Not well versed in this subject, appreciate all advice:)
:) You are asking about timing the market. No one can do it, it is said. (I think it can be done, but it would be through illegal means, i.e. insider trading, which I believe happens all of the time since it's too easy to do and too hard to catch). Also, you don't have to invest in stocks. You can buy and hold on to bonds (AGG or ACWI).
You might see your holdings value go way down. People sell then. It's normal psychology. It is so tough to see the dollar value of assets go down and sit on it. But if it's the best investment, you don't sell. Hold. The best investment has a holding period of forever. It will go back up--eventually. If it is a good investment and it does not go back up, money will not be very useful anyway (i.e. asteroid hits, etc.) This is why common advice is to only put money into stocks that you will not need for at least five years or more.
Some people have said that some of the biggest gains in the stock market are just before it drops. You do not want to miss out on these, since that is often where the 9.5% return on stocks comes from.
This is free advice and I am not licensed to advise. Oh, and good on you to start saving now. That's _your_ money that you worked for. Keep it yours. Get out a spreadsheet and run the numbers assuming different % returns and _consistent_ savings over time. You might see you can become a millionaire.
This may sound like a stupid question but if you don't sell at that time (hold good investments forever etc), and you don't know that it's the peak at the time, how do you lock in those gains?
There may be some kind of magic options strategy to lock in those gains, but it also would include taking on other risks (interest rate changes, market risk, commodities etc.) and you have to have a big bank roll to play in that game to make it worth while--and now you have another job which could be full time to manage it all...
I guess to answer your question in another way, you lock in those gains by not trying to time the market, by paying the lowest commissions and fees possible. :)
1. Pick individual investments, based on extensive research, and monitor their performance closely. Move money between investments in response to market changes. Put a lot of effort into predicting upcoming changes and investing accordingly.
This can work OK, if you put in a lot of effort and keep it up. It means essentially turning investment into a second full time job. (And you are competing with people who do investment as their first full time job, and have much bigger budgets for research and much better technology that you do).
2. Take the long, broad view. This is based on the assumption that over the next few decades the economy is going to grow. There will be ups and downs, but 30 or 40 years from now when you may want to start leaving the working world and live off you investments there will have been considerable net growth compared to now.
With this approach you put money in things like index mutual funds tied to broad indexes that tend to follow the economy as a whole or major sectors of the economy.
Almost everyone should be going with #2, starting as early as they can afford it, and steadily investing more over the years. Do this starting from graduation, and but 5% of your paycheck every month into investments in this order:
A. Any investment program sponsored by your employer where they make matching contributions. That's free money! If that doesn't use up the 5%, then...
B. An IRA. (I'll leave it to others to pontificate on the Roth vs. Conventional question). If that doesn't use up the 5%, then...
C. Broad index mutual funds. (Others can go into more detail on which mutual funds).
Take that 5% off the top, investing it as soon as you get paid. That way you get used to living on 95% pay and you stop noticing the 5%.
Can this fail? Yes, but since you are betting on the economy as a whole with approach #2 such failure over a long enough time (35+ years) would mean the economy has developed such serious problems that you probably were screwed no matter you did.
If you wait, then you may wait several years for the recession to happen, several years during the recession and then several years because you're not sure if the market is recovering or if it'll drop back down again. So at the end of the day there's a good chance you'd be worse off than if you invested right away.
I like the point you are making, but how about...
"The best time to invest was 20 years ago" (or similar) ;-)
Pretty decent article. TL,DR if you're saving for retirement then ignore the markets and don't try to time things. The markets over time (IRA is for retirement) will always increase significantly.
If you wait, what will mostly likely happen is you'll jump in after 80% of the recovery happens.
Far better to invest now, hold steady through the downturn and be in the market when it goes back up.
Market timing is difficult and there may not be a crash but stocks are objectively expensive now and it’s hard to see how the recent performance could continue for long: https://www.gmo.com/docs/default-source/research-and-comment...