.

    Comment by vh — Aug 19th 2007 @ 1:35 pm

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