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starting to invest, market timing paralysis

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  • starting to invest, market timing paralysis

    My wife and I have most of our retirement investments with a financial advisor through our work retirement funds. We have some savings that we've been meaning to invest either on our own or with our financial advisor. My plan is to put the bulk in a total US stock market fund and the rest in international stocks and bonds.

    I know that market timing is not a smart approach - especially for an amateur like myself. But as I prepare to transfer a chunk of cash savings from the past year to invest, I can't help feeling like I'm about to invest just before a big crash. Maybe this is why I pay a financial advisor - so I don't over think things like this. But with interest rates on the rise and Omicron raging, it's easy to feel like we're heading toward some sort of correction. Curious on what others think or approach this. Should I just invest methodically and not try to predict the future since I know I can't?

  • #2
    Yes, you should just invest. There’s always something on the horizon that makes people think the next big crash is imminent. More often than not, it doesn’t happen.

    Since your horizon is longer than a couple of years, all that matters is if the value of your investments is greater in 20/30/40 years than it is when you invest. How would you feel if you held out, and stocks went up another 10 or 15% this year? Then a crash would surely be imminent, right? So hold off some more, etc. At some point you just have to take the chance that you’ll experience some short term, paper losses, and just get the money in the market. If you really can’t do that, then divide your money up into 6 parts and invest 1/6 of it every 2 months for the next year. But time in the market beats timing the market.

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    • #3
      Yep there’s always some volcano about to erupt, aliens that’ll invade, plague, zombies, or whatever other catastrophic event that’ll cause the stock market to go down.

      If you zoom out the stock market goes up given a long enough time frame. If it doesn’t, there’s bigger issues at play and other concerns more important than just losing some money in the stock market.

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      • #4
        I have cash from a rental property sale earmarked for VTSAX. Although I understand the rationale and history behind going all in I’m randomly putting a chunk in every few weeks. It makes me feel better from an emotional standpoint to feel as if I have DCA although I don’t think history supports this as necessary. I also feel a drop is headed our way but then again I would have sworn it would happen 2 years ago or anytime since then. A valuable lesson the pandemic has taught me is the market truly can’t be predicted. At least not by me.

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        • #5
          Originally posted by Miko View Post
          My wife and I have most of our retirement investments with a financial advisor through our work retirement funds. We have some savings that we've been meaning to invest either on our own or with our financial advisor. My plan is to put the bulk in a total US stock market fund and the rest in international stocks and bonds.

          I know that market timing is not a smart approach - especially for an amateur like myself. But as I prepare to transfer a chunk of cash savings from the past year to invest, I can't help feeling like I'm about to invest just before a big crash. Maybe this is why I pay a financial advisor - so I don't over think things like this. But with interest rates on the rise and Omicron raging, it's easy to feel like we're heading toward some sort of correction. Curious on what others think or approach this. Should I just invest methodically and not try to predict the future since I know I can't?
          This is an old article but it helped me in 2014 and it is still relevant:
          https://awealthofcommonsense.com/201...-market-timer/


          Time in beats timing.

          Time in the market beats timing the martet.

          Lump sum, and ignore the noise.

          I have predicted a bear market for 2022. However, I also predicted it for 2016, 17, 18, 19, 20, 21. I was wrong then and might be now.

          Questions to ask yourself:

          1. When do you need this money?

          2. How much value will it have if you do not invest it for the time period you are considering? (leave it in cash until retirement and you will regret it).

          3. What if you wait for a drop and it never happens? OR what if it drops right AFER you stick it in by the DCA method?

          You could DCA it into the market over 2 years and then at the end of 2 years it could drop right after you put in the last dime.

          When do you need it is the most important Q.

          When? If it is for retirement and you are 40 we will say 25 years.

          How many 25 year periods has the stock market had a negative return?

          If you don't need the money for >15 years put in in and ignore the noise.

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          • #6
            a huge crash right now would be good for you assuming you ride it out

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            • #7
              You can end up paralyzed on the sidelines forever. There are always reason(s) to/not to invest.

              Let's say you lump sum invest and the market drops 30-40%. Doesn't feel great. The flip side is you get to tax loss harvest and can carry those losses indefinitely. With those losses you can deduct $3k/year off your personal taxes and/or offset capital gains when you sell appreciated stocks/real estate/business.

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              • #8
                Go back and look at the market price right before previous big crashes. Would you love to invest at those prices today even if you knew it was right before a big crash? I would love to.

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                • #9
                  Originally posted by StateOfMyHead View Post
                  I have cash from a rental property sale earmarked for VTSAX. Although I understand the rationale and history behind going all in I’m randomly putting a chunk in every few weeks. It makes me feel better from an emotional standpoint to feel as if I have DCA although I don’t think history supports this as necessary. I also feel a drop is headed our way but then again I would have sworn it would happen 2 years ago or anytime since then. A valuable lesson the pandemic has taught me is the market truly can’t be predicted. At least not by me.
                  I no longer remember where I saw it, but the data apparently show that investing a lump sum immediately is superior to taking that same lump and DCAing your way into the market. But here is why I remember it. The author also said that if you just feel better about DCA, and that will allow you to pull the trigger, then do that regardless of whether or not it is ideal. Perfect is the enemy of good enough.

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                  • #10
                    2 years ago was right before the covid crash. Money invested then would be up 40% now.

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                    • #11
                      The same answer it's always been. Get the money in the market. Lump sum if you can stomach it, DCA if you can't.

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                      • #12
                        Hold your nose and plow it in. OR DCA weekly/biweekly if you wish.

                        In the long run it really doesn't matter.

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