A Personal Target Price to Invest More At


On my computer, I have a sticky note listing a targeted level of the S&P 500 index. Should the index fall to this level, I will accelerate the timing of planned contributions to my wife’s and my individual retirement accounts.

The number on the note, 2,520, is the point at which the S&P 500 will have fallen by 14%. This decrease is slightly less than halfway between what defines a correction (a drop of 10.0% to 19.9%) and a bear market, (a drop of 20% or more). This level comes from research conducted by Sam Stovall, the chief equity strategist at CFRA Research. As Stovall explained in the October 2017 AAII Journal (“Stock Market Retreats and Recoveries”) those who had put money to work whenever the S&P 500 declined by a 7% increment—down 7%, down 14%, down 21%, etc.—“would have looked like a terrific market timer.”

My price target is not a forecast. The S&P 500 may rebound before falling to that number. Alternatively, if the current pullback turns into a bear market, the large-cap index will fall further. I’m not trying to time the market; I’m merely adjusting the timing of planned contributions to my retirement accounts to take advantage of stocks being on sale.

There are three important things to keep in mind. First, this is money that I will not need for many years. I can afford to withstand short-term losses because I have a plenty of time to recoup them and grow the contributed amounts into a much larger sum. Second, I would invest the same dollars anyway. The difference is that rather than sticking to an incremental schedule with deposits made every pay period, I’m going to combine them into a large contribution amount should my target be reached. Third, should the current decline turn into a bear market, a drop of at least 20%, I’m prepared to repeat this process. I previously accelerated plan contributions when the S&P 500 hit the down 7% mark.

There is also an aspect of discipline at play. The sticky note serves as a reminder of a commitment I’ve made to myself. I’m not relying on memory nor having to guess at what point I should act. All of my planned contributions for this year and next year are plotted out on a spreadsheet. I know how much I’m going to contribute and on what date. This makes it easy for me to determine how much I’m able to accelerate the timing of contributions without going over the IRS limits or unexpectedly dipping too much into short-term savings. I also have direct deposits already set up. My regular contributions will continue if I do nothing and the S&P 500 never hits my target. Finally, the money is going into index funds. As such, I’m not seeking to make a bet on any single stock, but rather simply relying on the historical odds of stocks as an asset class rising in value over a period of years.


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