My original plan of attack for my short term savings (read emergency fund) was to put it all into a 4% APY money market account. As I saw stock prices go higher and higher last year, I decided that I wanted a piece of the pie (bad idea for short-term savings). I placed 1/4 of my savings in the stock market, 1/4 in bonds (to balance the risk of the stock market hopefully), and 50% remained in the money market account. Right about that time, the stock market started going downward. Instead of gaining my nominal 4%, I was losing even more than that. Panic began to set in, so I decided to ignore it. However, every once and a while I checked to see how things were…and each time the news was the same: worse.

I saw a headline that read that stocks were at their worse price in 18 months. This prompted me to want to take my money out and count it all a loss. I read a few more headlines on money.cnn.com and realized that most analysts were saying that now is not the time to invest in the market, a further recession is near. The message was clear: “Take the money out of the market”.

However, I remember a few words of advice from the money management and investing books that I have read:

1. When the stock market is low, buy more.
2. When everyone seems to recommend something, its probably too late to capitalize on it.
3. Nobody knows what is going to happen. We’re all clueless.

Even though my gut was telling me to flee, my wisdom told me otherwise. I ended up liquidating my bond account that was there to counteract my stock losses, and put that all in stocks too. It wasn’t easy, but I just trusted the time honored advice that I received from the “experts”, and tried not to let emotions get in the way.

The next day, after I put more in the stock market, the whole market rallied almost 4%. It was the best day for stocks in 5 1/2 years!

Now I take that with a grain of salt, tomorrow the market could tank 4% (although a tank that high in one day is unlikely). However, this does prove one thing: those books I read are smarter than my emotions. Imagine how much I would be angry with myself if I bailed out of the market that day instead of going in for more?

Now for the recommendations… the best books on investing that I have read are:

• Investing for Dummies - Eric Tyson
• Straight Talk on Investing - Jack Brennan (CEO of Vanguard)

The first book is a good overview, the second book is a good method of practical investment strategies. I do all of my investing through Vanguard.com, as they provide easy service, the lowest fees in the business, and a good selection of products with great customer service (I called once and got an articulate customer service rep within the first minute, who called back the next day to see if I had any more questions).

Now let’s just hope this rally continues.

*Disclaimer: it was a horrible idea to put any money in the stock market that I didn’t want to touch for 5 years unless I was willing to lose a significant portion of it.  It was a decision based off of the emotions of a rising stock market, not conventional wisdom.  See the Brennan book.