Bear markets - strategies for coping

Notepad_Phil

Albermarle said:

It only matters how many times you check them, if you actually respond in some way to the short term movements.

If you are the type who is not easily panicked, then if you check them once a year, or four times a day, it does not really matter. I check mine regularly as it helps me ( I think) to see how different types of investments react differently to different market conditions. So I think it assists in my learning process.

However if you are the nervous/Armageddon is around the corner type, then probably best not to look.

A +1 for the learning process.

I'm now early-retired but I started looking at the stock market prices in my Dad's daily newspaper when I was in my teens and I became fascinated by the fact that prices could go up during bad times and down when everything looked sparkly, that the change in direction could be very swift, and also that sometimes companies that had previously been praised by the press suddenly became pariahs.

That habit of looking at the financial pages of the papers (or nowadays the web) on a frequent basis has never left me, but I've never once thought that I should sell up during the bad times as I know from my years of looking at the stock markets that provided you're invested in a suitably diversified portfolio then prices will eventually return and that they can start that upward journey in very quick bursts.

JohnWinder

No, not at all. I pointed to the simulation of buying the SP500 over some decades in response to your 'buy the dip'. Only after that did you mention something not captured by that simulation, ie having a lump sum to invest in addition to regular salary savings to invest.

I have no idea whether your recent strategy is good or bad; I only wanted to use it to point out that there is another point of view which has some clearly demonstrated validity that I suspect many forum readers weren't aware  of.

Linton

Swipe said:

JohnWinder said:

Here's a brutal take on catchy slogans:

'Also, of course, keep in mind that catchy slogans sound good-- a) "Buy the dip" b) "Buy low, sell high" c) "Don't try to catch a falling knife" d) "Cut your losses and let your profits run" --but a and b are the exact opposite of c and d. Slogans like "buy the dip" are not really sound or consistent advice on what to do. They are really a stock of things that pop into your mind as pseudo-justifications for whatever it is that you want to do. If you want to buy, you tell yourself that you are "buying the dip." If you want to sell, you tell yourself that you are "cutting your losses."'

So are you suggesting I should have just lump summed all my house sale proceeds into the market in January at the all time highs? Even the 2012 Vanguard study says that DCA is statistically better over lump sum in a falling market.

The problem withn not buying at an all time high is that as markets generally rise over time they are at an all time high more often than not. The next fall could be to a price higher than the current one.  There is no way of predicting this.

Sure, DCA is better than putting in a lump sum in a falling market.  However you dont know it is a falling market until the fall is well under way, and equally you do not know it has rebounded until too late.  Add in the effects from when you guess wrongly and I think you will find that without the benefits of hindsight the gains from investing a lump sum in the market immediately outweigh any gains you make from delaying.

Swipe

My plan is to DCA in slowly and when the Fed stops rate hikes, monitor closely maybe increasing my amount and then lump sum when the Fed starts cutting rates.

dunstonh

Swipe said:

My plan is to DCA in slowly and when the Fed stops rate hikes, monitor closely maybe increasing my amount and then lump sum when the Fed starts cutting rates.

At that point, the markets would have already gone up.  It is too late

Swipe

dunstonh said:

Swipe said:

My plan is to DCA in slowly and when the Fed stops rate hikes, monitor closely maybe increasing my amount and then lump sum when the Fed starts cutting rates.

At that point, the markets would have already gone up.  It is too late

So should I lump sum when interest rate hikes are paused instead?

dunstonh

Swipe said:

dunstonh said:

Swipe said:

My plan is to DCA in slowly and when the Fed stops rate hikes, monitor closely maybe increasing my amount and then lump sum when the Fed starts cutting rates.

At that point, the markets would have already gone up.  It is too late

So should I lump sum when interest rate hikes are paused instead?

You won't know when its best and you will almost certainly miss the point it is.  However, markets price in what they expect to happen.  Its when things don't go as expected that you get more sudden movements.        Typically, that means they are 6 or so months ahead of what they think is going to happen.  Sometimes more.

It is also worth noting that interest rates have more impact on gilts and bonds than the stockmarket itself.  There are other influences a play on the markets.  So, if you focus on just one measure, you will miss the other things.

It is notoriously difficult to time the markets.  

Swipe

Well, I already have more than enough currently invested for my retirement so not catching the bottom is not a huge deal breaker for me. What worries me more, is inflation eating away at my remaining uninvested cash. I'd rather jump back in on the way back up than invest now and watch it go down even further + inflation compounded on top of the losses.

bostonerimus

Swipe said:

How can you buy the dip if you don't check them?

You will "catch" some of the dip by simply buying regularly. I think it's sensible to check your investments quarterly, or at most monthly, and then rebalance if necessary. That simple strategy has got me through many dips and several crashes.

bostonerimus

Swipe said:

Well, I already have more than enough currently invested for my retirement so not catching the bottom is not a huge deal breaker for me. What worries me more, is inflation eating away at my remaining uninvested cash. I'd rather jump back in on the way back up than invest now and watch it go down even further + inflation compounded on top of the losses.

What is your desired asset allocation ie cash/domestic equity/international equity/ bonds etc. You should be getting to that asap. Maybe you want to drip feed the money in over a year, but there is no way of knowing what strategy is best except with hindsight. Right now you are sitting on a load of cash and looking back you are glad you didn't invest just before the most recent dramatic falls in the markets and saying you did the right thing, but that tells you nothing about what you should do today. Where will the markets go in the next few months? Well if you are a long term investor you shouldn't worry about that and while you are waiting for the markets to do something your cash is being eroded by inflation and if you could be making larger pension contributions you are missing out on the tax advantages. Personally I would put your lump sum into tax advantages investments over the next year. You need a plan, not some vague "I'll jump back in when", because you will dither.