Hacker News Reader

Comment by 76543210 | Hacker News Reader

I'm trying to refinance my mortgage. Is now a bad time to put 20% of my savings into the market?

I've been waiting for this moment since 2018

I'm not a financial advisor, but the phrase "don't try to catch a falling knife" comes to mind here.

No one knows, no one will know until it's over, and anyone telling the opposite is lying. It's impossible to time or predict the market, especially in crisis like these.

People bought boeing stocks at the dip, a few months ago, needless to say this wasn't the best time to buy.

If asking HN for financial advice is your strategy I'd probably reconsider. But the vastly contradictory replies you've already received probably already told you that.

Buy a little each week to spread the risk. Corona will probably get worse for a few more months.

This.

*This is the way.

You should pay off your house as fast as possible. This reduces risk greatly because you always have a place to live in the worst case.

You should max out your IRA and 401k plans, or whatever similar applies to you. However that should be regular investments by a plan that you arranged years ago and don't even bother to revisit. When asked their 401k strategy the most common answer of those with the best returns "I don't have a 401k" - which is to say you set it up at 30 and forget about it until you retire.

As long you have tolerance for it to keep dropping further you’ll be fine. Don’t expect to know where the bottom there is. People forget the second part of the famous saying. “But when there’s blood in the streets, even if the blood is your own.

Do not invest if you need the money in the short-term or what you can't afford to lose. I'd be very hesitant to invest with debt financing.

In all likely hood it will recover, but no-one knows when how far long out that will be and you never want to be in a position where you're forced to sell.

I would wait. Don’t even try to buy into a dip unless there’s at least some period of stability first.

If this is a repeat of 2008 you will have several months of "bottom" for you to leisurely consider your investment plans.

> Is now a bad time to put 20% of my savings into the market?

You're getting a lot of bad advice here, but you also haven't given us the full picture.

First question is: What is your goal? Are you planning to invest this money for retirement and not withdraw it for several decades? Or do you expect to need these funds for some major purchase in the next 5 years? The answer to that question will greatly influence the correct course of action.

Second, what's your risk tolerance? Most people don't know their own risk tolerance until they see their portfolio drop 20% like this. If you invested today and the market dropped another 20%, would you be able to sleep at night? Would you be tempted to panic sell to limit your losses? Would you check your balance so much all day every day that you can't perform well at your job? If so, you should start slower with something like investing 1% of your savings per week. Do not invest that entire 20% all at once.

> 1% of your savings per week

That would allow to invest what he wanted in 2 years. But the market is likely to ~80% recover in 6 months.

> Most people don't know their own risk tolerance until they see their portfolio drop 20% like this.

Yes: risk tolerance is a very important consideration - thank you for explaining that. But how to find that limit to the risk tolerance in a reasonable time?

I'd suggest ~1% of portfolio investment per day, but only on down days. Do not invest on up days.

Just as yesterday, last month, next month, and forever, it's a bad time to get financial advice on Hacker News.

For sure now (or ever) is not a good time to take a random advice from random strangers in the Internet.

Probably a bad time, no telling where the bottom is. Especially if you need the money soon?

it's early. Usually steep consecutive drops take a while to recover. You might miss the very bottom, but you'll do better than jumping in too quickly. Relax and watch it, cash in this moment is a good thing to have.

IMO, its a very good time. I'd suggest spacing the investments out over a period of time (maybe 2-3 months), though. If it keeps going down for a while, this will lower your total cost of purchasing shares. Obviously the downside is that it would slightly decrease your returns if things move back up in the short term.

Its a good time. Divide your savings over a couple of months, and every week put in a bit to DCA into the market

How's it a good time? This is the second time this happened. How do you know a third and fourth won't happen?

This is why you Dollar Cost Average though. You do the same thing the 3rd and 4th time it happens. It's extremely unlikely there will be a 5th, 6th, etc (if there is, we probably have more important things to worry about like 25% of the world dying)

DCA is riskier and has lower returns than lump-sum investing.

>DCA is riskier

Actually no. Risk = Reward. DCA is less risky, but lower returns than lump-sum investing.

As always, you can cherry pick cases when it underperforms and when it outperforms.

Nope. Studies show it's riskier.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=820004

>Risk-averse investors who prefer dollar-averaging can accomplish the aim of risk reduction more effectively by lowering the fraction of funds invested in the risky asset and investing them all at once.

If you invest the same total amount of money for a constant exposure to the market measured in funds*time in the market, you have higher risk choosing to rely more strongly on the later years (which is DCA) than evenly spreading out the exposure over time (which is lump-sum investing). Theory is very simple. Lump sum is diversification and DCA is the opposite - diversification is a "free lunch" producing lower risk with higher returns.

The study you cite shows this is only true for when there is a positive expected risk premium, hence the evidence only supports cherry picked cases.

Additionally, if you read it, the paper admits the DA is inherently less risky than LS, so it attempted to even out risk by adjusting the investment amounts between the two methodologies until expected returns were even, and then compared. This method is arguably flawed for fairly evaluating total risk, since the total invested amounts at risk are different - that is, it relies on the reward to balance out the risk (ie. a positive risk premium). As so it's mostly tautological evidence...

If there's no expected risk premium, then buying stocks has a 0 expected return, and it clearly doesn't matter how you buy them.

> the total invested amounts at risk are different

Obviously, you need to invest the same amount in total to have a valid comparison. If your argument is that DCA is investing a lower amount, and is therefore lower risk, then the answer is that a lump-sum strategy investing the same amount as DCA is both lower risk and higher return, and therefore strictly better.

>If your argument is that DCA is investing a lower amount, and is therefore lower risk

That's not what I said, in fact the study does the opposite.

>then the answer is that a lump-sum strategy investing the same amount as DCA is both lower risk and higher return...

The problem is that argument only holds true for positive risk premium scenarios. Obviously LS has a potentially higher rewards, because if I bought 100x at $1, and it goes to $2, my reward will better than buying 10x at $1, 10x at $1.10, and so on. Since LS has potential higher rewards, when risk premium is positive, then the reward / risk will also be better with LS. This is a tautology.

The study's evidence only supports these cherry picked cases (positive risk premium scenarios). The market doesn't always have a positive risk premium... it can be also be negative! (like right before a market crash).

You could argue that the risk premium is positive given long enough time frames, or that the market is more often in a positive risk premium state, hence LS is better. But even this is debatable, as no matter how many years of evidence you give, past performance is no guarantee of future results.

If I cherry picked the Nikkei 225 as my case, by comparing LS invested in Jan 1990, vs DCA from then to any timeframe afterwards, DCA would of been less risky than LS at every time frame...

All in all, DCA is a inherently less risky strategy. The study even says so...

>That's not what I said, in fact the study does the opposite.

The study explicitly says it's lower risk because it's investing a lower amount.

If there's a negative risk premium, then any strategy that invests less will automatically do better. But lump-sum will still do better than DCA with the same amount of exposure, since it's still better diversified.

The only thing that can be said with certainty is that it's a better time than a week ago.

you should wait until people around you stop asking that question at least. grab some popcorn and wash your hands in the meantime.

Yes, it's a bad time. In that there is absolutely no understanding of where the bottom might be, and anyone claiming otherwise is a charlatan or a fool.

While shares have been pummeled, for many large caps this just erases a few months of gains during a particularly frothy period. If some airlines start declaring bankruptcy, Boeing declares bankruptcy, etc., things can get a lot worse.

In the coming months the actual financial impact is going to start hitting a lot of organizations.

You say it's a bad time, and in the next sentence claim, no one knows the bottom. A bit contradicting.

It isn't contradicting at all. It's a bad time because it is hyper volatile, and there is a lot more room for it to drop than to gain.

That doesn't mean it will drop. It means that saying "it's a good time to buy everything is on sale!" is absurd but common (and people have been saying it since the first drop on February 24th, and will never learn from their wrong advice). There are few scenarios where there is going to be a rapid rise in the market in the near future.

I wouldn't think we are at the bottom yet. But no one knows.

No one can tell you. Consider this though. It is highly likely that the US will institute a lock down in the next few weeks. Exponential growth is nothing to be trifled with. Major world economies may stay in partial lockdown until we have enough herd immunity for our hospitals not to get destroyed by this virus. Most estimates have a possible vaccine 12-18 months out. I doubt the markets have priced this in, because it's practically unfathomable. But the US is running out of options and the virus is already spreading widely here.

People seem to ignore the relative success of South Korea. Wouldn't say life is normal, but it's not under lockdown and new cases have dramatically fallen.

If I had cash lying around or was less skittish about leveraging myself, I'd be buying here.

South Korea however did that one thing that the US is not doing: testing the hell out of people.

Oh, and communicating well-measured responsive actions honestly to the public. That one thing, too.

What’s the indicator that this is the bottom? Stocks fell last night as soon as Trump opened his mouth. Stock market has been Wile E Coyote running on air for years, now the market is looking at the ground. America has a government incapable of sensible action. There’s a real possibility that the republic ceases to exist within the year, after Trump tries to delay or invalidate the election (and if you think this is far-fetched, recall that’s what his pal Giuliani tried to do after 9/11, so it’s in their playbook).

There’s non-zero volume and interest in S&P future puts striking at 1000. There’s plenty of potential downside.

Please keep this kind of stuff in /r/politics. It has no place on HN.

Government is not politics.

Reply on news.ycombinator.com