It’s now more than a month since I considered taking advantage of a downward market by dollar-cost averaging at specific times. Yes, I’m “timing the market.” After making a few newbie mistakes when buying on the dips, I’ve refined my strategy.
At Vanguard, I have cash in a tax-exempt money market fund, which I will draw from on certain days when the market drops. The cash is what I consider marked for long-term investment. I won’t need to access this money for a while, except if I have a major emergency that depletes my short-term cash. The money market fund, which admittedly is not as great an aption as it was one month ago due to a significant drop in its yield, allows me to quickly transfer small amounts of money to a Vanguard stock market mutual fund when the time is right.
Unfortunately, I don’t have a lot of time to check the market’s performance. After yesterday’s 5% drop in the S&P 500, I thought I had missed my chance to buy another $500 worth of VTSMX.
The market offered me another chance today, falling a further 5%. I happened to check at the right time today and was able to squeak in a purchase of VTSMX in my brokerage account at Vanguard. I may not have the ability to precisely time the bottom, whenever it may come, but strategically buying on poor performing days is one safer way to approach that goal.
So far, this is only my second timing purchase after setting up my Vanguard account properly. I don’t plan on doing this often, but the second day in a row of 5% declines seemed like a fair opportunity.
Updated February 6, 2012 and originally published November 6, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.