Thursday, May 3, 2007

Market Timing

Okay, I'll admit it: Even though every investing handbook advises that investors steer clear of market timing, I do it anyway.

Not that I buy a lot of stocks (you'll notice my "start investing" goal still up on my goals sidebar), but I always figured that, even if the difference between the stock price over two days is just $0.25, when you multiply that nominal amount by the # of shares you're buying, it kind of adds up!

But today, I finally took the more pragmatic approach - I'm actively taking the advice of Ric Edelman and Eric Tyson, and bought shares of an index fund while the market appears to be on it's way up. While it goes against all my penny-saving instincts, Edelman has a really good illustration of the nature of the stock market in one of his books, called The Truth About Money.

And now, an excerpt from Chapter 33, aptly named "Focus on the Hill, Not the String":

"People fear the stock market because stock prices are volatile. Prices can fall, and people fear falling.

"Yet this fear is misguided. By focusing on the daily ups and downs of the market, people forget the more important point: Stocks rise more than they fall. Imagine a boy walking up a steep hill while playing with a yo-yo.

"If you focus on the yo-yo, you'll become obsessed with its wild gyrations -- while ignoring the fact that the boy is steadily climbing higher. True, the yo-yo will always reach a low point, but each low point will be higher than the last low point, because the boy's now on higher ground. So it is with the stock market."
I'm taking advantage of Vanguard's new fee structure changes, so the fund transfer from the bank should go through tomorrow. And I just checked, and the market is still on it's upward trend today, which means the fund should also have gone up. It's sure harder to ignore the yo-yo than I thought...

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