Why buy now, why not wait until the market really crashes??

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riptide
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Why buy now, why not wait until the market really crashes??

Post by riptide »

I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
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xjz
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Re: Why buy now, why not wait until the market really crashes??

Post by xjz »

Short answer: Because nobody can tell you with any level of certainty whether the market will "really crash". This is market timing.
jackholloway
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Re: Why buy now, why not wait until the market really crashes??

Post by jackholloway »

You never know when the market will bottom. We see 10% moves all the time, and if you capture them, then you do, well, 10% better. Of course, if you wait for them, and the market goes up for a year, you lose - I expected more turbulence two years ago.

This is why there is the "stay the course" and "do not market time" mantras around here.

In my case, I redirect new contributions every quarter when I sell company stock, and every month when I look at my ongoing contributions. A month ago, my 65/35 AA was at 67/33. Now, it is 64/36, and since I sold off a block of company stock recently, I will true it up. If it goes down another 10-20%, I will buy again.
GoldenFinch
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Re: Why buy now, why not wait until the market really crashes??

Post by GoldenFinch »

The market goes up and down and nobody knows when it will turn in the other direction. This may be the lowest we will ever see or, alternatively, it might fall 90%. Nobody knows. Most people probably would guess it will continue to go up and down, but average upward over time. I just keep buying on schedule and will rebalance if it drops a lot more.
donaldfair71
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Re: Why buy now, why not wait until the market really crashes??

Post by donaldfair71 »

riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
I'm all for waiting to buy at the bottom. Give me the number of the bottom, and I will buy.
TheRightKost87
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Re: Why buy now, why not wait until the market really crashes??

Post by TheRightKost87 »

If today's lows happen to be the lows for the year, and the market only dips 12% then steadily increases to end the year up... will you question why you didn't buy stock while it was 12% discounted, as opposed to waiting until the end of the year, when it could be more expensive than when the year started?
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riptide
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Re: Why buy now, why not wait until the market really crashes??

Post by riptide »

donaldfair71 wrote:
riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
I'm all for waiting to buy at the bottom. Give me the number of the bottom, and I will buy.
Yea man, I am still waiting for a lower bottom, like 20% , then I will look to buy. 20% drop was suggested to me, so I am waiting and looking forward to that (Toons on here has rubbed off on me). So, although, I have no crystal ball, I say wait for 20% or more drop and then buy some stocks.
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Re: Why buy now, why not wait until the market really crashes??

Post by Ketawa »

riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
If you hypothetically started this year exactly at 2/3 stocks, 1/3 bonds, your allocation has shifted about 3% away from stocks towards bonds since global stocks are down about 11% and bonds are up 1%. You'd now be around 64/36 instead of 67/33. People who are buying stocks now are basically using cash to rebalance back to their asset allocation.

If you say you're going to wait until stocks drop more to rebalance, you're market timing. Nobody knows if they will drop further. If you wait to rebalance simply because you are following your rebalancing policy, e.g. once a year or rebalancing bands, that's fine.

I rebalance every month with new contributions.
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Toons
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Re: Why buy now, why not wait until the market really crashes??

Post by Toons »

" I see people saying they are buying."

Why?
"Time" ,of which we all only have a limited amount of.
Not Timing :happy
Invest Now ,put the dollars to work.
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CoAndy
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Re: Why buy now, why not wait until the market really crashes??

Post by CoAndy »

riptide wrote:
donaldfair71 wrote:
riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
I'm all for waiting to buy at the bottom. Give me the number of the bottom, and I will buy.
Yea man, I am still waiting for a lower bottom, like 20% , then I will look to buy. 20% drop was suggested to me, so I am waiting and looking forward to that (Toons on here has rubbed off on me). So, although, I have no crystal ball, I say wait for 20% or more drop and then buy some stocks.
But what if the market only drops 17% and then begins heading back up? I buy every two weeks like clockwork, so I get shares at the top, at the bottom, and everywhere in between.
livesoft
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Re: Why buy now, why not wait until the market really crashes??

Post by livesoft »

I'm willing to buy now and to also buy later when the market really crashes. I think I know the prices I am paying now, but I don't know if (a) the market will really crash and (b) what the prices will be then. In the meantime, I may end up selling what I buy now at a nice tidy profit.

And quite a few things today were trading at less than 25% of what they traded at last March.

Yes, prices could go lower from today. But somebody will probably hit their rebalancing bands at some point along here.
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Maynard F. Speer
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Re: Why buy now, why not wait until the market really crashes??

Post by Maynard F. Speer »

CoAndy wrote:
riptide wrote:
donaldfair71 wrote:
riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
I'm all for waiting to buy at the bottom. Give me the number of the bottom, and I will buy.
Yea man, I am still waiting for a lower bottom, like 20% , then I will look to buy. 20% drop was suggested to me, so I am waiting and looking forward to that (Toons on here has rubbed off on me). So, although, I have no crystal ball, I say wait for 20% or more drop and then buy some stocks.
But what if the market only drops 17% and then begins heading back up? I buy every two weeks like clockwork, so I get shares at the top, at the bottom, and everywhere in between.
Long-term, missing out on a 17% dip (after decades of compounding) won't even be a rounding error

Buying regularly is as good a method as any

Personally, I try not to buy when the stock price is below its 10, 50 or 200 day moving average - because this means stocks are trending down ... Efficient Market types may have a problem with that, but I do believe in market trends ... If you buy when markets are trending up again, you might not hit the bottom of the market, but you're reducing the odds of catching falling knives ... When the market does eventually stop falling, it's going to have to cross its trend line again - and that's when you'll be buying
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Re: Why buy now, why not wait until the market really crashes??

Post by KyleAAA »

Because you don't know if the market will drop 30%. And even if it does, you won't know if it is going to drop even more. I buy a little with every paycheck specifically so I don't have to worry about missing the bottom. I never miss the bottom!
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greg24
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Re: Why buy now, why not wait until the market really crashes??

Post by greg24 »

Can you let me know the date and time of the market bottom? I'd love to buy at that point. Thanks. :sharebeer
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Re: Why buy now, why not wait until the market really crashes??

Post by Chesterfield »

Livesoft, how do you continue to have liquid $ to invest what seems like every down day? May I ask what's your AA? I'm not talking rebalance, TLH, or I'm making regular period contributions to tax advantaged vehicles (IRA, 401k, etc.) Do share please? Thanks.
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Re: Why buy now, why not wait until the market really crashes??

Post by bbrock »

You can never predict market bottoms.

I was going to buy into my first ETF, that being VHT. My purchase limit order would have been something in the ~$119.00 range. But, after a delay and getting situated to call in to place the transaction, the price is now $122.51. Well, such is life. Will keep following or see what tomorrow brings.
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Re: Why buy now, why not wait until the market really crashes??

Post by cheese_breath »

How do you know when it will really crash? Special insights the rest of us don't have? Maybe it will crash next week, and you'll jump in at the bottom and clean-up. Or maybe it won't crash for years, and you'll be on the sidelines while everybody else cleans-up.
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Re: Why buy now, why not wait until the market really crashes??

Post by Rodc »

riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
Excellent question.

I think those espousing a time to buy excitement have not studied history.

It might be a fine time to buy. But it is not a great let's get excited time to buy. This is not a blood in the streets situation.

Personally, I do not know if this is a blip about to turn around or just the beginning of something big.

I will just stick, dispassionately, to my plan and rebalance if needed according to plan.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Maynard F. Speer
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Re: Why buy now, why not wait until the market really crashes??

Post by Maynard F. Speer »

greg24 wrote:Can you let me know the date and time of the market bottom? I'd love to buy at that point. Thanks. :sharebeer
bbrock wrote:You can never predict market bottoms.

I was going to buy into my first ETF, that being VHT. My purchase limit order would have been something in the ~$119.00 range. But, after a delay and getting situated to call in to place the transaction, the price is now $122.51. Well, such is life. Will keep following or see what tomorrow brings.
There are no certainties in investing .. If there were, there wouldn't be a risk premium ... But there are lots of good probabilities and statistics - subjects the average investor is evidently not very good with

A simple moving average can tell you when a market is moving up or down .. You see in the two most recent bear markets, there's one green point which would have had you investing halfway down the Tech crash ... So it's not perfect ... But your odds of generally good timing decisions using simple technical analysis, vs your odds without, are dramatically different (and this can be used for rebalance dates - it doesn't have to be moving in and out of the market)

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livesoft
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Re: Why buy now, why not wait until the market really crashes??

Post by livesoft »

Chesterfield wrote:Livesoft, how do you continue to have liquid $ to invest what seems like every down day? May I ask what's your AA? I'm not talking rebalance, TLH, or I'm making regular period contributions to tax advantaged vehicles (IRA, 401k, etc.) Do share please? Thanks.
My asset allocation has been posted: viewtopic.php?t=150267

Current AA is about 71% equities. I just sell some shares of a bond ETF and use that money to buy some shares of an equity ETF. I don't think my bond funds have gone down in price, so there is plenty of money there to use to rebalance into equities.

Also not everything goes down from the time I buy it. For example, what was a low price of VBR today and what was the closing price?

Mind you, my total portfolio value has lost lots of money.
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Rodc
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Re: Why buy now, why not wait until the market really crashes??

Post by Rodc »

Maynard F. Speer wrote:
greg24 wrote:Can you let me know the date and time of the market bottom? I'd love to buy at that point. Thanks. :sharebeer
bbrock wrote:You can never predict market bottoms.

I was going to buy into my first ETF, that being VHT. My purchase limit order would have been something in the ~$119.00 range. But, after a delay and getting situated to call in to place the transaction, the price is now $122.51. Well, such is life. Will keep following or see what tomorrow brings.
There are no certainties in investing .. If there were, there wouldn't be a risk premium ... But there are lots of good probabilities and statistics - subjects the average investor is evidently not very good with

A simple moving average can tell you when a market is moving up or down .. You see in the two most recent bear markets, there's one green point which would have had you investing halfway down the Tech crash ... So it's not perfect ... But your odds of generally good timing decisions using simple technical analysis, vs your odds without, are dramatically different (and this can be used for rebalance dates - it doesn't have to be moving in and out of the market)

Image
Always easy in hind sight.

We had a poster who did this for a while and documented the process and results. He gave up because of whiplashes. Of course one can always say he did it wrong. But then that is just to say it is harder going forward than it looks going backwards.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: Why buy now, why not wait until the market really crashes??

Post by dm200 »

riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
If you are smart enough (or know anybody smart enough) to KNOW (with certainty) when the market will really crash (down 20-30%), just let all of us know.
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BuyAndHoldOn
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Re: Why buy now, why not wait until the market really crashes??

Post by BuyAndHoldOn »

Toons wrote:" I see people saying they are buying."

Why?
"Time" ,of which we all only have a limited amount of.
Not Timing :happy
Invest Now ,put the dollars to work.

Exactly. You don't have to use lump-sums to invest; just dollar-cost average. I'm increasing my contributions outside of my tax deferred accounts at the moment but I'm not diving in with every spare penny I can find.

...& I already tried to play the timing game with oil stocks - I'm still waiting :oops: and I expect to be waiting for a while. So I'm just using the total market index funds this time around.
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donaldfair71
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Re: Why buy now, why not wait until the market really crashes??

Post by donaldfair71 »

riptide wrote:
donaldfair71 wrote:
riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
I'm all for waiting to buy at the bottom. Give me the number of the bottom, and I will buy.
Yea man, I am still waiting for a lower bottom, like 20% , then I will look to buy. 20% drop was suggested to me, so I am waiting and looking forward to that (Toons on here has rubbed off on me). So, although, I have no crystal ball, I say wait for 20% or more drop and then buy some stocks.
While that wouldn't be for me, I think there's some merit to that as long as you also set ceilings along the way. In other words, from here, of it goes up, say, 5%, you'll buy as well.

The problem I found with "when it drops 20%, buy" is that it doesn't always drop 20%. So a ceiling of wait may also be beneficial.
selters
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Re: Why buy now, why not wait until the market really crashes??

Post by selters »

Because the market is not falling. It has fallen. And we do not know if it will keep falling. Historical evidence suggests that it is more likely to rise again than to fall further.
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Re: Why buy now, why not wait until the market really crashes??

Post by Tamahome »

What happens when the bottom of that crash is 10% higher than stocks are now?

Dollar Cost Average. When stocks are down a little, I think it is ok to find a little extra to stuff aside, but you really should not have a lot of money sitting around when the little dips happen. (At least according to my philosophy.)
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.
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Re: Why buy now, why not wait until the market really crashes??

Post by DG99999 »

riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
I can see that you are being beat up to some extent in this thread, but frankly I think what you have said makes perfect sense. You have an established allocation - so what you are asking is when is appropriate to rebalance. There are many ways to do so, but if you decide that you will rebalance at a certain decline in a market index that is valid. True you do not know when this will happen, but it is perfectly measureable, so when it does happen, you can reset your allocation accordingly.

If you wish to use this method my suggestion would be to track a granular set of indicies and determine rebalance points for each of these - so that you rebalance your investments as appropriately as possible based on historic behavior. So you might rebalance large caps based on the SP 500; and you might rebalance Developed Markets based on the EAFE, etc, etc. Each would be rebalanced at an established decline and these may vary considerably - some might be set at minus 20%, others might be at a much greater decline. Until you reach a rebalance point, you are simply buying and holding which is fine.

It would be a different matter if you were waiting in cash. (And, yes, those chasing negative 12 percent are probably rebalancing less than optimally based on what I have read and the simulations I have run based on history.)
I am not a financial professional. My posts are only my opinion on the topic. You need to do your own due diligence and consult with a professional when addressing your financial questions.
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TinkerPDX
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Re: Why buy now, why not wait until the market really crashes??

Post by TinkerPDX »

If you know when the bottom is, then you should definitely wait until then. Though if you actually know where the market is going, you should own the whole world pretty soon... Good luck with that! :sharebeer
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Re: Why buy now, why not wait until the market really crashes??

Post by skylar »

I've already done my and my wife's Roth IRA contributions for the year. Do I wish the market were higher now than two weeks ago? Sure, but here's why I feel OK:

1. I invested according to my asset allocation
2. Historically, stocks appreciate over time. Statistically, buying as early as possible has a slight advantage, but most people remember the drops better than the gains.
3. Most important of all: I can ignore the markets for the rest of the year!

If you're feeling nervous, you might consider revisiting your allocation, or maybe using something like a target-date or LifeStrategy fund that doesn't require as much attention.
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Re: Why buy now, why not wait until the market really crashes??

Post by HomerJ »

Maynard F. Speer wrote:A simple moving average can tell you when a market is moving up or down .. You see in the two most recent bear markets, there's one green point which would have had you investing halfway down the Tech crash ... So it's not perfect ... But your odds of generally good timing decisions using simple technical analysis, vs your odds without, are dramatically different (and this can be used for rebalance dates - it doesn't have to be moving in and out of the market)

Image
There's also quite a few false sell signals during bull markets, which has you missing out or losing quite a bit of money in a short amount of time. That graph doesn't it show it well, but each of those false sell signals costs you 8%-12% in 2-3 months, while everyone else is making money.

For instance, in 1998, you sold AFTER the market dropped to 950, then the market rebounded, and you had to buy back at 1100, sustaining a 12% loss.

And in 2010, you bought at 1100, then sold at 1050, then got back in at 1150, locking in a 5% loss, and then missing out on a 4% gain from your original buy point (9% total)

2011 and 2015 show similar numbers.

Yes, it worked fairly well during the last two bear markets, letting you miss significant losses, and letting you buy in much lower. But how much of that is back-testing? Why 10-month? What does 4-month show? Or 16-month?

What if the next crash is different?

How does that simple 10-month system look during the 1966-1982 years, when there was a ton of whipsawing, instead of one big drop immediately followed by one big rise? How did it handle the crash of 1987? Did people following this system sell immediately the month after the crash, locking in 20% losses? And then buy back in a few months later at a much higher point as the market recovered?
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Re: Why buy now, why not wait until the market really crashes??

Post by rbaldini »

Maynard F. Speer wrote:
greg24 wrote:Can you let me know the date and time of the market bottom? I'd love to buy at that point. Thanks. :sharebeer
bbrock wrote:You can never predict market bottoms.

I was going to buy into my first ETF, that being VHT. My purchase limit order would have been something in the ~$119.00 range. But, after a delay and getting situated to call in to place the transaction, the price is now $122.51. Well, such is life. Will keep following or see what tomorrow brings.
There are no certainties in investing .. If there were, there wouldn't be a risk premium ... But there are lots of good probabilities and statistics - subjects the average investor is evidently not very good with

A simple moving average can tell you when a market is moving up or down .. You see in the two most recent bear markets, there's one green point which would have had you investing halfway down the Tech crash ... So it's not perfect ... But your odds of generally good timing decisions using simple technical analysis, vs your odds without, are dramatically different (and this can be used for rebalance dates - it doesn't have to be moving in and out of the market)

Image

I'm assuming this line is the average of the *prior* 10 months, not the 10 months centered on the current date? The latter would of course be incalculable right now and therefore useless in predicting future returns.

Edit: based on the graph it does look like the prior 10 months is being used. I may try looking at whether this model is useful for prediction - like in my post a few days ago.
Last edited by rbaldini on Wed Jan 20, 2016 8:56 pm, edited 1 time in total.
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nedsaid
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Re: Why buy now, why not wait until the market really crashes??

Post by nedsaid »

riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
Just stick with the program, keep investing new monies as normal. I have been advising you to be a bit more conservative with your asset allocation and boom, right on schedule the market has reallocated for you!! ;o)

Should you rebalance back into stocks? The cold, hardheaded, logical view is yes. The emotional part of me says no. Just keep investing on schedule and for now just let things ride.

If you ride through this correction with not much stomach upset, then maintain the asset allocation you had before. If you sweat and squirm and your stomach flips over, let things ride, and when stocks recover to new all-time highs reallocate to a more conservative allocation. That might take a year or two. Your sweaty palms and flipping stomach should be a pretty good indicator of your true risk tolerance.

The trouble is that bull markets make us all heroes and bear markets make us all cowards. Let this correction be a true test of where your asset allocation should be in the future. The fact that you are wondering if this is an opportunity means you are making progress. I can't tell you how many Riptide threads I have read where you want to redo your portfolio every time the market twitches a bit. You went through the August 2015 correction in good shape. Now that we are in the January 2016 correction, you are wondering about opportunities. This is correct thinking and a sign of your maturation as an investor.

But remember markets are risky! I am a 30+ year investor and I still don't like downside market volatility. It is like being on an airplane and experiencing bad turbulence. You just have to fasten your seat belt and ride through it. There really isn't any other option. Jumping out of an airplane at 30,000 feet is certain death. Bailing out of a bad stock market won't kill you but it would badly damage your financial future. Don't be ashamed of being cautious even when things look good.
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Maynard F. Speer
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Re: Why buy now, why not wait until the market really crashes??

Post by Maynard F. Speer »

HomerJ wrote:There's also quite a few false sell signals during bull markets, which has you missing out or losing quite a bit of money in a short amount of time. That graph doesn't it show it well, but each of those false sell signals costs you 8%-12% in 2-3 months, while everyone else is making money.

For instance, in 1998, you sold AFTER the market dropped to 950, then the market rebounded, and you had to buy back at 1100, sustaining a 12% loss.

And in 2010, you bought at 1100, then sold at 1050, then got back in at 1150, locking in a 5% loss, and then missing out on a 4% gain from your original buy point (9% total)

2011 and 2015 show similar numbers.

Yes, it worked fairly well during the last two bear markets, letting you miss significant losses, and letting you buy in much lower. But how much of that is back-testing? Why 10-month? What does 4-month show? Or 16-month?

What if the next crash is different?

How does that simple 10-month system look during the 1966-1982 years, when there was a ton of whipsawing, instead of one big drop immediately followed by one big rise? How did it handle the crash of 1987? Did people following this system sell immediately the month after the crash, locking in 20% losses? And then buy back in a few months later at a much higher point as the market recovered?
Remember we're not talking about moving entirely in and out of the market here ... If you only rebalance on turning points, you improve your odds of advantageous timing above chance (which is the alternative), and certainly above trying to make predictions

Ideally I'm looking to take profits at market peaks, and top up losses on market bottoms (the question posed: when should we start buying again?) ... Typically it works with anything from 3-24 months ...

Image

Philosophical economics with a longer backtest ... But again, this demonstrates the principle - I wouldn't suggest anyone go 100% stocks to cash, or see things like this as anything more than tools to be employed if and when necessary (I think this year is the first in a long time when I might use the trend to at least reduce the odds of buying in a downtrending market)

Image

http://www.philosophicaleconomics.com/2 ... ngaverage/
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HomerJ
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Re: Why buy now, why not wait until the market really crashes??

Post by HomerJ »

Hey, as long as the next crash looks just like 2008-2009, I'll bet that system does great.
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Maynard F. Speer
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Re: Why buy now, why not wait until the market really crashes??

Post by Maynard F. Speer »

HomerJ wrote:Hey, as long as the next crash looks just like 2008-2009, I'll bet that system does great.
Even better in the 30s ... But do you understand I'm only talking about rebalancing? Taking profits when the market's up; topping up when it's down ... Whipsawing in this model is of no real concern - and the alternative is rolling onto your back and leaving it up to chance ... It's as good a market phenomenon as anything we go on - I think you could pick a lot more holes in annual rebalancing or rebalance bands

Image
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rbaldini
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Re: Why buy now, why not wait until the market really crashes??

Post by rbaldini »

Maynard -
Interesting. Will experiment a bit with this (on data, not money!) myself. In principle there's no reason it needs to be 10 months - and I see you have a 12 month moving average on there. Could try lots of windows and see what looks best (being careful to guard against over-fitting, of course).
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Re: Why buy now, why not wait until the market really crashes??

Post by lack_ey »

rbaldini wrote:I'm assuming this line is the average of the *prior* 10 months, not the 10 months centered on the current date? The latter would of course be incalculable right now and therefore useless in predicting future returns.

Edit: based on the graph it does look like the prior 10 months is being used. I may try looking at whether this model is useful for prediction - like in my post a few days ago.
If you didn't catch Maynard's link above, do try it. It's hokey and sounds stupid, but it would have worked historically way more often than it seems like it should. It's not just 2008-2009 or 2000-2002 in stocks, where it makes out like a bandit and is unusually strong, but over plenty of other conditions, despite getting many, many calls wrong and plenty of whipsawing. We're talking multiple asset classes, and not particularly sensitive to the number of months used for the average (10 isn't a particularly special number). Usually 10 months is used just because that worked best for stocks over some period Meb Faber looked at for what's now a frequently cited paper.

This (huge) table gives the result for US stocks using different numbers of months:
http://i1.wp.com/www.philosophicalecono ... oard21.jpg

Buy and hold wins in terms of absolute returns over everything there, but at higher risk—worse after adjusting for risk. But as always, be careful when it comes to assumptions and details regarding transaction costs and the like.

Do you trust all your life savings (or even a significant amount) with any kind of all-or-nothing timing system or even bother at all in accumulation? I wouldn't, but that doesn't mean being 100% skeptical is right either, as some are without looking at any of the data for themselves.
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Re: Why buy now, why not wait until the market really crashes??

Post by rbaldini »

lack_ey wrote:
rbaldini wrote:I'm assuming this line is the average of the *prior* 10 months, not the 10 months centered on the current date? The latter would of course be incalculable right now and therefore useless in predicting future returns.

Edit: based on the graph it does look like the prior 10 months is being used. I may try looking at whether this model is useful for prediction - like in my post a few days ago.
If you didn't catch Maynard's link above, do try it. It's hokey and sounds stupid, but it would have worked historically way more often than it seems like it should. It's not just 2008-2009 or 2000-2002 in stocks, where it makes out like a bandit and is unusually strong, but over plenty of other conditions, despite getting many, many calls wrong and plenty of whipsawing. We're talking multiple asset classes, and not particularly sensitive to the number of months used for the average (10 isn't a particularly special number). Usually 10 months is used just because that worked best for stocks over some period Meb Faber looked at for what's now a frequently cited paper.

This (huge) table gives the result for US stocks using different numbers of months:
http://i1.wp.com/www.philosophicalecono ... oard21.jpg

Buy and hold wins in terms of absolute returns over everything there, but at higher risk—worse after adjusting for risk. But as always, be careful when it comes to assumptions and details regarding transaction costs and the like.

Do you trust all your life savings (or even a significant amount) with any kind of all-or-nothing timing system or even bother at all in accumulation? I wouldn't, but that doesn't mean being 100% skeptical is right either, as some are without looking at any of the data for themselves.
Thanks for the encouragement. I doubt I would put much money on any particular timing strategy in the near future. Perhaps I would only try to time new contributions, but I'm not there yet, intellectually or emotionally. Or financially.
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Maynard F. Speer
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Re: Why buy now, why not wait until the market really crashes??

Post by Maynard F. Speer »

rbaldini wrote:Maynard -
Interesting. Will experiment a bit with this (on data, not money!) myself. In principle there's no reason it needs to be 10 months - and I see you have a 12 month moving average on there. Could try lots of windows and see what looks best (being careful to guard against over-fitting, of course).
If you're interested, Meb Faber runs live updates of major asset classes against their 10 month moving averages
http://mebfaber.com/timing-model/

I wouldn't recommend moving all in or all out on a system like this - unless you section off a portion of a portfolio as something like "Hedging", and just run it on that .. thinking of it more as a way to reduce risk (and diversify) than a guarantee of a higher return

But as a tool to improve timing-related investing decisions, I'm glad to have it ... I've developed my own version, which tries to solve some of the whipsawing issues - and I find blurring a few different trend rules (looking at both current price and a more averaged current price) can improve results
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Re: Why buy now, why not wait until the market really crashes??

Post by red5 »

riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
I have not gone through all the responses so perhaps this has already been stated. I don't understand how people can be fully invested and still have money to invest when the market has down days. If they are buying then one would assume they have cash and if they have cash then they were not previously fully invested.

Okay, so I don't buy when there are down days. What I do is I wait for my rebalancing bands to be out of whack and then I rebalance. In a down market this would mean selling bonds and buying stocks. After balancing my portfolio 3 weeks ago I am already nearing a rebalancing point.

Best of luck.
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Bustoff
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Re: Why buy now, why not wait until the market really crashes??

Post by Bustoff »

Maynard F. Speer wrote: ...A simple moving average can tell you when a market is moving up or down...
Image
Your chart appears to be compelling evidence.

Couple questions please.

1) Is your basic strategy to sell/buy when the stock price hits the 10 month moving average or when the price actually crosses it?

2) To avoid whipsaws, instead of using the daily stock price, why not use its 10 day moving average crossing the 10 mo mvg avg as a buy/sell signal ?

Thanks
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riptide
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Re: Why buy now, why not wait until the market really crashes??

Post by riptide »

nedsaid wrote:
riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
Just stick with the program, keep investing new monies as normal. I have been advising you to be a bit more conservative with your asset allocation and boom, right on schedule the market has reallocated for you!! ;o)

Should you rebalance back into stocks? The cold, hardheaded, logical view is yes. The emotional part of me says no. Just keep investing on schedule and for now just let things ride.

If you ride through this correction with not much stomach upset, then maintain the asset allocation you had before. If you sweat and squirm and your stomach flips over, let things ride, and when stocks recover to new all-time highs reallocate to a more conservative allocation. That might take a year or two. Your sweaty palms and flipping stomach should be a pretty good indicator of your true risk tolerance.

The trouble is that bull markets make us all heroes and bear markets make us all cowards. Let this correction be a true test of where your asset allocation should be in the future. The fact that you are wondering if this is an opportunity means you are making progress. I can't tell you how many Riptide threads I have read where you want to redo your portfolio every time the market twitches a bit. You went through the August 2015 correction in good shape. Now that we are in the January 2016 correction, you are wondering about opportunities. This is correct thinking and a sign of your maturation as an investor.

But remember markets are risky! I am a 30+ year investor and I still don't like downside market volatility. It is like being on an airplane and experiencing bad turbulence. You just have to fasten your seat belt and ride through it. There really isn't any other option. Jumping out of an airplane at 30,000 feet is certain death. Bailing out of a bad stock market won't kill you but it would badly damage your financial future. Don't be ashamed of being cautious even when things look good.
Thanks Ned for the advice. I am surprisingly more concerned with other things in life than the market. My marriage, and relationships, and people have become more important to me recently than material things and money. So, although I have lost a substantial amount in stocks, I don't care, they are unrecognized losses, and I am staying steady. I think I am fine now with my 2/3 stocks, 1/3 fixed portfolio. 67% stocks, 33% fixed, it has now drifted to around 65 - 35 because of the declines. I will just stay with the program and just let things ride. But, still if the drop hits close to 20% then I am buying stocks and looking forward to it! :greedy

Red5, I agree with you as well. I don't understand what money these people are buying stocks with now either. I don't hold any cash. So, I was just asking about when to rebalance because I saw all these people , buying, buying, buying, and said to myself ....It's too early , it's not much of a drop yet! Suprising myself....staying steady
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retiredjg
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Re: Why buy now, why not wait until the market really crashes??

Post by retiredjg »

riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
I think you are overlooking the simplest answer to your question.

In moments of non-stress, you decided your asset allocation should be 66% stock and 33% bonds. This was decided based on your need, ability and willingness to take risk. Yes, I know there was a steep learning curve and it took you awhile to get comfortable and you changed around a bit, but at least theoretically, 66%/33% is the risk level where you decided you should be.

As the market drops your 66/33 will look more like 64/36 and then eventually 60/40, etc. At some point, you will be far enough away from your chosen target that you are actually at a different risk level. Buying stocks before that point keeps you at your target.

You don't buy stocks now or next week to get cheap prices - although that does happen. You buy stocks when the market falls to maintain your chosen risk level.

The point is you don't watch the market and say "I'll buy when the market drops X%". That is pure market timing and probably should be avoided. What you should be doing is saying "I'll rebalance when my portfolio hits xx/xx". That is not market timing. That is managing your portfolio to meet your chosen risk level. See the difference?

If you have not done it already, consider how far your portfolio should change before you want to rebalance it back to where it should be (66/33 if you have actually arrived at the right number for you). A common choice would be 5% above and 5% below target. In other words, when you wander farther out than 61/39, you should rebalance back to or toward 66/33. Or if you wander farther than 71/29 you should rebalance back to or toward 66/33.

I'm not saying that 5% bands above and below target are the right answer for you. They are simply typical numbers. You might decide something entirely different - even 7% down and 3% up (meaning your comfort zone would be between 60% stocks and 70% stocks). The point is to decide on a number and then use it regardless of what the market does.

In a later post, you ask where the money comes from. There are two places the money can come from.
  • -You actually sell some bonds in the portfolio and buy some stocks.

    -You direct more or all of your new contributions to stocks for awhile.
Forget about how much the market drops because that is not relevant. Instead, decide where you want your portfolio to be and buy whatever you need to buy to get it there. Since you are only at 65/35 right now, there is not much need to do anything yet.
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Re: Why buy now, why not wait until the market really crashes??

Post by HomerJ »

Maynard F. Speer wrote:
HomerJ wrote:Hey, as long as the next crash looks just like 2008-2009, I'll bet that system does great.
But do you understand I'm only talking about rebalancing? Taking profits when the market's up; topping up when it's down ...
You can do that easily without any charts at all... If indeed you are using the boglehead definition of rebalancing BACK to your desired AA, not CHANGING your AA based on market conditions (I know that your definitions of terms don't match the ones commonly used here)
the alternative is rolling onto your back and leaving it up to chance
Rolling on your back (i.e. buy and hold), is actually an EXCELLENT strategy. I don't understand why you don't realize that. It's okay if you think you have a better way, but the way you state that above is exactly how every financial planner states it.. "Oh, you don't want to do nothing! You don't want to just sit there!". As if that is a terrible plan.

Doing nothing and just accepting the market return has rewarded people handsomely over the years.

People trying to get MORE than the market return usually fail, and end up trailing. I know, I know, you think you are smarter than the average bear... So does everyone else who tries to beat the stock market. You may indeed be one of the special ones who can consistently beat the market using "systems"... But you haven't been doing it long enough yet to know.

All you have is a bunch of back-tested charts... I guarantee people tried 6-month MA, 10-day MA, 2-year MA, and then finally discovered that 10-month MA had the best results. Is there really some market "law" that they have discovered? Or random chance?

It's not guaranteed to work going forward.
Last edited by HomerJ on Thu Jan 21, 2016 9:18 am, edited 1 time in total.
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Re: Why buy now, why not wait until the market really crashes??

Post by riptide »

retiredjg wrote:
riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
I think you are overlooking the simplest answer to your question.

In moments of non-stress, you decided your asset allocation should be 66% stock and 33% bonds. This was decided based on your need, ability and willingness to take risk. Yes, I know there was a steep learning curve and it took you awhile to get comfortable and you changed around a bit, but at least theoretically, 66%/33% is the risk level where you decided you should be.

As the market drops your 66/33 will look more like 64/36 and then eventually 60/40, etc. At some point, you will be far enough away from your chosen target that you are actually at a different risk level. Buying stocks before that point keeps you at your target.

You don't buy stocks now or next week to get cheap prices - although that does happen. You buy stocks when the market falls to maintain your chosen risk level.

The point is you don't watch the market and say "I'll buy when the market drops X%". That is pure market timing and probably should be avoided. What you should be doing is saying "I'll rebalance when my portfolio hits xx/xx". That is not market timing. That is managing your portfolio to meet your chosen risk level. See the difference?

If you have not done it already, consider how far your portfolio should change before you want to rebalance it back to where it should be (66/33 if you have actually arrived at the right number for you). A common choice would be 5% above and 5% below target. In other words, when you wander farther out than 61/39, you should rebalance back to or toward 66/33. Or if you wander farther than 71/29 you should rebalance back to or toward 66/33.

I'm not saying that 5% bands above and below target are the right answer for you. They are simply typical numbers. You might decide something entirely different - even 7% down and 3% up (meaning your comfort zone would be between 60% stocks and 70% stocks). The point is to decide on a number and then use it regardless of what the market does.

In a later post, you ask where the money comes from. There are two places the money can come from.
  • -You actually sell some bonds in the portfolio and buy some stocks.

    -You direct more or all of your new contributions to stocks for awhile.
Forget about how much the market drops because that is not relevant. Instead, decide where you want your portfolio to be and buy whatever you need to buy to get it there. Since you are only at 65/35 right now, there is not much need to do anything yet.

Thank you very much, this has answered my question dead on. I will simply wait for my portfolio to get 5% or so out of balance and then exchange funds to get back to my current allocation I am comfortable with, 67/33. like you said I am just 2-3% off now, so I will just relax. I will forget about that 20% market drop idea. Thank you!
I was thrown off here because many were talking about buying stocks and saying nothing about rebalancing, so thanks again.
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Re: Why buy now, why not wait until the market really crashes??

Post by cheese_breath »

riptide wrote:...I was thrown off here because many were talking about buying stocks and saying nothing about rebalancing, so thanks again.
Yes, seems like a lot of that goes on around here at times like this. But if you have a good plan stick with it and don't let the forum noise distract you. I'm sometimes tempted by this noise myself. To help me avoid doing something rash I have my VG accounts linked to my CU, but my extra cash is in Ally. The 2-3 days it takes to transfer the money from Ally to the CU gives me some time to contemplate whether what I'm thinking of doing is a good idea or not.
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Re: Why buy now, why not wait until the market really crashes??

Post by HomerJ »

Bustoff wrote:To avoid whipsaws, instead of using the daily stock price, why not use its 10 day moving average crossing the 10 mo mvg avg as a buy/sell signal ?
Yes, let's just keep adding more rules to the system until it works perfectly with past data...

Then it's guaranteed to work going forward!
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Re: Why buy now, why not wait until the market really crashes??

Post by retiredjg »

riptide wrote:I was thrown off here because many were talking about buying stocks and saying nothing about rebalancing, so thanks again.
For people with prior experience, most really are talking about rebalancing, even if the words are just "buy, buy, buy". Back in 2007 and thereabouts, it was confusing to me too until I realized that "buy stocks" was really just a way to "rebalance". :happy
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Re: Why buy now, why not wait until the market really crashes??

Post by dc81584 »

I haven't bought the correction yet, but it's not because I don't think it's hit bottom. It's merely because I still feel that stocks are overvalued. I would like to see the S&P lose another 10% before I invest more money than I already am. Somewhere in the neighborhood of 1,700 would work for me. Otherwise, I'll just continue with my plan as is.
Last edited by dc81584 on Thu Jan 21, 2016 9:42 am, edited 3 times in total.
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riptide
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Re: Why buy now, why not wait until the market really crashes??

Post by riptide »

cheese_breath wrote:
riptide wrote:...I was thrown off here because many were talking about buying stocks and saying nothing about rebalancing, so thanks again.
Yes, seems like a lot of that goes on around here at times like this. But if you have a good plan stick with it and don't let the forum noise distract you. I'm sometimes tempted by this noise myself. To help me avoid doing something rash I have my VG accounts linked to my CU, but my extra cash is in Ally. The 2-3 days it takes to transfer the money from Ally to the CU gives me some time to contemplate whether what I'm thinking of doing is a good idea or not.
Thanks man, I didn't know I had to avoid the noise on here as well as CNBC, and the NEWS....I have a good plan, and was tempted by the noise...
thank you RetiredJG, I didn't know buying meant rebalancing...
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