The last few days were not good to us whom invest in the stock market. The Dow Jones Industrial Average was down from the closing high of $13,676.32 on June 4th to today’s close of $13,266.73. This represents a 409.59 point drop (2.99% from the high) in 3 days.
Some of you might remember the post when I advised short term traders not to jump into the market when the stocks seems to be on fire since the market can turn the other direction very quickly. Interestingly, when I wrote the post on April 21, the market closing pricing for the S&P 500 was 1484.35 and 1490.72 at today’s close. That means that if you stopped buying the day I asked you to be careful, you wouldn’t have missed much (0.43% for 1 month and a half which is worst than the interest payment from an online savings account).
For those of us that did not buy into the strength during the last month, this means that you have some cash in your accounts. Now (when the market is down and people are scared) is a good time to look more closely into seeing if there are some stocks that will fall back to good value.
One of the things I did with my stocks is that I looked at all my holdings, and sold the ones that I thought were more on the risky side and also the ones that I did not have a good compelling reason to hang onto. This mostly included the smaller cap stocks and the ones that recently went up the most.
As for buying stocks, I will add money into my IRA accounts and buy from there first. Why? Because my IRA accounts have a longer time horizon, so if I’m wrong with my timing, I have more time to recover from my lost since stocks always tend to come back up (companies with good fundamental value anyway). This strategy also lets me feel better if the market starts turning tomorrow and never look back which often seems to happen. Then once I’m done with the money in my IRA account, I will refocus into my taxable account.
The way I see it, the market will be pretty sensitive (volatile) until enough good news push investors out of the nervousness they are in now. So it is not imperative that we jump in when it is only down a few percentage points. However, examine your holdings and make sure you aren’t susceptible to further selling and be on the lookout for good stocks that go down just because every other stock is.
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{ 4 comments… read them below or add one }
Interesting… I’m not sure if I want to buy stocks in my 401k/IRA accounts though. Aren’t you supposed to buy funds and keep them in the long term with those things?
I have started to use my Roth IRA to buy short term stocks because you do not have to pay taxes on short term gains from a Roth IRA.
For the longer term holdings (the ones I will hold for months and maybe more than a year), I will use my brokerage account since I might hold it for more than a year allowing it to fall to the 15% tax rule.
I use my retirement account for mainly mutual funds that I don’t plan on trading in and out of.
I’d rather not be too risky with the retirement money.
Actually, probably 99% of the people buys mutual funds in their IRAs/401ks.
I just think that I can always buy the same amount of money in my brokerage account for the same mutual fund to cover my diversification, and sort of get the best of both worlds.
Ultimately, it boils down to what is more confortable for you.