Stock Market Correction Well Timed for Some Dollar Cost Averaging Investors

February 28, 2007

Unless you were away from all forms of media yesterday, you’re probably aware that the market took a beating. It’s not a good day on Wall Street when the DOW is down 3.3%, the S&P 500 down 3.5%, and the NASDAQ down 3.9%.

However, if you are dollar cost averaging into the stock market through mutual funds and have your transactions setup to buy shares on the first or last day of the month then yesterday’s market correction was, in a way, well timed.

I can’t count the number of times there’s been a small down-turn in the Vanguard 500 Index (VFINX) a day or two after money from our paychecks is used to buy into the market. Although I can’t see into the future, it appears that when our investments are made this week, they’ll be at a discount.

Of course, any gains we’ve made in VFINX since the beginning of December 2006 have been given back but if the market was going to drop I’m glad it didn’t wait a few more days.

Ben

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Ben

Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn’t like the other kids… His addiction to personal finance has paid off for his family and now he’s helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.


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Comments

3 Responses to Stock Market Correction Well Timed for Some Dollar Cost Averaging Investors

  • Sun

    I am not worry about the short-term down turn either. For long-term investment, I only see it as an opportunity to buy a little more at a lower price.

    BTW, are you buying VFINX at the end of the month? If so, you should be careful not “buying the dividend,” i.e., buying the fund right before the dividend distribution if the fund is in your taxable account. Vanguard usually distribution dividend and capital gains at the end of the month, either quarterly or monthly.

  • moneysmartz

    I’m with you Blaine. I have a long time horizon before tapping the money I have invested in the market so I try to look on the bright side of the down turn and look it at like buying at a discount.

  • Blaine Moore (First Time Home Owner)

    I hadn’t noticed, but my investment should hit at the end of this week or the beginning of next week. I’ve only been investing with Vanguard for a couple months and haven’t figured out how their system works in terms of how long after I send funds over that they actually purchase the stocks.

    I’m not too worried about a brief down turn; hopefully it stays down until after my purchase and goes down right before any future purchases before springing up again.

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