It seems like every other personal finance blogger has already commented on the bear market. I’ve been rather lucky with the timing of my down payment saving as I would have been maximizing my retirement investments this past year. So instead of keeping all of my recent savings in cash for a down payment, I would have been funding an individual 401k and my Roth IRA. For this reason I haven’t been hit very hard by this bear market. Since my down payment has been completed, I will be trying to maximize my retirement accounts by the 2008 income tax deadline.
The major downturn in the stock market has left stocks at huge discounts. I am currently invested in one of Vanguard’s Target Retirement Funds through my Roth IRA. In early 2007 I invested the maximum into the fund at a price around $22/share. The fund is currently at $16/share. The fund had never been below $20/share since inception.
When I first invested in the account my $5,000 only counted for 227 shares, whereas if I invested the same $5,000 today I would have 312 shares. When those 312 shares return to $22/share my $5,000 investment will be worth $6,864.
This is just one example of how depressed stock prices have become. My goal is to fully fund my Roth IRA and an individual 401k for 2008 as soon as possible. I want to make sure I get in when the stock market is on sale.
A little disclaimer before I wrap everything up. I have no idea when the market will turn around. I don’t know if it will drop again in the near future. I don’t claim to know the future of the stock market. I’m not trying to time the market. I also don’t recommend investing money that you will need in the next five years.
What I do know is the stock market hasn’t been this cheap in 5 years. From everything I have read, the best thing that could happen to a young investor is to have a bear market when you enter the work force. It will take time for the market to recover, but stocks have tumbled before and new highs will be reached in the future. Don’t let fear dictate your investment plan as it can severely diminish your returns.