I don’t see the sense in going back into the stock market now. See calculations below. I am in all cash right now. I would love your opinion on my logic.

**Assumption #1:**

After the next recession (whenever that is), I think it’s fair to say stocks will take some time to return to their current value (based on historical data). For the sake of argument, let’s assume this happens Y years from today, but the # years does not matter at all in this calculation. This is an important assumption to talk about later, but hear me out…

At the Y-year mark, let’s compare 2 strategies: getting back in now and waiting until the market drops to get back in. And compare the returns:

**Side note:**

I am 27 and have about $50k to invest (in my 401k) – it’s currently all cash (because I switched from employer fund options to brokeragelink in my fidelity 401k in 2014, which forced me to sell all my stocks).

**------- STRATEGY A: BUY STOCKS NOW------**

Appreciation:

None (our assumption states that in Y years, market value will equal current value)

Dividends:

My portfolio (index funds) would give an average 1.5% dividend yield

--> 1.015^x, where x is number of years, tells you the new value due to return from dividends

**-----------STRATEGY B: WAIT FOR 15% DROP--------**

Appreciation:

> Buy when market is 15% below its current price

> When the market returns to its current price I will have made a 15% return (Portfolio appreciates by a factor of 1.15)

Dividends:

I will ignore the dividend gains from this because I don’t know how long it will take to appreciate 15%.

**--------BREAK-EVEN CALCULATION:-----------**

(Strategy A return) = (Strategy B return)

1.015^x = 1.15

> solve for x -- > X = 9.5 YEARS

**---------CONCLUSION---------**

It would only make sense to go back into the market now if it will took 9.5 years to drop 15%. For this to happen, the market would continue growing and peak in 8 or so years (according to historical data). We've already had 8 years...that would be a 8+8 = 16 year bull market -- possible but highly unlikely!)

Note that Strategy B is NOT emotional – it means putting in a limit order when the market is at 15% below its current value.

As I said earlier, I’m assuming the market returns to its current value someday (Assumption #1). This is definitely the weakest point of my logic. Let’s talk about that in the comments!