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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: muckabout on June 24, 2013, 07:56:06 AM

Title: Index fund now on overvalued market vs. waiting
Post by: muckabout on June 24, 2013, 07:56:06 AM

The S/E ratio seems to point to an overvalued market right now. I'd like to start putting money in an index but am leaning toward waiting until the overvaluation ends.

To me this is a tradeoff of risk between (a) losing some money if and when S&P contracts to "normal" valuation, vs. (b) definitely losing money to inflation using an online savings account. I suppose the risk distills to the question of whether S&P contraction be greater or less than inflation.

In this interpretation my options are (a) put the money in the index anyway, and accept that long term gains will still be good; (b) leave in the savings and wait; (c) hybrid: put some in index.

Perhaps there are different options/interpretations. Am I seeing this problem correctly?

Title: Re: Index fund now on overvalued market vs. waiting
Post by: matchewed on June 24, 2013, 08:08:56 AM

What is your timeline for the money? If it is greater than five years now is the time to invest. If it is less than five years it is probably a bad idea to invest the money.

The timeline for any investor is long. The market is not overvalued in a 30+ year timeframe.

Title: Re: Index fund now on overvalued market vs. waiting
Post by: eriyisu on June 24, 2013, 08:24:32 AM

I am not qualified to give any investing advice b/c I am only beginning to learn about it but boy there is an article by jlcollinnh (he is on MMM's blogroll) that was dedicated to a question so very similar to yours.  I certainly found it helpful and maybe you'll get something out of it as well:

http://jlcollinsnh.com/2013/05/22/stocks-part-xviii-investing-in-a-raging-bull/

Title: Re: Index fund now on overvalued market vs. waiting
Post by: Will on June 24, 2013, 10:07:52 AM

+1 to what eriyisu said (and linked to).

What you are trying to do is time the market. It is a losing battle. 

Title: Re: Index fund now on overvalued market vs. waiting
Post by: arebelspy on June 24, 2013, 10:24:15 AM

Quote from: eriyisu on June 24, 2013, 08:24:32 AM

I am not qualified to give any investing advice b/c I am only beginning to learn about it but boy there is an article by jlcollinnh (he is on MMM's blogroll) that was dedicated to a question so very similar to yours.  I certainly found it helpful and maybe you'll get something out of it as well:

http://jlcollinsnh.com/2013/05/22/stocks-part-xviii-investing-in-a-raging-bull/

Great link, thanks for sharing, and welcome to the forums!