I guess I'm not understanding why the stock market going down is bad

[SyZ]

Like, if I'm in the market to buy a house, and the houses in my area go from $200 to $100, I'm pretty happy

So I currently have $18.5 in my 401(k), and I'm just trying to grow that balance - but the balance is really just a cover, because it's telling me the value of all the stocks I own

But if I put $100 into it, and I can buy 8 stocks when they're $12.5, or 9 when they go down to $11.1, wouldn't I rather have the 9? Because the assumption is that in the long run it will average back out to 7% a year and I now have 9 stocks instead of 8

But this can't be right, because then one could argue you would never want the market to go up until right before you retire so you can just continuously buy stocks cheaply until the day comes you need to withdraw

But that can't be right, because then you would never make that 7% and you're really not getting anything back except that marginal % at the end

But that can't be right, ...

[Jack]

Ideally, stocks would drop to nearly zero, I'd invest one shiny penny into 20,000 shares of VTSAX, then the next day prices would rebound to current rates and I'd insta-FIRE. So yeah, you're right: stocks being low when you're in the accumulation phase is good.

Of course, when the people on the news talk about how the market being up is good and being down is bad, they're speaking macroeconomically.

[WildJager]

Like, if I'm in the market to buy a house, and the houses in my area go from $200 to $100, I'm pretty happy

So I currently have $18.5 in my 401(k), and I'm just trying to grow that balance - but the balance is really just a cover, because it's telling me the value of all the stocks I own

But if I put $100 into it, and I can buy 8 stocks when they're $12.5, or 9 when they go down to $11.1, wouldn't I rather have the 9? Because the assumption is that in the long run it will average back out to 7% a year and I now have 9 stocks instead of 8

But this can't be right, because then one could argue you would never want the market to go up until right before you retire so you can just continuously buy stocks cheaply until the day comes you need to withdraw

But that can't be right, because then you would never make that 7% and you're really not getting anything back except that marginal % at the end

But that can't be right, ...

Hence the Time Value of Money (TVM) vs purchasing in bulk (buying fixed amounts slowly over time vs purchasing all at once with the cash you have).  Both are right to a degree, but there are so many variables that neither is a clear cut winner.  If you suddenly come across a lump sum, studies have shown that usually just buying now is better than buying slowing (assuming the remaining sum is just sitting in cash).  However, there are theoretical merits to TVM, and luckily for wage earners we are practicing that theory by investing every paycheck.  That regular investing in the market precludes any necessary market timing, and a diligent and periodical saver should earn more on returns in the long run.

But yes, the actual value of your portfolio can be thought of as secondary to the amount of shares you own in a fixed scenario.  However, it's all relative.  Some people get excited when a stock they own splits which overnight doubles the amount of shares they own, but in the end they haven't actually earned anything of value.  Some argue that a cheaper stock encourages more individual investors to come play, but that may not necessarily be true.

In the end, this is a discussion on market timing.  It's great if stocks lose value while you're purchasing assuming that the value will go up when you decide to sell.  But, since no one has cracked the code of when exactly that will happen, you generally should just accept what you get.

[Indexer]

...

Hence the Time Value of Money (TVM) vs purchasing in bulk (buying fixed amounts slowly over time vs purchasing all at once with the cash you have).  Both are right to a degree, but there are so many variables that neither is a clear cut winner...

I think you mean lump sum investing VS dollar cost averaging.

TMV refers to a collection of equations that calculate how assets & debts react to compounding interest/returns. So TMV is the calculation you would use to compare lump sum investing VS dollar cost averaging. You could also use it to see how long a debt would take to pay off, how long it would take 10k to grow to 100k at X% interest, etc.

I'm not trying to be a financial terms nazi. I just wanted to make sure future readers didn't get confused.

[SwordGuy]

On a personal level, for you, while accumulating stock to FI on, you are absolutely right.   The market going down is great.  The lower, the better!

Except if the market is going down and staying down, it's usually because there is something wrong with the economy that needs to be fixed.   Consumers slow down consumption, businesses lay off staff, which slows consumption, etc.   The job you have that's providing you the funds might go away in the downturn.

Plus, of course, all the people who want to live on the proceeds are hurting.

[nereo]

SyZ

You've hit upon something all investors should intuitively know, but most don't.  When you are in the accumulation phase ("buying investments") you want the share prices to be as low as possible.  When you are in the distribution phase ("retirement") you want your share prices to be very high.  For every share purchased there is someone selling it on the other side.

But..
Over time the share price reflects the value of the company.  If the company continues to increase its profitability it will be worth more.  Since there are advances in efficiency, standards of living, population etc. the market over the long run keeps going up. It will likely continue to go up as long as these factors exist.
also...
People are irrational, panicking sorts.  Bubbles and busts are as much psycological as anything else. When prices start going up people start investing and it goes up, up, up until it crashes.  Likewise, when the market crashes people keep pulling money out and refuse to reinvest, which causes prices to stay depressed for longer than they should.

[Cranky]

When the market is low, it's a good time to buy.

It's a lousy time to cash out when you need money to live on. It's also a general sign of economic trouble.

[aschmidt2930]

Imagine logging into Mint or PC and seeing a balance of $1,000,000 under investments.  Now imagine logging in every day for a year and a half, and more times than not, seeing that number be lower, until you have about half what you started with.  That's roughly what happened in the last recession.

Depending on your timeline, yes, this can be a positive thing.  With that said, this example should explain why most people view it differently.

[Roland of Gilead]

If the stock market only went up, it would make investing a lot easier.

[Metric Mouse]

If the stock market only went up, it would make investing a lot easier.

Yes, yes it would. And I think I'd take that scenario over one where prices stay flat so that I can buy low...

[ender]

One reason people care is that stocks going down can be correlated to other problems (bad job market being the most relevant).

It's not a problem if the market goes down. But if, as an example, every time the market went down unemployment went to 10% it means that you have a correlation of negative "felt" impacts with the stock market going down. In 2008 perhaps people didn't care that the market dropped but they cared that companies weren't hiring so they couldn't find jobs.

Plenty of people have some level of this impact when the market goes down or have historically.

[GuitarStv]

Ideally, stocks would drop to nearly zero, I'd invest one shiny penny into 20,000 shares of VTSAX, then the next day prices would rebound to current rates and I'd insta-FIRE.

I'd be a little concerned about retiring fully dependent upon the stock market given the sudden and unprecedented in history volatility that you just described.

[WildJager]

...

Hence the Time Value of Money (TVM) vs purchasing in bulk (buying fixed amounts slowly over time vs purchasing all at once with the cash you have).  Both are right to a degree, but there are so many variables that neither is a clear cut winner...

I think you mean lump sum investing VS dollar cost averaging.

TMV refers to a collection of equations that calculate how assets & debts react to compounding interest/returns. So TMV is the calculation you would use to compare lump sum investing VS dollar cost averaging. You could also use it to see how long a debt would take to pay off, how long it would take 10k to grow to 100k at X% interest, etc.

I'm not trying to be a financial terms nazi. I just wanted to make sure future readers didn't get confused.

That checks, sorry.  Was a bit tired when I wrote that and crossed terms.  Thanks!

[soccerluvof4]

The market fluctuations to me are not the question as to if the Market drops in a big way, the bigger question is why so I can adjust our portfolio to a slow recovery or one that might come back quickly.

[SyZ]

I understand that the stock going down implies the company isn't profiting which could be because people don't want the product, they're just over-pricing their stock, people have no money but want the product and just need a job, etc.

... but I have 100% of my money in the S&P500, and I don't see how any of these negative effects will last. Like, Apple didn't sell a lot of I-phones, so what? The company isn't going under, they're not magically losing their market share, they'll recover. Same with any other huge retailer / tech company. I can't envision a scenario where Lowes or Southwest or Kellogg bellies up. And even if one did, it would just be replaced - and my actual impact should be minimal because it's 1 of 500 companies. It seems to already completely eliminate (almost) all of the negative risk, and maximize the payoffs.

[forummm]

Ideally, stocks would drop to nearly zero, I'd invest one shiny penny into 20,000 shares of VTSAX, then the next day prices would rebound to current rates and I'd insta-FIRE.

I'd be a little concerned about retiring fully dependent upon the stock market given the sudden and unprecedented in history volatility that you just described.

But you'd have the option to not sell during those downturns. And could live off the dividends of 20k VTSAX shares.

Now, I wouldn't do any margin investing in this kind of market.

[HipGnosis]

You are over simplifying and have much to learn.
I just hope it's a profitable learning experience.

[Northwestie]

I understand that the stock going down implies the company isn't profiting which could be because people don't want the product, they're just over-pricing their stock, people have no money but want the product and just need a job, etc.

... but I have 100% of my money in the S&P500, and I don't see how any of these negative effects will last. Like, Apple didn't sell a lot of I-phones, so what? The company isn't going under, they're not magically losing their market share, they'll recover. Same with any other huge retailer / tech company. I can't envision a scenario where Lowes or Southwest or Kellogg bellies up. And even if one did, it would just be replaced - and my actual impact should be minimal because it's 1 of 500 companies. It seems to already completely eliminate (almost) all of the negative risk, and maximize the payoffs.

It is a matter of timing and risk analysis.  If you are retired and have the whole ball of wax in stocks the current trends are not reassuring.  China is propping up its stalling economy, Europe is weak, and the US is hobbling along.  The recovery from the great recession has been anemic.  If you have 15 years, yea - it's more like "who cares?".    If you are retired or planning to soon - I'd say a strategic position is in order.

[jorjor]

I understand that the stock going down implies the company isn't profiting which could be because people don't want the product, they're just over-pricing their stock, people have no money but want the product and just need a job, etc.

... but I have 100% of my money in the S&P500, and I don't see how any of these negative effects will last. Like, Apple didn't sell a lot of I-phones, so what? The company isn't going under, they're not magically losing their market share, they'll recover. Same with any other huge retailer / tech company. I can't envision a scenario where Lowes or Southwest or Kellogg bellies up. And even if one did, it would just be replaced - and my actual impact should be minimal because it's 1 of 500 companies. It seems to already completely eliminate (almost) all of the negative risk, and maximize the payoffs.

Not sure why you're picking out specific stocks to make your point. There is certainly risk that the market overestimates the future of the US or world economy, and that stock prices in general (and therefore in the S&P 500) adjust downward when they realize their mistake. If the economy sputters, there's no guarantee that another company will step up to take it's place. The companies you name might still be good performers compared to the rest of the market, just in a worse environment with less money made.

I'm not saying that's going to happen, but I wouldn't completely dismiss the risk.

[Dicey]

Seriously,  who among us buys anything that's not on sale or at least rock-bottom price, if not actual sale? Same thing with the stock market. Those dips are just sales in disguise. And I hope you're referring to individual stocks in the abstract and buying funds in actuality.

[Metric Mouse]

Seriously,  who among us buys anything that's not on sale or at least rock-bottom price, if not actual sale? Same thing with the stock market. Those dips are just sales in disguise. And I hope you're referring to individual stocks in the abstract and buying funds in actuality.

I, for one, will gladly pay a full-price premium for a product or service or experience that brings my life joy.