Bad Time to Jump In?

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Classic Muscle
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Bad Time to Jump In?

Post by Classic Muscle »

First time investor, I have been dragging my feet on opening an account with either Vanguard or Fidelity for about 6 months. I'm looking to invest about $50,000 but now, with Dow so high and the "bull market" seemingly peaking, should I wait a couple months before investing? It just seems so many people on here feel we're at the top of the mountain and a fall is coming soon. I'd obviously rather invest after the fall, not before it, but at the same time the longer I wait it seems the higher the market keeps creeping up! My plan was to invest in mutual and market index funds.
gkaplan
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Re: Bad Time to Jump In?

Post by gkaplan »

Classic Muscle wrote:First time investor, I have been dragging my feet on opening an account with either Vanguard or Fidelity for about 6 months. I'm looking to invest about $50,000 but now, with Dow so high and the "bull market" seemingly peaking, should I wait a couple months before investing? It just seems so many people on here feel we're at the top of the mountain and a fall is coming soon. I'd obviously rather invest after the fall, not before it, but at the same time the longer I wait it seems the higher the market keeps creeping up! My plan was to invest in mutual and market index funds.
I assume you dragged your feet on opening an account six months ago, because you thought the market was too high. Six months later you're dragging your feet on opening an account, because you thought the market is too high. Six months from now you'll be dragging your feet on opening an account, because you'll think market is too high. Do you see a pattern here?

My advice: Choose an asset allocation you're comfortable with, and lump sum into the market according to your asset allocation. Others here probably will advise you to dollar cost average into the market, given your prior hesitancy, but I fear that you'll stop somewhere into your dollar cost averaging because you'll get cold feet again.
Gordon
gvsucavie03
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Re: Bad Time to Jump In?

Post by gvsucavie03 »

Great forum to ask this question....

Many articles I read suggest for someone like you with a substantial lump sum to invest some each month over the course of 6 months to a year.

Purchasing shares at the low end is wise, but so is added time to compound.

The Boglehead philosophy also teaches us to not time the market. By saying that we are at a peak is saying "I'm going to time the market and only get in when it feels right"..... which is counter to the principles that this forum teaches.

There is one fairly complicated idea to consider for maybe a larger portion of this money... the "Really Bad Day," but I would only do this if you are very comfortable with your understanding of what a RBD actually is and your comfort with following market news each and every day. Personally, I'd rather just invest about $4,000 per month into a balanced fund, Target Retirement or mix of Vanguard index funds. Skip the classic mutual funds as these are actively managed and cost considerably more than an index fund.

The Wiki on this site is a must-read in your case. Spend some time here and your questions will probably be better answered.
gvsucavie03
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Re: Bad Time to Jump In?

Post by gvsucavie03 »

gkaplan wrote:
Classic Muscle wrote:First time investor, I have been dragging my feet on opening an account with either Vanguard or Fidelity for about 6 months. I'm looking to invest about $50,000 but now, with Dow so high and the "bull market" seemingly peaking, should I wait a couple months before investing? It just seems so many people on here feel we're at the top of the mountain and a fall is coming soon. I'd obviously rather invest after the fall, not before it, but at the same time the longer I wait it seems the higher the market keeps creeping up! My plan was to invest in mutual and market index funds.
I assume you dragged your feet on opening an account six months ago, because you thought the market was too high. Six months later you're dragging your feet on opening an account, because you thought the market is too high. Six months from now you'll be dragging your feet on opening an account, because you'll think market is too high. Do you see a pattern here?

My advice: Choose an asset allocation you're comfortable with, and lump sum into the market according to your asset allocation. Others here probably will advise you to dollar cost average into the market, given your prior hesitancy, but I fear that you'll stop somewhere into your dollar cost averaging because you'll get cold feet again.
+1
livesoft
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Re: Bad Time to Jump In?

Post by livesoft »

See this thread with the exact same question (even the dollar amount is the same) from six months ago: http://www.bogleheads.org/forum/viewtop ... 2&t=116766

Then repeat after me:

"I am going to lose money, but I won't worry about it."

"I am going to lose money, but I won't worry about it."

"I am going to lose money, but I won't worry about it."

"I am going to lose money, but I won't worry about it."

"I am going to lose money, but I won't worry about it."

.
.
.

Once one is happy to lose money, then they have no worries and become better investors.
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abuss368
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Re: Bad Time to Jump In?

Post by abuss368 »

The question is a market timing question. Market timing has been proven to never work. You may get lucky but you have to be correct twice. When to get in and when to get out.

Allocate your assets to a low costs and diversified portfolio and stay the course. You will be thankful for the results and the simplicity.

I would strongly consider the Three Fund Portfolio. This portfolio which is comprised of the Total Market Index, Total International Index, and Total Bond is an excellent choice.
John C. Bogle: “Simplicity is the master key to financial success."
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goodenyou
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Re: Bad Time to Jump In?

Post by goodenyou »

It is natural to be fearful of being in "The Pinnacle Club". I was there 13 years ago when I lump summed into the market. It took a long time to recover, but it did. I now have about a 4% return on an Index 500 Fund over that time thanks to the recent run-up. Thankfully, it wasn't the bulk of my investment portfolio, nor did I need to withdraw money from it during that period. I did learn a lot about asset allocation and age/time parameters of investing though. The take home: As long as you don't need the money for 15 years, and it won't eat you alive that you may temporarily lose money, invest it.
manwithnoname
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Re: Bad Time to Jump In?

Post by manwithnoname »

Classic Muscle wrote:First time investor, I have been dragging my feet on opening an account with either Vanguard or Fidelity for about 6 months. I'm looking to invest about $50,000 but now, with Dow so high and the "bull market" seemingly peaking, should I wait a couple months before investing? It just seems so many people on here feel we're at the top of the mountain and a fall is coming soon. I'd obviously rather invest after the fall, not before it, but at the same time the longer I wait it seems the higher the market keeps creeping up! My plan was to invest in mutual and market index funds.
Rather obvious Q- why do you think market is peaking and it will be better time to invest in a couple of months? Do you think the market will decline in two months and you will get in at the bottom?

What if the economy improves, unemployment declines and GDP % increases in the next two months. Will you invest if the market is higher at that time? or wait for the inevitable decline at some future time?
tibbitts
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Re: Bad Time to Jump In?

Post by tibbitts »

The thing about timing is that once you commit to it, you need to be consistent. It can work out well... sometimes. If the market was too high six month ago, stick to that and wait for it to fall back below that level. You just have to accept that if the market doesn't go back down to that level, you're permanently stuck with CDs or whatever you're investing in now.
Benn1950
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Re: Bad Time to Jump In?

Post by Benn1950 »

While market timing has been shown to be ineffective, an even worse approach is to not have a plan. The plan may be to DCA, it may be to lump sum invest, it may be to wait for a 5% market pullback. Whatever the plan, FOLLOW IT. If you use sound reasoning when you formulate your plan you should have no regrets when you faithfully implement it. Best of luck

Jack
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ruralavalon
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Re: Bad Time to Jump In?

Post by ruralavalon »

Don't try to guess whether its a "Bad Time to Jump In", or whether the market is "peaking". You won't be any better at guessing than anyone else. Just get started.

Start right now.

Open an IRA at Vanguard, contribute $5.5k right now, and then in January add another $5.5k. Invest in a good bond index fund like Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) or Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX).

Open a regular taxable account at Vanguard, and invest in a couple of tax-efficient stock index funds like: (about $27k) in Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX), and (about $13k) in Vanguard Total International Stock Index Fund Admiral Shares (VTIAX).

Please see: "Bogleheads® investment philosophy" ; Laura's post on "Investment Planning" ; and "Three-fund portfolio" .

EDIT: I favor Vanguard because of their much broader selection of low-expense funds to choose from.

If you want Fidelity instead, then open the two accounts at Fidelity and use: Fidelity Spartan U.S. Bond Index Fund (FSITX) in the IRA ; and Fidelity Spartan Total Market Index Fund (FSTVX) plus Fidelity Spartan Global ex U.S. Index Fund (FSGDX) in the taxable account.
Last edited by ruralavalon on Sat Dec 21, 2013 6:07 pm, edited 3 times in total.
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mall0c
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Re: Bad Time to Jump In?

Post by mall0c »

Classic Muscle wrote:First time investor, I have been dragging my feet on opening an account with either Vanguard or Fidelity for about 6 months. I'm looking to invest about $50,000 but now, with Dow so high and the "bull market" seemingly peaking, should I wait a couple months before investing? It just seems so many people on here feel we're at the top of the mountain and a fall is coming soon. I'd obviously rather invest after the fall, not before it, but at the same time the longer I wait it seems the higher the market keeps creeping up! My plan was to invest in mutual and market index funds.
You are suffering from loss aversion, a classic behavioral economics phenomenon. It has already cost you about $6600 so far this year (the S&P was at about 1600 six months ago). How much more are you willing to let it cost you before you take control of your emotions?

http://en.wikipedia.org/wiki/Loss_aversion

If this is a long term investment do you really believe the S&P will be below 1800 ten years from now? Twenty years from now?

Here is another way to think about it: there are many of us that have a lot more than $50k in stocks in our taxable accounts right now - do you think we should sell those stocks? What's the difference between us already owning them and you thinking about owning them? Your situation is even better in fact - if the market goes down you have a much higher basis than the rest of us. Yes of course you might lose money in the short term, but then you will have a nice tax loss to harvest.
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GerryL
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Re: Bad Time to Jump In?

Post by GerryL »

In investing, time is your friend; timing is not. The more time you spend thinking about timing, the less time your investments have to grow.
Investments can (and usually do) grow, so when (not if) you lose some of the value of your investments you are very likely to get it back -- with enough time. But you can never get time back. Stop dithering. Decide on a plan and move forward. You will be glad you did.
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fourwedge
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Re: Bad Time to Jump In?

Post by fourwedge »

Don't try to guess whether its a "Bad Time to Jump In", or whether the market is "peaking". You won't be any better at guessing than anyone else. Just get started.

Start right now.

Open an IRA at Vanguard, contribute $5.5k right now, and then in January add another $5.5k. Invest in a good bond index fund like Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) or Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX).

Open a regular taxable account at Vanguard, and invest in a couple of tax-efficient stock index funds like: (about $27k) in Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX), and (about $13k) in Vanguard Total International Stock Index Fund Admiral Shares (VTIAX).

Please see: "Bogleheads® investment philosophy" ; Laura's post on "Investment Planning" ; and "Three-fund portfolio" .

EDIT: I favor Vanguard because of their much broader selection of low-expense funds to choose from.

If you want Fidelity instead, then open the two accounts at Fidelity and use: Fidelity Spartan U.S. Bond Index Fund (FSITX) in the IRA ; and Fidelity Spartan Total Market Index Fund (FSTVX) plus Fidelity Spartan Global ex U.S. Index Fund (FSGDX) in the taxable account.
+1
Max out your tax sheltered retirement accounts with inexpensive, well diversified, index funds and you will beat 90% of all investors.
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DiscoBunny1979
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Re: Bad Time to Jump In?

Post by DiscoBunny1979 »

gvsucavie03 wrote:
gkaplan wrote:
Classic Muscle wrote:First time investor, I have been dragging my feet on opening an account with either Vanguard or Fidelity for about 6 months. I'm looking to invest about $50,000 but now, with Dow so high and the "bull market" seemingly peaking, should I wait a couple months before investing? It just seems so many people on here feel we're at the top of the mountain and a fall is coming soon. I'd obviously rather invest after the fall, not before it, but at the same time the longer I wait it seems the higher the market keeps creeping up! My plan was to invest in mutual and market index funds.
I assume you dragged your feet on opening an account six months ago, because you thought the market was too high. Six months later you're dragging your feet on opening an account, because you thought the market is too high. Six months from now you'll be dragging your feet on opening an account, because you'll think market is too high. Do you see a pattern here?

My advice: Choose an asset allocation you're comfortable with, and lump sum into the market according to your asset allocation. Others here probably will advise you to dollar cost average into the market, given your prior hesitancy, but I fear that you'll stop somewhere into your dollar cost averaging because you'll get cold feet again.
+1
-----------

-1

Someone that is hesitant about the market because it continually makes new highs should not be dumping their money into the market all at once. The OP is not experienced and has no idea what it's like to have a $50,000 balance drop to $25,000 in real dollars. Therefore, my opinion, is that, with an allocation that's worthy of a first time investor (something like 60/40) so that the OP will stay the course and not jump ship when the waters get rough, Dollar Cost Average into the market over the next year by contributing some $$ once a week, twice a month or monthly.
john94549
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Re: Bad Time to Jump In?

Post by john94549 »

Trust me, whatever you do, you'll lose money. It's Murphy's Law. Throw a ton of money at the market, it tanks. Liquidate
a ton of appreciated stocks and bonds to pay off a mortgage, that portfolio will go on a tear and achieve a 10% gain, you betcha. I finally stopped peeking around the corner.
grog
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Re: Bad Time to Jump In?

Post by grog »

I started two years ago and have several decades to go till retirement. My thinking is that the market might be lower next year (who knows?) but it will almost certainly be higher 35 years from now and whether I'm up 25% or down 25% the first year won't really matter that much in the grand scheme of things. Maybe I'd do better waiting until next year, but I just don't know and typically waiting means paying more, not less. If you are too nervous to jump in all at once, ask yourself how much you would be comfortable losing and set an initial allocation based on that. Maybe start conservative (50/50 perhaps) and increase your stock allocation as you get more comfortable.
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max12377
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Re: Bad Time to Jump In?

Post by max12377 »

It's a huge psychological game & I understand where you're at. Been there. If you buy a little and it goes up, you wish you bought more. If it goes down, you wish you waited one more day. We're all swimming in the same pool. Even though you maybe fortunate to buy right before a big run-up, you still run a risk of not selling at the right time and riding things all the way back down.

So try to also remember, especially when things get bad, to think about it from a dividends point of view. If you are in stocks and bonds - and stay there long term - you keep getting rewarded with dividends (albeit low ones today). Those dividends get re-invested. Rinse and repeat. If you can stay in the pool for a long enough time, you'll likely do OK. But, as you know, you have to get in the pool to collect those dividends. Remind yourself that it's not just capital gains that provide the returns. Dividends play a large part as well.

I pick an asset allocation that keeps my pool temp moderately warm so I don't jump out when things all of a sudden get cold. Perhaps you might go in at 50/50 or even 40/60 ? That way you still have plenty of dry powder and, if things do get bad, you can buy low. You will likely feel regret either way. The key is to find the best balance that you can live with so you can stay in the pool with the rest of us. :D
tphp99
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Re: Bad Time to Jump In?

Post by tphp99 »

I used to check the "prices" before buying. Hard to figure if you should wait or go for it.

Now that I have a AA/plan (thanks Bogleheads), I simply dump new money in where I'm suppose to. I do not look at the "prices" anymore.
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bottlecap
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Re: Bad Time to Jump In?

Post by bottlecap »

The general answer is included above - determine your AA and begin investing now; dollar cost average the money into that AA if you must. However, the specific answer to you question of whether or not it's a bad time to "jump in" is yes, it is a bad time to jump in - for you. Your question is a somewhat basic one that it suggests you're not ready. Don't feel badly, as all of us where at the same place when we started investing.

The very good thing about your question is that it includes the assumptions that a) markets tend to revert to the mean (they don't go up or down forever) and b) that you won't be able to necessarily jump out at the right time to avoid a loss or capture a gain. These are two true statements that are essential to becoming a rational investor. Many investors never learn these things.

Nonetheless, you need to take a look at the wiki on this site and become more familiar with investing before you begin. Develop an Asset Allocation and come back to ask questions as needed. In the meantime, you can open an account at Vanguard or Fidelity or where ever you decide to invest. Let the money sit in a money market account or something like that so that it will be ready to invest when you are ready and you won't have to begin the process of opening account at that time.

Welcome and good luck.

JT
Dandy
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Re: Bad Time to Jump In?

Post by Dandy »

Is it a bad time? Could be but no one knows. Get your feet wet. Open the accounts and fund them with a portion of the money and DCA (automatically) the rest over the next 6-9mos. This gets you off the dime and take away the rest of the decisions as to when to invest. Believe me if the market drops 20% you are not going to feel it is a great time to invest. When it is up you feel it is too high when it is down you feel you will be throwing good money after bad. That is why waiting is bad and automating the decisions is often a good idea.
dbr
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Re: Bad Time to Jump In?

Post by dbr »

Classic Muscle wrote:First time investor, I have been dragging my feet on opening an account with either Vanguard or Fidelity for about 6 months. I'm looking to invest about $50,000 but now, with Dow so high and the "bull market" seemingly peaking, should I wait a couple months before investing? It just seems so many people on here feel we're at the top of the mountain and a fall is coming soon. I'd obviously rather invest after the fall, not before it, but at the same time the longer I wait it seems the higher the market keeps creeping up! My plan was to invest in mutual and market index funds.
If you are worried that now might be a bad time does that mean that after you are invested you are going to try every day to decide if that day is a bad day to stay in the market or to get out instead?
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Classic Muscle
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Re: Bad Time to Jump In?

Post by Classic Muscle »

Thanks everyone, I appreciated ALL the responses, even the ones that were more blunt towards me as they are deserved. I've always been a little bit of a procrastinator, so my plan is to open a Vangaurd account in the next couple days, put the funds into a money market, and then start reading the Wiki on here while I decide how to allocate the funds. I'm 32 and don't have an IRA yet, and setting up the IRA is the first thing I'll be doing. Any recommendations on whether I should go traditional or Roth? And, is it correct that I'll have until April of next year to make the IRA investment for 2013? And finally, am I seeing correctly that if I make more than $112K/year, which is possible, I may not be eligible for a Roth anyway? Some quick info on me is below:

Single, 28% Tax Bracket, my annual salary is a little over $100K/year.
Debt: None
State of Residence: TX
401K: None, my employer does not offer this, but I am trying to get them to offer it next year. No guarantees on it though.
Last edited by Classic Muscle on Sun Dec 22, 2013 12:19 pm, edited 1 time in total.
Twins Fan
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Re: Bad Time to Jump In?

Post by Twins Fan »

You probably are over the deductible income levels for the traditional IRA to be a benifit to you... not sure on that, but I think so. You are getting close to the to the income limit for the Roth also... depending on any bonuses or extra income you could be pushing it there. If you don't qualify for the deductions in traditional and are under the Roth limit, the Roth is the way to go. My understanding of it anyway. I think there is something about the traditional and if your employer doesn't offer a 401k or similar though?

And, yes, you can make 2013 contributions up to April 15th of next year.

Even if you make 2013 and 2014 contributions to a Roth though, that's $11k out of your $50k. The Roth is and would likley be a small yearly amount compared to your investable income. I say that because it sounds like you make decent income and seem to be able to save a bunch. How will you set up the overall portfolio?
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Classic Muscle
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Re: Bad Time to Jump In?

Post by Classic Muscle »

It looks like I'll be slightly below $112K for my modified AGI in 2013. Knowing this, should I go with the Roth considering my situation or go Traditional and get the tax deduction for 2013?
Last edited by Classic Muscle on Sun Dec 22, 2013 12:39 pm, edited 1 time in total.
Twins Fan
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Re: Bad Time to Jump In?

Post by Twins Fan »

You will have to look up your exact situation to be sure, but it sounds like the Roth is your best bet. I think you're over the deduction limits to get any benefit that way from a traditional IRA. The earnings/gains in the Roth are not taxed. And, since your other investing would be in taxable, it's good to take advantage of that Roth bucket. And, your contributions from the Roth can be withdrawn anytime without penalty... if ever needed. Unless there's something I'm missing aobut the traditional, the Roth is the easy choice for you.
Dandy
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Re: Bad Time to Jump In?

Post by Dandy »

I believe you have up to April 15th (or the designated federal filing date) to make a 2013 IRA/Roth contribution OR when you file if earlier.
Xanadu
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Re: Bad Time to Jump In?

Post by Xanadu »

In your situation, I would go with a tIRA, then convert to a Roth. (Try searching for "backdoor Roth", and you will see why)
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bottlecap
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Re: Bad Time to Jump In?

Post by bottlecap »

Yes, you have until April 15, 2014. I'd probably go traditional if you qualify, Roth otherwise. The back door Roth is an option if you are ineligible for the Roth due to the income limitations, but will take a little reading to execute properly.

JT
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Re: Bad Time to Jump In?

Post by placeholder »

Classic Muscle wrote:It just seems so many people on here feel we're at the top of the mountain and a fall is coming soon.
Who exactly are you talking about because I haven't seen many at all with those sentiments.
pswift
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Re: Bad Time to Jump In?

Post by pswift »

Classic Muscle,
About a year ago, I was in very much the same position you're in now. I set a deadline, and then just jumped in. I'm so glad I did.
I've found that with investing, the learning process takes time and actually putting your money on the line is an important part of that learning process.
Xanadu's advice on a backdoor Roth is a good idea if your income is too high. Good luck and enjoy the journey.

-Swift
selftalk
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Re: Bad Time to Jump In?

Post by selftalk »

Go to americanfunds.com then go to fund information then go to prospectuses and reports then scroll down to The Investment Company of America and click on annual report and then go to page #6 and enlarge. That should help you immensely. Also Warren Buffet was quoted for saying that anyone that cannot stand a 50% paper loss in his/her stocks should not be in the Market at all. I wish you good luck and good choices!
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BigFoot48
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Re: Bad Time to Jump In?

Post by BigFoot48 »

Classic Muscle wrote:I'm looking to invest about $50,000 but now, with Dow so high and the "bull market" seemingly peaking, should I wait a couple months before investing?
Friday would have been a good day, as the market's up again today.
Retired | Two-time in top-10 in Bogleheads S&P500 contest; 18-time loser
MaineInvestor
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Re: Bad Time to Jump In?

Post by MaineInvestor »

First time to the forums, and though I'm well-versed in the book and strategy I was intrigued to see this question because I know we're all thinking it!

I totally understand. Though I've been investing for a few years now, investing a lump sum on my regular schedule after the markets have been rallying is STILL terrifying.

I had cut a semi-annual contribution check to my Vanguard SEP-IRA earlier this month and it sat on my desk for a week and a half because, frankly, I was scared. Just had to remind myself that I trust the system and my asset allocation and that it's about the long-run.

So as others have said, make sure you have a plan before you invest, make sure you trust it for the long run, then dive in. Good luck.
Tom_T
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Re: Bad Time to Jump In?

Post by Tom_T »

pswift wrote:About a year ago, I was in very much the same position you're in now. I set a deadline, and then just jumped in. I'm so glad I did.
I agree with your move... but would you be "so glad" if the market had fallen 20% this year? Probably not.
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Classic Muscle
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Re: Bad Time to Jump In?

Post by Classic Muscle »

BigFoot48 wrote:
Classic Muscle wrote:I'm looking to invest about $50,000 but now, with Dow so high and the "bull market" seemingly peaking, should I wait a couple months before investing?
Friday would have been a good day, as the market's up again today.
LOL. Ok, I do deserve these comments!
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greg24
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Re: Bad Time to Jump In?

Post by greg24 »

The market climbs a wall of worry.
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Jay69
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Re: Bad Time to Jump In?

Post by Jay69 »

With no 401k/work plan and at your tax rate I would not rule out some I-bonds as well, for this year and next if needed.
"Out of clutter, find simplicity” Albert Einstein
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