Wait to DCA During Recession

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David Foster
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Wait to DCA During Recession

Post by David Foster »

I'm 17 years old and brand new to both the board and investing in general, so I'm trying to learn as much as I can and would appreciate any help. :) I've looked for an answer to my question, but I couldn't find one.

If I wanted to dollar-cost average additional investments into a new or existing stock portfolio, would it be wiser to invest immediately or to wait until the next recession? I'd assume that it would almost always pay to do so immediately, due to compounding return and dividend yields.

Additionally, would it be viable to place the capital in a bond index to accrue interest until the recession happens, or is that over-complicating the matter?
RunningRad
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Re: Wait to DCA During Recession

Post by RunningRad »

Tell me when the next recession begins/ends, and I will answer the question for you. ;)

You are smart to start thinking about investing at a young age. Start DCAing now or next week or next month or next year, knowing that you did not time the market perfectly, but you started young and that counts much more. Best of luck.
Few decisions in life motivated by greed ever have happy outcomes--Peter Bernstein, The 60/40 Solution
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LadyGeek
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Re: Wait to DCA During Recession

Post by LadyGeek »

Welcome! Your concerns are a popular topic. Take a look at this thread: I need some "hand-holding" right now...

My answer applies here. Some may attribute the quote to economist John Maynard Keynes.
No one can predict the future. If you adjust your investments for the current economic environment (or what you think it will do), wait a few months and you'll be asking the same question again. That's known as "timing the market" - you'll be worse off than if you had just ignored whatever the market is doing now and stuck with your original investment plan.

"The market can remain irrational longer than you can remain solvent." --attributed to A. Gary Shilling, Forbes Magazine, 1993.
To answer your second question, investing in a bond index to "wait this out" is over-complicating the matter and is another form of "timing the market". Remember that you need to be right twice. First, when to invest in your bond index fund. Second, when to "get back in" to where you really wanted those funds.

If you had a 50% chance of getting it right the first time and a 50% chance to get it right the second time, your overall chance of success is 25% = (50%) * (50%), that's not very good.

The best approach is to ignore the news, make a plan, and stick to it. Start here: Getting started
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Aptenodytes
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Re: Wait to DCA During Recession

Post by Aptenodytes »

Keep your savings in cash until you have read 7 of the recommended books on the bogleheads wiki. You need to not only know the answers to your questions, but you have to understand why they are correct so that you don't doubt your decisions down the line.
mymoneybags
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Re: Wait to DCA During Recession

Post by mymoneybags »

I've read that Australia hasn't had a recession in more than 20 years! So while it may seem inevitable to have a recession, at least 1 country has (possibly) figured out a combination of institutions that encourage stability. So in that situation you might be waiting a long time before investing.
Grt2bOutdoors
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Re: Wait to DCA During Recession

Post by Grt2bOutdoors »

David Foster wrote:I'm 17 years old and brand new to both the board and investing in general, so I'm trying to learn as much as I can and would appreciate any help. :) I've looked for an answer to my question, but I couldn't find one.

If I wanted to dollar-cost average additional investments into a new or existing stock portfolio, would it be wiser to invest immediately or to wait until the next recession? I'd assume that it would almost always pay to do so immediately, due to compounding return and dividend yields.

Additionally, would it be viable to place the capital in a bond index to accrue interest until the recession happens, or is that over-complicating the matter?
Read the book "A Random Walk Down Wall Street" - Burton Malkiel. You can't time the market successfully over the long term, and you won't be able to do so in the short-term either. In fact, not even economists can correctly predict a recession defined by two quarters of declining economic output until AFTER the fact. So, you may be waiting a very long time.

Here's another book - Winning the Loser's Game - Charles Ellis. Timeless, a classic. I have the book and I've read it again from time to time.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Johm221122
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Re: Wait to DCA During Recession

Post by Johm221122 »

Boglehead philosophy
http://www.bogleheads.org/wiki/Boglehea ... philosophy
[/ 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
Develope a plan and stay the course.invest now in reasonable AA
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David Foster
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Re: Wait to DCA During Recession

Post by David Foster »

Thank you everyone for all the fantastic responses and wonderful links, as well as the warm welcomes. I really appreciate all of the input and will continue reading as much as I can. At the moment I'm focusing on The Intelligent Investor by Benjamin Graham and The Richest Man in Babylon by George Samuel Clason.

The piece about Australia was particularly interesting, so I suppose I will just invest ASAP. Based on what I've read, particularly from Larry Swedroe, I'm leaning toward small-cap value funds at the moment, but I can already hear the screams of diversification coming from everyone. :)
The Wizard
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Re: Wait to DCA During Recession

Post by The Wizard »

David Foster wrote:Thank you everyone for all the fantastic responses and wonderful links, as well as the warm welcomes. I really appreciate all of the input and will continue reading as much as I can. At the moment I'm focusing on The Intelligent Investor by Benjamin Graham and The Richest Man in Babylon by George Samuel Clason.

The piece about Australia was particularly interesting, so I suppose I will just invest ASAP. Based on what I've read, particularly from Larry Swedroe, I'm leaning toward small-cap value funds at the moment, but I can already hear the screams of diversification coming from everyone. :)
Focus on a robust college experience also, for enhanced longterm financial security...
Attempted new signature...
Atilla
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Re: Wait to DCA During Recession

Post by Atilla »

We're still in the same "recession" that started when you were 12. Go ahead and start investing. Long term your timing won't matter diddly squat. :sharebeer
dl7848
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Re: Wait to DCA During Recession

Post by dl7848 »

mymoneybags wrote:I've read that Australia hasn't had a recession in more than 20 years! So while it may seem inevitable to have a recession, at least 1 country has (possibly) figured out a combination of institutions that encourage stability. So in that situation you might be waiting a long time before investing.
Australia suffered a market crash in 2008 just like everyone else did. I'd find it hard to believe it escaped a recession.

Aussie stock market during 2008
aquifer
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Re: Wait to DCA During Recession

Post by aquifer »

You have 50 years to retirement. It makes no difference what you do now by trying to time the market. None at all. There will be many many market spikes and crashes over your investing life. The thing that WILL matter is time and compounding. Dump every dime you can spare into a target retirement fund at Vanguard starting tomorrow and don't look at it for 50 years. Ignore everything you hear regarding the market and stay the course.
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NightOwl
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Re: Wait to DCA During Recession

Post by NightOwl »

The Wizard wrote: Focus on a robust college experience also, for enhanced longterm financial security...
This^. At age 17, you should focus on maximizing your income so that you can save as much as possible. That way, whether returns over your lifetime are robust or muted, you will still have more than enough money for retirement and won't have to worry about timing the market -- and that's a good thing, because you can't time the market even if you spend lots of time trying.

I agree with the suggestion that you should read recommended books from the Wiki; that will help you come up with a simple but effective plan. Ten years from now you might want to tweak that plan, but you probably won't, as the more you learn, the more you'll value what one of our forum's founders calls the "majesty of simplicity." When I joined Bogleheads in early 2009, I instituted a simple plan that I will probably follow for the rest of my investing life.

To answer your question directly, though, invest when money's available; 50 years from now you'll be happy you did.

NightOwl
"Volatility provokes the constant dread that some investors know more than we do, making us fearful of ignoring such powerful price movements." | Peter Bernstein, "The 60/40 Solution."
Caduceus
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Re: Wait to DCA During Recession

Post by Caduceus »

Welcome! I wasn't thinking about these things at 17, so I'm really impressed. I second the recommendation to read a little more since you've already developed an interest in investing.

The Intelligent Investor, which you're reading, is a great book, but it may not be the best one to start with. For what it's worth, it was the very first investing book I picked up and read too :)

I recommend, in this order:

- Burton Malkiel's A Random Walk Guide to Investing: A thin but very useful book that gives you the lay of the land. It's one of the best introductions that are out there.
- Bogleheads' Guide to Investing: A lot of the forum wisdom is distilled in this book. It goes into more detail about things like 401(k)s, IRAs, tax considerations, etc.
- Four Pillars of Investing (William Bernstein): One of the best investing books out there. Goes into the history of markets, behavioral psychology, and pulls everything together for you into a mental framework.
- A Random Walk Down Wall Street, also by Burton Malkiel: You can pick and choose chapters from this book to go more in-depth into the debate between passive investors (like the Bogleheads), and active security analysis (which is what Ben Graham, whom you're currently reading, advocated)

This should set you up nicely to understand and contextualize Ben Graham's The Intelligent Investor when you read it. Don't forget to read the footnotes too! They are full of interesting tidbits.

At any point, if you have questions about concepts, the Wiki on the Bogleheads is a great resource. You can wiki the term or concept and read a little more about it.

I would read more before taking any action at all. In the meantime, you could put the money in a high-yield online savings account.
Leeraar
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Re: Wait to DCA During Recession

Post by Leeraar »

David Foster wrote:I'm 17 years old and brand new to both the board and investing in general, so I'm trying to learn as much as I can and would appreciate any help. :) I've looked for an answer to my question, but I couldn't find one.

If I wanted to dollar-cost average additional investments into a new or existing stock portfolio, would it be wiser to invest immediately or to wait until the next recession? I'd assume that it would almost always pay to do so immediately, due to compounding return and dividend yields.

Additionally, would it be viable to place the capital in a bond index to accrue interest until the recession happens, or is that over-complicating the matter?
By "DCA" I assume you mean, make regular investments (with payroll money) as the funds become available. At your age, that will be the smartest thing you ever do in your investing lifetime. You do not need bonds. You especially do no need to be guessing where the market is going.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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David Foster
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Re: Wait to DCA During Recession

Post by David Foster »

Wow, so many responses in such a short time-frame. I just finished A Random Walk Down Wall Street by Burton G. Malkiel, and I have to say that it was a great and succint read. Thanks for the advice and suggestions you guys, and i'll be sure to check out some of the other books after finals. :)
tj
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Re: Wait to DCA During Recession

Post by tj »

Eh, I don't think you need to necessarily focus on maximizing your income. If that's your goal, then sure, by all means, but there's more to life than $$.
mymoneybags
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Re: Wait to DCA During Recession

Post by mymoneybags »

I first read about the Australia thing on Scott Sumners market monetarist blog
http://www.themoneyillusion.com/?p=12985

Since then I poke around the news to see how they are doing.
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