Timing with the market at the high?

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alexstjo
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Timing with the market at the high?

Post by alexstjo »

Hi I am new to the bogle head way of investing. I have about $30k that i plan to put into 4 index funds at vanguard. My 401K is maxed out and i earn too much to do a roth.

I know we shouldn't try to time the market BUT with it hitting the highs right now i am a little bit scare to put $10K into the 500 index fund. I was thinking i might put some of the money into a bond fund right now and wait for the S&P to come off the high a little bit just becuase it would seem stupid to get in right now. Any input? I don't plan to take the $ out for at least 20 years but i still have a hard time getting in with the market at the high.

help?
blurryvision
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Re: Timing with the market at the high?

Post by blurryvision »

Will it seem stupid if you wait another year to start investing and miss out on 30% returns? Consider dollar cost averaging the money.
DSInvestor
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Re: Timing with the market at the high?

Post by DSInvestor »

Welcome to the forum. I assume that if your 401k were not maxed out you would be investing on a schedule every paycheck throughout all market conditions. How is this 10K any different other than it may be larger amount than your typical 401k contribution? How much do you have invested in the 401k and Roth IRA relative to that 10K? Let's say you have 50-200K in the other accounts. Are you not concerned about that money when markets at a high?

Market prices fluctuate. Stock prices can fall 50% or more at any time. If you held a portfolio that is 100% stocks, the value of the portfolio can fall 50% or more at any time. If you cannot tolerate a 50% decline in your portfolio, hold less stocks. For example, if your portfolio is 50% stocks and 50% bonds, a 50% decline in stocks will cause your portfolio to fall by 25%. Do not try to time the market and jump in and out. There are lots of folks how jumped out of the market in 2008/2009 were too scared to jump back in and missed the entire run up from 2009 to now. Some jumped out and stayed out since 2007. Pick a mix of stocks/bonds (asset allocation) that you'd be comfortable holding through all market conditions and stick to the plan and keep contributing. Tune out the noise. Don't watch CNBC.

See laura's investment planning post:
http://www.bogleheads.org/forum/viewtopic.php?t=6211
Last edited by DSInvestor on Sat May 31, 2014 2:22 pm, edited 1 time in total.
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Re: Timing with the market at the high?

Post by Twins Fan »

Where do you expect the market to be 20 years from now? As long as you expect it to be higher, get in now. If you KNOW you shouldn't try to time the market, don't try to time the market. :D

The saying to go along with these more than once a week threads about market highs,...... Time in the market is more important than timing the market.

And, look up "backdoor roth" to see how you can still utilize a Roth.
dl7848
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Re: Timing with the market at the high?

Post by dl7848 »

The easiest way to think about it is to look at a long-term chart of the market. That way, you see the range of how a market can move and you're working with real data rather than your imagination.

Try this one for example (the Dow since 1900). Pick several random points in time and figure out whether it would have made more sense to lump sum or DCA given your time horizon.

Particularly, look at the going-nowhere markets. One is at the beginning of the chart where there are ups and downs, but still basically going nowhere. More recently is the 60s and 70s, which also was a going-nowhere market although the peaks and valleys were less dramatic. Going-nowhere markets are probably the most dificult type of market, and we haven't had one like that for awhile.

Then look at the more recently experienced types of markets -- volatile with big peaks and deep valleys

Then realize, investing now can result in any of these scenarios so pick and choose whatever strategy will suit your time horizon, risk tolerance and overall level of patience: lump sum or DCA. (Also add some bonds.)
livesoft
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Re: Timing with the market at the high?

Post by livesoft »

alexstjo wrote:I know we shouldn't try to time the market BUT with it hitting the highs ...
Welcome. Your question is being asked almost daily now on the forum. My problem with the question (not your problem), is that there are several bits of the market that ARE NOT HITTING HIGHS. Can you steel yourself to invest in those bits of the market? Can you tell me which index funds are not hitting new highs?

Here is one thread among many on the subject:
http://www.bogleheads.org/forum/viewtop ... &p=1959550
How many more threads can you find?

And another thing: One must get used to losing money in the stock market to be a successful investor in the stock market. I have lost a ton of money in the stock market, but I still consider myself a reasonably successful investor. It simply doesn't bother me anymore to lose money in the stock market. Can you get used to losing money in the stock market? How about starting right now?
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bogleblitz
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Re: Timing with the market at the high?

Post by bogleblitz »

You did not mention your desire AA (Asset Alocation). Is your 401k 100% in stocks?

I'm assuming your 10k is after tax money. If you want to buy bonds. I recommend using the 10k to buy VTSAX (Vanguard total market). Then on that same day in 401k, transfer 10k from equities to bonds.
You are therefore buying 10k in bonds but doing so in 401k pre-tax money.


As others have mentioned, if you are scared of market high, then dca slowly like 3k a month for the next 10 months.
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Taylor Larimore
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Market Timing -- What experts say.

Post by Taylor Larimore »

alexstjo wrote:Hi I am new to the bogle head way of investing. I have about $30k that i plan to put into 4 index funds at vanguard. My 401K is maxed out and i earn too much to do a roth.

I know we shouldn't try to time the market BUT with it hitting the highs right now i am a little bit scare to put $10K into the 500 index fund. I was thinking i might put some of the money into a bond fund right now and wait for the S&P to come off the high a little bit just because it would seem stupid to get in right now. Any input? I don't plan to take the $ out for at least 20 years but i still have a hard time getting in with the market at the high.

help?
Alex:

Welcome to the Bogleheads Forum!

When I am undecided, I listen to experts. This is what they say about market-timing:
"The stock market will fluctuate, but you can't pinpoint when it will tumble or shoot up. If you have allocated your assets properly and have sufficient emergency money, you shouldn't need to worry." (AAII Guide to Mutual Funds)

"Endless tinkering is unlikely to improve performance, and chasing last period's stellar achiever is a losing strategy." (Frank Armstrong, author and adviser)

"It must be apparent to intelligent investors--if anyone possessed the ability to do so (market time) he would become a billionaire--quickly--." (David Babson, author, adviser)

"What it really takes to improve your returns and diminish your risks is a willingness to stop focusing exclusively on the movement of the markets." (Baer & Ginsler, The Great Mutual Fund Trap)

"If we haven't said it enough, we'll say it again: Market timing is dangerous." (Barron's Guide to Making Investment Decisions.)

"Only liars manage to always be "out" during bad times and "in' during good times. (Bernard Baruch, famed investor)

"You have to keep reminding yourself. We don't know what's going to happen with anything, ever." (Peter Bernstein, financial author)

"There are two kinds of investors, be thay large or small: those who don't know where the market is headed, and those who don't know that they don't know." (Wm. Bernstein, author and adviser)

"After nearly 50 years in this business, I do not know of anybody who has done market timing successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently." (Jack Bogle, Vanguard founder)

The Boglehead (forecasting) Contest began in 2001. Of 99 Diehard guesses that year, only 11 even guessed the direction of the stock market.

"If you're determined to succeed at investing, make it your first priority to become a buy-and-hold investor." (Jack Brennan, Straight Talk on Investing)

"I never have the faintest idea what the stock market is going to do in the next six months, or the next year, or the next two." (Warren Buffet)

"Market timing is an ineffective strategy for mutual fund investors." (CDA/Wiesenberger)

"Any investment method that relies on predicting the future is doomed to fail." (Chandan & Sengupta, financial authors)

"A successful investor has a good knowledge base, a well-defined investment plan, and nerves of steel to stick with it." (Andrew Clarke, financial author)

"Dalbar Research has found that both stock and bond investors tend to overreact to events, moving money in and out of mutual funds with breathtakingly bad timing." (Consumer Reports)

"Most investors are unable to profitably time the market and are left with equity fund returns lower than inflation." (2003 Dalber Study)

"Take my word on it. Buy-and-hold is still your best long-run strategy." (Jonathan Clements, author & journalist)

"Market-timing is bunk." (Pat Dorsey, M* Director of Fund Analysis."

"The performance of 185 tactical asset allocation mutual funds was compared with buy-and-hold strategies and equity mutual funds over the years 1985-97. Over this period the S&P 500 Index increased 734%, average equity funds increased 598%, and tactical asset allocation funds increased 384%." (David Dreman, author)

"Market timing is a wicked idea. Don't try it-ever." (Charles Ellis author of The Loser's Game)

"Forget market timing in any form." (Paul Farrell, (CBS Marketwatch.com)

"The best practice for investors is to design a long-term globally diversified asset allocation based on present and future financial needs. Then follow that plan religiously, through all markets good and bad." (Rick Ferri, author and adviser)

"Benjamin Graham spent much of his career trying to devise a good formula for when to get into--and out of--the stock market. All formulas, he concluded, failed." (Forbes, 12-27-99)

"Buy and hold. Diversify. But your money in index funds. Pay attention to to the one thing you can control--costs." (Fortune Investor's Guide 2003)

"Dont' sell out of fear or buy out of greed. Just keep making investments, and let the market take its course over the long-term." (Norman Fosback, author, researcher)

"The only function of economic forecastng is to make astrology look respectful." (John Kenneth Galbraith, Economist)

"I've learned that market timing can ruin you." (Elaine Garzarelli)

"Staying on course may be just as difficult in bull markets as in bear markets." (Good & Hermansen, Index Your Way to Investment Success)

"For most investors the odds favor a buy-and-hold strategy." (Carol Gould, author & financial columnist)

"If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting that's going to happen to the stock market." (Benjamin Graham)

"From June 1980 through December 1992, 94.5% of 237 market timing investment newsletters had gone of business." (Graham/Campbell Study)

"Your very refusal to be active, and your renunciation of any pretended ability to predict the future, can become your most powerful weapon." (Graham & Zweig, The Intelligent Investor)

"The best advice: buy and hold." (John Haslem, author and researcher)

"Even in a bear market, market-timing and actively managed mutual funds generally hurt investment performance more than they help it." (Mark Hulbert, N.Y.Times columnist)

"After receiving the Nobel Prize, Daniel Kahneman, was asked by a CNBC anchorman what investment tips he had for viewers. His answer: "Buy and hold."

"Timing the market is for losers. Time IN the market will get you to the winner's circele, and you'll sleep better at night." (Michael Leboeuf, financial author)

"No one is smart enough to time the market's ups and downs." (Arthur Levitt, former SEC chairman)

"It never was my thinking that made the big money for me. It always was my sitting." (Jesse Livermore, author & famed investor)

"Nobody can predict interest rates, the future direction of the economy or the stock market." (Peter Lynch)

"Buying-and-holding a broad-based market index fund is still the only game in town." (Burton Malkiel, Random Walk Down Wall Street)

"At the peak of the bull market in March of 2000 only 0.7% of all recommendations on stocks issued by Wall Street brokerages and investment banks were to "Sell." (Miami Herald, 1-26-03)

"If you can't handle the short term, if the uncertainty is stressful and the headlines are unbearable, then the markets are too hot for you: get out of the kitchen." (Moshe Milevsky, author & researcher)

"We're not keen on market-timing. It just doesn't work." (Morningstar Course 106)

"We've yet to find anyone who can accurately and consistently predict the market's short-term moves." (Motley Fools)

"Odean and Barber tested over 66,400 investors between 1991 and 1997. Their findings: "The most active traders earned 7% less annually than buy-and-hold investors."

"Forget trying to time the market and do something productive instead." (Gerald Perritt, financial author)

"The market timer's Hall of Fame is an empty room." (Jane Bryant Quinn)

"Countless studies have proved that no one is able to time the market effectively." (Mary Roland, author & journalist)

"Trading is based on the rather arrogant belief that the trader knows more than the buyers and sellers with whom he is trading." (Ron Ross, The Unbeatable Market)

"In the long run it doesn't matter much whether your timing is great or lousy. What matters is that you stay invested." (Louis Rukeyser, TV host)

"For the 10 years that ended 12-31-2000, only one newsletter out of the 112 that Timers Digest follows managed to beat the S&P 500 Benchmark." (Jim Schmidt, editor)

"I have learned the hard way that market timing and trying to pick a fund that will out-perform the market are both losing strategies." (Larry Schultheis, author and advisor)

"I'm a strong advocate of buying and holding." (Charles Schwab)

"It turns out that I should have just bought them (securities), and thereafter I should have just sat on them like a fat, stupid peasant. A peasant however, who is rich beyond his limited dreams of avarice." (Fred Schwed Jr., 'Where are the Customers' Yachts?)

"If you are not going to stick to your chosen investment method through thick and thin, there is almost no chance of your succeeding as an investor. (Chandan Sengupta, financial author)

"Investors should look with a jaundiced eye at any market timing system being peddled by its guru-creator." (W. Scott Simon, financial author)

"Buying and holding a few broad market index funds is perhaps the most important move ordinary invests can make to supercharge their portfolios." (Stein & DeMuth, (authors & advisor)

"It's my belief that it's a waste of time to try to time any market decline, or try to pinpoint a market bottom." (James Stewart, Smart Money columnist)

"It's a staple of personal finance advice: Buy-and-hold, because trading the stock market is a sucker's bet." Larry Swedroe, author and adviser.

"People should stop chasing performance and just put together a sensible portfolio regardless of the ups and downs of the market." (David Swensen, Yale Investments)

"Trust in time and forget market timing. Allow time to work its compounding magic for you. Let market timing inflict its miseries on someone else." (Tweddell & Pierce, financial authors)

"Stay invested. Not only does buy-and-hold investing offer better returns, but it's also less work." (Eric Tyson, author, Mutual Funds for Dummies."

"Few if any investors manage to be consistently successful in timing markets." (Wall Street Journal Lifetime Guide to Money)

"If you're considering doing your own market timing, the best advice is this: Don't." (John Waggoner, USA Today financial columnist)

"If you buy, and then hold a total-stock-market index fund, it is mathematically certain that you will outperform the vast majority of all other investors in the long run." (Jason Zweig, author)
This is the Boglehead Philosophy:

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course

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

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
island
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Re: Timing with the market at the high?

Post by island »

This doesn't address your timing question, but if income is too high for a Roth you may still be able to do a backdoor Roth.
dl7848
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Re: Timing with the market at the high?

Post by dl7848 »

Taylor Larimore wrote:
This is the Boglehead Philosophy:

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course
There are probably an uncomforatble number ( :D) of Bogleheads that don't follow all of those rules and perhaps the timing one is the one most often disregarded.

But it does bring up the question of why a new Boglehead would be concerned about timing. I would have thought the buy-and-hold aspect was a major part of the appeal. Or is everyone most attracted by the low cost?

To the OP, what first attracted you to the BH philosophy and why are you already considering fudging the #5 rule? :D
sambb
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Re: Timing with the market at the high?

Post by sambb »

I have made and saved a lot of money by getting in the market at the right time. Yes, that is timing. However, i was simply lucky. So yes, if you time correctly, you can make more money. I believe i was lucky in my timing. Now i just put it in when i have the money. I think asset allocation is more important. I don't time because i don't believe i can be lucky all the time. My attitude has changed.
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dumbbunny
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Re: Timing with the market at the high?

Post by dumbbunny »

Welcome to the forum.
Some time in the nineties, Louis Rukeyser had a guest on his show, Wall Street Week, and the guest gave an illustration of the stock market. It was of a man playing yo-yo while walking up a hill. You have the daily fluctuations (the yo-yo) and the long term growth of the market (the hill).
Hope this helps.
“It’s the curse of old men to realize that in the end we control nothing." "Homeland" episode, "Gerontion"
jstrazzere
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Re: Timing with the market at the high?

Post by jstrazzere »

alexstjo wrote:I was thinking i might put some of the money into a bond fund right now and wait for the S&P to come off the high a little bit just becuase it would seem stupid to get in right now. Any input? I don't plan to take the $ out for at least 20 years but i still have a hard time getting in with the market at the high.
If you think the current high is the highest the market will ever be, then you would be correct not to invest now.

However, what could possibly lead you to conclude that the market will never go higher in 20 years? Look back over the past 20 years (or even the past few weeks) and try to imagine yourself at any point in the past where the market was at a record high. Realize that all of those past record highs have now been exceeded.

Invest now. Forget about it for 20 years. Market timing is for losers, not 20-year investors.
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midareff
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Re: Timing with the market at the high?

Post by midareff »

alexstjo wrote:Hi I am new to the bogle head way of investing. I have about $30k that i plan to put into 4 index funds at vanguard. My 401K is maxed out and i earn too much to do a roth.

I know we shouldn't try to time the market BUT with it hitting the highs right now i am a little bit scare to put $10K into the 500 index fund. I was thinking i might put some of the money into a bond fund right now and wait for the S&P to come off the high a little bit just becuase it would seem stupid to get in right now. Any input? I don't plan to take the $ out for at least 20 years but i still have a hard time getting in with the market at the high.

help?

A year ago it was hitting new all time highs at far lesser numbers. My crystal ball is very cloudy, how is yours?
mickens16
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Re: Timing with the market at the high?

Post by mickens16 »

The market may seem high, but how do 'you' really know that? In addition, you should really give forum members more information per the link DSinvestor provided. Also, how do you know that you're not eligible for a Roth IRA? You should do a search on Backdoor Roth's.
tibbitts
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Re: Timing with the market at the high?

Post by tibbitts »

The problem is the alternatives to equities: pretty much bonds and everything else you could invest in are predicted to have poor returns going forward. It's not like you can go stick your money in a savings account and earn 3% real while you wait for whatever market indicator you choose to say it's "all clear" to invest in equities.
califboglehd
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Re: Timing with the market at the high?

Post by califboglehd »

I would look at it this way... In twenty years this "high" will seem very low. Over the course of your life investing, you will sometimes be buying at 'highs', sometimes at 'lows'. Timing is fanciful dream.













I
At the end of the day... it's the end of the day.
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LowER
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Re: Timing with the market at the high?

Post by LowER »

alexstjo wrote:Hi I am new to the bogle head way of investing. I have about $30k that i plan to put into 4 index funds at vanguard. My 401K is maxed out and i earn too much to do a roth.

I know we shouldn't try to time the market BUT with it hitting the highs right now i am a little bit scare to put $10K into the 500 index fund. I was thinking i might put some of the money into a bond fund right now and wait for the S&P to come off the high a little bit just becuase it would seem stupid to get in right now. Any input? I don't plan to take the $ out for at least 20 years but i still have a hard time getting in with the market at the high.

help?
Bold added.

You do not earn too much to do a Roth IRA. Please do a search on this site and/or elsewhere about "backdoor Roth IRAs."

Welcome to bogleheads! You are on your way! :sharebeer
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Phineas J. Whoopee
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Re: Timing with the market at the high?

Post by Phineas J. Whoopee »

There are things, and then there are the symbols we use to signify those things. Hope I'm not getting excessively post-modern.

There's some joke from some movie about "My name is called Emmanuel." "Oh, so you're Emmanuel?" "No. My name is called Emmanuel." "Oh, so your name is Emmanuel?" "No. My name is not Emmanuel. My name is called Emmanuel. That's what it's called, not what I'm called."

Somebody will find it and correct the quote.

Stocks are said to be at an "all-time high." That's just what the name of their level is called. They're really at a so-far high. That's what their level is. The name of their level is a high. How can we conclude they're at an all-time high? We can't, but it's OK, because that's only what their level's name is called.

PJW
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Meg77
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Re: Timing with the market at the high?

Post by Meg77 »

Studies show that on average you are better off investing lump sums of cash rather than dollar cost averaging (i.e. investing a little every month or quarter or year) into the stock market. However, that's an average, and many people don't want to risk being on the wrong side of the statistic (i.e. dumping a lump sum into the market and watching stocks immediately decline for a year or more). So what I recommend is that you start slowly moving your cash into the market.

Put $10,000 into the index fund of your choice for now (enough to qualify for Admiral shares which are even cheaper than regular Vanguard shares), and then add $1000 a month or $2500 a month until you have all your money invested. If the market drops you'll pick up more shares; if the market rises you will have at least a large portion of your money invested to take advantage of that.

Good job saving all that money, and good luck investing!
"An investment in knowledge pays the best interest." - Benjamin Franklin
downshiftme
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Re: Timing with the market at the high?

Post by downshiftme »

If you are willing to accept the principle that the long term trend of the market is up, which is a basic core element in the reason why we invest in equities, then the market must spend an appreciable time at new highs, as it pushes higher for the long term. Not that that growth is guaranteed to be smoothly increasing, but it has to be at the new high fairly often in order to make higher new highs in the future. Being at a "high" is not all that significant. Being at the particular high just before a drop is significant, but there's no way to know when that is. If you always sell at new highs you will spend far too much time out of the market and miss most moves upward.
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Clearly_Irrational
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Re: Timing with the market at the high?

Post by Clearly_Irrational »

midareff wrote:A year ago it was hitting new all time highs at far lesser numbers. My crystal ball is very cloudy, how is yours?
Mine suggests that while things are richly valued now (PE10 > 25) we're actually more likely to be in an expansion phase than a crash in the short to medium term. (USSLIND has a positive reading and velocity) Current crash likelihood reading 21.43/100 (composite measure, over thirty is usually bad), next month's reading will either be flat or down based on the data that has already come in.

The current expansion is well within the normal duration NBER range:

Dec 2007 Last Peak
Aug 2012 Mean expansion length
Feb 2014 Linear Trend
Jan 2015 One Sigma endpoint
May 2017 Two Sigma endpoint
Oct 2019 Three Sigma endpoint

We've only ever had two expansions of three sigma duration so it's highly likely that the current one will end prior to May 2017.

Although these things are hard to predict, the highest probability is that we're still in the upward trending portion of the curve. Buy and hold still looks like the most reasonable course of action even if you believe other action is warranted from time to time. (which is debatable of course)
crowd79
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Re: Timing with the market at the high?

Post by crowd79 »

Timing the market is a fool's game, mostly. 30 years from now you won't care where the market is today.
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Phineas J. Whoopee
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Re: Timing with the market at the high?

Post by Phineas J. Whoopee »

Clearly_Irrational wrote:...
Although these things are hard to predict, the highest probability is that we're still in the upward trending portion of the curve. Buy and hold still looks like the most reasonable course of action even if you believe other action is warranted from time to time. (which is debatable of course)
Better still is to adopt a strategy which doesn't rely on one's ability to make short- or medium-term predictions.

As it turns out, your conclusion and mine are the same, although our reasoning wildly differs.

PJW
Buddtholomew
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Re: Timing with the market at the high?

Post by Buddtholomew »

alexstjo wrote:Hi I am new to the bogle head way of investing. I have about $30k that i plan to put into 4 index funds at vanguard. My 401K is maxed out and i earn too much to do a roth.

I know we shouldn't try to time the market BUT with it hitting the highs right now i am a little bit scare to put $10K into the 500 index fund. I was thinking i might put some of the money into a bond fund right now and wait for the S&P to come off the high a little bit just becuase it would seem stupid to get in right now. Any input? I don't plan to take the $ out for at least 20 years but i still have a hard time getting in with the market at the high.

help?
Your emotions are valid, even though the research suggests that a lump sum investment in a broad-based equity fund returned more over some period of time. What is your desired asset allocation when viewing tax and tax-deferred investments as a single portfolio?
Last edited by Buddtholomew on Mon Jun 02, 2014 6:22 pm, edited 1 time in total.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: Timing with the market at the high?

Post by barnaclebob »

if your 401k is maxed out and you make to much to do a roth ira then 30k should be small potatoes in the long run. Lump sum it.

Also look into backdoor roth IRA conversions if you don't have a traditional IRA with a lot of gains.
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Re: Timing with the market at the high?

Post by goodenyou »

I put money into an IRA in 2000 in the S&P Index 500. I could not add more since I was eligible for an employer-based retirement plan a year or two later. It took many many years to recover after the market tanked in 2000 and again in 2007. The only solace I had was that I wasn't going to take the money out for 30 years. If I needed the money, I would have been in the Proverbial Pinnacle Club of Shame. After 14 years, I think I have a 50% return or 3.5% average per year! So, bottom line....it depends on your time horizon for the money.
"Ignorance more frequently begets confidence than does knowledge" | “At 50, everyone has the face he deserves”
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