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How to invest in an overvalued market?

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  • How to invest in an overvalued market?

    Good morning

    I was wondering if any of you can help me understand how I can come up with a strategy for investing in a over valued market right now

    briefly my situation is this

    1 I'm investing aggressively in index funds for my target retirement date which is in 24 yrs

    2 I also have some cash that matured from CDs recently, I need it in the next 10 yrs for a kind of "semi retirement" I'm planning. I'm too afraid to invest this Lump sum now into stocks as I'm afraid in 10 yrs I might still be in the down cycle , so what are my options ? to prevent it from inflation erosion?
    I'm debating between permanent portfolio /golden butterfly types defensive ones vs 3 funds [ but more bond heavy]
    but everyone is saying "bad time to get into bonds"
    however if i keep it stocks only there is a good chance it will be down 40 percent in 10 yrs when i need it , and NO ONE can predict that

    these funds are sufficient for me to have good 8 yrs of semiretirement as long as they grow a slightly above inflation [ and ofcourse anything more is welcome]

    Any thoughts suggestions ?

  • #2
    Historically just investing it all lump sum at your chosen aa wins out for the long term. Sure the market may be overvalued but can it go up 20% more before going back down? Sure. The problem is that no one knows or can predict anything. If you try to time the market you have to do it twice.

    Psychologically dca into your desired aa may help.

    Comment


    • #3
      Originally posted by Nysoz View Post
      Historically just investing it all lump sum at your chosen aa wins out for the long term. Sure the market may be overvalued but can it go up 20% more before going back down? Sure. The problem is that no one knows or can predict anything. If you try to time the market you have to do it twice.

      Psychologically dca into your desired aa may help.
      thanks
      but is 10 yr horizon too short to be going mostly into stocks vs a more defensive portfolio ? essentially I'm looking at these second funds like a retiree

      Comment


      • #4
        And what will happen after the 10 years during your semiretirement? Dont you need to plan for your actual retirement after that also?
        My advice would be look at your whole portfolio as one, pick an allocation you are comfortable with, and stick with it. You can also google big ERNs blog posts on glidepath retirement allocations, where he (I think, this is all from memory so I may be wrong) argues for increasing bonds a few years prior to retirement and then switching back to a higher stock allocation once you are a few years into retirement.

        Comment


        • #5
          Diversify into international and small cap, value index funds

          Comment


          • #6
            Who says it is overvalued? Maybe the market has been grossly undervalued. I wouldn't worry about valuation and I would continue on with your previous plan.

            You really think there's a good chance it'll be down 40% in 10 years? The worst rolling 10 year period is like -3.8%.

            Comment


            • #7
              Originally posted by nastle View Post

              thanks
              but is 10 yr horizon too short to be going mostly into stocks vs a more defensive portfolio ? essentially I'm looking at these second funds like a retiree
              no. the usual recommendation is that you shouldn't invest money you need in 5 years. I would lump sum invest it today and in 5 years see where you are at in terms of how you are feeling about this semi-retirement, and where the market is at. Then decide whether you want to take some of this money off the risk table and put it into a more secure investment

              Comment


              • #8
                If you guess wrong you will underperform the market. There are folks who thought the top of the market occurred 5+ years ago. The longer they waited for the “drop” the worse the underperformance. Capitulating requires acknowledging they were wrong and that it cost them a lot of money.

                Do you really want to do that?
                Last edited by zlandar; 08-17-2021, 06:59 AM.

                Comment


                • #9
                  I've got a chunk I need to do something with now. CordMcNally I'm saying I believe both stocks and real estate are overvalued, not that it means anything to anyone other than me, lol. I may be wrong of course and over the long haul I do believe things will even out but putting a large amount into stocks at once when my gut is saying things are over priced will lead me to DCA.

                  Comment


                  • #10
                    Originally posted by StateOfMyHead View Post
                    I've got a chunk I need to do something with now. CordMcNally I'm saying I believe both stocks and real estate are overvalued, not that it means anything to anyone other than me, lol. I may be wrong of course and over the long haul I do believe things will even out but putting a large amount into stocks at once when my gut is saying things are over priced will lead me to DCA.
                    You can DCA if it makes you feel better but lump sum beats DCA 2 out of 3 times.

                    Comment


                    • #11
                      if you think the market is overvalued you have 2 really simple options:
                      you either shouldn't invest, or you should invest in bonds/gold.

                      i don't think the market is overvalued, and i continue to invest thousands every month.

                      i certainly think in 24 years the market will be much, much higher than it is right now.

                      Comment


                      • #12
                        Originally posted by billy View Post
                        And what will happen after the 10 years during your semiretirement? Dont you need to plan for your actual retirement after that also?
                        My advice would be look at your whole portfolio as one, pick an allocation you are comfortable with, and stick with it. You can also google big ERNs blog posts on glidepath retirement allocations, where he (I think, this is all from memory so I may be wrong) argues for increasing bonds a few years prior to retirement and then switching back to a higher stock allocation once you are a few years into retirement.
                        Actual retirement I’m already funding by maxing out my retirement accounts plus another brokerage account with index funds

                        In 10 yrs I’m 50 and kid is grown up then I want to enjoy my life for 8 yrs and spend these other funds I have from 50 to 58

                        wjen I retire at 65 I don’t plan to travel for anything just basic survival mode

                        yes I think you are talking about the bond tent concept I’ve read about it but shouldn’t I need it right now for my reserves ?

                        also glide path is essentially target date funds type right ?

                        thanks for your advice

                        Comment


                        • #13
                          Originally posted by MPMD View Post
                          if you think the market is overvalued you have 2 really simple options:
                          you either shouldn't invest, or you should invest in bonds/gold.

                          i don't think the market is overvalued, and i continue to invest thousands every month.

                          i certainly think in 24 years the market will be much, much higher than it is right now.
                          I’m doing both
                          I’m still investing thousands every month

                          AND
                          for my reserves funds trying to invest them defensively so they are most protected in 10 yrs

                          I need advice for the latter

                          I agree guys timing market is FOOLISH it’s time in market not timing but for those post tax funds already saved up on a shorter time horizon don’t I need to plan more cautiously

                          Comment


                          • #14
                            Originally posted by StateOfMyHead View Post
                            I've got a chunk I need to do something with now. CordMcNally I'm saying I believe both stocks and real estate are overvalued, not that it means anything to anyone other than me, lol. I may be wrong of course and over the long haul I do believe things will even out but putting a large amount into stocks at once when my gut is saying things are over priced will lead me to DCA.
                            Have you tried looking at portfolios like
                            all weather , golden butterfly etc

                            Comment


                            • #15
                              Originally posted by zlandar View Post
                              If you guess wrong you will underperform the market. There are folks who thought the top of the market occurred 5+ years ago. The longer they waited for the “drop” the worse the underperformance. Capitulating requires acknowledging they were wrong and that it cost them a lot of money.

                              Do you really want to do that?
                              I agree that’s why I’m still investing heavily every month

                              Comment

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