Author Topic: OOPS. Beginner investor mistake - ideas for a repair?  (Read 8510 times)

jeastith

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OOPS. Beginner investor mistake - ideas for a repair?
« on: October 07, 2015, 08:54:26 AM »
It's so obvious that we goofed on this one that its actually embarrassing to write. 

We made a nice chunk of money on the sale of a house.  $73K to be exact.  We've been mustaching for a while now, so we'd already paid off our small cars and student loans.  No debt except for our mortgage, which is a 15 year at 3.125%, so we were feeling pretty mustach-y. 

So, we're kind of new to the stock market, and kinda thought let's get our money in there asap.  So we socked the whole 73K into a Vanguard index fund 3 days before that first BIG plunge.  We've watched our 73K get down to 65K over the last month and a half. 

I've learned since then that it's a pretty bad idea to sock that much in at once.  I guess people with more experience put it in slowly over time to minimize the risk.  So, my question is - what do we do now?  Do we wait til the market is back up again, take it out, and then reinvest it little by little?  Do we just let it sit there?  This is not money we have any plans to touch for 20 years.  It's been so hard to hear about how low it is though, and we bought right before it dropped.  If we had invested a little at a time, we'd have hit some of those super low days.  Grrr...

Feedback appreciated!
Jeastith

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #1 on: October 07, 2015, 08:59:30 AM »
This is not money we have any plans to touch for 20 years.

Stop worrying about it. In 20 years this dip will be irrelevant and you'll see many more come, and then recover and grow along the way. You're better off investing the lump sump than DCA it in.

nereo

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #2 on: October 07, 2015, 09:05:23 AM »
You did NOT do anything wrong.
Statistically, investing in a lump sum beats out DCA (dollar cost averaging) about 2/3rds of the time.  It just turns out that in your particular case it didn't quite pan out.

BUT, a few things to consider:
The market did not take a BIG plunge.  Over the next few decades there will be lost of drops similar to what you experienced, and a few that will be worse.  That's what the market does. 
Also - you shouldn't worry about the plunge at all if your time from is many years.  A decade from now you'll hardly notice this plunge.  The imporant thing is that you are invested, and your investmnts will earn dividends and appreciate in value.

Now - what to do you do going forward?  Leave it there.  DO NOT TAKE IT OUT. Just be happy that your money is invested and earning dividends.  Timing the market (as you are suggesting by taking it out and reinvesting) is an almost certain way of loosing out.

EDIT: in case you want to read the actual paper referenced above: https://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CB0QFjAAahUKEwjN-PCf0bDIAhWKWx4KHRODAzA&url=https%3A%2F%2Fpressroom.vanguard.com%2Fcontent%2Fnonindexed%2F7.23.2012_Dollar-cost_Averaging.pdf&usg=AFQjCNEi6-z4J8iGXyxgShxjAWaGqsKXdw
« Last Edit: October 07, 2015, 09:07:36 AM by nereo »

matchewed

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #3 on: October 07, 2015, 09:18:47 AM »
You'll be fine, just keep investing your money. There is no "mistake" to fix or repair.

ysette9

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #4 on: October 07, 2015, 09:32:09 AM »
Piling on to what everyone else has said already, you made no mistake. You did everything exactly right. Use this as a lesson in either getting comfortable with market volatility or training yourself to not look at your investment balances. You are in this for the long haul!

terran

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #5 on: October 07, 2015, 09:32:27 AM »
I've learned since then that it's a pretty bad idea to sock that much in at once.  I guess people with more experience put it in slowly over time to minimize the risk.

As others have said, this is not true. People who are squeamish about the markets do what you are describing -- It's called dollar cost averaging. It's better to DCA than to do nothing, but only because that gets the money into the market as soon as possible for someone who is fighting with fear. It's even better to do what you did. Sure it would have worked out a bit better if you had invested a few days later, but you had no way of knowing that, and it could just as easily gone the other way and gone up after you bought. Keep up the habit of investing as soon as you have the money available -- it is the right thing to do and anything else is just a mental trick to get you as close as possible to investing as soon as you can. In 20 years you won't care what happened a few days after that first investment.

Faraday

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #6 on: October 07, 2015, 09:38:35 AM »
...
So, we're kind of new to the stock market, and kinda thought let's get our money in there asap.  So we socked the whole 73K into a Vanguard index fund 3 days before that first BIG plunge.  We've watched our 73K get down to 65K over the last month and a half. 

You did GREAT. I have a far bigger lump than this in Vanguard S&P 500 Index Fund. It's down 5% YTD and I don't care, I don't give one crap about it. I'm continuing to push as much cash at it as I can. Even though I'm net-negative for the year, even just the little blip upward the market made yesterday was obviously amplified by my continued buying into the index.

The only "mistake" you could make is to stop buying the index fund now. KEEP BUYING as best you can! If you are able to do it pre-tax in 401k, all the better.

Quote
I've learned since then that it's a pretty bad idea to sock that much in at once.  I guess people with more experience put it in slowly over time to minimize the risk.  So, my question is - what do we do now?  Do we wait til the market is back up again, take it out, and then reinvest it little by little?  Do we just let it sit there?  This is not money we have any plans to touch for 20 years.  It's been so hard to hear about how low it is though, and we bought right before it dropped.  If we had invested a little at a time, we'd have hit some of those super low days.  Grrr...

I've been doing that in the last month or so, but that's only because I'm doing it with pre-tax 401k and post-tax Roth. I carve chunks out of every paycheck to get that done.

It has this crazy "amplifying effect" when everything goes up!

GGNoob

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #7 on: October 07, 2015, 10:05:27 AM »
Most people recommend lump sum investing because about 2/3 of the time, you will come out ahead over dollar cost averaging. However, most of us do not have large sums of money to invest and we instead invest each month out of our paychecks.

You did nothing wrong and had you asked us ahead of time, the majority would have probably said to just dump it all in at once.

cchrissyy

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #8 on: October 07, 2015, 10:19:06 AM »
538 blog

Worried About The Stock Market? Whatever You Do, Don’t Sell.
http://fivethirtyeight.com/datalab/worried-about-the-stock-market-whatever-you-do-dont-sell/
« Last Edit: October 07, 2015, 03:17:24 PM by cchrissyy »

PaulMaxime

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #9 on: October 07, 2015, 10:19:34 AM »
I sold a house in 2007 and invested the 140K proceeds at the very top of the market right before the big crash in 2008-2009. Literally, October 2007, basically at the peak before the largest financial crisis of our lifetimes.

Whoa.

Well, I just kept it in there and today I'm sitting pretty. If I had waited I guess I could have made out better, but there's no way to know that at the time. I just kept on plowing money in month after month through it all, sticking to my long term plan.

Selling now and waiting for the market to go back up? All you would be doing then is to lock in losses.

Markets drop. It's something like 10% every 11 months, 20% every 3 years, 30% every decade and 40% or more once or twice in an investing career. Better be used to that or not to invest in stocks at all. It's these very fluctuations that make stock investing both so difficult AND lucrative over time.

jeastith

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #10 on: October 07, 2015, 10:30:11 AM »
Oh man!  We've been sweating this, but sounds like its all good!  Thanks so much for the feedback.  We will leave it there for 20 years-ish and be glad we did I'll bet.  Thanks guys!

Kroaler

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #11 on: October 07, 2015, 10:30:56 AM »
Funny timing for this post.  I did the same thing.  Except I only put 15k in that I had laying around being lazy.     But poor timing prevailed. Either way it is what it is, I'm 20 years I'm sure its irrelevant. 

nereo

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #12 on: October 07, 2015, 10:34:04 AM »
... also, see this post about Dollar Cost Averaging.
http://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/
... then I highly recommend reading all ~27 of Jlcollinsnh's posts.  Very good information on investing in easily digestible chunks.

Cpa Cat

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #13 on: October 07, 2015, 11:17:05 AM »
I sold a house in 2007 and invested the 140K proceeds at the very top of the market right before the big crash in 2008-2009. Literally, October 2007, basically at the peak before the largest financial crisis of our lifetimes.

Like Paul, we deposited the entire proceeds of the sale of a business into the market late 2007. Haha. Awesome.

I mean... it's awesome now.

Heckler

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Jack

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #15 on: October 07, 2015, 02:53:22 PM »
How To Invest (Assuming you don't need the money for at least a decade):
  • If the market is up, shove more money in.
  • If the market is down, shove more money in.
  • If the market is sideways, shove more money in.
  • If the market is closed due to Armageddon, buy canned food and ammo.

nereo

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #16 on: October 07, 2015, 03:11:04 PM »
How To Invest (Assuming you don't need the money for at least a decade):
  • If the market is up, shove more money in.
  • If the market is down, shove more money in.
  • If the market is sideways, shove more money in.
  • If the market is closed due to Armageddon, buy canned food and ammo.
shouldn't you buy canned food, guns and ammo before the market closes due to Armageddon? ;-) 
Don't try to time the apocolypse market... buy guns and zombie spray today!

Telecaster

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #17 on: October 07, 2015, 07:34:24 PM »
I've learned since then that it's a pretty bad idea to sock that much in at once.  I guess people with more experience put it in slowly over time to minimize the risk.  So, my question is - what do we do now?  Do we wait til the market is back up again, take it out, and then reinvest it little by little?  Do we just let it sit there?  This is not money we have any plans to touch for 20 years.  It's been so hard to hear about how low it is though, and we bought right before it dropped.  If we had invested a little at a time, we'd have hit some of those super low days.  Grrr...

Other people have said the same thing, but I'll chime in as well to give some social validation.   Nope, you did the right thing.  Don't worry about it, get a good night's sleep knowing your money is working for you.   

markbike528CBX

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #18 on: October 07, 2015, 08:25:56 PM »
I had a plan.
    On 20% down from top, put all cash in stock market.
    Did it
Issue:  time was september 2008, just before ANOTHER 20% drop.

Result: today, net worth 60% higher, with the "big crash" a minor pothole in networth run-up.

I'd guess if I had just waited 5weeks, the networth might be 65% higher instead, big woop.

+10 for all posters who were positive on your ""mistake"".

Indexer

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #19 on: October 08, 2015, 04:20:28 AM »
Oh man!  We've been sweating this, but sounds like its all good!  Thanks so much for the feedback.  We will leave it there for 20 years-ish and be glad we did I'll bet.  Thanks guys!

You did everything exactly right, but you just had some bad luck timing. It happens. Continue to DCA with small monthly contributions(like to a 401k), but when you have a big chunk of money it is best to lump it all in at once. The other way to look at lump sum VS DCA, and the reason lump sum is better most of the time, is that when you DCA what you are really doing is holding cash. Would you keep money in cash in a portfolio set for a goal 20 years from now?  Probably not.... I hope not, and that is what DCA really is... holding cash.


The mistake would have been letting this cause you to panic and moving everything back to cash. You didn't do that. As long as you can keep not panicking you should be fine.

frugledoc

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #20 on: October 08, 2015, 05:28:37 AM »
It is important that you decide on an asset allocation for your investable funds i.e equities : bonds
If you are 100% equities then just keep adding new funds and reinvest any dividends.
The stock market could go down for the next 20 years before going on a rampant mother of all bulls. Nobody knows so you just have to keep chipping away.

I also invested a chunk of money similar to yours just before the 2nd leg of the recent world stock plunge and paper lost much more.

Very useful sites:
bogleheads
jcollins stock series

Very important to ignore:
Stock market gurus
Mrpercentage on this forum (hehehe)

nereo

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #21 on: October 08, 2015, 06:58:40 AM »
...
The stock market could go down for the next 20 years before going on a rampant mother of all bulls. Nobody knows so you just have to keep chipping away.

...ok, just to be clear and not spread unnecessary fear, the market *could* go down for the next 20 years, but it has never come anywhere close to doing that.  Sure - it's possible if the economy truly and fundamentally collapses... but it's like saying the yankees might go 0-162 next year or the ____ party might win every seat in congress. 
agree with everything else frugledoc said...

matchewed

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #22 on: October 08, 2015, 08:00:13 AM »
Also whatever you were reading or whoever you were talking to... Don't anymore, they were wrong.

Faraday

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #23 on: October 08, 2015, 10:58:30 AM »
Very useful sites:
bogleheads
jcollins stock series

Very important to ignore:
Stock market gurus
Mrpercentage on this forum (hehehe)

+1 to bogleheads and jcollins stock series and not listening to stock market gurus.

Damn boys and girls - that's harsh on mrpercentage. I've reviewed a few of his postings, but not extensively. I don't follow his particular money religion but I didn't think it was toxic. Can some of you weigh in with your opinions? I'd really like some more feedback.

There are a few posters here on MMM that I think are full of it, but it's mostly the ones who are obviously lost souls that don't want to be found: the ones who want pats on the back for getting good deals buying crap they don't need, or splurging on themselves in the name of "balance". But I still don't post "don't pay attention to them" - that's kinda "out there".

Please - facepunch me if I'm missing something here. Is mrpercentage really that far askance? (don't get me wrong, I'm no mrpercentage fanboy, I'm just asking the question.)

nereo

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #24 on: October 08, 2015, 11:39:25 AM »
Very useful sites:
bogleheads
jcollins stock series

Very important to ignore:
Stock market gurus
Mrpercentage on this forum (hehehe)

+1 to bogleheads and jcollins stock series and not listening to stock market gurus.

Damn boys and girls - that's harsh on mrpercentage. I've reviewed a few of his postings, but not extensively. I don't follow his particular money religion but I didn't think it was toxic. Can some of you weigh in with your opinions? I'd really like some more feedback.

Oh.... to be clear when I said that I agree with everything else frugaldoc said i didn't catch the part about mrpercentage.  I agree with reading the jlcollinsnh series and bogleheads.  I'm not condoning ostracizing anyone on this forum, even when i might not agree with him or her.

SwordGuy

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #25 on: October 08, 2015, 11:54:16 AM »
This is a VERY important point to understand about stocks:

You can only lose money in the market when:
  • you sell or
  • the company goes out of business and no one will buy your stock.

Since you are investing in a broad market fund, the second problem isn't really a concern, as it's composed of many companies.  If they all go out of business you need canned food, medicine, guns and ammo, not a stock portfolio.

Just plug along buying stock when you have the money.

And remember, you don't want the price of the stock to go up until the day before you sell!  If your time frame before selling is 20 years, you want that stock to go up as little as possible before then.  That way you get to buy more stock because the price is low. :)

So, every time the market drops a bit before you need to sell your stocks to live on, celebrate, because stocks are on sale!

iamlindoro

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #26 on: October 08, 2015, 12:17:11 PM »
Please - facepunch me if I'm missing something here. Is mrpercentage really that far askance? (don't get me wrong, I'm no mrpercentage fanboy, I'm just asking the question.)

This is getting pretty off topic, but yes, unfortunately, his behavior is pretty harmful when you consider:

1) He models (or if he's a troll, pretends to model) incredibly poor investment behavior like picking stocks based on feeling and not on any actual fundamental analysis, buying high and selling low, buying and selling based on emotional cues, and many other things.
2) He often jumps into threads and suggests random stock picks to people without justifying him (because he cannot justify his own picks).  This is doubly damaging since it's often people with no investment knowledge or experience.

So... yeah.  It's pretty important that any beginner ignore him until they have enough knowledge and experience to know that it's all nonsense.  If someone were to listen and act based on the perception of confidence, and the "easy" answers they get ("Oh, so if I just buy XOM I'm good?") then he could set someone back months or even years.

somebody8198

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #27 on: October 08, 2015, 12:34:28 PM »
Index funds aren't the same as investing in individual stocks. You should think of it as buying equity not as trying to win or lose money in the short term. Even if the stock market makes no progress this year (which is possible), in the long-run it will be better to have that money generating dividends. Almost half of the S&P's interest comes from reinvested dividends!

YoungInvestor

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #28 on: October 09, 2015, 11:34:08 AM »
Index funds aren't the same as investing in individual stocks. You should think of it as buying equity not as trying to win or lose money in the short term.
How is that any different with individual stocks? You can day-trade etfs or buy and hold shares of a single company forever.

NWOutlier

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #29 on: October 10, 2015, 09:55:25 AM »


1. do NOT sell - if you sell, you then realize your loss
2. one of the bloggers (GoCurryCracker Maybe?) wrote an article on if you bought at all the wrong times through your lifetime - you still end up ahead (anyone got that link?)
3. there is also a school of thought around dollar cost averaging vs lump sum investing - the lump sum does come out ahead approx 40% of the time
4. stick with it - it will come back and go higher :)

SevenSeas

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #30 on: October 13, 2015, 02:54:18 AM »
Putting all the money in the market was not a mistake!
The mistake is what your are proposing: to sell. This was a SMALL correction, if that. If this makes you lose sleep at night maybe you should think of some other investing options (landlord, small business). In 2008 your portofolio would be worth half - if you sold then and look back now you would pull your hair in frustration.

The whole idea with investing in the stock market is to stay the course when the sea gets rough. This is how you lose money, because of fear (or greed).

However you should have a proper asset allocation plan. If you are losing sleep over 10% maybe you shouldn't be all into stocks. To be honest even if you have balls of steel you should still be 80/20 stocks/bonds or 90/10. And your stocks should be diversified between US stocks and International.

Something like:

80 stocks (60% VTI and 40% VEU)
20% bonds - BND

would be a good AA. But you should read and decide on your own anyway. Your asset allocation should take your risk tolerance into account. You need to be honest about this!

I would recommend reading this: http://jlcollinsnh.com/stock-series/

Before you put all your money into the stock market you need to UNDERSTAND the risk and accept it BEFORE THE S*** HITS THE FAN. If you panick when the market drops and you sell - it's better to just stay out of it from the start!!
« Last Edit: October 13, 2015, 02:56:33 AM by SevenSeas »

Faraday

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Re: OOPS. Beginner investor mistake - ideas for a repair?
« Reply #31 on: October 13, 2015, 06:44:44 AM »
It's so obvious that we goofed on this one that its actually embarrassing to write. 
...
Feedback appreciated!
Jeastith

HEY: I wanna hear back from the OP. We had a market blip upward that should have wiped out a goodly chunk of your "losses", putting you in a much better frame of mind over your investments. How's things looking this week?

Also: You've probably not been in long enough to get a dividend. Hang on and watch what it looks like when that happens....