Wednesday my wife said, “You know we have a lot of cash sitting around, we should start to invest it while everything is cheap.” It’s amazing how I can write about this stuff everyday, while she spends about 4 minutes a year on it, and we both come to the same conclusion. Then Thursday happens and the stock market store just slashed prices another 7%. Friday morning, I hope to open up a Zecco account (why do people pay commissions?) and see how quickly we can get some money in the market. I say “hope”, because I expect them to give me lots of paperwork and/or ask for me to fax something. Faxes don’t work well with my Vonage phone lines.
I make it sound like an easy decision to invest. We have a long-term view and could wait out quite a bit of a downfall. I realize that earnings and cash-flow are likely to drop making stocks, even at this price, fairly valued. Still, I have to agree with Chad at Sentient Money when he says, “This market might be the best buying opportunity in the next 10 years.”.
So what would I buy? I think, I’ll stop by Vanguard and look for some cheap broad-based ETFs. My first target will be to load up on Total Stock Market ETF (symbol: VTI). I’ll add some Small-Cap ETF (symbol: VB), just to overweight ourselves in that area a little bit. I would also look to their REIT ETF (symbol: VNQ) to diversify quite a bit. I may then look to diversify more by looking at PowerShares DB Oil Fund (symbol: DBO) and PowerShares DB Agriculture Fund (DBA). These last two typically go up as oil and food prices go up. This is a great hedge and if oil goes back up to $140 a barrel, we’ll have solid stock gains to offset the pain at the pump.
Would you buy tomorrow? If yes, how would you reduce risk, but still try to capitalize on these relatively cheap prices.
Update: Looks like it might take a few days to get the Zecco account set-up. I did everything to set up an active account yet it doesn’t look like I have an account set up to fund. Once I do have an account set up, I will need to decide how to fund it. If I go with the free ACH method it’s going to take 5 days. If I going with the wire transfer it will cost $20, but be quick. I’m leaning towards the wire transfer at this point.
Lazy Man – you might want to take a look at what the Asian markets are doing right now then reconsider whether tomorrow is the day to put more money in the US market. They don’t correlate exactly but this is panic selling which is contagious.
Realistically, I’m not sure I can get the Zecco account set up in time. Even if I do get it up and running, it will be far after the US market opens. At that point, perhaps the market knows which way it’s going to go.
I should have mentioned that I’d also buy some of the Vanguard Ex-US fund. I don’t want to put all my money in the US. I realize that foreign markets aren’t doing well either, but I’ll take more diversification – especially in an increasingly global economy.
You need to watch the Libor rate which is controlling whether banks will lend to each other. Until Paulson/Bernanke decide how to recapitalize the banks (asset purchases vs. capital investment for stock), I doubt we will see any positive change. But even so, stocks are on sale. It looks like one or more of the car companies are going down so keep your money away from there. European markets open in a few hours – that will be interesting.
I’m going with the stocks being on sale plan. I will buy broad-based indexes, which I’m sure will include some car companies.
I am waiting for the moment and collecting cash. Will wait to see what happens over the weekend.
I made the same assessment that stocks were too cheap to pass up at this point and bought some stock in Transocean (RIG) earlier this week. It is a good company with great operating cash flow and a ridiculously low P/E ratio now. It may lose value in the short term, but once reason returns to the market I feel like this will rebound quite well. I’m in for the long term and can wait out short term volatility.
I opened an account at Scottrade and was trading within a few minutes. My BIL gave me a referral code good for 7 free trades. The code is GFDF2643. The only document that needed to be sent in was a completed signature card, which doesn’t have to be submitted prior to trading.
visa, costco, walmart, jnj are what i’m buying.
It’s funny you mention Vanguard’s REIT ETF. Their REIT index fund is on the top of my list as soon as next year hits and I can contribute more to my Roth. It’s crazy how far that’s fallen. The bigger question is: what is best right now, to buy broad-based ETFs and indices or individual stocks of blue chips like tim recommends (JNJ, V, COST, etc.)?
I have a friend that says buying big consumer staples companies like Coke, McDonalds, etc. is the way to go. I have a hard time arguing that. People will still be going to these companies in recession.
I still think you go with mostly broad-based funds and the add in some bigger companies if you feel you want to be weighted that way. The good thing is that with Zecco, you don’t have to pay commissions so you can easily construct your own portfolio.
@ Mrtoughmoneylove
A little early isn’t bad. If someone told you that the downside was 10-20%, which it probably is, and the upside was 50-80% over the next year, you would think this was a good investment. Especially, since at some point the market always goes up. It may take a year, even two, but your risk now isn’t that high.
@ Lazy Man
I’m starting to put cash, I put into money markets last fall, back into stock funds. I don’t have a lot of choices in my 401k, it will be the basic large cap and small cap value funds.
My IRAs and personal investment accounts will be going into individual stocks. Right now I like GE, Apple, RIG (though I’m waiting for oil to fall more), and I’m taking a flyer on Sirius.
Good time to start putting some money to work.
I’m buying today, and I’ve been slowly buying in dribbles all week. I increased my 401k contribution for starters, but I also put about $1000 into my Vanguard Life Strategy Growth fund (international and US stock indexes) slowly as the market continues its decline. I’ve had that fund for years and rarely add to it unless the market really dips. Well it’s dipping!
I also picked up some DEO – a really well capitalized company with a healthy balance sheet that sells alchohol of various kinds (Johnny Walker, Smirnoff, Baily’s, Red Stripe, etc etc) and is currently on sale (not that it might not go lower…). People rarely quit spending money on booze and cigs and food and gas, even in recessions/depressions.
I hesitate to buy gold or platinum as an inflation hedge, but I might just stock up on canned goods, gasoline, and other items I’ll need anyway while my dollar is still strong-ish…
Also, Zecco trading is offering Unlimited Free Stock and Options Trades in October. See reference here:
http://www.mymoneyyourmoney.com/2008/09/25/zecco-trading-is-offering-unlimited-free-stock-and-options-trades-in-october/
Good luck with your strategy.
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According to Ben Stein; he mentioned in his recent article: Recession-Proof Your Investment Strategy “” To put this as plainly as possible, this is a good time to buy stocks. The evidence is overwhelming and consistent that if you buy when stocks’ P/E is below its 15-year moving average, you’ll make far more money than you would if you bought at the economic peak, when P/E’s are high. So, unless you’re out of money to buy with during the recession, you buy. You don’t go on margin to buy, and you don’t re-mortgage your home to buy. But if you’re employed and have money to invest, you buy.
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reference: http://finance.yahoo.com/expert/article/yourlife/44763
Don’t neglect bonds, which have gotten incredibly cheap. Investment grade bonds have great yields now and junk bonds have incredible yields (yes, defaults will but up, but the incredibly high yields will make up for a lot of defaults).
I’d be careful buying oil producers, as your index funds will have a pretty solid concentration of these already – I’m not sure why you’d want to overweight oil companies in an global economic slowdown.
My husband and I are planning on buying next week. I’m looking out for advice to minimize risk and take advantage of the low prices too
@Writer’s Coin: you have to do what you feel comfortable with. If you don’t have sufficient cash to diversify individual stock holdings, then I would suggest broadbased etf’s and funds. the indices are low (granted they will go probably lower), but they too are a good deal if numbers are any indication. i’m buying growth funds as well as broadmarket index funds in addition to individual stocks.
@Chad: I also bought more GE too. I really would like to buy Apple, but I simply cannot see them doing very well in this market. they are a high end retail discretionary and that in this market seems just too set up to buy right now. their new macbooks coming out being announced on 14OCT. If the lower price points as rumored are true, i think that will be good in a two quarters. however, i’d be holding off until after this quarter’s earnings report.
Okay, here is my first round purchase. Will continue to add in this position as market head down.
[email protected] $39.40
[email protected] $42.85
[email protected] $32.66
[email protected] $17.10
[email protected] $44.66
[email protected] $44.05
[email protected] $22.50
Bye the way, I am using zecco with unlimited free treads in this month. :)
Sounds like a great idea….the best gains are often made when everyone is running from the market. You should look into efax.com for a net based fax service if you want to send faxes. The fax comes to you in your email and you can save as a pdf. It’s about 17/month.
I have the free eFax service, but in the end some companies don’t accept digital signatures, so I need to find some way to scan or fax it to them. A PDF is nice, but I don’t have a PDF Editor (expensive from Adobe) and superimposing a digital image of my signature is dicey at best.
I agree it’s a good time to start buying. Personally I don’t think we’ve hit a bottom yet, but it’s impossible to catch the bottom just as it’s impossible to catch the top.
The one thing I disagree with you is on Zecco. I tried using it, but I couldn’t deal. I rather pay to trade. In my opinion if the trading costs are significant enough than you shouldn’t be trading the individuals stocks. As is it’s probably better for most people to stick with Vanguard funds….
Dong,
I think it depends on how many individual stocks you want to own vs. the trouble it is to sign up. This is the first time I really went through with the process and other than a day waiting for account approval, it seems like it won’t be bad – probably no different than dealing with other brokerages (though I haven’t signed up with a new brokerage in months).
@Lazy: you can get cheaper pdf editors, but do you really need that function or just scan to pdf function? most scanning software include save as pdf function.
I just bought a few shares of Apple just for fun while they were still at $80 ;)
Have you seen an industry tracking symbol for refining? I have looked at a few places and have not found one. I noticed that several of those stocks are down around 70%+ from a year ago.
See this google finance chart for a few examples.
I am also using Zecco but they didn’t ever require me to fax anything.
I also like the fact that Zecco is doing unlimited free stock and options trades in October for customers, even if your balance is less than $2,500.
You’d think that at zero commissions the executions would suck. That’s not the case with Zecco however so far.