Timing the market

Alexland

TrustyOven wrote: »

What happened this week?
I think I saw on one day, a ~ 1% drop and I shrugged. I had a buy order pending as well. Hmm.

I guess some people were pleased with the initial January surge and a lot of those gains would have now reversed out and most high equities investors would be slightly negative on YTD return.

I noticed that the pound is for the first time stronger against the dollar than in a brief period in early 2016 before the Brexit vote. So although you investments might have taken a slight ding you can buy more imported goods with your money.

Alex

Glen_Clark

economic wrote: »

Not really. Those who had been invested had made gains so would probably have reduced gains. The new investor would be the loser.

That's one of the things that makes long term investors feel more relaxed about a crash.
But when the market falls 40% we have all lost the same 40% from where it was before.

bowlhead99

ValiantSon wrote: »

Agreed. Not being able to time the market is exactly an argument for not drip feeding.

Drip feeding is a solution to the psychological problem of putting your life savings into something that you acknowledge you can't control or into a market which you can't accurately time.

People like OP may be legitimately concerned that they are about to shift a bunch of life savings from cash to investments and then find that they could have got a lot more investments for their money if they had waited until next week, month or year. So they have to decide whether they want the investment, or not, or - as a third option - just drip the money through in phases.

However there is obviously a fourth option which says if you are nervous about the scale of ups and downs which you might experience if you dump all your money into the market on Monday morning, simply buy a lower risk investment. And later when you feel more confident (e.g. after being in the market for a while through thick and thin), then 'upgrade' your investment to the riskier investment that you had first identified as one you would probably eventually like to own.

In that way you are only taking 'baby steps' to get the investment that your friends and peers have, without going over the same 'cliff edge', but you don't have the majority of your wealth languishing in cash for months to come. Drip feeding involves having part of your investible money in zero risk (cash) and part of it in higher risk assets (the investment you ultimately want). Rather than holding assets at those two extremes of your personal risk spectrum and shifting the ratio every week, month or year, it may be more sensible to just pick a middle ground and pile into a fund with more middling volatility on Monday- accessing its risks and rewards right away.

The adage that "time in the market" is best for wealth maximisation is a simplification. Really, what gets your wealth up is the *right* time in the *right* markets. Unfortunately, we do not know what will be the right market to be in, at a particular time. And we don't know what will be the right time to be in a particular market. As such, logically you should be in all the markets all the time. That inevitably means getting the losses and bad times as well as the gains and good times, but it's OK because those gains and good times will - over a long enough timescale - cover the bad times with more to spare.

I am a fan of longer term broadly based investing but have my own preferences of where to be from time to time. But even when negative on certain markets (or sometimes on a lot of markets) I would keep investing - at whatever risk level I could handle - rather than diving back to cash and then having to time (specific month or bunch of months by dripping) when to get back in.

As spending the right time in the right markets is the way to improve your wealth in real terms, a sure way to fail is to not be in the markets at all. Or to only be in cash and slowly dripping at the markets in preference to finding an investment you can handle, and buying it.

Glen_Clark

bowlhead99 wrote: »

a sure way to fail is to not be in the markets at all. .

Haven't there been years when interest rates were above inflation?

ChesterDog

Investors can be divided into two groups.

Those who worry when markets are going up (because rising - especially to the apparently terrifying, oft-touted "all time highs" - must mean they are going to fall) and they worry when markets are going down (because, well, they're going down: it's obviously a crash!),

And those who know what they are doing and make very healthy longterm returns simply by ignoring all the people who run about shouting or whisper in dark corners.

Ray_Singh-Blue

I agree with Chesterdog's wise words. History shows us that the market goes up, relentlessly. Over a 30+ year investing career, that is where the main gains will come from. Timing of contributions and withdrawals is just a distraction and every bit as likely to cause pain as gain.

However... we all have different reasons for investing & these may influence thoughts about making a big lump sum investment in the stock markets, after a multi-year bull run, and at an all time high.

From a personal perspective:

Pensions - sure. If not drawing the pension for 15, 20, 25 years then to me it makes sense to keep investing in SIPP, automatically and monthly, without any reference to market valuations at this point in time.

But non-pension investments are different. I may have short or medium term plans for the money. Even if I don't at present, life may throw a curve ball and plans may change at short notice. So I personally would not invest a large sum, following a bull run, and with markets at an all time high. I would & have let my asset allocation drift a little towards cash, and wait and see.

capital0ne

economic wrote: »

Not really. Those who had been invested had made gains so would probably have reduced gains. The new investor would be the loser.

So what you mean is all new investors are losers. Which is all of us as we were all new at one point or other even good old WB himself!
Actually you're probably right, after dealing costs etc you will be down on your initial investment.

capital0ne

Glen_Clark wrote: »

That's one of the things that makes long term investors feel more relaxed about a crash.
But when the market falls 40% we have all lost the same 40% from where it was before.

You haven't lost anything when markets fall, you only lose if you cystalise your losses by selling and taking the cash and then you're an even bigger loser because of inflation, approx 3% loss per annum right now

capital0ne

Bravepants wrote: »

Depending on how much you have to invest you could drip feed monthly and take advantage of pound cost averaging. This means that you buy fewer units when the price is higher, and more units when the price is lower.

And of course pay more in dealing - say you're buying 4 funds, thats 48 buy fees as opposed to 4 - quite a bit that could be earning for you

capital0ne

ossie48 wrote: »

On Monday I put this years ISA allowance (£20k) into a VLS60..

I can never understand why anyone waits till the last few months of the tax year to invest their ISA allowance. If you've got it invest it on 6th April - works for me