Buy when the market is down, using $$ from ???

[ChoicesChoices]

Hi all, one (or a few) of the MMM posts have mentioned how he loves when the market goes down so he and Mrs can buy.  I'm curious about how Mustachian folks out there actually execute that i.e. with what funds.  Surely you don't keep a cash stash for when then the market goes down?  So how do you fund sporatic purchasing when the market goes down?  Especially if you are putting all your dough into the index funds (or whatever investment of your choice) already?  Do you hold back some of it for those down days?

I'd love to hear thoughts on this from the Mustachian masses!

[jarts98]

Rebalance from your bond funds (that typically would now be over weighted if stocks fell significantly).  The same works the other way, too:  sell stock funds after a big run up and purchase under weighted bond funds.  Runs counter to human intuition....but human intuition leads many individual investors to buy high and sell low.

[matchewed]

You also have to remember that MMM is coming from a place of cashflow. It isn't as if he lives solely off of investments. His rental(s) and website will also contribute. It is more than likely a surplus scenario he is talking about.

I've only personally experienced one down that I think would have been of any significance to initiate a "buy more than normal" mentality and that was the recession. And that's when I started investing.

If something happens in the future I agree with jart98, sell what did well in the big drop and buy what has not. Or just rebalance to your AA when the markets go wacky.

[ChoicesChoices]

Thanks for the responses.  Matchwed, your comment about the size of the drop gave me pause.  So a couple hundred points down on say the Dow isn't the kind of "down" you think MMM was referring to? Or you just don't find it mathematically significant to bother with?

[matchewed]

A couple of percentage point drops is just trying to shoot for market timing, which unless someone has an actual study which proves the effectiveness, has generally shown to be a worse method of investment when compared to DCA.

[Jamesqf]

Yes, from cashflow.  It'd be nice to have a magical stash of cash to dip into for buying opportunities, but most of us don't.  So if the market is down, I put everything beyond necessary expenses into the market; when it's up I do other things with some of it, like home improvements, paying down the mortgage, maybe spending on vacations or "stuff".

A couple of percentage point drops is just trying to shoot for market timing...

I don't think we're talking about drops of a couple percentage points (I'm not - you'll have to ask MMM), but major events like '08 or the crash of '89.  That was when I first got started in investments: a few years out of college, I put most of my savings into the market & lived really close to the bone for a while.  Couple of years later, I had enough profit for the downpayment on my first house.

[matchewed]

I was referring directly to -

Thanks for the responses.  Matchwed, your comment about the size of the drop gave me pause.  So a couple hundred points down on say the Dow isn't the kind of "down" you think MMM was referring to? Or you just don't find it mathematically significant to bother with?

which is talking about a couple hundred points. Which is even less than a couple of percentage points.

[ChoicesChoices]

Thank you matchewed and jamesqf!  I appreciate the perspectives and your time!