Comments (scroll down to add your own):

1. Hmm, starting investing 6 months ago, just before everything bit it? Thats exactly what happened to me. My fund WWNPX is down 40+% as well. And yes, I still plan on investing in it as its down.

   Comment by Rob — Oct 10th 2008 @ 9:17 am

2. My husband and I are in our mid 20s and see the downturn of the economy as an opportunity to start our Roth IRAs with a little more bang for the buck. We just can’t figure out if we should fully fund 1 or start one for each of us, but most likely not max out either. Any suggestions?

   Comment by Nicole — Oct 10th 2008 @ 9:25 am

3. For the sake of fairness, since you say constant investing, let us look at the opposite effect.

   Shares start at $100, go up 50% in value, then drop back to the original value with 18 months to get to the top and 18 months to get to the bottom just like your example.

   Original investment: $10,000 @ $100/share = 100 shares
   Year one investment: $10,000 @ $133.33/share = 75 shares
   Year two investment: $10,000 @ $133.33/share = 75 shares

   At the end of the period that is $25,000, so you have lost $5000 (20%) while the market has gone nowhere.

   My point is it cuts both ways with constant investing…

   Comment by Brandon — Oct 10th 2008 @ 9:51 am

4. Gaurav here…interesting post…even in a down market you should stick to your guns and maintain the fortitude to whether the storm.

   Comment by GarvFinancial — Oct 10th 2008 @ 11:08 am

5. Brandon has a decent point, which is what most people in their mid-late twenties are facing if they started dollar cost averaging into their employer sponsored 401K’s after college.
   The bright spot is that now these same folks should be hitting the prime of their careers, making more money and able to invest more – which should turn out very nicely for them at retirement time if history is any indication and they stick to the plan.

   Comment by Tyler @ Dividendmoney — Oct 10th 2008 @ 12:42 pm

6. …yes, Brandon makes a good point.

   Regular investing pays dividends in ’some’ types of market turmoil.

   Take the real-world example of an S&P 500 Index Fund over the last 3 years — and your advice would have caused an investor to lose a third of his money.

   Obviously, there are other significant factors to be considered besides mere ‘regular’ investing.

   Regularly buying winning Lottery tickets is also a profitable investment approach — but it’s a bit more difficult in practice than in general principle.

   Comment by Alan — Oct 10th 2008 @ 7:14 pm

7. How can you say that it’s a flat market when there is a 33% increase (or decrease) between the first and second year ??
   You peeps must have taken notes from Enron !

   Comment by Eric X — Oct 11th 2008 @ 12:25 am

8. Eric: It’s flat when comparing the start and end point. The volatility in between is what generates the earnings.

   Comment by nickel — Oct 11th 2008 @ 12:27 am

9. You said “the market didn’t go anywhere”, yet it went from $66.50 to $100/share in your example. Hasn’t the “flat” period in the market been at the $66.50 level? (relatively, not the exact amount)

   That breaks the example since the example requires that the second two investments get a 50% gain ($66.50 to $100 per share). At that rate, people would be pooring money into the market, but it is not doing that.

   Comment by Brad — Oct 12th 2008 @ 9:22 am

10. Brad, re-read the post. I’m responding to the gloom and doom statements about how long it can take the market to get back to even. Simply stated, those that make such claims are assuming that you simply freeze your holdings and what for the recovery, but for people in the accumulation phase that won’t be the case, and you’ll get back to even much more quickly (and/or profit by the time the market as a whole recovers).

    In my example, I specified that you bought in at $100, and that the period in question ended at $100. So over that period, the market as a whole was flat. Yes, it rose from $66.50, but it also fell to $66.50 before that (actually, it bottomed at $50, but I assumed that you didn’t have perfect timing). Nothing about my example is broken — you nailed it on the head.

    If you sit tight and do nothing, you have to wait for the market as a whole to recover. If you sell, you lock in your losses. But… If you continue investing through down periods, that “new” money will go into the market at a relative low point, and will generate positive returns while the “old” money is still struggling to get back to even.

    Comment by nickel — Oct 12th 2008 @ 4:19 pm

11. My point still stands. You have to get a 50% increase to go from $66.50 to $100, which is what would have to happen to “regain” the “lost” money.

    It assumes things will go up enough, in a reasonable time frame, to regain the losses and then go farther.

    We have had historically high returns for many years. It is highly likley we will have historically low returns (or losses) to “return to the mean”. That does not paint as pretty of a picture.

    Note your last statement “wait for the market to recover.” If you had your money in the NASDAQ stock index in 2000 (or whenever it was that crashed), you would still be waiting for it to return to where you were. I think it remained down 50% even before the recent troubles.

    Which makes my point. If you had “dollar cost averaged,” on that, you would still be way down. Stocks are not necessarily a good deal with what we are highly likely to face in the next few years, even with such “tricks”.

    IBrad

    Comment by Brad — Oct 12th 2008 @ 5:31 pm

12. Yes Brad, and if it were 1933, you’d have to wait 25 more years to get back to even. But the point still stands. No matter how long it takes to get back to even, you’ll be well ahead of even if you keep plugging away. The numbers that I picked were arbitrary and oversimplified, but still illustrate that simple truth. The only thing I’m arguing against in this article is the fear mongering about how long it can take the market to recover after a major drop.

    Comment by nickel — Oct 12th 2008 @ 7:27 pm

13. Perhaps it is just fearmongering, but then I suppose someone could argue that the price of tulip bulbs will come back “any day now” too. Our frame of reference is much too short for a lot of the arguments that are being made. (I am not responding just to yours here.)

    Stocks are not the only investment out there, other things do go up in value and it can also be wise to hold cash in such rough times.

    My biggest concern in this is for those who blindly keep it all in the stock market “because it will come back,” rather than considering other options. They could easily end up loosing a whole lot more.

    Hopefully this places my remarks in context. I am not meaning to start a debate here. I just don’t share the same long term excitement for stocks as some. For better or worse, I can get a whole lot better personal return by paying debt down. :/

    Brad

    Comment by Brad — Oct 12th 2008 @ 8:11 pm

14. Brad: Thanks for clarifying. Regarding the tulip remark, it’s important to note that the average company (hopefully!) has a lot more inherent value than the average tulip bulb. As for debt reduction, I think that’s a great point, and one that people should always consider when deciding how best to allocate their funds, even when the market isn’t tanking.

    Comment by nickel — Oct 12th 2008 @ 9:18 pm

15. And none of this stands the test if you lose your job and have to tap into investments or retirement during the downturn.

    You have to take the loss, because you have to survive. None of the examples talk to this reality. Just ask me, or the folks at Citi.

    Comment by Tck — Nov 17th 2008 @ 9:53 pm

16. Dollar averaging and “buy and hold” are used as sales techniques by money managers & firms selling stock funds.

    Stocks as an asset class can go into long term secular declines. Look at Japan. Or the US post Depression and 1966-thru 1970s.

    Following conventional wisdom can get an investor truly burned—while big institutions who market funds collect their fees.

    Comment by francesca — Dec 1st 2008 @ 11:11 pm

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