Worried about the market

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Affiron
Posts: 4
Joined: Tue Mar 25, 2014 10:09 pm

Worried about the market

Post by Affiron »

Hello,
I've just opened my first IRA mutual fund with vanguard. I've invested in the lifestrategy growth fund (VASGX)

However, I'm wondering if this is a bad time to jump in...it seems like the market is overvalued. With the feds pumping money into everything, I'm wondering if I made a mistake. Should I have waited? Should I shift to a more conservative investment? Bonds don't look that appealing to me right now with interest rates as low as they are. Are holding bonds directly better?

Don't know where to put my money, nothing seems appealing.

Maybe I worry too much, I'm just thinking I should stop contributing until the next correction, or should I contribute regularly no matter what (up to my $5,500 limit per year)?

Thanks
User avatar
timboktoo
Posts: 865
Joined: Sun Mar 31, 2013 3:42 pm

Re: Worried about the market

Post by timboktoo »

I could say "don't worry", but that's not going to help you very much, because my word won't carry any weight. So instead I'll say search the boards for these concerns. Market timing, finding the right level of risk to take to hit your goals and individual bond purchases have been discussed many times.

It's always a dangerous time to be invested. Find the right asset allocation and you'll be able to sleep at night. If you haven't read this today, I recommend doing so. It might help you to look at the bigger picture:

http://www.bogleheads.org/wiki/Boglehea ... philosophy

- Tim
kerplunk
Posts: 842
Joined: Sun Apr 17, 2011 9:58 pm

Re: Worried about the market

Post by kerplunk »

The LifeStrategy Growth fund is a great fund. I would probably recommend a Vanguard Target Retirement fund for you, but only for the following reason:

One of the greatest things about the Bogleheads' philosophy is that it allows you to not have to worry about investing. You should be enjoying your life, not wondering if the market is going to crash tomorrow. My advice to you would be to choose a fund (or asset allocation) that you are comfortable with, invest your money in it once a year, and when it's time to retire, you will be pleasantly surprised.
User avatar
frugaltype
Posts: 1952
Joined: Wed Apr 24, 2013 9:07 am

Re: Worried about the market

Post by frugaltype »

Affiron wrote:Hello,
I've just opened my first IRA mutual fund with vanguard. I've invested in the lifestrategy growth fund (VASGX)

However, I'm wondering if this is a bad time to jump in...it seems like the market is overvalued. With the feds pumping money into everything, I'm wondering if I made a mistake. Should I have waited? Should I shift to a more conservative investment? Bonds don't look that appealing to me right now with interest rates as low as they are. Are holding bonds directly better?

Don't know where to put my money, nothing seems appealing.

Maybe I worry too much, I'm just thinking I should stop contributing until the next correction, or should I contribute regularly no matter what (up to my $5,500 limit per year)?

Thanks
If people here could tell you the right time to invest, we'd all be zillionaires. I try to make a reasonable choice between safety and growth. When I was young and working and jobs were plentiful, I went mostly for growth, with some savings in reserve. Now that I'm retired, I go mostly for safety.
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: Worried about the market

Post by pkcrafter »

LS Moderate is the answer.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
schoolboyguy
Posts: 61
Joined: Fri Feb 14, 2014 5:13 pm

Re: Worried about the market

Post by schoolboyguy »

No one really knows what's going to happen. I'm kind of in the same boat as you though. All of my investments have been made within the last 6 months and a lot of people say this may be a bad time. So as a 26 year old, I'm holding 33% bonds atm. In case of a crash or major correction, I plan on switching to an 80/20 or 85/15 allocation and leaving it like that for a while. I sleep well.
heyyou
Posts: 4461
Joined: Tue Feb 20, 2007 3:58 pm

Re: Worried about the market

Post by heyyou »

When are you going to spend today's investment? I'm 64, have been investing for 30 years, I'm just starting to spend, and one of my parents lived to age 92. In 1984, did it really matter what my shares cost? In twenty more years, will it matter what you paid in 2014?

In either order, buy the shares and read about behavioral finance to learn to recognize your concerns. When you see that your concerns are common, normal, and do not matter in the distant future, it will be easier for you to invest on every payday.

Now the bad news. Whenever and wherever you choose to invest, the next day or week or month, those shares will fall in price. That is just how it goes. A dozen years from now, others (coworkers) will say that you were lucky to buy those shares back in 2014. Living below your means, and investing for 30 years makes you lucky in retirement.
Johm221122
Posts: 6396
Joined: Fri May 13, 2011 6:27 pm

Re: Worried about the market

Post by Johm221122 »

As mentioned above
http://www.bogleheads.org/wiki/Boglehea ... philosophy
From WIKI
" In summary, a Bogleheads investor tends to (1) save a lot, (2) select an asset allocation containing both stock and bond asset classes, (3) buy low cost, widely diversified funds, (4) allocate funds tax-efficiently, and (5) stay the course. One of the wonderful things about Boglehead investing is that it generally only requires a part of a day to set up, and then about an hour a year of effort to rebalance. Beyond that, there is no need to watch the markets or follow financial news. Even better, it works. Although Bogleheads investing may seem strangely simple, it is based on decades of comprehensive research showing that buying and holding the whole market consistently outperforms many of the alternatives. "

John
User avatar
WallyBird
Posts: 240
Joined: Fri Jan 10, 2014 11:17 am

Re: Worried about the market

Post by WallyBird »

Dollar cost averaging-- making regular monthly investments -- can go a long way toward defusing this sort of anxiety. If prices go up, then the value of your entire account goes up. (Win!)

And if prices go down, your monthly investment buys that many more shares . (Win!)
"But let's be glad for what we've had, and what's to come." | -- Betty Comden & Adolph Green
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: Worried about the market

Post by nedsaid »

I am ALWAYS worried about the market. But I invest anyway. I invest in such a way that my rational self and my emotional self can co-exist and be happy with my investments. Having bonds in my portfolio reduces portfolio volatility enough that it soothes my emotional self.

I started with my first stock mutual fund investment in 1984, I still own the fund!! My first stock was purchased in 1987. So what has happened since 1984? The Challenger blowing up in 1986. The stock market crash in October 1987. Saddam Hussein's tanks rolling into Kuwait in 1990. Irrational exuberance speech by Alan Greenspan in 1996, the Fed Chairman signals that stocks are overvalued. The market zooms up from there. The 2000-2002 bear market and tech stock crash. The 2008-2009 bear market and financial crisis. Russia seizes Crimea from Ukraine. Etc. Etc. Etc.

So there is ALWAYS something to worry about. Taking your hard earned money and buying stocks with it is always an uneasy feeling. There is always bad news out there. Once you make a financial decision, an article will appear telling you that whatever you just did was the wrong thing. Yadda, Yadda, Yadda. Invest anyway. There is an old saying that Wall Street climbs a wall of worry.

If you are a worry wart, pick a moderate risk fund with something like a 60% stocks and 40% bonds portfolio. And then stop worrying. Let the markets do what the markets do.
A fool and his money are good for business.
z3r0c00l
Posts: 3809
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: Worried about the market

Post by z3r0c00l »

Worry more at Dow 25,000, a likely high point before another recession. If we go to 28,000, then fall back down to 20,000 and you failed to get in now, won't that feel worse?

I feel better knowing that even if you buy some shares at a temporary high, and even if they fall below that mark, they will go back up eventually, and along the way they will earn something (not much but something) on dividends.
70% Global Stocks / 30% Bonds
User avatar
TomatoTomahto
Posts: 17158
Joined: Mon Apr 11, 2011 1:48 pm

Re: Worried about the market

Post by TomatoTomahto »

WallyBird wrote:Dollar cost averaging-- making regular monthly investments -- can go a long way toward defusing this sort of anxiety. If prices go up, then the value of your entire account goes up. (Win!)

And if prices go down, your monthly investment buys that many more shares . (Win!)
That's my trick too. So much of life is avoiding regrets. Coulda, woulda, shoulda is not good for the spirit.
I get the FI part but not the RE part of FIRE.
livesoft
Posts: 86080
Joined: Thu Mar 01, 2007 7:00 pm

Re: Worried about the market

Post by livesoft »

I think every new investor needs to lose at least 20% to 30% of their money soon after the start of their investing career. When they see how easily this happens and how easily index funds eventually recover, then they can stop being worried. You think the Market is Overvalued? Then that means this is an ideal time to get started on your investing career and the lessons that will be taught to you.

But watch out. You could end up like me where I really relish big drops in the Market. Yep, I WANT them to happen and I worry more when they don't happen.
Wiki This signature message sponsored by sscritic: Learn to fish.
Dandy
Posts: 6701
Joined: Sun Apr 25, 2010 7:42 pm

Re: Worried about the market

Post by Dandy »

It is natural to worry - it is your hard earned money. The market seems high we worry about it going low, the market goes low we worry about it going lower, the market stagnates and we think maybe CDs are better. Over the long run a balanced approach like Life Strategy fund should do fine.

If you find that you really can't stop worrying and it is affecting your sleep/happiness - then it isn't worth it. Just remember there really isn't a safe place to put money. Really "safe" investments e.g. CDs often don't keep pace with inflation so you lose purchasing power. You don't feel the "loss" and sleep better but it is a real loss.
hudson
Posts: 7119
Joined: Fri Apr 06, 2007 9:15 am

Re: Worried about the market

Post by hudson »

Dandy wrote:snip....If you find that you really can't stop worrying and it is affecting your sleep/happiness - then it isn't worth it. Just remember there really isn't a safe place to put money. Really "safe" investments e.g. CDs often don't keep pace with inflation so you lose purchasing power. You don't feel the "loss" and sleep better but it is a real loss.
but then there's the Fraidycat Pile Theory....

Here's my friend's "safe pile" model which kind of says the following: Save a pile in SAFE investments; don't ever move the pile into equities. Safe is defined as AAA/AA rated bonds/bond funds or better...actually a little less that AAA/AA is OK...Total Bond and the like are good. CDs are great for fraidycats!
Use new money to gradually get into equities....keep this money in equities until they have a good gain....move a portion over to the safe pile and continue....only new money goes to equities.
A good name for this is the "fraidycat pile" model.

Summary:
Pile up safe money and keep it safe....funds do not move out of the safe pile.
Only use new money for equities...periodically move it to the safe pile.


I use the fraidycat model
http://www.bogleheads.org/forum/viewtop ... 9#p1987839

http://www.bogleheads.org/forum/viewtop ... 4#p2009064
Last edited by hudson on Sat Sep 26, 2015 9:00 am, edited 2 times in total.
keystone
Posts: 735
Joined: Tue Aug 28, 2012 12:34 pm

Re: Worried about the market

Post by keystone »

I think your sentiment is something that most of us could relate to at some point. I think a lot of times anxiety in the market can be tied to maintaining an asset allocation that is beyond your comfort level. That was certainly the case for me, once I increased my bond percentage, all of my worries went away. Now I almost never think about what direction the market is headed.
MnD
Posts: 5195
Joined: Mon Jan 14, 2008 11:41 am

Re: Worried about the market

Post by MnD »

I started regularly investing and purchasing stock funds and bond funds every month in 1986.
You might have read that in October 1987, the stock market got a little "exciting".
http://en.wikipedia.org/wiki/Black_Monday_%281987%29
As a new investor, it took me only a few months of new contributions to get my account balance back to a "record high" and those contributions bought shares at a bargain price.
For you as a new investor, you have much less at risk if a downturn happens now or in the near term.

I've kept buying stocks and other investments regularly since 1986 and went over the $1M mark several years ago.
In retrospect I should have owned a higher percentage of stocks early-on, but the sort of asset allocation advice that is available now and reflected in things like lifecycle and Lifestrategy funds was not widely available and followed in the 1980's. The 80/20 stock/bond portfolio in your fund sounds great for a new IRA investor.
Good luck!
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
123
Posts: 10416
Joined: Fri Oct 12, 2012 3:55 pm

Re: Worried about the market

Post by 123 »

You should keep contributing to your IRA. If you miss a contribution opportunity for a tax year you lose that tax-advantage investment space forever.

Separately from the contribution issue you should invest the contribution where you feel comfortable in regards to your asset allocation. If you feel the stock market is too risky just invest in an IRA savings account or an IRA CD in the interim. You can always move/consolidate the IRA accounts later (subject to the terms of any CD etc.)
The closest helping hand is at the end of your own arm.
User avatar
Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Jumping in. It doesn't matter.

Post by Taylor Larimore »

Affiron wrote: I'm wondering if this is a bad time to jump in
Affiron:

I jumped into the market in 1950 when the S&P 500 Index was under 20. Now it is 1,848 (not including dividends).

Lesson learned: It did not matter when I jumped in. Just do it and stay-the-course.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
Clearly_Irrational
Posts: 3087
Joined: Thu Oct 13, 2011 3:43 pm

Re: Worried about the market

Post by Clearly_Irrational »

There is always something to worry about in the market, that never really changes. Since you're just starting out it's pretty much completely irrelevant, in fact you should probably be hoping for a crash so you can pick up shares on the cheap. (assuming your job would be safe in a major downturn)

Regular recessions can't be timed consistently, all the academic theory and real world performance data backs that up, my own research does as well. So from that perspective your best bet is just to pick an AA and then "set it and forget it".

In my opinion, the evidence on bubbles is somewhat more mixed. My personal research and some academics suggest that it may be possible to avoid or mitigate their effects, others of course seriously disagree with that notion. The Eugene Fama vs. Robert Shiller debate being the most classic example. Dider Sornette being another example of a professor who thinks the EMH may not be the end of the discussion.

So, for the moment, let's entertain the hypothesis that while regular recessions can't be avoided extreme financial events possibly could be if we could detect them properly. How likely is it that we're currently A) In a bubble and B) Near the peak?

My own personal IPS directs me to do research when stock market valuations are exceptionally high on a historical basis in order to get a better understanding of what's occurring. I try to post relevant portions here on the forum, after all there are so many knowledgeable members. It's pretty useful since there are plenty of members who like to poke holes in that sort of thing so I often get some really good feedback and end up tightening up my analysis considerably.

Here's an example discussing the current valuations of the stock market: http://www.bogleheads.org/forum/viewtop ... &start=100

Here's another one discussing the current valuations of real estate and the business cycle: http://www.bogleheads.org/forum/viewtop ... 0&t=135946

As far as I can tell if were are in a bubble we're still in the inflation phase and not likely at the peak. There are some warning signs in corporate dividend cuts, decreased rail traffic, and declining leading indicators that indicate we're in a bit of an economic slowdown at the moment, but that's no where near enough to suggest we're near a crash. So long story short, even if it's possible to avoid bubble type crashes (which is debatable) the signals aren't suggesting we're about to have one so your best bet for now is the standard buy and hold strategy that has worked in 140 of the last 143 years worth of the stock market. (possible exceptions in 1929, 2001, 2008)

If you're still particularly worried then just make sure your AA is on the more conservative end of your range of comfort.
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Worried about the market

Post by Grt2bOutdoors »

Worry about the things you CAN control - how much you pay in expenses, how much you save, ability to stay the course through thick and thin.
You own a very low cost, highly diversified fund of funds that will offer you the market returns, no more, no less but to "win it", you have to be in it! If you bail at the first sign of a decline, chatter on CNBC financial porno channel, television news, the newspaper, your shoeshine boy or barbers recommendation to get out, your brother in law's recommendation, your life insurance agent's guidance, your friend, your broker, current news events - you will have locked in your value and will miss the eventual climb up, and it will climb - it may just take some time to do so.
Shut off the tv, don't talk investment with any of the above, stay the course. When are you anticipating to retire? Tomorrow or 20 years from now?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
User avatar
ogd
Posts: 4876
Joined: Thu Jun 14, 2012 11:43 pm

Re: Worried about the market

Post by ogd »

Affiron: remember that the market is being priced to its current levels by players much more sophisticated than you. They're not always right, but at the very least they understand the workings of the Fed much better than you and pay no heed to loaded words like "pump" that pundits like to use. So go with their collective wisdom.

It's almost guaranteed that a correction will come at some point in the future, but by no means a given, and hardly even likely, that it will be a dip below current levels, which is what you should be interested in. Trying to guess these things based on headlines will only result in heartbreak, as evidenced by the occasional threads started by posters who stayed in cash over one of the biggest market rallies in memory.

Instead, get an allocation that you are comfortable with through thick and thin, under the assumption you have no knowledge whatsover of the future, and stick with it. LifeStrategy have the bonus of hiding some of the volatility and doing rebalancing into depreciated assets automatically for you. For this reason they are my favorite funds to recommend, unless the taxation situation warrants otherwise.
User avatar
Hawkeye5
Posts: 190
Joined: Tue Aug 31, 2010 2:59 pm
Location: Hendersonville, TN

Re: Worried about the market

Post by Hawkeye5 »

I'm not going to rehash the excellent advise given so far. I'll simply note that not investing and holding cash is actually more hazardous to your financial future than investing.

I hold assets in the form of stocks and bonds. I keep cash reserves only to the extent that funds are necessary to met day-to-day and contingent expenses. I hold these assets rather than cash because holding currency over long periods of time is very risky due to inflation. Un-invested dollars dwindle in value over time leaving their owner worse off than even a 50% market correction would.

I'm a boomer, so my views may be warped by the wage/price controls and high inflation of when I was just beginning my work life, but compare the purchasing power of a dollar in 1970 to 2013 with a 50% drop in the S&P 500 and the risks of investing no longer look so great.
Last edited by Hawkeye5 on Thu Mar 27, 2014 2:31 pm, edited 1 time in total.
nash031
Posts: 172
Joined: Fri Oct 11, 2013 10:38 am
Location: Coronado, CA

Re: Worried about the market

Post by nash031 »

livesoft wrote:I think every new investor needs to lose at least 20% to 30% of their money soon after the start of their investing career. When they see how easily this happens and how easily index funds eventually recover, then they can stop being worried. You think the Market is Overvalued? Then that means this is an ideal time to get started on your investing career and the lessons that will be taught to you.

But watch out. You could end up like me where I really relish big drops in the Market. Yep, I WANT them to happen and I worry more when they don't happen.
This happened to me, except more extreme. I spent the first $2000 I invested in my Roth on two individual stocks back in 2000. Within a year, those stocks were worth about 20% of the initial investment and they never recovered. That was a good lesson in stock-picking for me: like most others, I suck at it.

Relatively speaking, seeing a 50% drop in index funds over the course of a year is kind of ho-hum.

That said, even after losses in my index funds in 08-09 (which I weathered just fine!), I know I can handle a recession without panicking. I have grown to love a good drop. I'm always seeking out the next buying opportunity.

My advice would be to setup an automatic investment every month and then quit worrying about it. Either your portfolio grows or you get a discount on your purchases!
User avatar
Clearly_Irrational
Posts: 3087
Joined: Thu Oct 13, 2011 3:43 pm

Re: Worried about the market

Post by Clearly_Irrational »

Hawkeye5 wrote:I'll simply note that not investing and holding cash is actually more hazardous to your financial future than investing.
I think a lot of people don't understand that there is no safe place for your money. All choices have some sort of risk associated with them, all you can do is choose which kind.
Post Reply