Is now a bad time to invest?

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Nerdicus
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Is now a bad time to invest?

Post by Nerdicus » Tue May 20, 2014 1:54 pm

With stock prices reaching all time highs and bonds doing horribly & with a correction in equities and a rise in interests rates predicted some time down the road, in addition to our being in one of the longest bull runs in history. Is right now a bad time to invest? I do understand that you cannot time the market nor predict what the future in the markets will look like. Yet it seems counter intuitive to me to invest right now and that it's better to just sit on the side lines waiting it out. All the while building my cash reserves up so that when the markets do dive (whenever and whatever that may look like) then would be a great time to invest and having more money to work with and buying when the markets are low.

What do you all think? I not only want you to counter my logic and refute what I'm saying, but basically to prove me wrong. In fact, I welcome it. Cheers!

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Re: Is now a bad time to invest?

Post by anil686 » Tue May 20, 2014 2:01 pm

I cannot refute your observations at the current time with facts. I do not know if the market is overvalued and I certainly do not know when interest rates will rise. However, what is wrong with a 60/40 portfolio (or if very jittery 50/50 portfolio) with rebalancing every six months or every year? After all, it is not like bonds will fall by 90% or something. Even a 10% loss in your bond allocation still leaves plenty of room to rebalance into equities. I guess if you are set, though, on your thoughts - cash may be the safest position.

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pennstater2005
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Re: Is now a bad time to invest?

Post by pennstater2005 » Tue May 20, 2014 2:05 pm

Save save save. Compounding interest is your friend. You'll invest both in low times and high times. Your asset allocation is probably your biggest decision. If you have one you are comfortable with you should be able to sail through all market fluctuations. Unless you have a crystal ball you'll never know when to get in. What if the market continues it's upward climb for years. You've missed out on all those gains. And when the market is low can you stomach buying more of something that is losing money?
Last edited by pennstater2005 on Tue May 20, 2014 2:11 pm, edited 1 time in total.
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Re: Is now a bad time to invest?

Post by retiredjg » Tue May 20, 2014 2:09 pm

If there were a way to sit on the side and know when to "get in", your idea would be reasonable. And it seems that you could do that because we tend to see market swings in retrospect. But when it is actually happening, you don't know if now is a good time or if next week or next month or next year might be better. You could end up sitting on the side for an entire crash and rally. And while you are sitting on the side, your money is losing value because of inflation.

The time to invest is now. If you have income, you should be investing.

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Re: Is now a bad time to invest?

Post by Longdog » Tue May 20, 2014 2:10 pm

Nerdicus wrote:With stock prices reaching all time highs and bonds doing horribly & with a correction in equities and a rise in interests rates predicted some time down the road, in addition to our being in one of the longest bull runs in history. Is right now a bad time to invest?


Absolutely! Or... maybe not! It's one or the other, I'm pretty sure. :oops:

It doesn't have to be an "all or nothing" thing. You could invest gradually over the next year or two, and either reap the benefits or mitigate the losses if the answer turns out to be "no" or "yes," respectively.
Steve

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Re: Is now a bad time to invest?

Post by chaz » Tue May 20, 2014 2:11 pm

Buy and hold. The market always has fluctuations and bounces back.
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rob
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Re: Is now a bad time to invest?

Post by rob » Tue May 20, 2014 2:18 pm

My crystal ball is broken but I have made a lot of $$ by investing in past times when "stocks were over-valued".... I have some purchased at the right time and some at the wrong time but the long term trend has been positive with jaw dropping dips along the way.....

Anyone that tells you they know when to invest should be avoided IMO.... I have not a clue but I buy on a regular schedule anyway and some day I will sell on a regular schedule when I stop earning income.
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bogleblitz
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Re: Is now a bad time to invest?

Post by bogleblitz » Tue May 20, 2014 2:19 pm

I have no idea if now is a good time to invest. I invest for 10+ years.

Buy and hold.

If you have new money and are afraid. Then dca (dollar cost averaging) the money into your desire AA.

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Re: Is now a bad time to invest?

Post by bottlecap » Tue May 20, 2014 2:21 pm

Search "Is now a bad time to invest" on this site and you will see hundreds of examples of the same exact post you just wrote going back to 2007, complete with the "I know you can't time the market, but isn't now a good time to try and time the market" line.

Read the responses and enjoy.

JT

P.S. It never feels like a good time to invest. Only in hindsight can we realize that.

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HomerJ
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Re: Is now a bad time to invest?

Post by HomerJ » Tue May 20, 2014 2:27 pm

viewtopic.php?f=10&t=116963

Title of that thread is: Isn't it a bad time to be investing??

Market is up 15.6% since that post one year ago.

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Toons
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Re: Is now a bad time to invest?

Post by Toons » Tue May 20, 2014 2:29 pm

Think about it ,Time is the one commodity that No one can purchase more of,we all have a limited amount.
Having said that,Invest as early and as often as you can and leave it alone for decades.Where the market is at the moment is meaningless,just put the money to work and get the compounding machine working FOR YOU. :happy
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livesoft
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Re: Is now a bad time to invest?

Post by livesoft » Tue May 20, 2014 2:29 pm

Nerdicus wrote:With stock prices reaching all time highs and bonds doing horribly & with a correction in equities
[…]
What do you all think? I not only want you to counter my logic and refute what I'm saying, but basically to prove me wrong. In fact, I welcome it. Cheers!

Where do you get your information? It is pretty much completely bogus.

Bonds are having a banner year. Here is the YTD (as of yesterday) total return of the a couple of bond funds:
3.42% Vanguard Total Bond Market Index
4.62% Vanguard Inflation protected securities

That's less than a 5 month return.

Next equities:
The Russell 2000 index is not near its all-time high. Let's just look at IWM (iShares Russell 2000 index ETF). The YTD return is something like -5.3% and it is 9% below its March 4th value, so it cannot be even close to its all-time high. But you wrote about a correction and all-time highs, so I am confused.

Is that enough to refute what you are saying? If not, then there is nothing I can do for you.
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Kevin M
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Re: Is now a bad time to invest?

Post by Kevin M » Tue May 20, 2014 2:54 pm

I understand the trepidation. The thing is, a similar argument could have been made at the beginning of 2013, but US stocks increased more than 30% last year. So now even if we had a 20% drop, you still would have been ahead going all in at the beginning of 2013. Of course after the big up year in 2013, it feels even harder now if you've been on the sidelines.

From a purely financial perspective, the odds are in favor of putting everything into your target allocation now (lump sum), and most people here probably will suggest that. But most people can't simply ignore their emotions, so this is hard to do.

I think a good compromise is to get something into stocks now, then value average into your target asset allocation over the next few years. During this time we're likely to have a decent correction, which will allow you to build up your emotional tolerance for adding to stocks when they go down a lot.

A value averaging approach might be something like this. Put a portion of your portfolio into stocks (20% of your eventual target stock allocation, or 30%, or whatever), with the goal of the stock portfolio growing by X%/year (10%, 20%, 50%, whatever). Add to your stocks quarterly as necessary to meet your growth target. If stocks go up a lot, you may add nothing. If they go down a lot, you may add a lot. This gets you into the market, while allowing you to build the emotional fortitude to handle the declines. You might find yourself looking forward to and enjoying the declines, since it allows you to put more of your money into stocks at lower prices.

For example, let's say you have $100K that you'd like to invest in stocks eventually. Put $20K in now with a growth target of 50%/year. Here's the plan, with some rounding:

Code: Select all

Year    Value (K$)
----    ----
0        20
1        30
2        45
3        68
4       100


So if stocks are flat the first year, you add $10K. If stocks are up 10% ($2K), you add $8K. If stocks are down 20% ($4K) you add $14K.

This is just a simplified example to get the idea across. Tweak the percentages according to your view of the probabilities and your emotional factors.

A recommendation from one of our Boglehead Authors, Bill Bernstein, is for someone who has not lived through a brutal bear market to have no more than 50% of portfolio in stocks. When the next big decline hits, you can find out if you are emotionally able to rebalance back to your 50/50 AA (adding to stocks as they fall), or perhaps even increase your allocation to stocks then. Bill also is a proponent of Value Averaging.

Kevin
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Stan Dup
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Re: Is now a bad time to invest?

Post by Stan Dup » Tue May 20, 2014 3:04 pm

"The tyranny of compounding expenses is the eighth deadly sin." - George Sisti

socalDAD
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Re: Is now a bad time to invest?

Post by socalDAD » Tue May 20, 2014 3:24 pm


NOgmacks
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Re: Is now a bad time to invest?

Post by NOgmacks » Tue May 20, 2014 3:37 pm

Sorry, if I am hijacking the thread, but, I have a question.

I heard some people say in this thread and I am paraphrasing here. "I will be buying shares on sale at the next big dip". But, if I keep investing immediately whatever my investable amount is at the moment, how to take advantage of these 'big dips'? Sell some bonds within your AA and buy more equities when that happens?

Assuming that I can identify the dip of course, but, stock prices dropping 10 percent would be my cue personally.

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Re: Is now a bad time to invest?

Post by livesoft » Tue May 20, 2014 3:52 pm

Sorry, but there is a 10% dip in small caps RIGHT NOW, so did you invest today?

One can rebalance out of bond funds into equity funds anytime one desires.
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Re: Is now a bad time to invest?

Post by Twins Fan » Tue May 20, 2014 3:56 pm

Nerdicus wrote:What do you all think? I not only want you to counter my logic and refute what I'm saying, but basically to prove me wrong. In fact, I welcome it. Cheers!


Okay :D

Nerdicus wrote:With stock prices reaching all time highs and bonds doing horribly & with a correction in equities and a rise in interests rates predicted some time down the road, in addition to our being in one of the longest bull runs in history.


As pointed out that information is not totally correct. And, what is "doing horribly" in the bond market? When is "some time down the road"? People do it all the time, but the market and interest rates really can't or shouldn't be predicted.

Nerdicus wrote:Is right now a bad time to invest?


Depends... How long are you planning to be invested? Do you want to invest for a year? Now may be a bad time, or it could be a good time. We don't know. Most of us would say not to invest for a years time anyway. Do you plan to be invested for 10, 20, 30, or more years? Then now is as good a time as any to get invested. Over the long haul the market should go up. Or, at least we all hope so. :D

Nerdicus wrote:I do understand that you cannot time the market nor predict what the future in the markets will look like.


If you understand that, why are you looking for ways to ignore it? :wink:

Nerdicus wrote:Yet it seems counter intuitive to me to invest right now and that it's better to just sit on the side lines waiting it out. All the while building my cash reserves up so that when the markets do dive (whenever and whatever that may look like) then would be a great time to invest and having more money to work with and buying when the markets are low.


If you don't know what you would be looking for, how would you know when to get in? Let's simply use the S&P 500... speaking of which it went down today why didn't you jump in :wink: ... but, it's around 1870 now. Let's say the bull run continues, the S&P gets to 2300, you sat on the sidelines, it dips to 1950, and you say, sweet time to get in. What did you gain by waiting for that?

What would your hard line be for getting in... S&P 1500... S&P 1000? What if we never see those again? You could get stuck on the sidelines.

It sounds like the best advice for you, OP, might be... tune out the noise! :D

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Re: Is now a bad time to invest?

Post by Stan Dup » Tue May 20, 2014 4:51 pm

Time IN the market is far more important than TIMING the market.
"The tyranny of compounding expenses is the eighth deadly sin." - George Sisti

Imdeng
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Re: Is now a bad time to invest?

Post by Imdeng » Tue May 20, 2014 5:05 pm

This should be pinned to the top of every post about "is it a good/bad time?"
Stan Dup wrote:Time IN the market is far more important than TIMING the market.

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Re: Is now a bad time to invest?

Post by HurdyGurdy » Tue May 20, 2014 5:11 pm

You would be investing 60% Stock 40% Bonds. That pretty much covers you against any likely eventuality.

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Re: Is now a bad time to invest?

Post by bottlecap » Tue May 20, 2014 5:17 pm

NOgmacks wrote:I heard some people say in this thread and I am paraphrasing here. "I will be buying shares on sale at the next big dip". But, if I keep investing immediately whatever my investable amount is at the moment, how to take advantage of these 'big dips'? Sell some bonds within your AA and buy more equities when that happens?


Yes, you'll see this, but it's not really effective. I don't know that it's horribly harmful most of the time, though. I think these are bored Bogleheads that keep more cash than they need because they want to fool themselves into thinking they have some control over additional positive returns in their portfolio. They don't. And sometimes, the dips don't come for a very long time.

JT

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Re: Is now a bad time to invest?

Post by scone » Tue May 20, 2014 5:23 pm

It will never, ever be "safe" to invest. Stocks and bonds pay you to take real risk. That risk will always "show up" sooner or later, and you will lose money. Breathtaking amounts of money. And no one can tell you with certainty when the crash will come. You just have to accept that these are the rules of the game, if you want to play.

It's a bit like asking "is it safe to swim in the ocean?" The truthful answer is, no-- you might crack your head on a rock, or be eaten by sharks, or stung to death by jellyfish. So you have to decide whether you are going to take that risk.
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Re: Is now a bad time to invest?

Post by heyyou » Tue May 20, 2014 5:49 pm

The market will dip every time that you buy. That is just your luck, but if you wait long enough, the prices will grow then dip some more, then grow until thirty years later you will be astonished at your gains.

In 1987, in my four digit 401k, my S&P 500 shares dropped from 328 to 223. Those shares are now at 1872 today, down from 1885 this morning. Should I sell, since I'm losing money today? I could, but so far, not selling has worked well and the 401k (now IRA) is high six digits because I continued to buy. Prices this week, this month, or this year, don't matter. Buy for 30 years and you will have more than those who don't. My sister bought only bonds because she did not like the volatility of stocks, and her retirement will be far different than mine. I don't like the volatility of stocks either, but I put up with it. No one likes commuting to work, but it is tolerated because it is better than not getting a paycheck.

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Re: Is now a bad time to invest?

Post by J295 » Tue May 20, 2014 8:20 pm

Respectfully, do you have an IPS, and if so does it permit variations based on the perceptions you articulate? It can be a very valuable tool, and I perceive it is recommended by many on this site. Best of luck, and thanks for posting and generating discussion.

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Re: Is now a bad time to invest?

Post by NOgmacks » Tue May 20, 2014 8:42 pm

J295 wrote:Respectfully, do you have an IPS, and if so does it permit variations based on the perceptions you articulate?.


Mine actually says that I should keep around five percent in cash to invest when the market drops five percent in one day. But looking at this discussion, looks to be that's a bad idea. Also I have just started to read the boglehead recommended readings so I am sure my IPS will change.

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Re: Is now a bad time to invest?

Post by tibbitts » Tue May 20, 2014 9:16 pm

It's impossible to prove you wrong, so there's no point in discussing that.

However, you need to identify the algorithm you'll use to determine when to invest. If your algorithm is to invest "when it feels right", you're pretty much doomed. The problem is that when markets dive, that looks like a terrible time to invest, too. There is no assurance of recovery - ever.

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Re: Is now a bad time to invest?

Post by tainted-meat » Tue May 20, 2014 9:20 pm

Emerging markets have been lagging lately, might look into those. EEM and VWO (Emerging Markets ETFS) have a p/e of 11 right now while S&P 500 is around 17.

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Re: Is now a bad time to invest?

Post by roymeo » Tue May 20, 2014 9:28 pm

Please come back and let us know when you do decide to move in to the market.

I've always been putting money into the market and never got hit early on with a huge windfall, so I've never been faced with the decision you're facing.

This is sort of like an anti-DCA (Dollar Cost Averaging) situation..."should I invest in small parts spread over a period of time, or should I hold onto it and then panic when I'm finally ready to put it into the market."

roymeo
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LowER
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Re: Is now a bad time to invest?

Post by LowER » Tue May 20, 2014 9:54 pm

One of my favorite oft-quoted investisms on this site is: "it's not timing the market; it's time IN in the market." I'm 95% sold that this is great advice, though I am ironically sitting on too much cash right now, which if invested, would have yielded a respectable 5 figures over the last year and a half or so, versus falling behind with cash. I blame a bit of it on imagined job insecurity, but if I would have followed BH principles strictly, I would be all that much closer to FI. Maybe it is a bad time to invest, but I thought that over a year ago and theoretically lost a boat, a sizable taxable account, a whatever, or 2 years of college expenses, or more because I "had a feeling." The upside is that I may not have found this website when I did and would have still been investing in high ER, high AUM assets.

Tincture of time is your only anecdote and hindsight will give high def pictures of your hind side. In or out and where to invest should be your only questions.

And if I could only, always, follow my own advice, and advice from this site, I'd be better off.

I've always had to learn the hard way - for better and for worse.

Listen - really listen - to the advice offered freely on this site and you will do very well. And I will continue to do the same, despite myself.

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Re: Is now a bad time to invest?

Post by hiddensee » Wed May 21, 2014 5:39 am

The extended bull run/highest ever prices are only putting prices about where they would have been if we had had average historical returns since 1990, rather than extraordinary returns followed by dismal returns. Stock prices are not expected to revert to a mean, or else there would be no purpose buying stocks for the average investor. Absent a crystal ball, there is no bad time to invest.

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Re: Is now a bad time to invest?

Post by HardKnocker » Wed May 21, 2014 5:59 am

"Is now a bad time to invest?"

I'd say it's as bad a time as any other. :wink:
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Re: Is now a bad time to invest?

Post by livesoft » Wed May 21, 2014 7:36 am

I'm still trying to figure out where the "bonds doing horribly" came from in the OP's first sentence. Bonds have been doing simply spectacularly well.

Spectacularly well.
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Re: Is now a bad time to invest?

Post by RadAudit » Wed May 21, 2014 7:37 am

Of course, it is a bad time to invest!

Either the market has advanced too far - and why invest at a market top - or it's dropped too much -Invest now? It's too risky!!

Choose one. Just don't complain about the eventual results from the choice.

For some people, there are always reasons - good reasons - to avoid doing something. Sometimes, the decision not to invest works out well. I doubt if that decision will work out well in the long run.

Best of luck.
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Re: Is now a bad time to invest?

Post by The Wizard » Wed May 21, 2014 7:42 am

livesoft wrote:I'm still trying to figure out where the "bonds doing horribly" came from in the OP's first sentence. Bonds have been doing simply spectacularly well.

Spectacularly well.

Well the VG long-term bond index funds are up 10-11% YTD, but most of that is capital appreciation, I'm guessing, since SEC yields are in the 3% to 4.5% range (annualized)...
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Re: Is now a bad time to invest?

Post by The Wizard » Wed May 21, 2014 7:47 am

The OP could always split the difference if it's a "bad time" to invest.
For each $1000, put $250 into your bond index fund, $250 into your stock index fund, and $500 into your dry powder war-chest.
But put money aside each week regardless...
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Re: Is now a bad time to invest?

Post by HomerJ » Wed May 21, 2014 10:01 am

livesoft wrote:I'm still trying to figure out where the "bonds doing horribly" came from in the OP's first sentence. Bonds have been doing simply spectacularly well.

Spectacularly well.


That's impossible. Everyone knows that bonds have nowhere to go but down... Don't you read this board?

:) :)

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Re: Is now a bad time to invest?

Post by hiddensee » Wed May 21, 2014 10:12 am

Bonds could go up further if the base rate were to become negative - the question is whether bonds today are mostly market risk or political risk. Political risk is largely uncompensated. On the other hand, what's the alternative for some stability?

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Re: Is now a bad time to invest?

Post by magneto » Wed May 21, 2014 10:33 am

Stan Dup wrote:Time IN the market is far more important than TIMING the market.


This may well be true in the long run, but we all know where we will be in the long term. The hapless Japanese investor is sometimes quoted as a counter, but they are not alone. The UK FTSE100 has yet to recapture the Dec 1999 closing high. Only dividends and rebalancing have mitigated this sorry tale for UK FTSE100 investors.

Second the suggestion of Value Averaging for the OP, to get started, or alternatively move a set percentage of the deviation from stock/bond target each quarter (say 10-15%). This will speed up the inital rate of investment, but then tail off the rate of investment as time passes.

All Best
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Re: Is now a bad time to invest?

Post by OkieIndexer » Wed May 21, 2014 1:26 pm

I'll post the same thing I posted on a similar thread elsewhere. I suppose a new investor with a lump sum to invest could sit in "safe" investments (possibly high-quality bonds and/or cash) and wait for the Shiller P/E10 to come back down to its historical average, which is around 16.5, before investing in equities, but the problem with that is that there's no guarantee it will ever come back down to 16.5 again (at least possibly not in your investment horizon). If U.S. market history since 1875 is any guide at all, it should come back down to the historical average (mean-revert) like it always has in the past, but no guarantees that it will. And even if it does, you may be waiting years (and years) for it to happen.

Another approach could be to invest chunks of your savings in equities at different Shiller P/E10 levels, such as 20% of your money at PE 22, 20% of your money at PE 20, 20% at PE 18, 20% at PE 16, etc (Shiller PE is currently around 25). This seems like a lower risk strategy than the one I posited above since PE is more likely to hit those higher levels.

One possible issue with these two strategies is that when the market is actually crashing and hits PE 16 (for example), you'd have to be brave enough to actually invest your money in equities at that moment and not second-guess yourself or worry that the market will crash even more. If it did crash more after you bought, you'd simply have to hold on through all of that and "tune out the noise" and be glad you bought at PE 16 instead of PE 25.

I'm not actually recommending any of the above, just throwing out some ideas. :beer
"In bull markets, people say 'The more risk I take, the greater my return.' But when people aren't afraid of risk, they'll accept risk without being compensated." -Howard Marks, Oaktree Capital

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Re: Is now a bad time to invest?

Post by Longtimelurker » Wed May 21, 2014 3:25 pm

This question has been posted several times per week for the last decade. We are currently sitting at all time highs. Do the math.
Stay the course. If you can't resist greed, and fear is proven to be 2x as strong, you are doomed as an investor.

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Re: Is now a bad time to invest?

Post by NOgmacks » Wed May 21, 2014 4:01 pm

OkieIndexer wrote:Another approach could be to invest chunks of your savings in equities at different Shiller P/E10 levels, such as 20% of your money at PE 22, 20% of your money at PE 20, 20% at PE 18, 20% at PE 16, etc (Shiller PE is currently around 25). This seems like a lower risk strategy than the one I posited above since PE is more likely to hit those higher levels.



Thank you for telling me about the Shiller p/e. Didn't know about it until now.

Anyway, it looks like there is no guarantee that Shiller P/E will mean-revert as you say. But even then, let's assume that we will do some reinvesting during the different P/E levels. If so, how long will you be willing to wait for it to drop to the said level. And meanwhile where do you park your investable assets?

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weltschmerz
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Re: Is now a bad time to invest?

Post by weltschmerz » Wed May 21, 2014 4:02 pm

Stocks: They're up around 50% over the last 2.5 years, with no significant pullbacks since mid-2011. I would say that now is not a good time to invest, there will likely be better opportunities upcoming. With that being said, if you are a young person, then the stock market price could be 10x fold higher by the time you retire, so then it doesn't matter what your entry price is today as long as you are invested for 40+ years.

Bonds: Down a bit last year, up a bit this year. Could be an OK time to invest. Rates on long-term treasuries are below 3.5%, so if I invested here, I would be taking all profits off the table if rates continue to dip further (due to the fact that rates can only fall so far). Keep those bonds on a short leash.

Metals: Gold/silver got pummeled last year, but they've stabilized now, so it could be a good time to invest here.

Cash: Always a good time to be stashing :moneybag into I/EE savings bonds, CDs, short-term treasuries. Stockpile cash so when an opportunity arises (like a long overdue 10-20% drop in the stock market), you will have plenty of dry powder.

I know these aren't the conventional viewpoints on this forum, but hopefully this will be helpful to the OP.

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Re: Is now a bad time to invest?

Post by OkieIndexer » Wed May 21, 2014 4:26 pm

NOgmacks wrote:
OkieIndexer wrote:Another approach could be to invest chunks of your savings in equities at different Shiller P/E10 levels, such as 20% of your money at PE 22, 20% of your money at PE 20, 20% at PE 18, 20% at PE 16, etc (Shiller PE is currently around 25). This seems like a lower risk strategy than the one I posited above since PE is more likely to hit those higher levels.



Thank you for telling me about the Shiller p/e. Didn't know about it until now.

Anyway, it looks like there is no guarantee that Shiller P/E will mean-revert as you say. But even then, let's assume that we will do some reinvesting during the different P/E levels. If so, how long will you be willing to wait for it to drop to the said level. And meanwhile where do you park your investable assets?


Personally I would park it in things like Vanguard Total Bond Fund, Vanguard Short-Term Bond Fund, high yield online savings accounts, and maybe CDs where the bank guarantees you will be able to break the CD early (they might renege, so this could be risky...). You want the money to be pretty liquid for those occasions when the Shiller PE actually drops to the level where you will want to invest in equities.

As far as how long you might have to wait for low PEs, could be years (and years). Or could be weeks/months. Nobody knows.

A third approach could be to go ahead and invest a portion (maybe 20% or 33% or something) of your lump sum in equities now in case equities continue to rise for years or a bubble develops. This way you will feel better psychologically if equities continue to soar for years. Save the rest of your stash for if/when a crash comes and those lower PEs arrive. :)

All of the above is just ideas, not advice. :)
Last edited by OkieIndexer on Wed May 21, 2014 4:39 pm, edited 1 time in total.
"In bull markets, people say 'The more risk I take, the greater my return.' But when people aren't afraid of risk, they'll accept risk without being compensated." -Howard Marks, Oaktree Capital

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HomerJ
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Re: Is now a bad time to invest?

Post by HomerJ » Wed May 21, 2014 4:37 pm

What was the Shiller PE10 in 1997? I found a chart that says it was 29 on Jan 1, 1997.... Not sure if that's accurate...

So, following the "rules", one definitely should have gotten out in 1997 and waited for a correction to invest, right?

Image

Oh wait, the Total Stock Market Index has NEVER dropped below it's 1997 level in the last 17 years...

Buy and hold sure seems simpler... Even money invested at the very top of the market in 2000, when PE ratios were INSANE, has still made some money over the long run. So why worry about timing?

By the way, money invested in the market in 1997 when the Shiller PE10 was 29 has returned 7.9% nominal over the past 17 years.

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Re: Is now a bad time to invest?

Post by OkieIndexer » Wed May 21, 2014 4:51 pm

HomerJ wrote:What was the Shiller PE10 in 1997?


It was in the 28-33 range, and you had to wait 11 long years until late 2008 for PE 16.5. However, you would have done fine in VBMFX during that whole period, a little better than VFINX (measured from 1997-Oct 2008). Also, you could have invested in equities at PE 22 and PE 20 in 2002 (and done the same or better than VFINX in VBMFX in the meantime). Of course, interest rates are much lower now than in 1997, so who knows how VBMFX will do going forward.
Last edited by OkieIndexer on Wed May 21, 2014 5:02 pm, edited 2 times in total.
"In bull markets, people say 'The more risk I take, the greater my return.' But when people aren't afraid of risk, they'll accept risk without being compensated." -Howard Marks, Oaktree Capital

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ginmqi
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Re: Is now a bad time to invest?

Post by ginmqi » Wed May 21, 2014 4:56 pm

No.

Unless you provide proof that market will crash big and crash quick.

But what if it only "corrects" 10%? Or 20%? or 15%? And it rebounds. When it does crash when do you know to get back in? You will be asking same question....ok when do I buy back in? Is it going to crash more?

What if we enter massive recession for 20 years?

What if we enter a bull market for 20 years?

Trying to time the market is useless if you are in it for the long-haul.

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Clearly_Irrational
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Re: Is now a bad time to invest?

Post by Clearly_Irrational » Wed May 21, 2014 5:00 pm

My research suggests that for the most part the market can't be reliably timed in a way that produces higher returns net of taxes and fees, over the long term, than buy and hold. That said, data I've seen suggest that this rule may not apply during periods of heavy government intervention combined with a period of market disorder.

If that's true, and that's a big if, the question then becomes:

1) Are we experiencing heavy government intervention

Yes, I'd say that we are and have been for quite some time.

2) Are we in a period of market disorder?

Probably not. The Price/Dividend ratio is within 2 Sigma of the current trend (which started Aug 2011) and my crash indicator reading is only reading 14.29 out of 100 (over 30 is generally bad).

So, even if we believe there is a narrow exception to the normal rule it doesn't appear that exception applies right now. Although PE10 leads us to believe 10 year returns will be lower than historical averages (an attribution model says essentially the same) cash is projected to do even worse. At the moment you're better off being in the market than out.

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Re: Is now a bad time to invest?

Post by Hallman » Wed May 21, 2014 5:17 pm

The stock market isn't expensive, i.e total world is neither cheap nor expensive in historical terms. I'd just buy that :)

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Re: Is now a bad time to invest?

Post by derosa » Wed May 21, 2014 5:22 pm

Compared to what time?

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