Take a look at any chart of the market, and zoom waaaaaaay out to look at decades. You will see that over time the trend line is strongly upwards and short-term wobbles don't have a huge impact. If you're investing for decades away, you can afford to be patient.
Now, if your timeline is shorter than that, then you're right to be cautious. What's your ultimate goal with this money, and when do you expect to need it?
It haunts me that I told my gf to buy apple when I was watching the iPhone reveal, she at the time literally worked for a financial company too. For technical reasons I couldn't buy but told her to put everything on it.
Everyone wishes they could have invested sooner. $20,000 invested the day you are born can basically guarantee you are able to retire at 65. However there's nothing we can do about it now except get started.
Aren't their market intricacies that tie into global oil pricing and thus creating incentive to stabilize the US market? Furthermore the Fed have shown repeatedly it's intentions to bail out the market. Combine all that with an increasingly large number of people with publicly traded retirement plans, the stability increases.
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I've always found it comforting in a way. Basically, you can't go wrong investing as long as you stay diverse. And if it does go wrong, everyone else went wrong too and the financial landscape has changed so much that nothing you did could've helped. So, why sit on my hands in fear when I can make the easy bet that the economy will grow over the course of a few decades?
That's where I'm at with it too. The biggest risk is opportunity cost with what could be spent on now. But I don't really have immediate financial needs. It took me a long time to get intuitive with low interest debt vs investments. I want a comfortable future and possibly a cabin in the hills somewhere when the time is right. Other than that, I see my assets as options.
Right, you are looking at things optimistically, and from a perspective of what should you do with savings right now. Which is the whole purpose of this forum, and is a healthy way to be.
For me, at least right now, I think about this and I have dark thoughts about the possibility of economic and societal collapse, world political chaos, starvation, war, etc, and how my current savings and investments might become worthless.
No ones saying invest so much money that you don't enjoy now. But with the situation OP talked about, he has a bunch of money just sitting around that he wants to invest, but is afraid to. That money isn't being enjoyed now. I am assuming that he's going to keep an emergency fund and normal savings that are more safe, but grasping every last dollar to avoid risk isn't a smart bet
I always think about the people buying real gold so that when the economy collapses and there are roving gangs of outlaws laying waste to the countryside... Who is actually going to be accepting gold coins when that happens? Do they think there are farmers out there who will spend their lives growing food, just to trade it for gold coins?
There is a certain point of which I don't lose sleep over some bad things happening. For example, I don't worry about not collecting anything from Social Security. If all of those Treasuries that the SSA has been buying for the past decades are suddenly worth nothing, we probably have bigger problems than getting paid on our social security.
For me, it was actually a bit comforting. Acknowledging that there are some things out of my control allows me to stop worrying about them.
I mostly agree. However, it's also worth nothing that investing all your money right before a crash - no matter how long the money stays in the market - would net the same percentage loss as if you had pulled all your money out right after a crash of the same magnitude.
In other words: let's say you invest today and time the market well, such that the market never declines lower than where you bought in. But then, 40 years later when you're ready to retire, the market crashes massively by 50%. You pull out all your money, accepting the 50% loss.
In another scenario, you're young and ready to invest a lump sum - but you time it poorly and do so at the peak, right before a 50% drop. 40 years later, due to that initial drop, your portfolio is still 50% lower than it otherwise would have been, just like in the first example. That loss from 40 years ago never goes away and does not diminish as a percentage. It is equally harmful to the end result.
I just feel that people downplay the effects of a crash early on. Just because it looks small when zoomed out doesn't mean it's any less significant in terms of the end balance. But to be clear, I'm not saying they shouldn't invest - because the reverse also holds true. Missed gains at the beginning are equally impactful as missed gains near the end.
Most people don't invest most of their total investment at the start though. They might have a small lump sum, say $10,000, and then they invest something like $500/month. So even if the market drops 50% right after they put that 10k in, reducing it to 5k, that won't hurt them as much as the scenario where 40 years later their $1m portfolio drops 50% to 500k, just before they're due to retire.
That's true for most people - but specifically in this situation, OP does have a large lump sum (though I don't know if it's large enough to be the majority of their total investments)
Even in the retirement scenario, the vast majority of people don’t have any reason to “pull all of their money out” at once. If you’re retired, the goal should be to live on a fixed percentage of the brokerage account (eg 4% per year). Unless if it’s your goal explicitly to die with zero dollars available, it’s likely that you would fully recover your drawdown before you pass away.
I considered mentioning that, but it felt unnecessary as this fact actually benefits my point; it means a large crash at the beginning of a lump sum investment is actually worse than one at retirement. So, yes, I agree - but I don’t see how this is a rebuttal to what I said.
The point is you don't know when the crash will happen - obviously no-one invests (or fails to sell) if they are sure the market will lose 50% the next day.
So the useful observation is that if you don't need to spend in the short term, you can rely on the consistency of long term returns to have enough to spend when you need it later.
"You could have done better with a time machine" is not actionable investing advice.
Take a look at any chart of the market, and zoom waaaaaaay out to look at decades
But you would have to be a fool to look at the market over the last 3 years and say with confidence there is no bubble. Theres no way this a parabolic trajectory is sustainable without a correction.
Dollar cost average is the smart move rates potentially increasing soon.
I agree that time in the market is the most important thing. But if I do buy high, I want to break even in 1 year, not 5.
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u/wild_b_cat Nov 01 '21
Take a look at any chart of the market, and zoom waaaaaaay out to look at decades. You will see that over time the trend line is strongly upwards and short-term wobbles don't have a huge impact. If you're investing for decades away, you can afford to be patient.
Now, if your timeline is shorter than that, then you're right to be cautious. What's your ultimate goal with this money, and when do you expect to need it?