How to keep buying in your 401(k)\IRA even if you loose your job?

This is a continuation to my last blog entry -Buy-Low-Sell-High: Getting over your fear.

I truly felt vulnerable and afraid when I was under unemployment for 2 years during the dot-com bust. With no job, I could not contribute to a 401(k). I could have contributed to my IRA, but with tight budget and not know what the future hold, that was a low priority. All my investment activities came to a haul. Big mistake!!!

If you are a true believer and practitioner of buy-low-sell-high, you should be investing during a market recession (the probable cause of you loosing your job), not when the market is doing well (when you probably have a job).

So, how to keep investing when you don't have a job or when you feel afraid? The solution is simple, but it requires some planning ahead and some work.

This is what I do:

1. When I have a job, I contribute to my 401k\IRA with 100% in a money market fund. Yes, 100% in money market fund! Forget about what the investment reps. tell you at your company 401(k) meeting about asset allocations for now.
2. If I loose my job, guess what? It's time to buy (market recession) and I have all the cash I need in my money market fund. At that time, I decide my asset allocations and setup a contribution schedule to exchange from my money market fund to other funds.
   

Sounds simple, right? Yes, but like I said, it requires some rethinking and planning ahead. You don't have to invest 100% in a money market fund, but my point is: you need to make sure you have enough cash to keep buying when the market is in recession and when you are out of a job. How long will a recession last? Nobody knows. But if say the recession will last 2 years, and if I exchange $100 a week from my money market fund, that's a total of $10,400 (2 years * 52 weeks * $100). That's a lot of cash I know, but that's what it take.

Next time I will compare some companies 401k\IRA that work best (tools, fees, etc.) for this strategy.

Buy-Low-Sell-High: Getting over your fear.

This blog entry is rather simple. I want to keep it simple so you can remember it!

There is a big difference between a believer and practitioner of buy-low-sell-high when it comes to investing. The majority of us let our fear get a hold of us.

Fear immobilize our abilities to act, to make changes and to make the right decisions.

Think about watching a fund keeping going down to half of its price, could you still press that buy button?

Well, keep this in mind: Most people are wrong! Most people are not financially secure! So next time you feel fear, don't act like most people. You should be running instead of hiding.

Not convince? Take this "Let's Make a Deal" test (based on The Monty Hall Problem on probability and statistic) and see how fear of change affects your decision making skill. You can go on and read the explanation of the problem.

Still afraid? Next entry I will share my strategy to help me get over that fear.