Hypothetical Question - Market Timing

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DeadPoets
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Hypothetical Question - Market Timing

Post by DeadPoets » Wed Sep 12, 2018 1:00 am

This is strictly a hypothetical situation for educational purposes only. I know that market timing is not a great strategy.
Here's the 2 different scenarios...


Market today - S&P 500 @ 3,000

1) If I invest 10,000 today in a S&P 500 index fund, and the market drops by 50% over the next 6 months, the value of my investment would then be ~5,000.

2) If I had waited with my 10,000 and timed the market perfectly (just hypothetical), and got in at the bottom of the crash, would the value of this investment be worth more than scenario #1 once the market rallied back to it's pre-crash price of 3,000?


The value of my investment in situation #1 only rallied back to it's original value of ~10,000, right?
And the value of investment #2 has doubled to ~20,000 since I bought in at the bottom, right?


I ask because I'm sitting on 15,000 right now trying to decide what to do. I plan on investing 90/10 and not touching it for about 25-30 years.
If my target date is that far out does it really matter if I got in today (right before a crash) or got in 1-2 years down the road near the bottom?

FWIW, I do think the market is going to take a pretty big hit in the next year or 2. That's why I'm hesitant to get in now.

MotoTrojan
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Re: Hypothetical Question - Market Timing

Post by MotoTrojan » Wed Sep 12, 2018 1:07 am

DeadPoets wrote:
Wed Sep 12, 2018 1:00 am
This is strictly a hypothetical situation for educational purposes only. I know that market timing is not a great strategy.
Here's the 2 different scenarios...


Market today - S&P 500 @ 3,000

1) If I invest 10,000 today in a S&P 500 index fund, and the market drops by 50% over the next 6 months, the value of my investment would then be 5,000.

2) If I had waited with my 10,000 and timed the market perfectly (just hypothetical), and got in at the bottom of the crash, would the value of this investment be worth more than example #1 once the market rallied back to it's pre-crash price of 3,000?


The value of my investment in situation #1 has just rallied back to it's original value of 10,000, right?
And the value of investment #2 has doubled to 20,000 since I bought in at the bottom, right?



I ask because I'm sitting on 15,000 right now trying to decide what to do. I plan on investing 90/10 and not touching it for about 25-30 years.
If my target date is that far out does it really matter if I got in today (right before a crash) or got in 1 year down the road at the bottom of the crash?
Math is pretty simple, you have double the value in situation #2. That means 25-30 years later, regardless of the returns of the rest of your hypothetical time, you'd also have double the money.

That doesn't mean it'll happen. You should invest fully today, and plan to add more over these 25-30 years. What if the market doubles in the next 5 years, then goes down 25%? Never a cheaper day than today in that case.

Peppergrass
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Re: Hypothetical Question - Market Timing

Post by Peppergrass » Wed Sep 12, 2018 1:26 am

yes, you would do better to time the market.. problem is when do you get in? second problem is you would most likely be scared to get in when things are dropping, bouncing like a yo-yo... emotions are far more on the table then logic, when you read the NEXT DEPRESSION is here.. ... ...

no, you don't gain the same amount. so you have 10,000 and lose 50%, you have 5,000 now, market moves up 50%, so 5,000 plus 50% = 7,500. you have to "double back your wins" to get back to 10,000 again. third you would have to factor in what I assume would be dividend re-invest which would skew those numbers a little..

investment two has not doubled, it has done 15,000. and second that is paper profit..

can you market time, sure.. you could.. you would need to be disciplined and try to jump in at a certain rate down, but as the poster said above, what if you say you jump in at 35% down, and it corrects at 25%, you just lost your chance to market time, or what if you jump in at 35% down and it crashes to 75%, you going to feel ok then? second thing to keep in mind is the potential of waiting who knows how long for the market to go into correction mode... I believe statistics is every 3 years average of life span of the markets, but...

these scenarios is why stocks drive people mad, there is so much you can't predict, it's why the bond market is bigger then the stock market! how would you feel if you were set to retire and market hasn't dropped in 10 years and you retire in 3 years.. would you bet it will hold till you retire???

hope someone can throw out some facts.. I believe Burton Malkiel said bad timing would account a 90% return vs. perfect timing ( 100% ) over a long span in the market, 30 years ????? I have no clue if that's right at all or not??????

If I was really young and could get back some of my time.. I would do 100% stock of whatever I threw in, and half would be companies I choose, other half would be ETF's. spin the wheel and hop aboard the market rollercoaster


to me, 15k is a cake walk, maybe not to you.. I would throw it all in and walk away throwing more in every month.. laugh if you want, Shaq said something I remember, he said rich people do this ( save 50% ) then he said billionaires do this ( save 75% ). I would throw in what you feel you can throw in and just keep doing that.. a 99% better plan then hoping to retire rich with no financial plan, unless you plan on winning the lotto or becoming famous, even then you need a financial plan.

do not take my advice at all... I just started to throw all my extra money in to apple.. its a half faith play, half follow buffet play, half mixed with the logic as far as I could get apple is a power house and will remain in play till I at least retire, if not.. I get dividends... haha.. just speaking out loud.. one thing I found out is Buffett owns 5% of apple, and apple itself owns 210 billion of its own stock, along with another bid for 100 billion... that's insane, and enough for me to sign up... once again don't follow this, this is my own play..

DeadPoets
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Re: Hypothetical Question - Market Timing

Post by DeadPoets » Wed Sep 12, 2018 2:12 am

Whoa, ya I did the math wrong on those scenarios. Thanks for pointing that out.

It’s late here in Texas :)

I appreciate the feedback. The more I think about it, the more I’m leaning towards a 60/40 type portfolio until the next recession hits. Then I can just rebalance my account to my desired 90/10.

This seems ideal. It puts me in the market now, and gives me some leverage for rebalancing after the inevitable correction we’re due for.

CurlyDave
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Re: Hypothetical Question - Market Timing

Post by CurlyDave » Wed Sep 12, 2018 2:34 am

There are always people who will tell you that a correction is "just around the corner".

But, they have been saying this for years. In 2016 a correction was inevitable -- result S&P up 12%. 2017 predictions are the same, result +21.7%, 2018, to date + 9.7%--I think we will make +10% or maybe a lot more this year.

If I had listened to the naysayers, I would be a lot poorer today.

chevca
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Re: Hypothetical Question - Market Timing

Post by chevca » Wed Sep 12, 2018 6:13 am

DeadPoets wrote:
Wed Sep 12, 2018 2:12 am
I appreciate the feedback. The more I think about it, the more I’m leaning towards a 60/40 type portfolio until the next recession hits. Then I can just rebalance my account to my desired 90/10.

This seems ideal. It puts me in the market now, and gives me some leverage for rebalancing after the inevitable correction we’re due for.
That's still market timing and not ideal... unless you get lucky and it all works out perfect.

Is this $15k the only money you will ever invest? Probably not, right? Pick an AA you can stick to through the ups and downs and go with that. This will probably seem like a small amount of money to you in the future and you may laugh about stressing over timing $15k.

Maybe your "desired" 90/10 is too aggressive of an AA for you?

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jabberwockOG
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Re: Hypothetical Question - Market Timing

Post by jabberwockOG » Wed Sep 12, 2018 6:35 am

Divide the $15k into even buy-ins- maybe five 3k chunks or three 5k chunks, up to you and how you want to buy in, and invest each portion on the first week of every month for the next 5 months. If possible pick a day when market is down to execute the buy on that day.

GrowthSeeker
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Re: Hypothetical Question - Market Timing

Post by GrowthSeeker » Wed Sep 12, 2018 6:44 am

I think we've all had this question. I have it right now.

Had anyone done a historical study taking different starting times, a chunk of money, and then put it in either all at once or in installments?
Just because you're paranoid doesn't mean they're NOT out to get you.

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bottlecap
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Re: Hypothetical Question - Market Timing

Post by bottlecap » Wed Sep 12, 2018 6:48 am

So this is not a hypothetical at all.

Of course you would have more in scenario 2. But if, any only if, 1) the market goes below its current level in the near future and 2) you suddenly get the guts to invest in the market when it does.

If the market goes lower by a little bit, you will say, "It's not safe now. It will go lower and I will make more with my plan."

You will keep saying this until the market is absolutely atrocious and no one believes it’s a good investment. Then you'll say, "Whoa, I dodged a bullet there. I’m not investing until things turn around."

The market will finally start to turn around. People on CNBC will say, "This is a false rally, indicators are bad, the market has more to fall." And next week it will dip. You'll say, "Gosh, these people know more than me. I’m staying out until the real crash comes and economic indicators actually turn around."

By the time economic indicators start turning around, the market will have nearly returned to its original levels. You will say, "Well, that stinks, I'll just wait until it dips another 10% and then get in."

The market never dips another 10%. It goes beyond its original level and people on CNBC will be talking about the market being at "all time highs." You'll be thinking, "Well that really stinks. It’s not a good time to invest. Maybe I’ll wait for the next crash."

And you just might, because there will just enough "gurus" still saying that the bear is just around the corner. CNBC analysts will yammer about the "jobless recovery" and politicians will complain about the lack of real wage growth. It all sounds so reasoned. And all of these people know more than you, right?

You will be right back where you started. And 10 years older.

I can’t tell you that the market won’t crash. But I can tell you it’s unlikely you will capture any gains if it does. This is just how taking risk works.

Good luck,

JT

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Re: Hypothetical Question - Market Timing

Post by goblue100 » Wed Sep 12, 2018 7:07 am

DeadPoets wrote:
Wed Sep 12, 2018 1:00 am

If my target date is that far out does it really matter if I got in today (right before a crash) or got in 1-2 years down the road near the bottom?

FWIW, I do think the market is going to take a pretty big hit in the next year or 2. That's why I'm hesitant to get in now.
People on this board have been saying this exact thing for at least 5 years. Literally! :happy

So either they have:
A. Been sitting on the sidelines missing out on one of the best bull markets ever.
B. Finally caved in and bought at even higher prices then what they were afraid of initially.

So what do you think is more likely, that you will:
A. Perfectly time the market and buy at the exact bottom in the event that this crash happens in the next 2 years, which is certainly not guaranteed?
B. Give up and buy in at even higher prices
C. Worst case, give up and buy in at even higher prices right before the crash occurs?
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chevca
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Re: Hypothetical Question - Market Timing

Post by chevca » Wed Sep 12, 2018 7:40 am

GrowthSeeker wrote:
Wed Sep 12, 2018 6:44 am
I think we've all had this question. I have it right now.

Had anyone done a historical study taking different starting times, a chunk of money, and then put it in either all at once or in installments?
About 2/3 of the time, it's better to lump sum it all in. About 1/3 of the time, it's better to spread it out in installments. The logical side would say to put it all in when you have it. The emotional side might disagree with that.

Not to offend anyone, but unless we're talking $500k, $1M, or some large sum of money, there's not much to think about, IMO. If it's a small'ish chunk of money and the plan is to invest it for 30 years, just throw it all in and leave it be.

Or, pick an AA one would be comfortable sticking with through a crash. It's easy to desire and 90/10 AA like the OP does. But, if they're also worried about a crash and what it would do to $15k...... Granted, I don't know the rest of their portfolio, but if they're worried about a crash in that scenario how are they ever going to be comfortable being 90/10 and having a $500k portfolio?

DeadPoets
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Re: Hypothetical Question - Market Timing

Post by DeadPoets » Wed Sep 12, 2018 8:24 am

Thanks for replies.

magicrat
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Re: Hypothetical Question - Market Timing

Post by magicrat » Wed Sep 12, 2018 9:05 am

DeadPoets wrote:
Wed Sep 12, 2018 2:12 am
Whoa, ya I did the math wrong on those scenarios. Thanks for pointing that out.

It’s late here in Texas :)

I appreciate the feedback. The more I think about it, the more I’m leaning towards a 60/40 type portfolio until the next recession hits. Then I can just rebalance my account to my desired 90/10.

This seems ideal. It puts me in the market now, and gives me some leverage for rebalancing after the inevitable correction we’re due for.
There was a correction earlier this year. What did you do when that happened?

Tamalak
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Re: Hypothetical Question - Market Timing

Post by Tamalak » Wed Sep 12, 2018 10:13 am

If there's a 50% drop, that cuts in half the money of anyone who's invested.

So if you invest after the drop, you will have twice as much money at all points in time as you would have if you invested before the drop.
Last edited by Tamalak on Wed Sep 12, 2018 12:33 pm, edited 1 time in total.

rapatelrocky
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Re: Hypothetical Question - Market Timing

Post by rapatelrocky » Wed Sep 12, 2018 10:27 am

Dollar cost average in slowly (monthly) while keeping the funds in something stable like VMMXX. On a dip, put in more than normal.

FYI - when there was a dip earlier this year, I bought some VTI and have not sold yet, but then I had bought VTI in 2016 at 9x and sold at 110. If I had kept it the whole time, I would have been way better off. Sometimes selling near a top can be comforting but market goes higher. Can't control or predict it no matter what.. stayed invested but still hold some cash/MM for corrections to add. reinvest dividends automatically to avoid my mistakes on timing. But holding some portion of cash helps on a downturn - just don't expect it to be perfect timing.

Market always proves me wrong when trying to time :-( But keeping some ammo on hand for corrections makes me sleep better. :-)

DeadPoets
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Re: Hypothetical Question - Market Timing

Post by DeadPoets » Wed Sep 12, 2018 11:37 am

magicrat wrote:
Wed Sep 12, 2018 9:05 am
DeadPoets wrote:
Wed Sep 12, 2018 2:12 am
Whoa, ya I did the math wrong on those scenarios. Thanks for pointing that out.

It’s late here in Texas :)

I appreciate the feedback. The more I think about it, the more I’m leaning towards a 60/40 type portfolio until the next recession hits. Then I can just rebalance my account to my desired 90/10.

This seems ideal. It puts me in the market now, and gives me some leverage for rebalancing after the inevitable correction we’re due for.
There was a correction earlier this year. What did you do when that happened?
Nothing. I’ve been in a retirement target fund until I recently rolled my E*TRADE IRA over to vanguard. Now my money is in the money market account.

Once I invest I will not be touching my portfolio (only rebalancing).

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Re: Hypothetical Question - Market Timing

Post by Fallible » Wed Sep 12, 2018 11:46 am

DeadPoets wrote:
Wed Sep 12, 2018 1:00 am
This is strictly a hypothetical situation for educational purposes only. I know that market timing is not a great strategy.
Here's the 2 different scenarios...


Market today - S&P 500 @ 3,000

1) If I invest 10,000 today in a S&P 500 index fund, and the market drops by 50% over the next 6 months, the value of my investment would then be ~5,000.

2) If I had waited with my 10,000 and timed the market perfectly (just hypothetical), and got in at the bottom of the crash, would the value of this investment be worth more than scenario #1 once the market rallied back to it's pre-crash price of 3,000?

The value of my investment in situation #1 only rallied back to it's original value of ~10,000, right?
And the value of investment #2 has doubled to ~20,000 since I bought in at the bottom, right?

I ask because I'm sitting on 15,000 right now trying to decide what to do. I plan on investing 90/10 and not touching it for about 25-30 years.

If my target date is that far out does it really matter if I got in today (right before a crash) or got in 1-2 years down the road near the bottom?

FWIW, I do think the market is going to take a pretty big hit in the next year or 2. That's why I'm hesitant to get in now.
Hypothetical or not, I think the most significant comments you make are the first and last sentences: you know market timing is "not a great strategy," yet you think you know what the market will do and you are considering investing based on those thoughts. Fact is, no one can be certain what the market will do, including knowing when a bear market is "near the bottom."

You have a good time horizon for $15,000, so I join others here in recommending you simply invest it now. And if the market does take a big hit in the next year or two, remember that nobody knows for certain what the market will do.
Last edited by Fallible on Wed Sep 12, 2018 12:02 pm, edited 1 time in total.
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chevca
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Re: Hypothetical Question - Market Timing

Post by chevca » Wed Sep 12, 2018 11:54 am

DeadPoets wrote:
Wed Sep 12, 2018 11:37 am
magicrat wrote:
Wed Sep 12, 2018 9:05 am
DeadPoets wrote:
Wed Sep 12, 2018 2:12 am
Whoa, ya I did the math wrong on those scenarios. Thanks for pointing that out.

It’s late here in Texas :)

I appreciate the feedback. The more I think about it, the more I’m leaning towards a 60/40 type portfolio until the next recession hits. Then I can just rebalance my account to my desired 90/10.

This seems ideal. It puts me in the market now, and gives me some leverage for rebalancing after the inevitable correction we’re due for.
There was a correction earlier this year. What did you do when that happened?
Nothing. I’ve been in a retirement target fund until I recently rolled my E*TRADE IRA over to vanguard. Now my money is in the money market account.

Once I invest I will not be touching my portfolio (only rebalancing).
So, this was invested just recently and it's not exactly like you have $15k in cash to invest now? See where things are going wrong here? This money was invested. Invest it again... and leave it be.

Or, sell all stocks now, keep it in cash, and when this crash you see coming happens... jump back in. It's just that easy... that's why we all invest that way. :wink:

Admiral
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Re: Hypothetical Question - Market Timing

Post by Admiral » Wed Sep 12, 2018 12:09 pm

DeadPoets wrote:
Wed Sep 12, 2018 1:00 am
This is strictly a hypothetical situation for educational purposes only. I know that market timing is not a great strategy.
Here's the 2 different scenarios...


Market today - S&P 500 @ 3,000

1) If I invest 10,000 today in a S&P 500 index fund, and the market drops by 50% over the next 6 months, the value of my investment would then be ~5,000.

2) If I had waited with my 10,000 and timed the market perfectly (just hypothetical), and got in at the bottom of the crash, would the value of this investment be worth more than scenario #1 once the market rallied back to it's pre-crash price of 3,000?


The value of my investment in situation #1 only rallied back to it's original value of ~10,000, right?
And the value of investment #2 has doubled to ~20,000 since I bought in at the bottom, right?


I ask because I'm sitting on 15,000 right now trying to decide what to do. I plan on investing 90/10 and not touching it for about 25-30 years.
If my target date is that far out does it really matter if I got in today (right before a crash) or got in 1-2 years down the road near the bottom?

FWIW, I do think the market is going to take a pretty big hit in the next year or 2. That's why I'm hesitant to get in now.
Even if we are (hypothetically) at the top of the market, and you invest it all, and (hypothetically) the market drops 10%, 25%, 50%, x% tomorrow...so what? In your (hypothetical) 25-30 year time horizon (where you have not sold but simply held) that drop will look like a barely discernible blip on the chart. Go back and track the S&P and you will see what I mean.

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Re: Hypothetical Question - Market Timing

Post by WhiteMaxima » Wed Sep 12, 2018 12:14 pm

If you invested 5000USD in S&P now and rest in AAA Bond, you will be 10000USD now. If market crush 50%, you have 2500USD in S&P and still 5000USD in AAA Bond. You would re-balance to maintain 50/50, you would have 7500USD. Not bad if you compare to 100%. It's all about risk control, buy low and sell high. Nothing to with market timing.

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Re: Hypothetical Question - Market Timing

Post by bottlecap » Wed Sep 12, 2018 12:30 pm

chevca wrote:
Wed Sep 12, 2018 11:54 am
DeadPoets wrote:
Wed Sep 12, 2018 11:37 am
magicrat wrote:
Wed Sep 12, 2018 9:05 am
DeadPoets wrote:
Wed Sep 12, 2018 2:12 am
Whoa, ya I did the math wrong on those scenarios. Thanks for pointing that out.

It’s late here in Texas :)

I appreciate the feedback. The more I think about it, the more I’m leaning towards a 60/40 type portfolio until the next recession hits. Then I can just rebalance my account to my desired 90/10.

This seems ideal. It puts me in the market now, and gives me some leverage for rebalancing after the inevitable correction we’re due for.
There was a correction earlier this year. What did you do when that happened?
Nothing. I’ve been in a retirement target fund until I recently rolled my E*TRADE IRA over to vanguard. Now my money is in the money market account.

Once I invest I will not be touching my portfolio (only rebalancing).
So, this was invested just recently and it's not exactly like you have $15k in cash to invest now? See where things are going wrong here? This money was invested. Invest it again... and leave it be.

Or, sell all stocks now, keep it in cash, and when this crash you see coming happens... jump back in. It's just that easy... that's why we all invest that way. :wink:
I agree that these facts make the answer even more obvious. The fear is at least understandable if this was a recent windfall, but it was very recently a part of the OP's long term AA, but for the rollover.

OP you know the right answer. Do the right thing.

I'm still chuckling about the "strictly hypothetical" nature of this situation...

JT

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Re: Hypothetical Question - Market Timing

Post by chevca » Wed Sep 12, 2018 12:57 pm

bottlecap wrote:
Wed Sep 12, 2018 12:30 pm
I'm still chuckling about the "strictly hypothetical" nature of this situation...
That is pretty funny. Seriously, just hypothetical..... but, what should I do here? :happy

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Re: Hypothetical Question - Market Timing

Post by pkcrafter » Wed Sep 12, 2018 1:53 pm

DeadPoets wrote:
Wed Sep 12, 2018 2:12 am
Whoa, ya I did the math wrong on those scenarios. Thanks for pointing that out.

It’s late here in Texas :)

I appreciate the feedback. The more I think about it, the more I’m leaning towards a 60/40 type portfolio until the next recession hits. Then I can just rebalance my account to my desired 90/10.
Nope. You are clearly not a 90% kind of guy. Rethink this asset allocation (AA).
This seems ideal. It puts me in the market now, and gives me some leverage for rebalancing after the inevitable correction we’re due for.
Just to clarify, going from 60% equity to 90%, or any other %, is not rebalancing, it is changing your asset allocation. Rebalancing strictly means adjusting the portfolio due to market movement to get back to target AA. :happy

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greg24
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Re: Hypothetical Question - Market Timing

Post by greg24 » Wed Sep 12, 2018 2:01 pm

Hypothetically, you're gonna shoot yourself in the foot.

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Re: Hypothetical Question - Market Timing

Post by DeadPoets » Wed Sep 12, 2018 2:03 pm

bottlecap wrote:
Wed Sep 12, 2018 6:48 am
So this is not a hypothetical at all.

Of course you would have more in scenario 2. But if, any only if, 1) the market goes below its current level in the near future and 2) you suddenly get the guts to invest in the market when it does.

If the market goes lower by a little bit, you will say, "It's not safe now. It will go lower and I will make more with my plan."

You will keep saying this until the market is absolutely atrocious and no one believes it’s a good investment. Then you'll say, "Whoa, I dodged a bullet there. I’m not investing until things turn around."

Good luck,

JT
I was agreeing with you until this part. ^ An atrocious market is exactly what I'm wanting. I don't need things to turn back around again before investing. I'm essentially just wanting a good opportunity to present itself (since we're likely nearing the top of a long bull run).

But I gather, from this thread, that that is a very difficult thing to find, and sometimes you just have to get in (like Buffett says, time in the market is more important than timing the market).

I do appreciate the feedback though.

My original Q truly was for educational purposes only. I've never believed I could find the bottom of a correction cycle anymore than the "experts" could.

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Re: Hypothetical Question - Market Timing

Post by RCL » Wed Sep 12, 2018 2:04 pm

chevca wrote:
Wed Sep 12, 2018 12:57 pm
bottlecap wrote:
Wed Sep 12, 2018 12:30 pm
I'm still chuckling about the "strictly hypothetical" nature of this situation...
That is pretty funny. Seriously, just hypothetical..... but, what should I do here? :happy
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Re: Hypothetical Question - Market Timing

Post by stocknoob4111 » Wed Sep 12, 2018 2:05 pm

DeadPoets wrote:
Wed Sep 12, 2018 1:00 am
FWIW, I do think the market is going to take a pretty big hit in the next year or 2. That's why I'm hesitant to get in now.
This is not certain at all... Shiller was on CNBC just a couple of weeks ago and said market could go up for another 3-4 years based on P/Es and what happened in the late 90s, his words not mine "it's entirely possible that we could keep going up for 3 more years". If you look at S&P500 forward P/E it is actually going down to 17.3 estimated for Dec 2019 so that does not sound like a crash to me, and currently in the 22 range.

https://seekingalpha.com/article/418581 ... ck-started

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Re: Hypothetical Question - Market Timing

Post by DeadPoets » Wed Sep 12, 2018 2:15 pm

bottlecap wrote:
Wed Sep 12, 2018 12:30 pm
chevca wrote:
Wed Sep 12, 2018 11:54 am
DeadPoets wrote:
Wed Sep 12, 2018 11:37 am
magicrat wrote:
Wed Sep 12, 2018 9:05 am
DeadPoets wrote:
Wed Sep 12, 2018 2:12 am
Whoa, ya I did the math wrong on those scenarios. Thanks for pointing that out.

It’s late here in Texas :)

I appreciate the feedback. The more I think about it, the more I’m leaning towards a 60/40 type portfolio until the next recession hits. Then I can just rebalance my account to my desired 90/10.

This seems ideal. It puts me in the market now, and gives me some leverage for rebalancing after the inevitable correction we’re due for.
There was a correction earlier this year. What did you do when that happened?
Nothing. I’ve been in a retirement target fund until I recently rolled my E*TRADE IRA over to vanguard. Now my money is in the money market account.

Once I invest I will not be touching my portfolio (only rebalancing).
So, this was invested just recently and it's not exactly like you have $15k in cash to invest now? See where things are going wrong here? This money was invested. Invest it again... and leave it be.

Or, sell all stocks now, keep it in cash, and when this crash you see coming happens... jump back in. It's just that easy... that's why we all invest that way. :wink:
I agree that these facts make the answer even more obvious. The fear is at least understandable if this was a recent windfall, but it was very recently a part of the OP's long term AA, but for the rollover.

OP you know the right answer. Do the right thing.

I'm still chuckling about the "strictly hypothetical" nature of this situation...

JT
The only reason I got out of the target date fund (T Rowe Price) was to get into Vanguards low cost funds (otherwise, why rollover to Vanguard from etrade).

This had nothing to do with trying to get out at the top. But obviously my error is that once I sold my position, and was ready to buy 90/10 AA, I got cold feet and asked myself, should I wait for the bottom?

:D

I think the more I talk, the more I'm proving everyone's point lol

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Re: Hypothetical Question - Market Timing

Post by DeadPoets » Wed Sep 12, 2018 2:18 pm

RCL wrote:
Wed Sep 12, 2018 2:04 pm
chevca wrote:
Wed Sep 12, 2018 12:57 pm
bottlecap wrote:
Wed Sep 12, 2018 12:30 pm
I'm still chuckling about the "strictly hypothetical" nature of this situation...
That is pretty funny. Seriously, just hypothetical..... but, what should I do here? :happy
Anti-Flame protection?
lol

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Re: Hypothetical Question - Market Timing

Post by retiringwhen » Wed Sep 12, 2018 2:32 pm

DeadPoets wrote:
Wed Sep 12, 2018 2:15 pm
bottlecap wrote:
Wed Sep 12, 2018 12:30 pm
chevca wrote:
Wed Sep 12, 2018 11:54 am
DeadPoets wrote:
Wed Sep 12, 2018 11:37 am
magicrat wrote:
Wed Sep 12, 2018 9:05 am


There was a correction earlier this year. What did you do when that happened?
Nothing. I’ve been in a retirement target fund until I recently rolled my E*TRADE IRA over to vanguard. Now my money is in the money market account.

Once I invest I will not be touching my portfolio (only rebalancing).
So, this was invested just recently and it's not exactly like you have $15k in cash to invest now? See where things are going wrong here? This money was invested. Invest it again... and leave it be.

Or, sell all stocks now, keep it in cash, and when this crash you see coming happens... jump back in. It's just that easy... that's why we all invest that way. :wink:
I agree that these facts make the answer even more obvious. The fear is at least understandable if this was a recent windfall, but it was very recently a part of the OP's long term AA, but for the rollover.

OP you know the right answer. Do the right thing.

I'm still chuckling about the "strictly hypothetical" nature of this situation...

JT
The only reason I got out of the target date fund (T Rowe Price) was to get into Vanguards low cost funds (otherwise, why rollover to Vanguard from etrade).

This had nothing to do with trying to get out at the top. But obviously my error is that once I sold my position, and was ready to buy 90/10 AA, I got cold feet and asked myself, should I wait for the bottom?

:D

I think the more I talk, the more I'm proving everyone's point lol
Yup, that is how the forum can be a good sounding board. Are you still okay with 90/10? If so, go all in. If not decide your new AA and invest that way in a lump sum or close to it. BTW, when I have done these type of rollovers in the past, I have carefully planned to tried to keep my AA as close to target as possible each step of the way out of "fear" of missing a market move combined with less of a chance to get cold feet.....

Now I have had windfalls in recent years that required significant new investment, doing lump sums into the overall AA have proved behaviorally challenging, but i have compromised in and done them in chunky DCA transactions :-)

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Re: Hypothetical Question - Market Timing

Post by bottlecap » Wed Sep 12, 2018 2:54 pm

DeadPoets wrote:
Wed Sep 12, 2018 2:03 pm
I was agreeing with you until this part. ^ An atrocious market is exactly what I'm wanting. I don't need things to turn back around again before investing. I'm essentially just wanting a good opportunity to present itself (since we're likely nearing the top of a long bull run).
Man, I understand. We all dream about wanting an atrocious market and timing everything just right.

But I can tell you about 2000 and 2008.

When the market drops 40%, blood is running in the streets. Turn on CNBC and there are scenes of "human sacrifice, dogs and cats living together... mass hysteria!" to quote a movie.

This does not look like a "good opportunity" presenting itself. It looks like the worst is yet to come.

Everyone will be talking about the 89% drop during the Great Depression. And if you are hesitating now, you will not get in then.

You can't fathom how hard it is to pull the "buy" lever at a bottom that may drop another 40, 50, or even 75%.

Good luck. Stay the course.

JT

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Re: Hypothetical Question - Market Timing

Post by DeadPoets » Wed Sep 12, 2018 8:36 pm

bottlecap wrote:
Wed Sep 12, 2018 2:54 pm
DeadPoets wrote:
Wed Sep 12, 2018 2:03 pm
I was agreeing with you until this part. ^ An atrocious market is exactly what I'm wanting. I don't need things to turn back around again before investing. I'm essentially just wanting a good opportunity to present itself (since we're likely nearing the top of a long bull run).
Man, I understand. We all dream about wanting an atrocious market and timing everything just right.

But I can tell you about 2000 and 2008.

When the market drops 40%, blood is running in the streets. Turn on CNBC and there are scenes of "human sacrifice, dogs and cats living together... mass hysteria!" to quote a movie.

This does not look like a "good opportunity" presenting itself. It looks like the worst is yet to come.

Everyone will be talking about the 89% drop during the Great Depression. And if you are hesitating now, you will not get in then.

You can't fathom how hard it is to pull the "buy" lever at a bottom that may drop another 40, 50, or even 75%.

Good luck. Stay the course.

JT
Yep. Good points.

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Re: Hypothetical Question - Market Timing

Post by Peppergrass » Wed Sep 12, 2018 11:02 pm

magicrat wrote:
Wed Sep 12, 2018 9:05 am
DeadPoets wrote:
Wed Sep 12, 2018 2:12 am
Whoa, ya I did the math wrong on those scenarios. Thanks for pointing that out.

It’s late here in Texas :)

I appreciate the feedback. The more I think about it, the more I’m leaning towards a 60/40 type portfolio until the next recession hits. Then I can just rebalance my account to my desired 90/10.

This seems ideal. It puts me in the market now, and gives me some leverage for rebalancing after the inevitable correction we’re due for.
There was a correction earlier this year. What did you do when that happened?

I sold puts, I bought in, then sold some calls on half of it.. call it a good month it was!!! wish it happened more often, did you see the price of puts with 40% vol !!!

can someone correct my math if I was wrong above.. he was asking if he puts in at top, it drops, then goes back tot he level does he have his same amount back... I'm thinking I might be wrong on my math, want a double check on that

last, I assume you are young, why even do a 10% bond at this age if you don't need the income? because either you believe the market will hum along, or we go into depression mode, first scenario you gain more in stock, second scenario depends what bond you are picking up and the dates on them, a 3% 30 year would be EXTREMELY valuable in a depression but short dated will still get hit once they have to buy in at lower rates.. to me it would make no sense ever to go bond for young people unless this is a HUGE inheritance, there is no other reason besides thinking there will be a depression to go bond when stock will outperform in 95% of scenarios... just my thoughts..

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Re: Hypothetical Question - Market Timing

Post by DeadPoets » Thu Sep 13, 2018 12:14 am

Peppergrass wrote:
Wed Sep 12, 2018 11:02 pm
magicrat wrote:
Wed Sep 12, 2018 9:05 am
DeadPoets wrote:
Wed Sep 12, 2018 2:12 am
Whoa, ya I did the math wrong on those scenarios. Thanks for pointing that out.

It’s late here in Texas :)

I appreciate the feedback. The more I think about it, the more I’m leaning towards a 60/40 type portfolio until the next recession hits. Then I can just rebalance my account to my desired 90/10.

This seems ideal. It puts me in the market now, and gives me some leverage for rebalancing after the inevitable correction we’re due for.
There was a correction earlier this year. What did you do when that happened?

I sold puts, I bought in, then sold some calls on half of it.. call it a good month it was!!! wish it happened more often, did you see the price of puts with 40% vol !!!

can someone correct my math if I was wrong above.. he was asking if he puts in at top, it drops, then goes back tot he level does he have his same amount back... I'm thinking I might be wrong on my math, want a double check on that

last, I assume you are young, why even do a 10% bond at this age if you don't need the income? because either you believe the market will hum along, or we go into depression mode, first scenario you gain more in stock, second scenario depends what bond you are picking up and the dates on them, a 3% 30 year would be EXTREMELY valuable in a depression but short dated will still get hit once they have to buy in at lower rates.. to me it would make no sense ever to go bond for young people unless this is a HUGE inheritance, there is no other reason besides thinking there will be a depression to go bond when stock will outperform in 95% of scenarios... just my thoughts..
I'm 35, wife is 30. She's 100% in S&P index (401k) and I plan to be 90/10. So our total bond allocation combined is lower than 10.

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Re: Hypothetical Question - Market Timing

Post by letsgobobby » Thu Sep 13, 2018 12:30 am

DeadPoets wrote:
Wed Sep 12, 2018 1:00 am
This is strictly a hypothetical situation for educational purposes only.
...
FWIW, I do think the market is going to take a pretty big hit in the next year or 2. That's why I'm hesitant to get in now.
Not actually hypothetical then, is it.

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Re: Hypothetical Question - Market Timing

Post by RickBoglehead » Thu Sep 13, 2018 4:39 am

The only mistake you made was not doing what you intended to do. You sold funds in E-Trade to buy Vanguard's low cost funds. Then you let emotion override your plan. Therefore, you need to rethink your equity percentage.

As Jack Nicholson once said, "You can't handle that ratio".

The biggest risk to the market, in my opinion, is Twitter...

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Re: Hypothetical Question - Market Timing

Post by oldcomputerguy » Thu Sep 13, 2018 6:18 am

DeadPoets wrote:
Wed Sep 12, 2018 1:00 am
This is strictly a hypothetical situation for educational purposes only. I know that market timing is not a great strategy.
And yet, the rest of your post makes it pretty obvious that this is exactly what you're contemplating.
I ask because I'm sitting on 15,000 right now trying to decide what to do. I plan on investing 90/10 and not touching it for about 25-30 years.
If my target date is that far out does it really matter if I got in today (right before a crash) or got in 1-2 years down the road near the bottom?
Well, on paper it might, if you could do it perfectly. But you can't "pick the bottom". Nobody can. You can only do that in hindsight. So go ahead and invest now, and keep on investing. Stay the course. It'll work out.
FWIW, I do think the market is going to take a pretty big hit in the next year or 2. That's why I'm hesitant to get in now.
Yes, the market will take a hit sometime in the future. That's how the market works. If you stay invested long-term, you'll see several market dips, corrections, and bears. Here's what you should remember:

Your. Holdings. Will. Drop. In. A. Downturn.

Accept that. Be emotionally ready for it. It's going to happen. Whether you ultimately lose dollars during the downturn, though, depends on you, and whether you panic and sell, or keep invested and look at the long term.

Take a look at this chart from stockcharts.com.

Pick a point on the chart somewhere in the middle that looks like a "new high". Note carefully that, for each one of these "new high" points, there are points to the right that are higher. Even though these "new highs" look like a crash is coming (and in some cases, notably 1929 and 2007, one did), the market recovered on the other side of the crash and continued its trend upward. So just because the media trumpets "markets at a new high", that's no reason not to invest. Markets long-term are very, very often at "a new high". Each and every time the market climbs higher than the times prior, that is "a new high".

You should read about Bob, the world's worst market timer. His story is a good example of what I describe. He was really horrible at market timing, got in only at market peaks, and still (because he stayed invested long-term) retired comfortably.

You mention that you plan to leave your cash invested for 25-30 years. Pick a point on that historical chart showing that timespan. Over that scale, whatever downturns your choice includes seem rather inconsequential, don't they?

The trick is to ignore the noise, allocate according to your ability, need, and willingness to take risk, stick to your plan, and stay the course.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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Re: Hypothetical Question - Market Timing

Post by Peppergrass » Fri Sep 14, 2018 12:22 am

to me, still no point to be in any bonds, unless you plan on a downturn to somehow time market and flip them to stock, but as I said this depends on bond fund or if buying treasuries or what.. the yield will get skewed with downturn for sure.. you will do much better in stock over the long run as SPY dividend yield is at 1.8-1.7, bonds are what, 2.2% maybe.. stock will far outperform in 99% of scenarios. bonds start to come once a chunk of money is made and to protect it, as bonds can't really even beat inflation, only stock can right now, so why would you sit in a bond..

I went to write again as I believe what would serve best is to buy a put option 10% down, as it's cheaper then ATM, and then throw it all in, this way you feel comfort with all stock, if the market downturns in next few months you feel like a genius when you sell off that option for more then you paid, a lot more.. if not you feel like a dunce for buying it, but call it worry insurance, you won't have to worry for like 2 1/2 years, just go buy a SPY put option.. the only drawback I can se eon this is you are paying a little more if you hold about 45 stock in SPY ( not sure equivalent ) so the option is for 100 shares and you have some leftover there, but in the event of a downturn or a sharp spike it will work wonders that you had it... my opinion anyways, you are way too young to not get this money in, because if you don't you will never feel comfortable. another bonus is the option expires worthless you can claim that against future tax, so you didn't really lose it all..

second advice, STOP reading all daily news.. its all bull, and just distracts you and causes fear and panic and unrest.. I believe people do it as there would be nothing to talk about then.. see Bogle have to make news announcements every day? Buffett make stock forecasts??? NO, because there is nothing to say.. the market goes up, goes down, goes up, goes down, then up some more..

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Re: Hypothetical Question - Market Timing

Post by dogagility » Fri Sep 14, 2018 5:23 am

stocknoob4111 wrote:
Wed Sep 12, 2018 2:05 pm
DeadPoets wrote:
Wed Sep 12, 2018 1:00 am
FWIW, I do think the market is going to take a pretty big hit in the next year or 2. That's why I'm hesitant to get in now.
This is not certain at all... Shiller was on CNBC just a couple of weeks ago and said market could go up for another 3-4 years based on P/Es and what happened in the late 90s, his words not mine "it's entirely possible that we could keep going up for 3 more years". If you look at S&P500 forward P/E it is actually going down to 17.3 estimated for Dec 2019 so that does not sound like a crash to me, and currently in the 22 range.

https://seekingalpha.com/article/418581 ... ck-started
Wait... JP Morgan just yesterday predicted the stock market will decline 20% in 2020.

No wonder new investors (who believe these people know something) have such a hard time with investing and will pay some flunkie downtown (Mr. Ed) to manage their money.
Taking "risk" since 1995.

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Re: Hypothetical Question - Market Timing

Post by Vanguard Fan 1367 » Sat Sep 15, 2018 9:10 am

I read Bogle's books starting in the spring of 2014. I had the same thoughts about market timing that you are discussing here. But thankfully I decided to invest and eventually ended up with a 70/30 asset allocation. The returns have been quite nice since 2014 even though I missed the low in about 2009.

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Re: Hypothetical Question - Market Timing

Post by Nowizard » Sat Sep 15, 2018 10:07 am

The one time that I would absolutely never even consider market timing (Waiting to invest) in any form is when not putting money in as a downturn is predicted. You may see a temporary downturn in the price of a fund share, but you will also be purchasing at a lower price with distributions. It is assumed distributions are being reinvested and the investor is in an accumulation stage. Otherwise, it might make an interesting discussion to differentiate between market timing and a pattern of frequent buying and selling. The former can be a very occasional move based on one's analysis of their finances and perception of the market, while the latter is clearly a negative.

Tim

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Re: Hypothetical Question - Market Timing

Post by AlphaLess » Sat Sep 15, 2018 10:12 am

Hypothetically speaking, your example is correct.

However, in reality, any of the following will happen:
- S&P will rally to 4000 before crashing,
- when it crashes, it will crash 30%, not 50%,
- the low reached will be, say 2800, and now 1500,
- you won't be able to exactly time the bottom: either you will buy before (or after the bottom), thus missing the bottom, or you will never buy.

If you are worried that the market is overpriced, you can invest gradually (dollar cost average).
Dollar cost averaging is a pretty bad idea, as on average, stocks go up.
But it is probably a better idea than waiting until market hits 1500 S&P points.
"You can get more with a kind word and a gun than with just a kind word." George Washington

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Re: Hypothetical Question - Market Timing

Post by international001 » Sat Sep 15, 2018 10:14 am

I thought this had been settled
https://personal.vanguard.com/pdf/s315.pdf

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Re: Hypothetical Question - Market Timing

Post by AlphaLess » Sat Sep 15, 2018 10:17 am

In my opinion, the market will go down when the majority of uninformed investors become super bullish and completely irrational.

To me, that has not happened yet.

As for CAPE-10 valuations, I think CAPE valuations are somewhat misrepresented currently.
Today's CAPE has 2 years of earnings that were low (2008 and 2009).
Those two years will drop out in 2 years, giving CAPE-10 a bit of a boost.
Next, earnings are still increasing due to various structural policy changes.
Third, bond yields are still low.
Fourth, we still see timid people trying to time the market (on the cautious side).
Fifth, CAPE could go even higher.

When CAPE-10 earnings are all smoothed out (for all trailing 10 years), and CAPE-10 is at 45, and the 10-year bond is at 5 percent, then we can talk.

But crash sooner or later will be much much better for EVERYONE.
The sooner, the better.
The bigger, the better.
"You can get more with a kind word and a gun than with just a kind word." George Washington

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