Are the Markets Too High to Invest?

Anonymous101

Bravepants wrote: »

If you are uncomfortable popping in a lump sum, then drip feed. I have a DC AVC as part of my pension planning. I put in 15% of my gross monthly salary each month to save paying 40% tax. I've recently increased from 10%. I wouldn't be able to cash it out temporarily and then put it back in again as it's a pension.

I also have an ISA and I am happy to drip feed that too. I'm not worried as it's money I won't need for 5 to 10 years. If the market falls by 30% I will still drip feed. The market is unpredictable no matter how much "evidence" there is out there. Just drip feed and relax.

P

I take exactly the same view.
I've also increased my AVC to similar amounts to you recently too! :money:

Added to this I've recently done very well out of trading some shares in the company I work for. So I had a lump sum I wanted to reinvest similarly to the OP. I've split this into 3 and invested into the funds I'm drip feeding within my ISA. I've taken the view that I don't particularly NEED the money right now (it wouldn't be in the ISA if I did!). So if the worst was to happen and it fall dramatically I'd simply leave it invested for long enough for the market to rise above where it is now. So long as the horizon is long enough in the future I don't particularly see a problem with investing lump sums.
Obviously I'm cautious about this and read up on where i'll be investing but I don't see it as taboo as some might have you think.

AnotherJoe

veryintrigued wrote: »

Very few of those already invested will say yes as its in their interest for more people to invest.

**stands back and puts tin hat on**

Absolutely, the influence of this forum is well known on Wall Street, and I've often seen posters crash the market merely by hinting they may dump their £10k's worth of VLS20.

smjxm09

When has the stock market lost 30% overnight? Never.

Who said anything about overnight?

atush

Drip feed the money in each month instead. Or put it all in now (ie before april 6th) and then infest it by drip feeding within the platform.

Say you have 10K, put in 1K per month for ten months etc.

Thrugelmir

Simon.Edmunds wrote: »

Just go on to Morningstar and review the performance of the US stock market for last 30 years.

In reality it's only been driven by 800 out of 25,000 shares. With Microsoft and Apple alone contributing a significant proportion of the increase. When markets are high. Individual stock selection is the key.

BLB53

10% from when? Today ? Last week ? Suppose there is no 10% drop from a high point until it's gone up 30%, so it would be 20% up from now? Would you invest then, at 20% more than now ?

Yes, 10% from the market high point which is ~7,400 for FTSE100 and therefore looking at ~6,650 level (and sterling above $1.40).

I have made a good return over the past few years - 20% in 2016 alone so I am happy to bank this and bide my time.

Of course, the markets could continue to rise but I am not greedy and content to sit out the rest of the bull run which has been playing out (with a few blips) since 2009.

I am happy for anyone who will make a good return by staying in the market for the next few years...but it's a bit of a gamble..isn't it?

bowlhead99

veryintrigued wrote: »

Very few of those already invested will say yes as its in their interest for more people to invest.

**stands back and puts tin hat on**

You are right of course. Telling people to dis-invest and de-ramping stocks rather than talking them up is bad for our own investments. You tend to see people more likely to do that when they have accumulated cash on the sidelines and are looking for an entry point.

BLB53 wrote: »

Also the drop in sterling v the USD is making global funds more expensive. I expect the pound to bounce back (or the dollar to fall) before I top up my Lifestrategy fund.

The failure of Trump to get one of his major sweeping reforms (repeal of 'Obamacare') past his own party, let alone the opposition, has caused a bit of a reversal in both US markets and dollar strength. The pound strengthened to over 1.25 and even though it fell back a bit today it's still almost 3% higher than where it closed against the dollar two weeks ago today. That puts it higher than the average of the last five months since mid October.

In fact, against a basket of global currencies (Bloomberg Dollar Spot Index) last night the dollar had given up 2% in March and a total of 4.9% since its peak of 3 Jan. So you could perhaps say you should be half way towards buying in after the 10% drop you're waiting for.

Simon.Edmunds wrote: »

When has the stock market lost 30% overnight? Never. It's an invalid point. Just go on to Morningstar and review the performance of the US stock market for last 30 years.

You are right of course. If you go back 29.5 years you get to Black Monday, when the US Dow index lost almost 22% on a single day. Over the next couple of weeks most major exchanges were off by 20% despite being in different currencies and other parts of the world. There was not even one sole major news event over the previous weekend that took the blame for it - just a bunch of things, and the market decided it would factor them all in that day.

Of course that "only" almost 22% is not 30%. So you are technically right that it's unlikely you would wake up tomorrow and have lost 30%. What is more likely to happen is that you experience a series of declines with some sharper than others and some relief rallies that don't sustain themselves. If you wanted to look at just the last ten years, you'd see that the largest peak-to trough drawdown in that time period was 2007-2009 in which the FTSE All-World stock index as measured in USD lost 57.9%. It was not a fun time to be investing dollars.

Of course, it was not just one day. The "just one day" in the middle when the US House declined to bail out Lehmans only saw S&P500 lose about 9% (first time the US market lost a trillion dollars in a day). But any smart investor knows not to give up holding investments just because the market has had more down days than up days over a year, right? So, that investor dutifully following the advice to stay invested from the start to the end, found themselves down 58% from the last peak that they'd been enjoying (even after counting the dividends they'd been receiving from this index of globally diversified companies).

As an aside, the US equity index is up today but yesterday it closed down for the seventh time in eight days. It had probably not seen more than five daily rises since the first day of the month. Any week could be a reasonable week to call the beginning of a huge decline, through which people who were not vested in your personal financial situation would say "keep holding the index, you can't lose with the index, the smart money knows the index always makes money". Beware of such people and only take on risk and volatility that you can stomach.

As long as your investment horizons are 5-50 years in length and you invest in passive trackers you simply cannot lose.

Correct again of course. 50 years is not going to produce a loss unless by that point we're all out in the fields fighting World War Four with sticks and stones.

Five years in trackers on the other hand, could *very* easily produce a loss and it's disingenuous to suggest you "simply cannot lose".

Take the above example of the 57.9% loss in USD terms of the FTSE All-World index which has c.3000 constituents. If you're down 58% on a total return basis, you only need to hold on for a recovery over two to five to ten years to get your 138% market growth from that point and you'll be back where you started. Maybe if your indexes were lower risk than global equities, you wouldn't have lost so much. But if you stayed in them you wouldn't get the recovery so swiftly either.

grey_gym_sock

Thrugelmir wrote: »

In reality it's only been driven by 800 out of 25,000 shares. With Microsoft and Apple alone contributing a significant proportion of the increase. When markets are high. Individual stock selection is the key.

over long periods, most of the return in stock markets comes from a minority of companies; and it may even be that the majority of companies lose money for investors. of course, with a large dispersion of returns, if you can pick the best-performing companies, you will get superior returns. but if you can't? (which is the more realistic assumption, for nearly everybody.) the overall returns from just buying everything (i.e. buying a capitalization-weighted tracker) have been well worth having, over long periods of time.

but i don't see why this is any different when markets are 'high'. when 'high' just means they've been rising. actual valuations (price relative to earnings, or similar measures) don't seem crazily high in most stock markets - including in the US, where valuations might be a bit high, but not crazily so. some markets look cheap in terms of valuations.

most of time, stock markets go up. so it's normal for markets to be 'high' - i.e. to have been rising recently. that's not a good reason to avoid buying.

less often, markets fall - but this tends to be more dramatic than the rises. you need to be prepared for that to happen at some time, and not to sell in a panic if it happens. if you'll panic, you might be better off not buying in the first place. or better off preparing yourself, so you'll be able to avoid panicking.

bowlhead99

grey_gym_sock wrote: »

most of time, stock markets go up. so it's normal for markets to be 'high' - i.e. to have been rising recently. that's not a good reason to avoid buying.

less often, markets fall - but this tends to be more dramatic than the rises. you need to be prepared for that to happen at some time, and not to sell in a panic if it happens. if you'll panic, you might be better off not buying in the first place. or better off preparing yourself, so you'll be able to avoid panicking.

I endorse this message.

If this forum had a proper set of "stickies", then in addition to at least 500 of my worthy missives, it would be there among them.

Linton

grey_gym_sock wrote: »

over long periods, most of the return in stock markets comes from a minority of companies; and it may even be that the majority of companies lose money for investors. of course, with a large dispersion of returns, if you can pick the best-performing companies, you will get superior returns. but if you can't? (which is the more realistic assumption, for nearly everybody.) the overall returns from just buying everything ([STRIKE]i.e.[/STRIKE]e.g. buying a capitalization-weighted tracker) have been well worth having, over long periods of time.

but i don't see why this is any different when markets are 'high'. when 'high' just means they've been rising. actual valuations (price relative to earnings, or similar measures) don't seem crazily high in most stock markets - including in the US, where valuations might be a bit high, but not crazily so. some markets look cheap in terms of valuations.

most of time, stock markets go up. so it's normal for markets to be 'high' - i.e. to have been rising recently. that's not a good reason to avoid buying.

less often, markets fall - but this tends to be more dramatic than the rises. you need to be prepared for that to happen at some time, and not to sell in a panic if it happens. if you'll panic, you might be better off not buying in the first place. or better off preparing yourself, so you'll be able to avoid panicking.

Exactly, well nearly exactly - just one little change.