Economy crash =/= stock market crash?

adindas

GazzaBloom said:

Vanguard have studied the 2 strategies here:

https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf

"We conclude that if an investor expects such trends to continue, is satisfied with his or her target asset allocation, and is comfortable with the risk/return characteristics of each strategy, the prudent action is investing the lump sum immediately to gain exposure to the markets

as soon as possible. But if the investor is primarily concerned with minimizing downside risk and potential feelings of regret (resulting from lump-sum investing immediately before a market downturn), then DCA may be of use."

and a study with 3 examples here comparing lump sum at the top of the market just before a crash vs DCA:

https://seekingalpha.com/article/4471728-getting-in-at-the-worst-time

Conclusion

"Based on history, it pays (quite literally) to begin investing ASAP, and to keep investing in the market as often as possible... even in the worst case scenario where the market crashes right after you start to invest. History shows that by investing early, you do ~10.3% better on average than you'd do if you saved your money and only started to invest from the lowest month of the past three bear markets. On the other hand, flawless market timing (Scenario 3 in my example) only earns ~3.1% more money than the investor who starts investing right before the crash. Although investors may be wary because markets are at all-time highs, history has shown that investing early and often is generally the best approach - even if you start right in front of a bear market."

As mentioned above I DCA monthly as that is how I get paid but will lump sum a chunk from an annual bonus payment each year.

Well, keep in mind we are talking about investing lump-sum vs DCA in the bear / declining market. Is that case above particularly referring to bear / declining market??

Also does the study take into consideration the fact that if you have lumpsum and intend to DCAs, the sensible people, retailer investors will put part of their money into high interest saving accounts, RSAs, current accounts currently paying interest rate higher than the market return while waiting allocation for DCA, not sitting idle doing nothing ? Do people need a research to find out that in the short run +4% (say) in saving is better than -15% (say), where people could easily see that +4% is higher than -15%.

The default is that the Bull market run much longer than the bear market.

InvesterJones

adindas said:

GazzaBloom said:

Vanguard have studied the 2 strategies here:

https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf

"We conclude that if an investor expects such trends to continue, is satisfied with his or her target asset allocation, and is comfortable with the risk/return characteristics of each strategy, the prudent action is investing the lump sum immediately to gain exposure to the markets

as soon as possible. But if the investor is primarily concerned with minimizing downside risk and potential feelings of regret (resulting from lump-sum investing immediately before a market downturn), then DCA may be of use."

and a study with 3 examples here comparing lump sum at the top of the market just before a crash vs DCA:

https://seekingalpha.com/article/4471728-getting-in-at-the-worst-time

Conclusion

"Based on history, it pays (quite literally) to begin investing ASAP, and to keep investing in the market as often as possible... even in the worst case scenario where the market crashes right after you start to invest. History shows that by investing early, you do ~10.3% better on average than you'd do if you saved your money and only started to invest from the lowest month of the past three bear markets. On the other hand, flawless market timing (Scenario 3 in my example) only earns ~3.1% more money than the investor who starts investing right before the crash. Although investors may be wary because markets are at all-time highs, history has shown that investing early and often is generally the best approach - even if you start right in front of a bear market."

As mentioned above I DCA monthly as that is how I get paid but will lump sum a chunk from an annual bonus payment each year.

Well, keep in mind we are talking about investing lumpsum vs DCA in the bear / declining market. Is that case above particularly referring to bear / declining market??

Also does the study include the option where retailer investor put their money in high interest saving account, RSA, current account currently paying higher interest rate than the market return waiting allocation for DCA ? 

The default is that the Bull market run much longer than the bear market.

If you know the market is going to decline then of course you don't lump sum at the start, you lump sum at the end

adindas

InvesterJones said:

adindas said:

GazzaBloom said:

Vanguard have studied the 2 strategies here:

https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf

"We conclude that if an investor expects such trends to continue, is satisfied with his or her target asset allocation, and is comfortable with the risk/return characteristics of each strategy, the prudent action is investing the lump sum immediately to gain exposure to the markets

as soon as possible. But if the investor is primarily concerned with minimizing downside risk and potential feelings of regret (resulting from lump-sum investing immediately before a market downturn), then DCA may be of use."

and a study with 3 examples here comparing lump sum at the top of the market just before a crash vs DCA:

https://seekingalpha.com/article/4471728-getting-in-at-the-worst-time

Conclusion

"Based on history, it pays (quite literally) to begin investing ASAP, and to keep investing in the market as often as possible... even in the worst case scenario where the market crashes right after you start to invest. History shows that by investing early, you do ~10.3% better on average than you'd do if you saved your money and only started to invest from the lowest month of the past three bear markets. On the other hand, flawless market timing (Scenario 3 in my example) only earns ~3.1% more money than the investor who starts investing right before the crash. Although investors may be wary because markets are at all-time highs, history has shown that investing early and often is generally the best approach - even if you start right in front of a bear market."

As mentioned above I DCA monthly as that is how I get paid but will lump sum a chunk from an annual bonus payment each year.

Well, keep in mind we are talking about investing lumpsum vs DCA in the bear / declining market. Is that case above particularly referring to bear / declining market??

Also does the study include the option where retailer investor put their money in high interest saving account, RSA, current account currently paying higher interest rate than the market return waiting allocation for DCA ? 

The default is that the Bull market run much longer than the bear market.

If you know the market is going to decline then of course you don't lump sum at the start, you lump sum at the end

Also similarly, if people had a crystal ball Lump-sum always beat DCAs do not they ??

Do not you know that in the bear market it does not mean the stock market will keep declining, falling all the time. In the bear market the stock market going up but down again like yoyo, typical within a channel before sometimes falling again reaching a new low. There is what is the so called bull trap, dead cat bounce. If it keep declining all the time it is going to zero. This is common sense.

Because you do not know where the bottom is (unless you have a crystal ball), imo you will have a higher probability to make a better decision by doing DCAs as in the bear market as the stock fall more than it raises. Also mainly because part of your lumsump money are sitting in high interest Saving accounts, RSAs waiting allocation for DCAs. As I mentioned before, people could easily see that at the moment 4% (say) in saving is better than -15% (say) with stock market return, no research is needed to see that +4% is higher than -15%.

What are the data, the analysts / strategists the news have been saying ? Are we in the bull or bear market ?? Does any authoritative sources, any single wall street analyst even the most bullish one has ever said we are now in the bull market ?

Also what are they suggesting the people to do during the bear market ?

Knowing the bear market is not about knowing the exact flipping point as bear market is a period of a few months and sometimes years.

adindas

Another Green day today. And CBOE Volatility Index keep coming down 

BrockStoker

Big banks set aside $4 billion for a recession. Investors are more optimistic

Crypto surging, analysts saying biotech is "red hot". Looking like risk is back on.

peter021072

I'm usually a fan of Paul Lewis, presenter of R4 Money-Box, but he has stirred up criticism with some of his his 10 golden rules. For one he writes:

"I don’t invest. This has probably cost me a lot of money over the past 10-12 years when I could have invested my pension. My problem is that the fear of losing money is so much greater to me than the pleasure of making it, that I’m much happier when my money is just sitting there getting a little bit bigger every year. And of course, cash seems a pretty sensible option today, when you can earn 4.5 per cent over five years with no risk – there really isn’t an investment that will ever guarantee you that much." 

I think this reflects how many people, especially those on lower incomes who can't afford to lose feel about investing. Trouble is, 4.5% guarantees you lose money in real terms!  How many people on here adjust their investment returns for inflation?

adindas

peter021072 said:

I'm usually a fan of Paul Lewis, presenter of R4 Money-Box, but he has stirred up criticism with some of his his 10 golden rules. For one he writes:

"I don’t invest. This has probably cost me a lot of money over the past 10-12 years when I could have invested my pension. My problem is that the fear of losing money is so much greater to me than the pleasure of making it, that I’m much happier when my money is just sitting there getting a little bit bigger every year. And of course, cash seems a pretty sensible option today, when you can earn 4.5 per cent over five years with no risk – there really isn’t an investment that will ever guarantee you that much." 

I think this reflects how many people, especially those on lower incomes who can't afford to lose feel about investing. Trouble is, 4.5% guarantees you lose money in real terms!  How many people on here adjust their investment returns for inflation?

No risk no reward.

These are options that people will need to choose. If you stay on saving it is guaranteed you will lose your money to inflation. If you stay invest the history of the stock market has shown that in the long run the stock market has always gone up and beat the return you get from saving and/or bond. So there is very high probability, that you will beat inflation and multiplying your profit through compounding. Let alone he is talking about 10-12 years. No bear market in the history have ever lasted that long.

Currently savings are attractive. But what about a few years later? People are not restricted to either saving or invest option as people could do both at the same time and rebalance it, adjusting their risk vs reward.

This is a good quotation from a proven billionaire investor

And from the intrepid Romans about taking risk : "Fortune Favour the Brave"

But people do not take unnecessary risk for nothing. Also people will only risk the money they could effort to lose.

masonic

peter021072 said:

I'm usually a fan of Paul Lewis, presenter of R4 Money-Box, but he has stirred up criticism with some of his his 10 golden rules. For one he writes:

"I don’t invest. This has probably cost me a lot of money over the past 10-12 years when I could have invested my pension. My problem is that the fear of losing money is so much greater to me than the pleasure of making it, that I’m much happier when my money is just sitting there getting a little bit bigger every year. And of course, cash seems a pretty sensible option today, when you can earn 4.5 per cent over five years with no risk – there really isn’t an investment that will ever guarantee you that much."

In fairness, at least he is now referring to it as a mistake and acknowledging it has caused him to lose out. I remember the original "research" he promoted suggesting that cash beats shares over the majority of 5 year periods. It is well worth a read to understand the major flaws (*cough* FTSE100 *cough*)

https://paullewismoney.blogspot.com/2016/06/cash-vs-shares.html

It would be interesting to see an update on this study.

peter021072 said:

I think this reflects how many people, especially those on lower incomes who can't afford to lose feel about investing. Trouble is, 4.5% guarantees you lose money in real terms!  How many people on here adjust their investment returns for inflation?

Returns after inflation tends to be the standard when referring to investments. But it is important to understand that you can't know for sure how that 4.5% rate today will be measure up to inflation, because inflation over the time you held that account will only be known with hindsight. Real returns of both cash and other asset classes will be unknown until after the end of the period being measured because the inflation figures are published a month or two in arrears. Today's inflation percentage relates to inflation over the previous 12 months. We are still waiting for the annual figure from December 2021-December 2022.

If you are looking at your personal investment returns, then the best thing to measure against is your personal rate of inflation, which could differ significantly from official figures. I'm an advocate of tracking both.

Bravepants

Traditional savers are drawn by higher interest rates, but do often forget to take inflation into account. I believe that many people have no idea what inflation is or how it relates to interest rates! They have simply followed their parents/grandparents "wisdom" of keeping cash in a tin box under the bed, or a bank account. My grandmother fell foul of inflation when she chose to take her widow's pension at a flat rate in 1978.  Because she would get more in the short-term she neglected the long term rises with inflation. She saw prices rise in her lifetime but didn't really understand the link between interest rates and inflation, pension income. 

Now, I'm a pretty well educated person, but I was also the same for a while. I wasn't interested in how the economy worked until I began to invest my money in my forties. So I thought of interest rates without making the link to inflation. I didn't understand the link between the two. Now I'm a more rounded sensible adult and have actually begun to take an interest in the world, rather than having my face in a computer screen doing my job and making money and performing the daily rituals of living, I have the time and energy to think about things properly.

Simply being taught about such things at school (although probably boring at the time) would have actually given me and others a better chance at making these important links. Hearing about it on the news is pointless without actually some knowledge about how it all works. 

adindas

https://www.barrons.com/articles/what-to-know-today-51673427144 Jamie Dimon Is Changing His Tune About an Economic Hurricane. He’s Not Alone. Jan. 11, 2023

"He clarified Tuesday that maybe he shouldn’t have said last year that an “economic hurricane” is coming"

Completely different tone with his previous tone

https://www.cnbc.com/2022/06/01/jamie-dimon-says-brace-yourself-for-an-economic-hurricane-caused-by-the-fed-and-ukraine-war.html

Jamie Dimon says ‘brace yourself’ for an economic hurricane caused by the Fed and Ukraine war. Wed, Jun 1 2022.

Type_45 frequently quote Jamie Dimon to cast his prophecy about 80% fall in the stock market by the end of last year.