Continue to Invest?

[Guest Gracey]

Hello Everyone,

I started a Roth with Vanguard in 2007 with $4,000. I invested in a Target Retirement Fund, and plan to retire somewhere around 2035. I contributed another $5,000. in 2008 and was planning to do the same this month with another $5,000. for 2009. I'm not sure if I should do so now, considering I've already lost approximately $3,000. with this fund. I know there are many people in my position with the way the economy is right now. I want to make a wise choice here. Should I continue with my plan of contributing $5,000. since I am in this for the long haul, or keep my money safe until the economy gets better? What do I need to consider here? Any thoughts either way? Any advice would be greatly appreciated. Thank-you, Gracey

[K2retire]

I am in now way qualified to give investment advice and I know nothing about this particular fund. But it seems to me that the market is having a sale -- anything you invest at these prices will buy many more shares than at any time in recent memory.

[J Simmons]

Owning more deck chairs on the Titanic?

Buying Manhattan from native Americans for trinkets?

I wish I had the crystal ball.

[K2retire]

Owning more deck chairs on the Titanic?

Buying Manhattan from native Americans for trinkets?

I wish I had the crystal ball.

My crystal ball is out of order, but I'm still hopeful that the stock market doesn't USUALLY behave like the Titanic over the long haul.

[Lori Friedman]

I'm not a financial advisor or an economist, and I don't even play one on TV. I can't give any investment advice. I can only tell you what I'm doing personally.

I'll max-out all of my retirement options for 2008. I've shifted most of my recent deposits to more conservative choices -- short-term and long-term bond funds, money market accounts, and certificates of deposits -- because interest rates are fairly attractive these days. I'm still buying some equity investments, too, because I like the idea of buying at the bottom of the market (let's hope we've reached the bottom). As mentioned earlier in this thread, the financial markets haven't ultimately performed like the Titanic.

[John G]

As a beginner investor, I can understand the shock you feel from watching your assets decline. The last 16 months have been pretty awful and lots of folks have had the same problem. We are in a recession that started perhaps a year ago and will probably run another year. The economic news and the scandals are driving the price of all stocks way down.

But....economies have natural cycles. During a downturn, in efficient operations are shut down. At some point the combination of low interest rates, moderated wage rates, readily available work force, etc. spark investment in new businesses. Before an upturn begins, some investors will sense the change and start buying stocks, driving the market higher. Boeing (BA), Home Depot (HD), Intel (INTC), Merck (MRK) and a whole bunch of mid and small size companies will start to rebound from very low P/E ratios.

I can't tell you the timing. Honestly, no one can. Lots of folks will try and say they can, and about 95% of those that put in writing will be wrong, and 5% will be just lucky.

What can you do?

You have a looooonnnnnggg time before you will be tapping your retirement funds. On any given year or even 5 years, you can get a wide range of positive and negative returns. But, historically, all 20+ holding periods have given positive returns. Investments come in many flavors and the many choices all have imbedded in them a combination or risk and reward. Investments with little risk (government insured CDs) don't need to have bigger rewards to attract money. Other investments that flucuate (like stocks) over the long haul must offer better returns to attract capital away from the low risk options. When you invest in stocks, you are investing in a better future (better technology, better Rx, better communications) as opposed to just taking an IOU and hoping that you get your money back with a little interest. We live in a market driven, capitalist economy (now there are two terms that are getting black eyes right now) that in the long run provide profit incentives for folks to take risks and build new products (Iphones, Lipitor, GPS, etc.) and offer new services (Internet, FEDEX, Netflicks) that your parents never had. Personal freedom, entrepreneurship, private property, open markets, world trade.... these are very powerful forces, something akin to DNA and evolution.

I would suggest two options: (1) Write the check now and put all of 2009 into the market. Stocks are "on sale" and you want to buy low! You need to understand and tolerate short term uncertainty and risk. (2) If #1 is too difficult to do, then consider dollar cost averaging. Put all of your 2009 contribution into a money market account. Then shift 10% into a stock based mutual fund each month. In down months, you will buy more shares. In up months, few shares. You custodian might be able to automate this process internally from one fund (MM) to the stock fund. But if they can't do that, they surely can arrange a monthly checking account to IRA transfer.

Just a short note: Target funds are a marketing gimic of the mutual fund industry. They work for some folks, but their main feature is promising simplicity. The investor still needs to understand his choices and monitor the results. You might want to do a keyword search on "Target" on this message board to see other comments I have made.