A new investor posted his/her “horror story” on Vanguard Diehards forum:
I am 27 years old and just recently decided to buy into the market in a lump sum in a taxable account (used some savings). I set my asset allocation for a taxable account and on May 10, 2006, I jumped right in with about 35K. I couldn’t have picked a worse time to buy in. Two months later I’m down $2,600 with no recovery in sight, and little confidence of any near term turnaround. So last Friday, I moved everything to a money market account, and missed today’s bounce. Now I’m convinced that I will always make the wrong investment decisions, and can’t get the thought of knowing that I threw that money away out of my mind. What do I do now? Should I DCA money back in? Should I buy back in right now? Should I wait a few months and see how the market is performing? Should I cut my losses and abandon the market forever outside of my retirement accounts?
A horror story to some; a reminder to stay the course to some. Lots of advice there for new investors. Among them, I like this one (reply #33):
I guess in summary I would say that an inexperienced investor should use his age for bonds, add 10-30%, and DCA over 2-3 years. Like Bernstein says, you will most likely experience a correction in the market during this time that will test your true risk tolerance. This is where you will discover your true asset allocation. Until this happens a person is gamblimg with their emotions. I thought the Diehards were conservative investors, like Vanguard? We don’t gamble.
Here’s another blog entry that shares the experience after reading the above post at Diehards.