My Dumbest Investment

This post was originally published on this site

My dumbest investment move was not investing in the stock market after the financial crisis of 2007 to 2009.

— Jimmy, online

The Fool Responds: My dumbest investment move was not investing in the stock market after the financial crisis of 2007 to 2009. — Jimmy, online

The Fool Responds: You highlight a major kind of mistake we all make sometimes — the mistake of not doing something good, instead of doing something bad.

Many people failed to invest during that period because that’s what we humans tend to do, by nature: If lots of people are panicking and selling shares of stock, sending stock prices down, it’s easy to join them and difficult to be contrary. But stock market crashes are terrific times to buy stocks, because shares of great companies will be on sale.

The S&P 500 index of 500 of America’s biggest companies plummeted by over a third in 2008, and dropped quite a bit more in early 2009 before rebounding. The S&P 500’s low at that time was about 676, in March 2009. If you were brave enough to buy shares of an S&P 500 index fund near that low, say at 700, and hung on, you’d have done quite well, as the index was recently at 3,974 — reflecting a gain of over 450%. If you’d bought into the index a year later, when it was at 1,140, your gain would be under 250%.

It’s not a bad idea to keep a little cash on hand for occasional market crashes, to snap up low priced shares of stocks you’d love to own. ¦