Hindsight is 20:20 of course, but there's a number of equities that one could have purchased shortly after the 2008 financial crisis that proceeded to make significant gains between 2009 and 2019.
I don't consider this to be timing the market. You should always be investing but when sentiment is bad you just buy more than you would normally.
"It's always good to buy when sentiment is good. If the bullish trend continuous, then you got in early and got a nice discount on your equities. If it is the start of a major downturn then you have taken the first step towards buying at a greater and greater discount and can continue buying all the way down"
I am watching very carefully to see if the VIX goes to an outlandish number, such as 90 or 100. To give some context, the all-time high of the VIX was ~80 during the 2008 financial crisis, etc.
It is a fools errand to try to predict, and make bets upon, the VIX.
However, while we can't say anything for certain about how long markets can stay calm or how long markets can stay euphoric, we can say with some certainty that you can't panic sell forever. Your hair can only be on fire for a little while. You can only throw yourself off the top of a building once.
So if you believe you see a VIX-crisis-top it is a very good bet that the movement from there will be in only one direction and very precipitous.
IANA*.
As long as you hear (even here, today) that this is a good opportunity, good time for buying at a discount - it is not a time for buying stocks.
I don't think it's well understood by the general public how many people work in finance or the scale of their endeavors.
[0] https://www.washingtonpost.com/news/monkey-cage/wp/2016/03/2...
Disclaimer: this does not constitute investment advice in any way, shape or form. Do whatever you want.
My (non professional, this is not financial advice) opinion is it will take awhile (at least 3-6 months or so) for everything to shake out and reevaluation to occur.
But I got out almost at the all time high, so as long as I get back in before that, I'm good with sitting on the sidelines. I don't need to call the exact bottom. I'll likely buy back in once I can see that there's some kind of realistic path forward with COVID-19 that doesn't destroy the economies in its wake.
Since I started investing in 2012, I've only ever triggered a rebalance through putting in more cash, but I'm making a list of stocks I plan to buy if my portfolio goes outside that bound.
Yes, hedge funds do this. They hire a lot of smart people to dig full-time into all the same hunches you or I might have (plus some more things we haven't thought about), and make bets about what's going to rebound. What happens is that to the extent that the future is unpredictable, the hedge funds lose those bets (along with everyone else on average), and to the extent that their predictions are right, they make a profit.
The market can stay irrational for longer than you can stay solvent
and
Don't bet any more on the market than you're willing to lose
If you haven't already, put your retirement into bonds and hold on. Honestly it might be a good idea to grab some cash from the bank to keep at home - bank runs are not outside the realm of possibility, although we have credit cards and other internet based payment methods now so it's probably less of a concern now.
Edit: let me just preface my advice by saying if you have extremely high risk tolerance, now is a good time to buy, but be prepared to lose. If you are near retirement, now is probably the time to pull all of your funds out of the markets and into something safer. Based on the 100 year history of the DJIA, and the fact that the virus is just starting to spread in the U.S., the floor could be much lower.
Are you advising to sell equities right after they've taken a beating? Sounds awfully close to "buy high, sell low".
It's about minimizing risk. Those with high risk tolerance I would advise to buy now, but be prepared to lose everything. If you're close to retirement you lose nothing by pulling out now.
If your risk tolerance can't handle what's happening, your asset allocation was already wrong. Trying to "fix" that now, as a response to this downturn, would very likely be a mistake.
Some treasury notes have dropped by more than 30%. We're years overdue for a cyclical recession. The fed has little room to lower rates. I could go on but the point is this is the closest we've been to a Black swan in decades.
(If your retirement is less than 5-10 years away, you should have diversified away from stocks years ago, and it's a little late now. Most target-date funds and financial advisors do this anyway.)
"put your retirement into bonds and hold on"
facepalm
For everyone else not near retirement, most are going to be better served by ignoring the volatility and continuing to invest as usual. Time in the market vs timing the market and all of that jazz.
People should have an asset allocation, and stick to it. Right now, people should be re-balancing by selling off their now overweight bond allocation to buy equities. What you're suggesting is counter-productive.
At this point we have likely entered recession or depression territory. The rebound is unlikely to be instantaneous (unless a convenient cure is found) and when things calm down I can put my money back into the market starting from a 10% locked in gain.
You don't minimize risk by reacting to daily market fluctuations. You minimize risk by choosing an asset allocation that allows you to ignore those fluctuations.
If you're near retirement, you should have already had a large percentage of your allotment in bonds and cash. If you are not near retirement (> 5-10 years) then ride it out.
I am 30+ years from retirement and I don't think this is world ending, so my high-volatility mutual funds will stay right where they are.
Bond yields are at an all time low. That means prices are at an all time high.
This is not the time to massively rotate into an asset class at an all-time high price due to fear/risk aversion.
So long as bond yields are positive, they cannot depreciate in value, can they? As in if I pull out X dollars from the market and into bonds, assuming yields stay positive, I'm guaranteed X dollars out?
Or have I totally misunderstood how bonds work?
(All of the below assumes the bonds actually pay as agreed. Actual default risk is something totally different, and still present here.)
When you buy a bond and hold it to maturity, you're sort of right. If you put in $10,000 into buying a coupon bond, you will get the coupons plus the $10,000 back at the end. And if you buy a zero-coupon bond for whatever amount, which will be worth $10,000 at maturity, you'll get the $10,000 back at the end.
In fact, you don't even need to "assum[e] yields stay positive." When you buy individual issues and hold to maturity, you don't really care what everyone else's yields do; you get what you contracted for.
The problem comes if you want to actually sell out of your position, OR to know the true value of your position (essentially equivalent operations) along the way.
If you put in $10,000 into a bond yielding 5% coupon, and the next day yields spike to 10%, nobody will want to buy your bond for $10,000 any more. You most certainly have lost value. "Aha," the naif says, "but I could always hold to maturity and get my principal back!" Sorry. Do the thought experiment where instead of buying the 5% issue on day 1, you instead buy the 10% issue on day 2. Compare the cumulative sum you receive under each scenario. Investing on day 1 (at 5%) is strictly worse than investing on day 2 (at 10%).
Likewise, if yields instead crash from 5% to 1% on day 2, your position will be worth much more. Your $10,000 notional bond yielding 5% will net a buyer so much more than $10,000 spent on a 1% yielding issue that she will pay more than $10,000 for it. You have had a real gain, even if not realized.
The same thing applies to bond funds or indices but with much more smoothing across a portfolio. With bond funds, however, there is not even the illusory "X dollars out" guarantee; since they are marked to market every day you might well never enjoy a breakeven price.
Good lord is this terrible advice. Please nobody do this.
This is what every mug retail investor thinks. They always get hosed down. They are usually the people who were in cash until 2018...because they were waiting for the bottom.
If you are investing regularly, continue to do so. If you have cash, deploy it. This doesn't matter if you are young. You are getting a better price. It is good news.
If you aren't a mug, look at individual stocks. Do your analysis, and you will find out whether they are cheap or not. No-one who invested at the bottom in 2008 knew it was the bottom. They saw individual stocks were cheap, they bought.
But really do not try this last one unless you know what you are doing. Parts of the market are looking cheap right now, a minority of this is stuff that has sold off recently. If you can't work out where this value is, just buy an index fund and spend your time worrying about stuff you can control (I used to work in research at a financial adviser, I didn't work directly with clients but the biggest issue for most investors are their emotions...99.9% of people don't have the emotional equipment for this stuff...the harder you try, the worse you will do).