The Ups and Downs of the Market
This month’s 2Minute Financial Focus is on understanding the ups and downs of the market.
Let me tell a story. Say you’re out shopping at the mall and you see that shoes are on sell. Do you save money on shoes or do you buy an additional pair? Most people buy an additional pair.
But what happens when the market goes on sale? When the market drops we often think we have to sell the shares that we have. Or we sometimes think we should stop contributing.
That’s just the opposite of what we should do!
So if you go the mall and you see that shoes are on sale, would you run home and sell all your shoes? Then why do we feel like we have to do that with our investments?
We should be buying extra shares. Let me show you why!
If I’m saving $100 per pay period into my 401k, and I’m buying a mutual fund that is trading at $25 a share, I’m buying 4 shares. Make sense?
If that mutual fund goes down to $20 a share, and I keep putting that same $100 in, I would now be buying 5 shares; $100 divided by $20.
If that mutual fund goes back to $25 I would have bought one additional share at no additional cost. I would have actually made $25 and the value never went up, it only when down, or “on sale”.
The next time the market goes on sale, don’t panic and stop your contributions, consider increasing your contribution and buying additional shares while it’s on sale.
I hope you’ve enjoyed this month’s 2Minute Financial Focus. If you’d like to learn more, or to download a free copy of the FOCUSED book, visit TheFocusedBook.com.