Contributing more to your investments when the market is down may seem like throwing good money after bad. But, for long term investors, it is exactly what you want to be doing.
You’re buying shares of investments at a lower cost…. which is a good thing, right?!
Casey provides some context to this question in this week’s video. Definitely check it out if this is a question you’ve been considering!
Should You Contribute More to Your Investments When the Market is Down? – Full Transcript
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Casey Mullooly: Should you contribute more to your investment accounts when the market is down? Keep watching to find out. Welcome back to the Mullooly Assets Show. I’m your host, Casey Mullooly, back with you here for episode 294.
Recent survey from Bankrate found that 18% of US investors, that they polled, are planning on contributing more to their investment accounts this year. So 18% are putting more money in. I think it was around 50% of the investors they polled are making no changes, and about 30% of the investors are planning on contributing less to their investment accounts.
Casey Mullooly: So they asked some industry folks their thoughts on people contributing more when the market is down. And we generally agree with what they had to say. Most of the advisors that answered were applauding these investors for thinking about and planning on putting more money into their investment accounts when the market is going down.
We’ve said it before and it’s become a cliche, but the stock market is the only market where things go on sale and people run out of the store. So it’s honestly a breath of fresh air to see that some people are thinking about purchasing more now that the stock market is on sale.
But it begs asking the question, should you contribute more to your investment accounts when the stock market is down?
Casey Mullooly: And I just want to provide a little caveat because the answer is obviously personal. And get in touch with us if you need help figuring that out. But the caveat I will add is if you have extra cash flow each month and are looking to systematically invest that money, then yes, you should buy all means be contributing more to your investment accounts.
But if you’re stretched thin and trying to time one of these bear market bounces or bear market rallies that we’ve seen here over the last couple of weeks, then I don’t really think that that’s a good idea.
I think investors over the last couple of years have grown accustomed to V-shaped recoveries. Basically, the market bottoms quickly, and then bounces back, and we’re at new highs in just a couple of months.
Casey Mullooly: We saw it at the bottom in March of 2020. We bottomed in March of 2020. And then in August of that year, we were back at all-time highs, just five months later. And it happened the time before that in 2018 where people forget about this, but yeah, we were down over 20% in the fourth quarter of 2018.
Bottomed in December of that year. And then again, April, four months later, new all-time highs. But that doesn’t mean that this time has to follow that pattern. It’s not uncommon for markets to go down and just tread water for six months, a year, or two years, especially after some of these big explosive moves we saw to the upside in 2020 and in 2021.
Casey Mullooly: So if you’re looking to plow more money into your investment accounts because you have extra cash flow and are looking to systematically purchase shares of funds while the market is going down, awesome. Kudos to you. We believe that you will be rewarded for that over the long-term.
But if you’re trying to catch a falling knife, so to speak, or make a quick buck on one of these snapback rallies, then you’re probably just better off sticking to your original investment plan in the first place. So that’s the message for episode 294. Thank you as always for watching. We’ll be back with you next time.