It’s been quite some time since I have added anything to my money category here at romandock dot com and given the current state of the economy, this might be a good time to add another post to that category. I know that the economy is one of the most over-talked-about topics in the news today, but I’ll add my two-cents worth anyway :)

This post is not going to be about the $700 billion economic bailout plan, feelings towards the bailout, or what the government is/isn’t or should/shouldn’t be doing. Instead, I am going to look at the stock market and what YOU can do and how YOU can look at the situation.

The current drops in the stock market which have brought the Dow down to its current 8451.19 may not be as exciting as when the it broke 14,000 for the first time, but it is still interesting and deserves some evaluation. In some ways, the recent economic downturn may be more interesting to study and watch. For the record, I do have some money in the market and have taken a significant hit to my portfolio because of recent events. While I’m not extremely happy to have lost as much money as I have, I am not significantly worried and do plan to leave my money where it is and wait for things to get better.

Even if you don’t agree with the rest of what I am about to say in this post, I do hope that you agree that the best thing for people to do right now is to be still and wait. Now, I am going to go out on a limb here and talk about why I don’t necessarily mind that this is going on and think that it might even have the potential to be a good thing.

Possible Increase In My Buying Power

As the stock market has increased over time, so has the price of consumer goods. Due to the law of supply and demand, when things are going good and people have more money they are willing to spend more money and prices go up. When this happens, a given amount of money does not have as much buying power as it previously did.

With the current economic situation, people are not spending money as freely. This can be referred to as a decrease in demand and since supply has remained relatively constant, it is likely that prices of consumer goods may begin to drop. This will eventually be reflected in the consumer price index and people actually will be making more than they were in the past.

The Power Of Dividends

The advantages of this point do have the potential to disappear if corporations and people in charge decide to cut or eliminate dividends, but for the time being, the lower prices are advantageous for people such as myself who are signed up for dividend reinvestment. The reason for this is because the dividends generally stay the same amount per share from quarter to quarter. What happens then is that return increases when the price goes down and the same dividends will buy more shares and increase the amount of dividends that are received next quarter and on into the future. Also, having more shares will increase the amount of money that you can and will make when the market begins to go back in a positive direction.

Excellent Buying Opportunity

People have said that the secret to making money in the stock market is to buy low and sell high. Well, as a basic principle, this is exactly correct and the main idea behind buying and selling stocks. Looking at the stock market right now, I see a lot of stock prices that are quite low and it looks to me like a buying opportunity. It’s almost as if every stock in the market is on sale!

Now, I may be setting myself up to get ripped apart in the comments here, but I don’t think that all (or any) of these ideas are too far from the truth. If you are having a hard time agreeing with what I have said here and are considering getting your money out of the stock market, think about this: The market is already down and the damage has been done, what are you going to gain by getting out now? If you get out now, you have absolutely zero chance at recovering any losses you have already incurred and will miss out on the recovery if/when things turn around.

And remember, investing in the stock market IS like gambling: Never play with more than you can afford to lose