Investing: When Index or Mutual Funds Lose Value?
July 29th, 2010
I’ve heard that if you have Index funds and they go down too far you can go broke, but then I heard people say that when index funds go down you should continue buying…I don’t understand, if you are broke, I assumed the stock was worthless. However, does it mean keep buying shares becasue the stock is still valuable. just not as valuable as it used to be, but it will probably go up in the long run so the potential is to make a whole lot of money when it does?
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Actually, you do understand.
If you put your entire life savings into a fund (or anything for that matter – a stock, business, etc…) and the value goes down, then yes, you will go broke. But if you only put a portion of your money into the investment and goes to a zero value then you won;t exactly go broke.
The thought behind buying something as it’s loosing value is exactly what you stated; when it goes back up in value you can hit it big since you were consistently buying at low prices. This is a great thing to do as long as you’re invested in something that fundamentally has solid legs. If you made a poor investment in the first place then buying as the price is dropping is purely throwing good money after bad.
An example of a good investment might be something like GE an example of a lousy investment might be
I forgot the name of the company but someone here was touting some company that made roller blades. The difference between the 2 companies is
GE is huge and they have there hands in so many differnet industries whereas the roller blae company is a very niche market.