Investing in the Stock Market to Fund Something Specific?

[Mrs. Ciz]

I know lots of folks invest in the stock market for the long haul to grow their money or fund retirement. Some people will park their money in an index fund and sit back. Others will day trade. My dad, who is retired, has really gotten into managing his own stock portfolio. He researches, buys and sells regularly. I don't have time to manage my own investments like that because I work full time. Plus, I really don't know what I'm doing, so I have mutual funds. I could keep a better eye on what I do have though.

But it got me thinking...
Have you ever invested in the stock market with a short term specific goal in mind like a big trip or a down payment on a house? Or do you see that as kind of gambling? What kind of investor are you? Just curious.

 

[gottalovepluto]

No way, that's too close to gambling for me. If I had some money for a house down payment and wanted more and could trade my way to it... I would be a professional self-managed trader (kinda like what your father does now). I do not have that skill set so if I want something in the next couple years as opposed to decades down the road it goes in a savings account and I earn and contribute the earnings towards it. I wouldn't want to lose a penny of it so I'm not willing to risk it. I don't want to lose my retirement money either, and that is always a risk as any pour soul who who was in the market in '08 knows to well, but that money I know I have decades to build more of it up if it gets wiped out. I don't have decades to get together travel funds (or someday when I'm ready to purchase house I'm not going to be decades putting together the down payment).

 

[bluehen]

You should never put in the market what you need in the next 5 yrs. This gives you time to rebound if the market hits a downdraft. Any short term goal better be postponeable (is that a word) in case of a major loss. Statistics show that the market will drop 10% about once a year on average. 20 percent every 5 yrs and 50 percent every 10 yrs. No one knows when they will happen.

 

[tex1989]

Look at it this way the market since about 1913 has returned a 13.5% average return. That means on average over that period you make 13.5% return every year. Great money if great grandpa had a diversified portfolio in 1913 and the family still owns it today. However that being said since then we had the crash in 1929 and numerous recessions upturns and downturns. What it tells you is the market is a great place to grow long term wealth, but not so much from short term. Now can you grow it short term? Well my return from the time of the November elections in 2016 till the end of 2017 were about 37%. So had I entered in November 2016 and exited in December 2017 then yeah great short term returns. But I didn't. The money I had stayed and I added over the whole period and paid an average over the term. The best bet for the long term is pick an index fund (no load) with the smallest fees. Put money in automatically every month and leave it for the long haul. That's how wealth is built. Short term trading will catch up to you over time.

 

[Mrs. Ciz]

Look at it this way the market since about 1913 has returned a 13.5% average return. That means on average over that period you make 13.5% return every year. Great money if great grandpa had a diversified portfolio in 1913 and the family still owns it today. However that being said since then we had the crash in 1929 and numerous recessions upturns and downturns. What it tells you is the market is a great place to grow long term wealth, but not so much from short term. Now can you grow it short term? Well my return from the time of the November elections in 2016 till the end of 2017 were about 37%. So had I entered in November 2016 and exited in December 2017 then yeah great short term returns. But I didn't. The money I had stayed and I added over the whole period and paid an average over the term. The best bet for the long term is pick an index fund (no load) with the smallest fees. Put money in automatically every month and leave it for the long haul. That's how wealth is built. Short term trading will catch up to you over time.

You and I think alike. This is the exact strategy I’ve followed for years. However, I do know a few people who played the market and won. One guy grew his house down payment money so much that he was able to move his family to an expensive suburb of NYC. Another invested a little, grew it to 10 grand and bought his wife some super expensive patio furniture she’d been coveting. I, however, am not a gambler. You can win big, but you can also lose big. I’m too afraid to risk my money like that.

 

[tex1989]

You and I think alike. This is the exact strategy I’ve followed for years. However, I do know a few people who played the market and won. One guy grew his house down payment money so much that he was able to move his family to an expensive suburb of NYC. Another invested a little, grew it to 10 grand and bought his wife some super expensive patio furniture she’d been coveting. I, however, am not a gambler. You can win big, but you can also lose big. I’m too afraid to risk my money like that.

The bold is the most important thing. When asked by others about investing the first thing I ask every time is I can't tell you anything until you have it clear in your mind what your risk profile looks like. I know my own and it is very risk adverse. I would never have made it as start up business kind of guy or a risk taker. That's me but others are different. And as funny as that sounds I was an energy trader for many years, but I promised myself and my wife that I would not be trading past the age of 40 and I am not. I will say that if you do want to short term trade the best advice I can give you is before you ever put a trade on have your exit strategy determined before you invest. In otherwords if you research a stock you think is undervalued and want to buy low and sell high then know when you will get out if it goes down, and even more importantly if it goes up when you will exit. To many peopl take the Vegas approach which is when you win on the tables you figure I made $1,000 so I can make another $1,000 if I keep going. WRONG! Take your money and run. Those who lose are the ones who think it will only ever go up and stay to long. Just like Vegas the law of large numbers catches up to you and you wind up giving it all back including your intial investment.

 

[Mrs. Ciz]

The bold is the most important thing. When asked by others about investing the first thing I ask every time is I can't tell you anything until you have it clear in your mind what your risk profile looks like. I know my own and it is very risk adverse. I would never have made it as start up business kind of guy or a risk taker. That's me but others are different. And as funny as that sounds I was an energy trader for many years, but I promised myself and my wife that I would not be trading past the age of 40 and I am not. I will say that if you do want to short term trade the best advice I can give you is before you ever put a trade on have your exit strategy determined before you invest. In otherwords if you research a stock you think is undervalued and want to buy low and sell high then know when you will get out if it goes down, and even more importantly if it goes up when you will exit. To many peopl take the Vegas approach which is when you win on the tables you figure I made $1,000 so I can make another $1,000 if I keep going. WRONG! Take your money and run. Those who lose are the ones who think it will only ever go up and stay to long. Just like Vegas the law of large numbers catches up to you and you wind up giving it all back including your intial investment.

My dad uses a program called Trade Stops. It alerts him when the stock he wants hits his buy price and then tracks his stocks and alerts him when he should get out. He is all about the exit strategy. He keeps trying to convince me to use the family Trade Stop membership and do my own investing. I’ve thought about playing with $500 to see what I can do. I’m not willing to risk my retirement money though.

 

[MillauFr]

Just put your money in small stock, S&P 500, and an international index fund and forget about it. I am not concerned about the ups and downs of the market. If I do great I will be taking 2 to 3 Disney cruises every year and going to Disney parks all over the world. If I do lousy and lose money I will settle for an annual pass to Disneyland and making 2 to 3 trips per year. Either way I will enjoy retirement.

 

[MrVargas]

I believe in the Efficient Market Theory and that means that the price of the stock market is highly efficient and with the speed that information travels now a days, it is always correctly priced and incorporates all available knowledge. With that said, no single person can consistently beat the market (especially after expenses). This is why Index funds (funds that track the market or subset of the market) outperform experienced money managers.

I once wanted to get into stock investing so I started reading the most respected people in that field and interesting enough, the more I read the more I realized that the simple dumb easy approach is the right one.

The single absolute best investment in my opinion is the Vanguard Total World Stock Index (or a similar market weight global fund). It makes no bets on anything except for the bet that the globe will become more valuable. That is a bet I'm willing to make because even though the stock market may make wild swings, a chart of the global GDP is pretty steady and almost always going up. As billions rise out of poverty in developing nations over the next decades I don't see this coming to an end.

 

[MillauFr]

With that said, no single person can consistently beat the market (especially after expenses). This is why Index funds (funds that track the market or subset of the market) outperform experienced money managers.

Agreed.

The money managers may add value but it is an undisputed fact that they charge far more in fees than the added value they provide. They try to charge 1 to 2% of your portfolio value when the actual value of their services is closer to 0.05%.

 

[manning]

Over the long period the market goes up in average. However it does not go up in a straight line. Picture an upside down inclined up. Picture the teeth as ups and down on the way up. Sometimes they are small sometime they are large. That's why you want to invest long term. Another thing don't get emotional. I have BP stock that nosed dived when they blew the well. The first instinct was to sell. The value dropped in half. I didn't. In time it came back. I didn't lose anything because I didn't sell anything. I bought more.

There is an old rule. Buy on the low, sell on the high. Don't try to time the price. You will never know what the absolute low and high will be.

 

[Mrs. Ciz]

Over the long period the market goes up in average. However it does not go up in a straight line. Picture an upside down inclined up. Picture the teeth as ups and down on the way up. Sometimes they are small sometime they are large. That's why you want to invest long term. Another thing don't get emotional. I have BP stock that nosed dived when they blew the well. The first instinct was to sell. The value dropped in half. I didn't. In time it came back. I didn't lose anything because I didn't sell anything. I bought more.

There is an old rule. Buy on the low, sell on the high. Don't try to time the price. You will never know what the absolute low and high will be.

I worked for a bank in a management training program right out of college. Didn’t last long as banking wasn’t for me. I’m an English teacher now. But part of my training was taking classes and getting my Series 6 license. I remember the trainer telling us to counsel our clients against selling when their investments took a down turn. He kept saying that’s when they need to buy more because the investment is ON SALE!!! I left banking after 6 short years, but I never forgot that class!

 

[supersnoop]

I worked for a bank in a management training program right out of college. Didn’t last long as banking wasn’t for me. I’m an English teacher now. But part of my training was taking classes and getting my Series 6 license. I remember the trainer telling us to counsel our clients against selling when their investments took a down turn. He kept saying that’s when they need to buy more because the investment is ON SALE!!! I left banking after 6 short years, but I never forgot that class!

“On sale” or “catching a falling knife.” Invest based on fundamentals.

 

[amcnj]

“On sale” or “catching a falling knife.” Invest based on fundamentals.

Good point. Buy more if you are still confident the entity is a good investment, not just because the price dropped. The price drop could be the first step towards a long term decline or eventual bankruptcy.

 

[Mrs. Ciz]

“On sale” or “catching a falling knife.” Invest based on fundamentals.

Very true, everyone must practice due diligence.

 

[MillauFr]

“On sale” or “catching a falling knife.” Invest based on fundamentals.

My dad kept buying Washington Mutual all the way down, because it kept going "on sale" Yep on sale all of the way down to zero.

 

[crisi]

Short term, absolutely not. The stock market is bad for short term investing.

But I made $80k in gains on the stock market investing for college starting when my now college students were infants. Granted, I poured a lot of capital into it. I have a few hundred thousand in gains in my retirement accounts.

Good point. Buy more if you are still confident the entity is a good investment, not just because the price dropped. The price drop could be the first step towards a long term decline or eventual bankruptcy.

Yep, a lot of my "trading" investment (not the college or retirement accounts) have done very well because I've invested in good companies when they are on sale. Oil companies aren't going out of business anytime soon, even if there is a pipeline spill or oil rig accident (I have done very well with BP as well, buying once the hole in the gulf was plugged, but before the price rebounded). Pharma isn't going out of business any time in the near future. Amazon isn't. I've bought and sold Netflix everytime Reed Hastings does something stupid (which has been four times), and made a ton of money - people are dependent on Netflix. The market tends to overcorrect, putting good stocks on sale. Now, you do have to be sure that the fundamentals are good and not put all your eggs in one basket - after all Enron had a very nice sale.

And after all, when stocks go on sale, I'd rather buy stocks on the chance they increase in value than buy a $300 purse I don't need because its on sale. There is a chance both will be worth nothing - but there is a bigger chance that the purse will never bring me $300 worth of happiness. (And I started small - $50 or $100).