Investments Tanking? Then Buy More!

Do you check your 401lk or investment account everyday watching your hard earned dollars disappearing? Well stop. That can be the worst thing to do as it causes you to make rash decisions and you end up selling low. Let me tell you I used to do that and then the next day things would go up again and I would fell like an idiot since I was impatient. Since then, I have become a bit smarter. When my investments start falling, I start buying.

If you are investing for the long term, now is the time to buy. The whole idea is that you are dollar cost averaging over time. Let me give you an example of this. Say you buy 100 Shares of particular stock at $50. Your total investment was $5000 (I am excluding commision prices to make this simplier). Now say that stock drops to $25. Your current value is $2500 with a loss of $2500. You could sell now and take the loss, or you could buy more. Say you buy another 100 shares at $25. Now you have 200 shares, but your cost basis is $37.50. (($50 + $25) / 2) So if the stock starts rising to $37.50 you are now break even. The stock doesn’t need to make it to $50 for you to zero out your loss.

You can see that if you start buying a stock when it is low your cost basis lowers and your possible losses don’t look that meager anymore. The way I do this is by using Sharebuilder.com. Sharebuilder lets you buy stock on a schedule, without you having to do anything after your initial setup. Currently I have Sharebuilder by 5 different stocks a week with a $100 weekly investment. So every week I buy $20 worth of each stock. You can see that over time as the stock price fluctuates I am averaging my cost basis. And when the stocks fall, I am buying up quite a bit at a lower price in hopes of making a large profit when the markets start heading upwards. The nice thing about Sharebuilder is that it buys partial shares. So when I invest $20 on a $60 stock, Sharebuilder buys me .333 of the stock. This helps when you are buying shares of expensive stocks as you don’t need to save up to buy full shares.

If you are wanting to invest for the future and are not concerned with the ups and downs of the current market, my suggesstion is trying something like Sharebuilder.com or a simliar brokerage where you can start building that nest egg while capitalizing on a down market!

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