Schwab: Is There Ever a Bad Time to Invest?

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AustinAttorney
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Schwab: Is There Ever a Bad Time to Invest?

Post by AustinAttorney » Fri Mar 17, 2017 7:48 pm

Food for thought: shows the downside of pulling out of equities and piling into cash during a perceived market high.

http://www.schwab.com/insights/stocks/i ... -to-invest

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willthrill81
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by willthrill81 » Fri Mar 17, 2017 7:59 pm

That article makes a good argument that "buy and hold" works well regardless as to when you buy as long as you hold long enough. Intuitively, I think that virtually all Bogleheads know this, but illustrations with real data are always useful.

That being said, I don't think that this article is going to change the minds of would-be market timers. All they see are the 50% declines and think that it must be fairly easy to avoid those, at least the brunt of them. I admit that I once held this view myself, but the data have convinced me otherwise. The well-known problem with that strategy is that you must be 'right' twice, when to sell and when to buy back in. To the credit of those attempting this, you wouldn't have to time it perfectly to wind up better off, but your timing would have to be good enough to overcome the market's tendency to go up over time. Ceteris parabis, every day you're out of the market is a day you're missing out on 'expected' gains.

And that leads to another point I've been thinking about lately. People here and elsewhere say that when the stock market is close to or at its all time high that that makes them nervous. But when you look at the data, you'll find that those are the times when you make some of your biggest long-term gains. Maybe some of these people are trying to only buy in when the market is headed downward and only sell when it's headed upward, but I haven't seen anyone be successful with that over any reasonably lengthy period of time.

Markets hit new highs because that's what the market does over the long-term. It's certainly not a good sell signal.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Ricola
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by Ricola » Fri Mar 17, 2017 8:23 pm

Yes, but is this just selective data. Could some find other time frames and prove just the opposite?

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willthrill81
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by willthrill81 » Fri Mar 17, 2017 8:32 pm

Ricola wrote:Yes, but is this just selective data. Could some find other time frames and prove just the opposite?


The only way that could happen is if the holding period was short enough. With a long enough holding period (historically 20 years or more), you would never have lost with equities in real dollars. From a nominal perspective, you would never have had to wait 20 years.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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peterinjapan
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by peterinjapan » Sat Mar 18, 2017 2:55 am

Equities overall, e.g. index funds as Bogleheads do. If you hold individual stocks, you need to smart about what you've got and wha to do with it.

(Try as I might, I just can't become a pure Boglehead, and still owns individual stocks, things I am emotionally attached to or have capital beings attached that I don't want to take yet.)

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willthrill81
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by willthrill81 » Sat Mar 18, 2017 10:41 am

peterinjapan wrote:(Try as I might, I just can't become a pure Boglehead, and still owns individual stocks, things I am emotionally attached to or have capital beings attached that I don't want to take yet.)


I'm probably not a 'pure' BH myself either, though I'm over 90% there. But the more I've looked at all of the data, the more I'm convinced that individual stocks simply aren't a good idea unless you're planned to own a lot of them (at least 50 IMHO) to reduce the risk associated with individual ownership, but once you own such a number of stocks, the likelihood of you beating the index (why else would you buy individual stocks) drops off quickly.

And while nearly all of us do it to some extent, emotions really have no place in investing. You don't want to be Dr. Spock; you want to be Commander Spock.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by freyj6 » Sat Mar 18, 2017 11:43 am

Investing will always look good when you end the period well into a bull market.

While I generally agree with the sentiment (over the long haul, the market eventually goes up) there are plenty of bad times to invest.

If you had invested at market top in Japan in the late 80s, you'd have quickly lost most of your money and taken many years to get it back. Or if you invested at the top of the US market at the end of the 20th century, you probably wouldn't be to happy about investing in early 2009.

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willthrill81
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by willthrill81 » Sat Mar 18, 2017 6:41 pm

freyj6 wrote:While I generally agree with the sentiment (over the long haul, the market eventually goes up) there are plenty of bad times to invest.


If you hold the equities long enough, the "bad time to invest" is largely overwhelmed by the long-term gains that the market has always produced.

And if you can consistently identify the "bad times to invest" before the market drops, please let me know how you do it. I'll buy you a beer. :beer
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

bob_m10
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by bob_m10 » Sat Mar 18, 2017 8:30 pm

freyj6 wrote:Or if you invested at the top of the US market at the end of the 20th century, you probably wouldn't be to happy about investing in early 2009.

I was just seeing this today. I was on VG's site and comparing the Wellesley fund to other funds like the index 500. If the time period is set for 10 years, that puts the initial $10K investment for comparison just before the drop in 2008. In this case it take the Index 500 funds a full 10 years to catch up with Wellesley. Set the time period to 5 years the chart looks much different.

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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by freyj6 » Sun Mar 19, 2017 2:46 pm

willthrill81 wrote:
freyj6 wrote:While I generally agree with the sentiment (over the long haul, the market eventually goes up) there are plenty of bad times to invest.


If you hold the equities long enough, the "bad time to invest" is largely overwhelmed by the long-term gains that the market has always produced.

And if you can consistently identify the "bad times to invest" before the market drops, please let me know how you do it. I'll buy you a beer. :beer


True, but I would certainly consider having to wait 20 years to surpass the risk-free rate a bad time to invest.

And no, obviously there's no way to time it. But I certainly wouldn't be throwing all my money into stocks at a P/E of 40+.

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willthrill81
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by willthrill81 » Sun Mar 19, 2017 3:00 pm

freyj6 wrote:
willthrill81 wrote:
freyj6 wrote:While I generally agree with the sentiment (over the long haul, the market eventually goes up) there are plenty of bad times to invest.


If you hold the equities long enough, the "bad time to invest" is largely overwhelmed by the long-term gains that the market has always produced.

And if you can consistently identify the "bad times to invest" before the market drops, please let me know how you do it. I'll buy you a beer. :beer


True, but I would certainly consider having to wait 20 years to surpass the risk-free rate a bad time to invest.


So what holding period would you say relates to a good time to invest?

freyj6 wrote:And no, obviously there's no way to time it. But I certainly wouldn't be throwing all my money into stocks at a P/E of 40+.


I understand your sentiment, but we're a ways off from a CAPE of 40. Also, keep in mind that with only a very brief exception in 2008-2009, the CAPE has been above it's historical average since 1992. If you were waiting for it to get back to that historical average, you could be waiting for a long time, and you would have missed out on compounded annual returns of 6.9% for the U.S. market (minus fees) from 1992 until now in the meantime.

Larry Swedroe recently had an article discussing why CAPE should be higher going forward than its historical average.

All in all, if you're dollar cost averaging into the market like nearly all of us in the accumulation phase are, the 'bad' times to invest are, historically at least, dwarfed by the 'good' times to invest.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

freyj6
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by freyj6 » Sun Mar 19, 2017 3:10 pm

willthrill81 wrote:
So what holding period would you say relates to a good time to invest?


Depends on your goals. If I thought I was likely to lose money over the next 19 years, my stock allocation would be lower than it is.

I understand your sentiment, but we're a ways off from a CAPE of 40. Also, keep in mind that with only a very brief exception in 2008-2009, the CAPE has been above it's historical average since 1992. If you were waiting for it to get back to that historical average, you could be waiting for a long time, and you would have missed out on compounded annual returns of 6.9% for the U.S. market (minus fees) in the meantime.

Larry Swedroe recently had an article discussing why CAPE should be higher going forward than its historical average.


CAPE being above historical average is quite different from sky-high valuations (not saying we have them now).

I agree there's good reason why CAPE should be higher right now.

Is now a bad time to invest? Who knows? I certainly wouldn't be confident enough to take my money out of the market. But I also wouldn't be comfortable with a high equity allocation if P/Es climb into the 40s.

JFP_SF
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by JFP_SF » Sun Mar 19, 2017 4:02 pm

There's really two contrasting issues you have to balance

1) In the long run, stocks win.
2) In the long run, we are all dead.

So, if I'm in my twenties and thirties, even early forties, I'd say there's no bad time to invest in stocks.
If I'm retired, or about to retire, I'd be more concerned with portfolio preservation

It's the times in-between that give investors ulcers.

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Toons
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by Toons » Sun Mar 19, 2017 4:03 pm

Never a bad time to invest.
It is about the economy.
It never stops running ,,
neither does compounding. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by JFP_SF » Sun Mar 19, 2017 4:21 pm

Toons wrote:Never a bad time to invest.
It is about the economy.
It never stops running ,,
neither does compounding. :happy
Actually, the economy stops running all the time
It's not running in Venezuela now
It didn't run in Russia during the Bolshevik revolution
It really didn't run in Carthage after the Romans were finished with them
:happy

deltaneutral83
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by deltaneutral83 » Sun Mar 19, 2017 6:24 pm

That 1992 figure above is a real return, not nominal

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willthrill81
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by willthrill81 » Sun Mar 19, 2017 6:26 pm

deltaneutral83 wrote:That 1992 figure above is a real return, not nominal
Yes, I'm not interested in nominal returns. :wink:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

deltaneutral83
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by deltaneutral83 » Sun Mar 19, 2017 7:25 pm

I'm familiar with the time frame but I just wanted to point it out for those who assume nominal absent any mention otherwise.

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arcticpineapplecorp.
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by arcticpineapplecorp. » Sun Mar 19, 2017 8:56 pm

in a similar vein (for those not farmiliar with this one) meet Bob, the world's worst market timer. He only invested at market peaks. "Oh, no!" you say? Well, it didn't turn out so bad...because Bob didn't sell the entire time but remained invested. See the link below:

http://awealthofcommonsense.com/2014/02 ... ket-timer/
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

iamlucky13
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by iamlucky13 » Mon Mar 20, 2017 3:48 am

I'm sure this has been shared around Bogleheads a couple times already, but for those who haven't seen it, here's a more entertaining variation on the same theme.

Meet Bob, the World's Worst Market Timer

Bob's saving grace is that every time he messed up, he was so afraid of being wrong twice that he refused to sell.

It would also be interesting to see how Bob would have compared to his twin brother who invested monthly or annually. Perhaps Bob also has a cousin who copied everything Bob did, but with a mix of stocks and bonds?

Even crazier, what about Bob's arch nemesis from school, who is the world's best market timer? Does holding all your cash away from the market gains and dividends until there is a major crash help or hurt you? Does he beat Bob (I'm guessing yes)? Does he beat Bob's twin brother (I'm genuinely curious)?


Edit - sorry arcticpineapplecorp, I somehow missed noticing you already posted the same link. I'm keeping mine up for the sake of the related hypotheticals.

acanthurus
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by acanthurus » Mon Mar 20, 2017 1:14 pm

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Last edited by acanthurus on Tue Oct 31, 2017 4:22 pm, edited 1 time in total.

iamlucky13
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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by iamlucky13 » Tue Mar 21, 2017 2:44 pm

Takashi-san has definitely had it rough, especially if he just stuck with a Nikkei-225 fund. Bob apparently got by ok without international diversification, but I'm sure Takashi-san would warn him about the potential downsides of doing so.

Do Japanese investors actually invest that way though? The ~35% of the global market cap represented by the S&P 500, especially considering how many of its constituents generate revenue globally, seems like it should provide more diversification benefit than the ~8% of the global market cap represented by the Nikkei 225.

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Re: Schwab: Is There Ever a Bad Time to Invest?

Post by acanthurus » Tue Mar 21, 2017 5:00 pm

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