Case for Investing at Peaks

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csm14
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Case for Investing at Peaks

Post by csm14 » Tue Aug 22, 2017 7:29 pm

Hello,

I know that the mantra here is to invest when you have $ and not try to time the market, but I'm finding it hard to invest in the current market (especially in the U.S. market) because it's so fully valued.

I remember seeing a graph on the forum but can't quite find it-it shows what your return would be if you invested only at the peak of bull markets over the last century.

What do you do to convince yourself to invest even if the market is frothy?

Thanks!

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arcticpineapplecorp.
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Re: Case for Investing at Peaks

Post by arcticpineapplecorp. » Tue Aug 22, 2017 7:36 pm

Why not buy something cheaper then, like emerging market stocks or international developed (EAFE or total international stock market index fund)?

I don't have historical over the last century but there's an article that shows what would have happened if you only bought the S&P500 index at market peaks starting in 1970 that's titled, "What If You Only Invested At Market Peaks?" by Ben Carlson.

The answer is everything went fine, but for two reasons:
1. the market kept eventually recovered from every downturn only to go higher than the previous market peak
2. Bob (our world's worst market timer) never sold.

http://awealthofcommonsense.com/2014/02 ... ket-timer/

Enjoy the article!
"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

Dead Man Walking
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Re: Case for Investing at Peaks

Post by Dead Man Walking » Tue Aug 22, 2017 7:53 pm

Wonder how much better Bob would have done if he employed a simple DCA strategy?

DMW

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k66
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Re: Case for Investing at Peaks

Post by k66 » Tue Aug 22, 2017 8:00 pm

csm14 wrote:
Tue Aug 22, 2017 7:29 pm
...
What do you do to convince yourself to invest even if the market is frothy?
I know that if I only invest at the "worst" times (as you were alluding to by your reference to the "worlds worst market timer") and can still do OK, then by investing (more or less continuously) between all the potential "worst" points (which I can't actually identify until after they have occurred) I can only do better.

WWMT
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The Wizard
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Re: Case for Investing at Peaks

Post by The Wizard » Tue Aug 22, 2017 8:12 pm

Putting all of your next $1000 in US stocks isn't a good idea.
Check your all season AA first

Maybe 20% in US TSM, 20% in international TSM and 60% in bonds brings you closer to target?
Attempted new signature...

doingwell
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Re: Case for Investing at Peaks

Post by doingwell » Tue Aug 22, 2017 8:32 pm

Dead Man Walking wrote:
Tue Aug 22, 2017 7:53 pm
Wonder how much better Bob would have done if he employed a simple DCA strategy?
The article tells us. “And if he would have simply dollar cost averaged into the market on an annual basis with his savings he would have ended up with much more money in the end (over $2.3 million).” Much better than his $1.1 million.

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arcticpineapplecorp.
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Re: Case for Investing at Peaks

Post by arcticpineapplecorp. » Tue Aug 22, 2017 8:43 pm

csm14 wrote:
Tue Aug 22, 2017 7:29 pm
What do you do to convince yourself to invest even if the market is frothy?
What do I do? I realize that the market is likely to be even higher than it is now when I need to start selling my shares (I'm no where near retirement), so the market being high is relative, isn't it? It's high compared to the past. But probably not high compared to the future.

As Bogle says, "Invest we must." What alternative do you have? If you don't invest it you'll either spend it or save it ("save" as in savings account). If it's spent, it's gone. If it's saved in the bank it's likely losing purhasing power to inflation.
"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

mega317
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Re: Case for Investing at Peaks

Post by mega317 » Tue Aug 22, 2017 10:56 pm

csm14 wrote:
Tue Aug 22, 2017 7:29 pm
What do you do to convince yourself to invest even if the market is frothy?
The market hasn't crashed yet, so people smarter than me are still buying. Why would I know any better?

Look at the chart for the S&P 500. Some time in early 2013 it hit an all-time high, higher than the peaks of 2000 and 2007. Anyone who decided a crash was near (and there are many posts here from people who did that and regret it) have missed out on something like 60% gains.

Nate79
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Re: Case for Investing at Peaks

Post by Nate79 » Tue Aug 22, 2017 11:15 pm

Market timing doesn't work. If an idea so simple like this actually worked every active fund would implement it as an easy way to beat the market.

smesman
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Re: Case for Investing at Peaks

Post by smesman » Wed Aug 23, 2017 12:40 am

I think the boglehead assumption is that regardless of high the market is now, at some point in the future (hopefully within their lifetime) it will be even higher.

The market may have a steep decline and then go back up to that higher point (which would make waiting better), or it may have a slow steady growth. Theoretically the market may even go a lot higher and then perhaps back down again to that point.

Which of these options may happen we do not know. But we do know that waiting for the market to decline is the riskiest option, since it may mean that we will never invest at all if no large correction happens.

Investing right now is the safest option.

limeyx
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Re: Case for Investing at Peaks

Post by limeyx » Wed Aug 23, 2017 1:24 am

I'm really hoping "Invest when you have the money" (and stay invested) works because I just deployed a bunch from some alternate investments into mutual funds and I'm rather hoping to do all right with it

msk
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Re: Case for Investing at Peaks

Post by msk » Wed Aug 23, 2017 1:53 am

To state the obvious, 50% of the market thinks tomorrow will look better, the other 50% worse. When I am in the latter 50% (of course my views vary day by day!) I can sell Covered Calls. E.g the SP500 was at around 2480. Assuming that I judge it very unlikely for that to reach above 2600 within a year, and if it does, I'll be satisfied with the gain, ready to forego any excess gain, I could Sell 1-year Covered Calls on SPY at a Strike Price of 260. I collect 8.3% as cash on my SPY holdings, wait a year and collect the usual dividends and smile. E.g if I owned a million $ of SPY selling those Calls brings me $83,000 cash, +$4600 in dividends and a price appreciation of $48,000. Total of circa $135,000 if SPY keeps on rising beyond 260 (SP500 beyond 2600). I might feel that $135k is satisfying, even if my judgement has been overly pessimistic. On the other hand, if SPY drops, as I anticipated, then I would still have the cushion of $83k+$4.6k to soften my hurt :mrgreen: If you want to time the market, it's better to learn about the tools available... The stock market has numerous tools for gambling...

GoldenFinch
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Re: Case for Investing at Peaks

Post by GoldenFinch » Wed Aug 23, 2017 2:33 am

Look at past peaks and you will see that they were all buying opportunities. I always look at the long term chart of the S&P. The long term trend is up. Also, if you own bonds, you can rebalance in and out of equities if things get out of whack. I have no problem putting money in the market now. If I needed to put in a large amount, say 100K, I would put it in at a 70/30 equity/bond split and rebalance if there was a huge swing. If you become too myopic about investing you risk paralysis and that will get you nowhere.

Read the Wiki, write out a plan and implement it. Set investments on automatic and focus on something else.

selters
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Re: Case for Investing at Peaks

Post by selters » Wed Aug 23, 2017 3:38 am

Also, check out this graphic Schwab: Is There Ever a Bad Time to Invest?

sambb
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Re: Case for Investing at Peaks

Post by sambb » Wed Aug 23, 2017 5:38 am

did investing at the peaks also work historically in the japanese market

z3r0c00l
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Re: Case for Investing at Peaks

Post by z3r0c00l » Wed Aug 23, 2017 6:26 am

sambb wrote:
Wed Aug 23, 2017 5:38 am
did investing at the peaks also work historically in the japanese market
Not yet, but only if one only invested in Japan. That would be foolish for any country, even the US I think, but certainly for a smaller economy housed entirely on a modest set of islands. If one invested in the market based on market weight, stocks from 1989 December did well to date.

sambb
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Re: Case for Investing at Peaks

Post by sambb » Wed Aug 23, 2017 7:15 am

It could happen in any country.
Past performance does not guarantee future results.
Investing at the peaks in the US might have worked in the past, but there is absolutely no way to predict that it can work again.

Im staying invested, but I dont believe that investing at the peaks always yields good results.

rkhusky
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Re: Case for Investing at Peaks

Post by rkhusky » Wed Aug 23, 2017 7:44 am

The way I think about it is to project where I think the market might be when I need to withdraw the funds. If that is 30 years from now, when I might expect the market to be up 300% with modest returns, what do the little 10% wiggles matter, much less the tiny 1% blips.

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Earl Lemongrab
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Re: Case for Investing at Peaks

Post by Earl Lemongrab » Thu Aug 24, 2017 10:20 am

Two points to consider:

1. There have been many times in the past that an all-time high has never been reached again. That is, the market might increase from here to the point where a future crash won't bring values back to this point. This is particularly true on a total return basis.

2. Other than tax considerations, there's no difference between buying and holding. So if you truly believe this a bad time to invest in the US market, then you should sell any US stock fund that won't generate capital gains.

I have a slice and dice portfolio. I use 5-25 ranges to rebalance. So new contributions are always going to the allocation that has done the worst recently.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

phisher4
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Re: Case for Investing at Peaks

Post by phisher4 » Thu Aug 24, 2017 10:41 am

One of the problems with bogleheadism is that we accept that markets are cyclical, yet we also accept the paradoxical belief that the market will always rise in the long run.

While long-term investing been profitable for the past 50+ years -- which may constitute a megatrend -- there is also a possibility that the opposite megatrend (i.e. that markets will decline for 50+ years) will occur.

No one has thoroughly explained this paradoxical thinking in a satisfying way to me. One could postulate that rising population, growth in GDP, and improvements in efficiency and technology drive the upward megatrend. But at some point (say, 10 years in the future), will a malaise set in? Will limits be reached? Could the megatrend reverse itself?
Last edited by phisher4 on Thu Aug 24, 2017 10:51 am, edited 1 time in total.

avalpert
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Re: Case for Investing at Peaks

Post by avalpert » Thu Aug 24, 2017 10:48 am

csm14 wrote:
Tue Aug 22, 2017 7:29 pm
Hello,

I know that the mantra here is to invest when you have $ and not try to time the market, but I'm finding it hard to invest in the current market (especially in the U.S. market) because it's so fully valued.

I remember seeing a graph on the forum but can't quite find it-it shows what your return would be if you invested only at the peak of bull markets over the last century.

What do you do to convince yourself to invest even if the market is frothy?

Thanks!
The peak is only knowable in retrospect - at what point in the past few years would you have said it wasn't 'fully valued' (whatever that means)? People have been calling the market top since March 2009, and have been wrong consistently - at what point in that period did the market appear less 'frothy' (again, whatever that means) to you? and why?

People who stopped investing every time the market hit a new record or every time a peak was called have under-performed tremendously.

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SimpleGift
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Re: Case for Investing at Peaks

Post by SimpleGift » Thu Aug 24, 2017 10:50 am

phisher4 wrote:
Thu Aug 24, 2017 10:41 am
One of the problems with bogleheadism is that we accept that markets are cyclical, yet we also have the paradoxical belief that the market will always rise in the long run.

While long-term investing has ostensibly led to profit for the past 50+ years -- which may constitute a megatrend -- there is also a possibility that the opposite megatrend (i.e. markets will decline for 50+ years) will occur.

No one has thoroughly explained this paradoxical in a satisfying way to me. One could say that rising population, growth in GDP, and improvements in efficiency and technology drives the upward megatrend. But at some point (say, 10 years in the future), will a malaise set in? Will limits be reached? Could the megatrend reverse itself?
In order to invest in equities for the long haul, one has to have an underlying faith in the robustness, creativity and adaptability of global capitalism to succeed in the world to come. It’s this basic confidence in corporate dynamism and the profitability of the capitalist system worldwide that allows one to invest in stocks for the long run — despite the obvious risks.
Cordially, Todd

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Earl Lemongrab
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Re: Case for Investing at Peaks

Post by Earl Lemongrab » Thu Aug 24, 2017 10:57 am

phisher4 wrote:
Thu Aug 24, 2017 10:41 am
One of the problems with bogleheadism is that we accept that markets are cyclical, yet we also accept the paradoxical belief that the market will always rise in the long run.
If you don't think that will continue, then you shouldn't invest at all.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

phisher4
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Re: Case for Investing at Peaks

Post by phisher4 » Thu Aug 24, 2017 10:59 am

Simplegift wrote:
Thu Aug 24, 2017 10:50 am
phisher4 wrote:
Thu Aug 24, 2017 10:41 am
One of the problems with bogleheadism is that we accept that markets are cyclical, yet we also have the paradoxical belief that the market will always rise in the long run.

While long-term investing has ostensibly led to profit for the past 50+ years -- which may constitute a megatrend -- there is also a possibility that the opposite megatrend (i.e. markets will decline for 50+ years) will occur.

No one has thoroughly explained this paradoxical in a satisfying way to me. One could say that rising population, growth in GDP, and improvements in efficiency and technology drives the upward megatrend. But at some point (say, 10 years in the future), will a malaise set in? Will limits be reached? Could the megatrend reverse itself?
In order to invest in equities for the long haul, one has to have an inherent faith in the robustness, creativity and adaptability of global capitalism to succeed in the world to come. It’s this basic confidence in corporate dynamism and the capitalist system worldwide that allows one to invest in stocks for the long run — despite the obvious risks.
I agree. Nonetheless, it's difficult to place faith in "corporate dynamism" and the current "[pseudo]capitalist system," when both are relatively new concepts in the history of humankind.

This is where bogleheadism drifts into religion. You just need faith. :)

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SimpleGift
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Re: Case for Investing at Peaks

Post by SimpleGift » Thu Aug 24, 2017 11:31 am

phisher4 wrote:
Thu Aug 24, 2017 10:59 am
This is where bogleheadism drifts into religion. You just need faith. :)
Yes, but not blind faith. The capitalist system has survived and flourished for several centuries through global depressions, a few world wars and innumerable financial crises (chart below). The challenges of the future will likely be different — global pandemics, environmental breakdowns, etc. — but corporate dynamism and profitability does have a track record of success.
The alternative is to lay in bed at night worrying about your investments — but that's no way to live. :wink:
Cordially, Todd

Tigermoose
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Re: Case for Investing at Peaks

Post by Tigermoose » Thu Aug 24, 2017 11:48 am

Simplegift wrote:
Thu Aug 24, 2017 11:31 am
phisher4 wrote:
Thu Aug 24, 2017 10:59 am
This is where bogleheadism drifts into religion. You just need faith. :)
Yes, but not blind faith. The capitalist system has survived and flourished for several centuries through global depressions, a few world wars and innumerable financial crises (chart below). The challenges of the future will likely be different — global pandemics, environmental breakdowns, etc. — but corporate dynamism and profitability does have a track record of success.
The alternative is to lay in bed at night worrying about your investments — but that's no way to live. :wink:
I also think our monetary system has a lot to do with the ever increasing price of assets. Even if productivity slows down, governments around the world will create additional money to keep the system from depressing, and thus asset prices should continue to rise. So if you are not invested, you will be eaten alive by inflation.
Institutions matter

evancox10
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Re: Case for Investing at Peaks

Post by evancox10 » Thu Aug 24, 2017 12:14 pm

Simplegift wrote:
Thu Aug 24, 2017 11:31 am
phisher4 wrote:
Thu Aug 24, 2017 10:59 am
This is where bogleheadism drifts into religion. You just need faith. :)
Yes, but not blind faith. The capitalist system has survived and flourished for several centuries through global depressions, a few world wars and innumerable financial crises (chart below). The challenges of the future will likely be different — global pandemics, environmental breakdowns, etc. — but corporate dynamism and profitability does have a track record of success.
The alternative is to lay in bed at night worrying about your investments — but that's no way to live. :wink:

What's astounding to me about that chart is how poor of an investment it makes bonds look. They appear to have dropped as much as, if not more than, equities during the Great Depression, and had zero real return from 1900 to the mid 1980's!

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David Jay
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Re: Case for Investing at Peaks

Post by David Jay » Thu Aug 24, 2017 12:30 pm

evancox10 wrote:
Thu Aug 24, 2017 12:14 pm
What's astounding to me about that chart is how poor of an investment it makes bonds look. They appear to have dropped as much as, if not more than, equities during the Great Depression, and had zero real return from 1900 to the mid 1980's!
Yup. Bonds are for security, equities are for growth.

I have all of the funds for living expenses between retirement and age 70 (when I intend to start SS) in bonds. I have the vast majority of my legacy (estate) portfolio in equities.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Case for Investing at Peaks

Post by AlohaJoe » Fri Aug 25, 2017 5:07 am

Simplegift wrote:
Thu Aug 24, 2017 11:31 am
phisher4 wrote:
Thu Aug 24, 2017 10:59 am
This is where bogleheadism drifts into religion. You just need faith. :)
Yes, but not blind faith. The capitalist system has survived and flourished for several centuries through global depressions, a few world wars and innumerable financial crises (chart below).
Your chart just shows from 1900 onwards. To really bolster your point you should take the chart from "Four centuries of return predictability" by Golez and Koudijs 8-)

Four hundred years of data is definitely not blind faith.

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Re: Case for Investing at Peaks

Post by jbolden1517 » Fri Aug 25, 2017 6:08 am

csm14 wrote:
Tue Aug 22, 2017 7:29 pm
I know that the mantra here is to invest when you have $ and not try to time the market, but I'm finding it hard to invest in the current market (especially in the U.S. market) because it's so fully valued.
There are parts of the USA market that aren't that fully valued. There are sectors that are running below par and industries that have been hit pretty hard. And of course there are plenty of foreign markets that aren't doing so well. There are alternative strategies you can put some money in. We live in a low interest rate economy and have for a long time. Low interest rates do and should cause asset appreciation. Stocks get a premium over bonds, stocks don't get a premium over historic bonds.

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