Never time the market, i know...

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ckates7
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Never time the market, i know...

Post by ckates7 »

So I'm looking to jump into the market with IRA's, and maybe a few stocks (maybe). I understand the Boglehead idea of never timing the market, and to invest early and often. However, everything I read is saying not to START investing when the market is at it's peak. I'm just confused on what makes the most sense. I've been wanting to pull the trigger, but always come back to the little voice "dont buy at the peak" mentality.

I'm sure you guys get this alot, and I'm sure most of you get upset with the thinking, but I'm just looking for any guidance. Thanks all.
livesoft
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Re: Never time the market, i know...

Post by livesoft »

I'm trying to figure out why you didn't buy a couple weeks ago when things dropped by a few percent. The market was clearly off of its peaks and the drops were signicant enough to be called "worst". So what happened? Why didn't you jump in with both feet?

Example:

Buy VWO or VBR on June 25th after it went ex-dividend. Total return since then about 7% to 9%.

Seriously, you just missed a significant 2-week rally that was pretty clearly signaled ahead of time. What were you thinking on June 20th? June 24th?
Last edited by livesoft on Fri Jul 12, 2013 9:33 pm, edited 1 time in total.
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Valdeselad
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Re: Never time the market, i know...

Post by Valdeselad »

International and emerging markets are not at their highs - you can start there if that would help with your concerns.
Chris33
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Re: Never time the market, i know...

Post by Chris33 »

How do you know it's the peak?
livesoft
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Re: Never time the market, i know...

Post by livesoft »

This forum is filled with market timers. We try to help everyone. There were some very strong hints in this thread: http://www.bogleheads.org/forum/viewtop ... &p=1735745 which started with a chart.

Did you catch that thread?
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Peter Foley
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Re: Never time the market, i know...

Post by Peter Foley »

Why don't you write up a plan to dollar cost average into the market over the next 6-12 months? If you follow that plan you won't buy at the peak.
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ckates7
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Re: Never time the market, i know...

Post by ckates7 »

@livesoft, so when funds like precious metals and emerging markets are down, those are the ones you most likely want to start in?

@peterfoley, i'm so new to this that i have no idea what that even means LOL!
livesoft
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Re: Never time the market, i know...

Post by livesoft »

ckates7 wrote:@livesoft, so when funds like precious metals and emerging markets are down, those are the ones you most likely want to start in?
Do yourself a favor and chart what happened to Total US Stock Market index since June 25th. What has the gain been since then? Please overlay large-cap emerging markets on your chart and post it here. Did anything not go up?

PS: There is no reason to buy precious metals funds.
Last edited by livesoft on Fri Jul 12, 2013 9:57 pm, edited 1 time in total.
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gvsucavie03
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Re: Never time the market, i know...

Post by gvsucavie03 »

Gotta start somewhere. If it is a large initial investment, do spread it out over a stretch of time to have better dollar-cost averaging.

Buying low and selling high is built into the Boglehead philosophy.... Asset Allocation - you force yourself to sell at the high point and buy at the low (or not add money or put in new money as it were). Get yourself a 3-fund portfolio and don't listen to the noise.

Instead of single stocks, you could consider buying index funds that "tilt" towards a certain sector - REITS, small caps, etc. That is not unwise if you have the itch :wink:
Topic Author
ckates7
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Re: Never time the market, i know...

Post by ckates7 »

livesoft wrote:
ckates7 wrote:@livesoft, so when funds like precious metals and emerging markets are down, those are the ones you most likely want to start in?
Do yourself a favor and chart what happened to Total US Stock Market index since June 25th. What has the gain been since then? Please overlay large-cap emerging markets on your chart and post it here. Did anything not go up?

PS: There is no reason to buy precious metals funds.

I have no idea how i would make an overlaying chart. I'm sorry if this is frustrating to those with experience.
livesoft
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Re: Never time the market, i know...

Post by livesoft »

Compare these two recent posts:
http://www.bogleheads.org/forum/viewtop ... 3#p1732833
http://www.bogleheads.org/forum/viewtop ... 3#p1746963
I am not frustrated. I am happy.

Easy place to make charts: http://www.morningstar.com Instructions from Bogleheads: Wiki article link: How to use Morningstar growth charts
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Re: Never time the market, i know...

Post by pkcrafter »

ckates, you may be getting mixed signals here. More to the point, no one knows what or when the market is going to do something. That little voice will always be there trying to get you to make a behavioral mistake, so don't rely on it for good information. If you feel uneasy about starting, you could consider dollar cost averaging into the market over the next 12 months or so. What asset allocation are you planning to use?

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.
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Aptenodytes
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Re: Never time the market, i know...

Post by Aptenodytes »

Your premise is wrong. the market is not at its peak. So you don't need to worry.
Novine
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Re: Never time the market, i know...

Post by Novine »

Start by reading the Wiki. From your comments, it doesn't sound like you have the background knowledge yet to make sense of the advice being given. Once you have a handle on the basics, more of this will make sense to you.
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Re: Never time the market, i know...

Post by CaliJim »

ckates7 wrote: i'm so new to this that i have no idea what that even means
+1 to the comment above
Keep your money in a savings account until you have
1) read the startup section in the wiki http://www.bogleheads.org/wiki/Getting_Started
2) read some of the books http://www.bogleheads.org/wiki/Books:_R ... t-up_Books

But if you are just too anxious to do that and just need to do something, then put 50% in total stock market, 50% in total bond market, and then read the wiki and the books
-calijim- | | For more info, click this Wiki
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zaboomafoozarg
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Re: Never time the market, i know...

Post by zaboomafoozarg »

Not buying at the peak would have been a problem if you were looking to start investing between 1982 and 2000, since things kept going up just about every year.
pingo
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Re: Never time the market, i know...

Post by pingo »

Judging by the following chart, when was the best/worst time to invest?

Vanguard 500 Index Fund (VFINX)
Image
Source: Morningstar link

Above, some might see an infinite number of market peaks, to which they might conclude never to invest. Some might see an imperfect, albeit continuous path through peak after peak. Then what?





That's not to say that this won't happen...

Vanguard 500 Index Fund (VFINX)
Image
Source: Morningstar link





...but how can you tell which, if either, of the two charts applies, based on the latest piece of the puzzle?

Vanguard 500 Index Fund (VFINX)
Image
Source: Morningstar link

If you have an appropriate asset allocation and stay the course through rebalancing, you'll probably come out ahead of where you began...eventually.
Last edited by pingo on Sat Jul 13, 2013 9:56 am, edited 1 time in total.
thx1138
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Re: Never time the market, i know...

Post by thx1138 »

How about this:

1. For five to ten years invest steadily in some sort of fixed asset allocation through thick and thin. When the market crashes, ignore it. When the market rallies, ignore it. Follow your asset allocation. Based on your question I think you will already find this hard to do.

2. Once you've managed to do the above for five to ten years then consider trying to market time. I'd suggest you don't ever, but if you must only do so after having steadily invested through short term market losses and gains. Investing can be very emotional and emotions have no place in investing. You need a training period.

If you go straight to #2 you are likely going to get hurt. The evidence for this is rather overwhelming. Certainly there are people that can keep a cool head through anything right from the get go, but most people can't. Invest steadily and only when you've handled that should you try to be "more clever". The reality is that "more clever" usually means "less return" - especially if you haven't learned from experience to keep emotion at bay.

As to your immediate problem - a largish chunk to invest and fears of catching a peak (why aren't you afraid of missing a dip by the way?) - follow the advice to dollar cost average. Spread out your entrance to the market over a few months.

Lastly, if you are going to be contribution for a fair number of years when you start really doesn't matter. In fact, someone who is going to be contributing for a long time actually really wants to see the market dropping early in their savings period. Stop fearing market drops, if you are young they are your friend. Worry about market drops right before retiring, not when starting out.
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Re: Never time the market, i know...

Post by Tom_T »

thx1138 wrote:How about this:

1. For five to ten years invest steadily in some sort of fixed asset allocation through thick and thin. When the market crashes, ignore it. When the market rallies, ignore it. Follow your asset allocation. Based on your question I think you will already find this hard to do.

2. Once you've managed to do the above for five to ten years then consider trying to market time. I'd suggest you don't ever, but if you must only do so after having steadily invested through short term market losses and gains. Investing can be very emotional and emotions have no place in investing. You need a training period.
I think you should have stopped typing after #1. :)

Seriously, why advise anyone to try market timing? At any stage of their investment careers? How would a few years' experience help? Nobody can predict the future no matter how long they've been alive.
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Re: Never time the market, i know...

Post by livesoft »

If one is going to invest, I think one should have a written (or typed) plan on how they are going to invest. The plan must have concrete trigger points on when to buy. Those points cannot be vague or wishy-washy. Examples might be:

Buy with every paycheck.
Buy on the first day of the month.
Buy on the last day of the month.
Buy when market has a ReallyBadDay, but if it hasn't had a RBD in the month, then buy on the last day of the month.
Use 50% of assets to buy now and then use the rest to buy in 5 equal installments over the next 5 months on the second Tuesday of the month.

The plan must have trigger points for rebalancing as well. Examples might be:
I will rebalance if there is a 10% drop in the S&P 500 index.
I will rebalance if there is a ReallyBadDay.
I will rebalance if one of my asset classes is 5% above or below its desired weight my portfolio.
I will rebalance if one of my asset classes is 8% above or 4% below its desired weight my portfolio.

And it should have trigger points for selling. Examples might be:
Sell 2% of assets on birthday when age 72.
Sell 1% of assets when college tuition bill shows up.
....

The plan needs to work when the market is up, sideways, or down. One needs to follow the plan whether the market is up, sideways, or down, so it might even say something about that. As in, "If the market is up, I will still buy, but if the market is down, I will still buy, but if the market is sideways, I will still buy." Etc.
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Tom_T
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Re: Never time the market, i know...

Post by Tom_T »

ckates7 wrote:So I'm looking to jump into the market with IRA's, and maybe a few stocks (maybe). I understand the Boglehead idea of never timing the market, and to invest early and often. However, everything I read is saying not to START investing when the market is at it's peak. I'm just confused on what makes the most sense. I've been wanting to pull the trigger, but always come back to the little voice "dont buy at the peak" mentality.
What you are really saying is that the market is at an all-time high, but you fear a correction or crash. Then, you'll feel better about investing when the market is down 10 or 20 or 30 percent.

1. Nobody knows what will happen. I've been reading that the market is going to crash for three years. It will go down at some point, that is a certainly. When is another question.

2. If the market dropped 30 percent next week, do you really think you'd feel like jumping in? Or would you say "I have to wait until things settle down." See what I'm saying? There isn't going to be a time when you feel comfortable.

3. If the Dow reaches 25,000 in ten years, wouldn't you say "man, I'm sure glad I invested back in 2013 when it was only 15,000" ?

The crucial step is to pick an asset allocation that you are comfortable with and that matches when you need to withdraw the money. Assume that stocks could fall 30 percent at any time. Pick the allocation where you can wait that out.
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Re: Never time the market, i know...

Post by thx1138 »

Tom_T wrote: I think you should have stopped typing after #1. :)

Seriously, why advise anyone to try market timing? At any stage of their investment careers? How would a few years' experience help? Nobody can predict the future no matter how long they've been alive.
:happy Well, yes - you do notice I advised against trying to market time.

My point was that if you start out trying to market time you will likely do very poorly. People with more experience in the emotions of market ups and downs are more likely to not get hurt when attempting to market time. In fact, many won't even try (I wouldn't). But those who do after a long stint of "staying the course" are more likely to make infrequent moves, look at fundamentals and still keep emotion at bay. Likely they won't get any additional return for their effort beyond tracking error, but they are much less likely to do damage than someone trying to time their whole portfolio on a short term dip or peak.
Tom_T
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Re: Never time the market, i know...

Post by Tom_T »

thx1138 wrote:
Tom_T wrote: I think you should have stopped typing after #1. :)

Seriously, why advise anyone to try market timing? At any stage of their investment careers? How would a few years' experience help? Nobody can predict the future no matter how long they've been alive.
:happy Well, yes - you do notice I advised against trying to market time.

My point was that if you start out trying to market time you will likely do very poorly. People with more experience in the emotions of market ups and downs are more likely to not get hurt when attempting to market time. In fact, many won't even try (I wouldn't). But those who do after a long stint of "staying the course" are more likely to make infrequent moves, look at fundamentals and still keep emotion at bay. Likely they won't get any additional return for their effort beyond tracking error, but they are much less likely to do damage than someone trying to time their whole portfolio on a short term dip or peak.
Yes, you did advise that -- but better advice would have been "don't try to market-time -- ever." And I don't accept the premise about what might happen if an "experienced" investor tried to market-time. Frankly, if someone who had stayed the course for many years suddenly decided to do something else, I'd be concerned that all that experience convinced them that they know how to predict the future!
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Re: Never time the market, i know...

Post by nisiprius »

ckates7 wrote:So I'm looking to jump into the market with IRA's, and maybe a few stocks (maybe). I understand the Boglehead idea of never timing the market, and to invest early and often. However, everything I read is saying not to START investing when the market is at it's peak. I'm just confused on what makes the most sense. I've been wanting to pull the trigger, but always come back to the little voice "dont buy at the peak" mentality.

I'm sure you guys get this alot, and I'm sure most of you get upset with the thinking, but I'm just looking for any guidance. Thanks all.
"Not to start investing when the market it at its peak" is just silly, because, I can't stress this too much, nobody has a clue whether the market it "at its peak." You might as well say "don't get into airliners that are likely to crash." Or, a perfect example of real but non-actionable advice, "Never buy a car manufactured on a Monday or a Friday." Now, Jeremy Siegel is a cheerleader for stocks and should be taken with due skepticism, but still... he has some numbers showing you don't do all that badly in stocks even if you invest at peaks. And hopefully you will not be doing all of your investing at any one time!

Image

All sorts of plausible-sounding rules-of-thumb for trying to concentrate investing when stocks seem to be low according to some criterion are surprisingly bad when tested. The best proof of this is that you don't hear much about "asset allocation funds" any more. They were all the rage just fifteen or twenty years ago. They were balanced funds that invested in stocks and bonds, staying around a neutral point but hoping to improve returns by allowing the manager to shift back and forth with more or less stocks based on... whatever. They were basically such dismal and conspicuous failures that they've been pretty well discredited.

I don't want to get into the ever-contentious endless debate on the relative merits of dumping everything you have in all at once in one lump sum versus intentionally putting it in a little bit at a time. The fact that there's such debate tells you it can't matter that much. The essence of the argument is that dumping it in all at once leads to higher returns on the average (because your money is invested in the market that much longer), but it probably increases "risk," too.

If you don't want to dump everything right into the market all at once, then decide on some reasonable period of time over which you want to spread things out. Maybe a year. Maybe two years. That will at least average over some of the short-term fluctuations. But get started right way. Do not hold back completely waiting for the right time. There's a danger that the right time will never arrive. There's also a danger that you'll hold back until you can't stand it any more and finally go ahead and it will turn out to be a wrong time rather than a right time.

Don't think of it in terms of "pulling the trigger." Think of it in terms of "getting started." Say to yourself "If I just invest blindly with respect to timing, yes, I will be buying some of my stocks at bad times but I will also be buying some of my stocks at good time and that is good enough." It is almost impossible to believe, but you are not going to know which were the good times and which were the bad times at the time you make your purchases, only in hindsight.
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thx1138
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Re: Never time the market, i know...

Post by thx1138 »

Tom_T wrote: Yes, you did advise that -- but better advice would have been "don't try to market-time -- ever." And I don't accept the premise about what might happen if an "experienced" investor tried to market-time. Frankly, if someone who had stayed the course for many years suddenly decided to do something else, I'd be concerned that all that experience convinced them that they know how to predict the future!
Indeed.

But there is a huge difference between "Oh my god, the talking heads on TV say the apocalypse is nigh! I'm going to go out and buy a bigger mattress to hide my money under!" and "My asset allocation should be moving towards bonds over the next few years anyway and the Schiller index of equities is very high while bonds yields are good - maybe I'll accelerate the increase in my bond position". Both are market timing. One is extreme and based on emotion and will likely lead to bad things. The other still assumes, probably incorrectly, a market inefficiency to be exploited but the end result will likely be indistinguishable from a small tracking error (potentially positive or negative).

Personally I would do neither - I've invested for over twenty years never market timing or trying to tweak asset allocations based on "market data". However, I find it curious that the authors of many of the books recommended here admit that even they have trouble resisting the urge to try to time the market or tweak based on fundamentals. Many recommend 10% "play accounts" and have their own as an outlet for such urges.

If even these authors have trouble controlling themselves what is the likelihood that a random person posting a market timing question on a forum is going to successfully abstain from this if someone just tells them "don't do it and if you do you're a fool"? Unlikely I'd say. In fact it is akin to "abstinence only" sex-ed for which we already know the success rate that yields.

So instead tell them why market timing doesn't work well at all, why it is very risky, why they should not do it but also provide a mechanism that if they are going to engage in that behavior to minimize the risk.
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ckates7
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Re: Never time the market, i know...

Post by ckates7 »

You guys have been awesome with the help. I'm 28 right now, and wanting to contribute each year until I retire, so I won't be dumping it in all at once to a Roth IRA. Seems to be the consensus that as long as i have good allocation it shouldnt matter when I start, correct? Another thing then is would you contribute the $5,500 one time each year or over the course of each month, because from what I'm reading with Vanguard is that after your first 25 trades, it's $20 per trade after that. So if I'm allocated in 5 index funds it would be $100 per year when i dump in annually, or $1,200 if i do it on a monthly basis?? I'm sure I'm reading that wrong, I hope?
thx1138
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Re: Never time the market, i know...

Post by thx1138 »

ckates7 wrote:I'm 28 right now, and wanting to contribute each year until I retire, so I won't be dumping it in all at once to a Roth IRA. Seems to be the consensus that as long as i have good allocation it shouldnt matter when I start, correct?
Exactly, you got it. Ignore the news, ignore all the quotes on finance web sites and just start getting your money in. As I mentioned earlier, as counter intuitive as it is you should really have a little party each time the market crashes if you are young. It means you are about to be able to put more money in with the market at a lower price!
Another thing then is would you contribute the $5,500 one time each year or over the course of each month, because from what I'm reading with Vanguard is that after your first 25 trades, it's $20 per trade after that. So if I'm allocated in 5 index funds it would be $100 per year when i dump in annually, or $1,200 if i do it on a monthly basis?? I'm sure I'm reading that wrong, I hope?
Really it doesn't make too much of a difference. Once a year is fine. However, I'm pretty sure that if you are doing a IRA of any kind you can contribute over the year at no cost if you just set up a continuous direct deposit into the IRA. This is how lots of people do IRA contributions - straight from their pay check - and most places do it with no fee. In fact, many lower the required minimum investment in a fund if you set up direct deposit contributions.

So I think either method is fine. I've actually done whole contributions once a year myself. It is always a little frustrating as it "seems" like I'm always buying at the "wrong" time. But of course that is just perception. Still, emotionally you might prefer investing throughout the year.
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Re: Never time the market, i know...

Post by pingo »

ckates7 wrote:Another thing then is would you contribute the $5,500 one time each year or over the course of each month, because from what I'm reading with Vanguard is that after your first 25 trades, it's $20 per trade after that. So if I'm allocated in 5 index funds it would be $100 per year when i dump in annually, or $1,200 if i do it on a monthly basis?? I'm sure I'm reading that wrong, I hope?
What?!

Trades?!

$20 per trade?!

up to $1200 per year in trading costs?!

Oh wait...
ckates7 wrote:So I'm looking to jump into the market with IRA's, and maybe a few stocks (maybe).
(Emphasis added.)

I don't know if you're reading it right because I don't know where you planned to invest, but it sounds like a brokerage house. If you're investing in traditional index funds, there should be no transaction costs, commissions, fees, etc. (At Vanguard you can opt for electronic email notification to have the $20/year account fee waived.) If you're investing in ETFs, there should be no transaction costs, commissions, fees. etc. Maybe a tiny annual account fee.

$100 ÷ $5500 = 1.81% in expenses. :shock:

$1200 ÷ $5500 = 21.81% in expenses. :oops:

If you open the IRA(s) at Vanguard and put the money in a Vanguard Target Retirement Fund or LifeStrategy Fund with an appropriate asset allocation, you won't have any of those expenses and you'll remove the ability to time markets when you contribute. Whether or not you contribute each month or each year doesn't matter. I say the sooner you have your money working for you (beginning of each year) the better.

Oh wait...

You have a portfolio help thread going on simultaneously in this thread. Best to post the question there to keep all the pertinent information in one place so you can get the most appropriate advice.

Sorry if I sounded harsh. You are just starting out. I'm very glad you are asking the questions, my friend!
Last edited by pingo on Sat Jul 13, 2013 2:34 pm, edited 2 times in total.
pingo
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Re: Never time the market, i know...

Post by pingo »

thx1138 wrote:It is always a little frustrating as it "seems" like I'm always buying at the "wrong" time. But of course that is just perception.
^You hit the nail on the head! I don't have the luxury of contributing all at once, but even with small contributions throughout the year I feel like I'm always contributing at the wrong moment.

For ckates7's benefit, I'll add that after constantly contributing at "the wrong time", I live with the satisfaction of seeing my investments grow in the market (and they do grow) even considering the the 2008-2009 crash. The fact that I am saving/investing is one of the few things I actually do have control over. I have released my need to exert control over the rest. The idea that returns can be controlled (timed) is a fallacy that only leads to frustration and missed opportunities. Yes, missed opportunities.

How does the saying go? The best time to invest was yesterday. The next best time is today.

:beer
Last edited by pingo on Mon Jul 15, 2013 12:31 am, edited 1 time in total.
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Re: Never time the market, i know...

Post by tainted-meat »

Valdeselad wrote:International and emerging markets are not at their highs - you can start there if that would help with your concerns.
That's what I would do.
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ckates7
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Re: Never time the market, i know...

Post by ckates7 »

Pingo, my apologies. I probably should have kept it in one thread. The costs i came up with were looking at Vanguard's commission schedule for their brokerage services. Again, I was under the impression that buying into a fund for an IRA each month was using their services. Again, that is my fault.
Kenneth
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Re: Never time the market, i know...

Post by Kenneth »

I have experienced the same thoughts/feelings many times. At one point many years ago, I had a sum of money to invest for one of my children; I watched the market climb for a couple of years before jumping in. I then realized that I couldn't time the market and jumped in with a managed mutual fund very close to the actual peak. It took more than a decade to break even; even to this day, returns from inception are about 2%. My most successful investments have been those that are done on auto-pilot without me doing anything, such as every pay period.

My recommendation therefore, depends on whether your talking a lump sum or want to invest regularly. If you have a significant (relative, I know) lump sum to invest, divide the money into six even amounts and invest in the market on the same day over the next six months. Otherwise, just budget an amount you can afford every week (or two weeks, or monthly) and invest that amount automatically.

Not sophisticated, but it seems to work for me.

Ken

Edit: One more thing: When I say invest in the market, keep in mind an asset allocation that is right for you.
-Ken
pingo
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Re: Never time the market, i know...

Post by pingo »

ckates7 wrote:Pingo, my apologies.
On the contrary, please accept my apologies for being overbearing. By the way...

Welcome to the forum! :D
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ckates7
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Re: Never time the market, i know...

Post by ckates7 »

Kenneth wrote:I have experienced the same thoughts/feelings many times. At one point many years ago, I had a sum of money to invest for one of my children; I watched the market climb for a couple of years before jumping in. I then realized that I couldn't time the market and jumped in with a managed mutual fund very close to the actual peak. It took more than a decade to break even; even to this day, returns from inception are about 2%. My most successful investments have been those that are done on auto-pilot without me doing anything, such as every pay period.

My recommendation therefore, depends on whether your talking a lump sum or want to invest regularly. If you have a significant (relative, I know) lump sum to invest, divide the money into six even amounts and invest in the market on the same day over the next six months. Otherwise, just budget an amount you can afford every week (or two weeks, or monthly) and invest that amount automatically.

Not sophisticated, but it seems to work for me.

Ken

Edit: One more thing: When I say invest in the market, keep in mind an asset allocation that is right for you.


Ken

Ken, I guess this my exact scare. That if i start when the market is this high, that my return rate won't be sufficient in the coming years. Who knows what will happen, but it's my main concern
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zaboomafoozarg
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Re: Never time the market, i know...

Post by zaboomafoozarg »

ckates7 wrote:Ken, I guess this my exact scare. That if i start when the market is this high, that my return rate won't be sufficient in the coming years. Who knows what will happen, but it's my main concern
You're going to invest regularly though, right? If that's the case it doesn't really matter when you start (provided you're not putting a big lump sum in). With an IRA, you only get to put in $5.5k per year anyway, so you don't want to waste that space by not investing in an IRA for years - like I did.
nervousnovice
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Re: Never time the market, i know...

Post by nervousnovice »

livesoft wrote:If one is going to invest, I think one should have a written (or typed) plan on how they are going to invest. The plan must have concrete trigger points on when to buy. Those points cannot be vague or wishy-washy. Examples might be:

Buy with every paycheck.
Buy on the first day of the month.
Buy on the last day of the month.
Buy when market has a ReallyBadDay, but if it hasn't had a RBD in the month, then buy on the last day of the month.
Use 50% of assets to buy now and then use the rest to buy in 5 equal installments over the next 5 months on the second Tuesday of the month.

The plan must have trigger points for rebalancing as well. Examples might be:
I will rebalance if there is a 10% drop in the S&P 500 index.
I will rebalance if there is a ReallyBadDay.
I will rebalance if one of my asset classes is 5% above or below its desired weight my portfolio.
I will rebalance if one of my asset classes is 8% above or 4% below its desired weight my portfolio.

And it should have trigger points for selling. Examples might be:
Sell 2% of assets on birthday when age 72.
Sell 1% of assets when college tuition bill shows up.
....

The plan needs to work when the market is up, sideways, or down. One needs to follow the plan whether the market is up, sideways, or down, so it might even say something about that. As in, "If the market is up, I will still buy, but if the market is down, I will still buy, but if the market is sideways, I will still buy." Etc.
i'm new here and new to passive index investing but imho this is an excellent post, thank you! i have about 30% of our holdings in cash right now and am trying to consolidate/move our portfolio to a bogle model and i really appreciate this sound advice.
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Peter Foley
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Re: Never time the market, i know...

Post by Peter Foley »

ckates7

I wrote earlier about having a written plan and "dollar cost averaging to avoid buying when the market it at a high.

If you have a lump sum ($10,000?) to invest, the plan could be as simple as investing $833/month for 12 months on the first friday of each month for the next year. By proceeding in this fashion you buy a varied number of shares of a mutual fund each month. Some times you might pay $30/share, other times $28/share and other times $32/share (as an example). At the end of 12 months you may have paid a average of $30/share and will not have bought your shares when the market is highest.

If you are investing by having a set amount withheld from you paycheck each month and put into a 401k and then invested in a mutual fund - this is, in effect what you are doing.

The following is from the Bogleheads Wiki
Dollar cost averaging (DCA) is the technique of dividing an available investment lump sum into equal parts, and then periodically investing each part. Dollar-cost averaging is proposed as an alternative to lump sum investing (LSI), which is to make the entire investment immediately.

For any sequence of constant-dollar purchases of an asset whose price fluctuates, more shares will be purchased when prices are lower than when prices are high. As a result, the average cost per share will be lower than the average price per share over the same period. This is sometimes called Dollar-Cost Averaging, and is an argument used to persuade investors to make systematic, periodic investments regardless of market prices.

The term Dollar-Cost Averaging is also used to describe similar investment concepts such as periodic automatic investment (almost universally utilized by individual investors to fund retirement accounts out of earned income).
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Kalo
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Re: Never time the market, i know...

Post by Kalo »

I would just add that you should probably avoid ETF's in favor of Funds if you are a fairly small investor, and that there's probably no reason to go with ETF's in a tax deferred account (IRA, Roth IRA, etc).

Fees are one of the biggest drains on your investment returns, and if you don't have a certain threshold on deposit with Vanguard you will have to pay commissions to buy ETF's. I would highly recommend just buying funds instead to avoid brokerage commissions. It's easier too, especially if you're making regular investments because you can buy fractional shares. And if you're new to investing, funds are also less complicated to buy.

Welcome to the forum and good luck. There is a lot of great knowledge to be had from the forum as well as from the Wiki (link at the top of the main page).

Kalo
"When people say they have a high risk tolerance, what they really mean is that they are willing to make a lot of money." -- Ben Stein/Phil DeMuth - The Little Book of Bullet Proof Investing.
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Peter Foley
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Re: Never time the market, i know...

Post by Peter Foley »

ckates7
If you are going to go with Vanguard, do note that the minimum for some of their funds is $3,000. Vanguard Total Stock Market Index is one such fund. You would have to start your investing with that lump sum as a minimum. Save up a second $3,000 and buy Vanguard Total Bond Market. After that
you can set up automatic paycheck deductions and just buy a set amount in one or more of the funds with each paycheck or once a month.

If these mimimums are too high for you, Charles Schwab has lower minimums for essentially identical funds and their fund expenses are competitive with Vanguard's.

I used Vanguard within my retirement account (like a 401k) and used Schwab for my taxable account and IRAs.
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BigOilTexan
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Re: Never time the market, i know...

Post by BigOilTexan »

I have no idea how i would make an overlaying chart.
i'm so new to this that i have no idea what that even means LOL!
Again, I was under the impression that buying into a fund for an IRA each month was using their services
That if i start when the market is this high, that my return rate won't be sufficient in the coming years. Who knows what will happen, but it's my main concern
Seems like just jumping in is causing you undue stress. What about taking an approach like this?

1) Pick a date in the future to start investing. August 1st, October 1st, whatever.

2) You've been waiting some period of time to start investing, but what have you been doing during that time? Watching the market record new all time highs? I'm assuming this has had a negative impact on your desire to start investing? Use the time between now and your start date from 1) to read a few books, read the wiki, read the books again, and then read the wiki again.

3) Decide on an asset allocation and research your potential trading firm. Do you know the difference between a Vanguard Individual account, Vanguard Brokerage, Vanguard Traditional IRA, Vanguard Roth IRA, Vanguard Roth IRA Brokerage, etc? How are you planning on getting in? Linking a checking account? Do you know how bank sweeps work? Do you know that most index funds have a minimum investment? Do you know that the benefit of investor vs admiral shares of the same fund at Vanguard, for instance? Do you understand the principles of tax-efficient investing?

4) Play around with a calculator. Do you understand the power of compounding interest? Have you thought about your current savings rate and how much you want for retirement? Are you saving enough today?

Now that you're at your target date to start investing, you won't have to worry about what the market is doing because today is the day! Set a date each month to invest, say the 1st of every month. That will eliminate the temptation to time anything. Once you are more comfortable with market fluctuations, you can add strategies like RBD rebalancing.

If you don't unerstand the basic concepts of investing and you decide to just jump in the likelihood of you regretting it in a few years is a lot higher.
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Re: Never time the market, i know...

Post by inbox788 »

livesoft wrote:I'm trying to figure out why you didn't buy a couple weeks ago when things dropped by a few percent. The market was clearly off of its peaks and the drops were signicant enough to be called "worst". So what happened? Why didn't you jump in with both feet?

Example:

Buy VWO or VBR on June 25th after it went ex-dividend. Total return since then about 7% to 9%.

Seriously, you just missed a significant 2-week rally that was pretty clearly signaled ahead of time. What were you thinking on June 20th? June 24th?
I've been holding out for 1500 or at least 1550 in the SP to jump back in, so call me greedy. Not sure what signal you got that was that clear, but did you time it right? Is it time to get out now or stay in? Let us know about these clear buy and sell signals you're getting.
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Re: Never time the market, i know...

Post by livesoft »

I almost always note the signals because folks ask all the time. I even noted when I bought in June right here on the forum (I gave a link in this thread).

There is no signal at the present time, so no advice from me right now.
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wshang
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Re: Never time the market, i know...

Post by wshang »

livesoft wrote:If one is going to invest, I think one should have a written (or typed) plan on how they are going to invest. The plan must have concrete trigger points on when to buy. Those points cannot be vague or wishy-washy. Examples might be:
Livesoft always has useful comments and I agree with those who write it makes no difference in the long run.

I can give you one fairly reliable tip when a good time to buy when a component is low - look at the NAV versus underlying value of related closed end funds. CEF is a good proxy for those buying precious metals for example. Notice on June 26th, the historic premium reverted to a near historic low discount:

http://www.cefconnect.com/Details/Summa ... ticker=CEF

This was actually the lowest recent price for gold. Not a perfect signal, but a reasonable one to tell you when the fear gauge is high along with alarmed postings on this forum. It also is almost not worth doing except for bragging rights.
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Re: Never time the market, i know...

Post by KyleAAA »

Why would it matter what level the market is at when you START investing? You're going to have very, very little invested anyway when you first start out.
Kenneth
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Re: Never time the market, i know...

Post by Kenneth »

ckates7 wrote:
Kenneth wrote:I have experienced the same thoughts/feelings many times. At one point many years ago, I had a sum of money to invest for one of my children; I watched the market climb for a couple of years before jumping in. I then realized that I couldn't time the market and jumped in with a managed mutual fund very close to the actual peak. It took more than a decade to break even; even to this day, returns from inception are about 2%. My most successful investments have been those that are done on auto-pilot without me doing anything, such as every pay period.

My recommendation therefore, depends on whether your talking a lump sum or want to invest regularly. If you have a significant (relative, I know) lump sum to invest, divide the money into six even amounts and invest in the market on the same day over the next six months. Otherwise, just budget an amount you can afford every week (or two weeks, or monthly) and invest that amount automatically.

Not sophisticated, but it seems to work for me.

Ken

Edit: One more thing: When I say invest in the market, keep in mind an asset allocation that is right for you.


Ken

Ken, I guess this my exact scare. That if i start when the market is this high, that my return rate won't be sufficient in the coming years. Who knows what will happen, but it's my main concern
Sorry for the delayed response, but it has been an especially busy week at work. If that is your primary concern, I would select one of the appropriate Vanguard funds and jump in with the required minimum. Then, as someone else suggested, divide the remaining money into 12 equal parts and have Vanguard automatically invest the preset amount the same day each month for a year.
-Ken
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BL
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Re: Never time the market, i know...

Post by BL »

I looked at the other thread and it looks like you went with about 20% bonds. So I would chose a single fund for your (Roth?)IRA such as Life strategy Aggressive (80/20) or Moderate (60/40) which requires $3000 to start or select any of the Target Retirement funds (look at the stock/bond ratio) which require only $1000 to start. As suggested, you can have additions added automatically ($100 minimum). With Vanguard, if you agree to on-line instead of mailed paperwork, you won't be charged anything except the (cheap) ER which is imbedded in all mutual funds. The advantage of this is that you don't have to think about rebalancing because the fund takes care of that automatically. There is no cost to change it later when you have $3000 for each fund so this could be either temporary or long-term.

I would not bother with brokerage at all. Go online to Vanguard and read about IRAs and how to start them right there. There is no cost to buy and no redemption costs that many brokerages have.

Be sure to read a recommended book such as Bogleheads' Guide to Investing.

I see you have a good low-cost 401K so you could also contribute more to that. Don't know your tax bracket, but usually prefer not to use Roth version there and just use Roth IRA.
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Re: Never time the market, i know...

Post by Call_Me_Op »

ckates7 wrote:So I'm looking to jump into the market with IRA's, and maybe a few stocks (maybe). I understand the Boglehead idea of never timing the market, and to invest early and often. However, everything I read is saying not to START investing when the market is at it's peak.
Right - like the time the market peaked in 1983 - at the start of the greatest stock bull market in US history.
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EyeYield
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Re: Never time the market, i know...

Post by EyeYield »

I trimmed some of my overweights back in March when the market was at an all time high of 14500 and I figured I wait for a pull back before rebalancing into some underweights. Well it pulled back.... to 14659 and I still am holding the cash. How'd that work out for me?? :oops:

Mentally I rationalize that the Muni's I had to liquidate when moving to a new broker in December have fallen almost 8% and that's been better held in cash, but that doesn't justify trying to time the market. Maybe 2018 will be a better time to get in...... maybe.

I would just start, maybe not all in, but invest regularly on a schedule.
"The stock market is a giant distraction from the business of investing." - Jack Bogle
Ricola
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Re: Never time the market, i know...

Post by Ricola »

This is really just a mental exercise. Ask yourself, if things don't work out the way I want, i.e., worst case scenario: the market goes down dramatically or the market goes up dramatically. Which method would be the most emotionally acceptable; buying all at one time, or buying incrementally, or staying is cash?
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