Today I’m sharing a story with you that will hopefully save you a ton of money over your lifetime. I almost made an emotional investing decision…
The Recent Market Downturn
On October 17th, 2012 the Dow Jones Industrial Average (DJIA) was at 13,557. Since then the DJIA and stock market in general has been on a downward slope. After the Presidential election stocks began to sell off even faster and on November 15th, 2012 the DJIA was at 12,542 or down 1,015 points (about 7.5%) in a little less than a month.
Normally I do pay attention to the stock market a few times a week just to have an idea of what is going on. It had never affected my investing decisions until mid-November. The following is why it almost affected my investing decisions.
My Investing Situation
When I bought my current car in 2010 I could write a check to pay for it but I took out a loan instead. Instead of not saving for a car, I decided to continue making a “car payment” to an investment account each paycheck that was invested in the Vanguard Balanced Index Fund (VBINX).
VBINX is comprised of 60% stocks and 40% bonds which I thought was an acceptable amount of risk (if not conservative) for the time frame that I’d likely be looking to buy my next car. I am hoping it won’t be until my current car is 10+ years old.
So What Changed?
I mentioned in an analysis of our debt pay down strategy that my girlfriend has a large amount of student loans. We’ve been trying to figure out how to get these paid off as fast as possible. Originally I didn’t even think about touching my new car money. Then I realized that even if we used it all to help toward paying off my girlfriend’s student loans we would still have plenty of time to save for new vehicles before ours should be retired.
Now that I had decided on a new use for this money I needed to analyze the risk I was taking with it for a new shorter time period. I expect to use this money when we get married in the next year or two as a big payment toward the loans. This short time period began making me feel uncomfortable with my current investment choice. I knew I now wanted to go into a more conservative investment.
Re-Enter the Recent Market Downturn
Now that I knew I needed to be in a more conservative investment I need to sell my current investments. I didn’t want to sell all at one time but instead in small pieces so I don’t lock in a big loss if I happen to sell at a bottom. However, as I slowly watched the market drop further and further over the last month I began to panic and wonder if I should just sell it all and lock in the current gain I had.
I almost did it. I almost made an emotional investing decision based on fear. Fear normally means lost money when it comes to investing and I would have locked in the losses of the last month if I had given in to my fear. Then I remembered that I didn’t have to put this money toward the loans immediately. Even if I lost everything it wouldn’t be the end of the world. It would just delay the loans being paid off by a few more months. This made me feel better and realize that there is no need to panic.
My Plan Going Forward
Going forward, I still plan to sell my investment in VBINX and move into a more conservative investment. Now, instead of freaking out like I considered, I’ll come up with a solid plan and stick to it. No panic selling here which hopefully means more money to pay the loans off in the future.
What would you do if you were in my situation? What percentage of the investment would you take out of the game in each sale? How often would you make each sale?
P.S. Since I wrote this post a little over a week ago the stock market has regained the losses that occurred after the Presidential election… really good thing I didn’t freak out!