I'm struggling with feeling like the market is currently overpriced. I know it's not wise to try to time the market, but is it obvious right now? Or am I getting caught up in opinions, PE ratios, etc? I currently have a good sum of cash waiting to invest, and I'm not sure if I should keep waiting or if I should start investing again. I'm only 25 so I feel like I may need to just keep investing and not worry about it. Any advice?
I have two thoughts.
1. You're 25. You should
hope the market is overpriced and crashes soon, then stays in a bear market for quite a while. You have 6-7 decades of investing in front of you. If you start off investing when the market is down, you can buy more shares for the same $$, so that when the market recovers, you will own many more shares that will grow with the recovery. The worst scenario you can have is a bull market during your entire investing life, which then crashes when you're ready to retire and stays low for quite some time.
2. What are the world/national events that are creating this fear within you of a pending crash? Name a couple of big uncertainties/fears that make you believe the market is overpriced and heading for disaster. Now: go listen to "We Didn't Start the Fire." Imagine each of the world events listed as "feeling" just as important as the issues you have named. Because I guarantee you, to the people who lived through them, they were.*
Now go look at what the stock market did over that timeframe. Yes, you will see many blips -- some a day or two, some months, some a few years. But what happened then? In each and every case, the market recovered and far exceeded its prior peak.
The reality is that all of us who are invested in the market are relying on it continuing a similar long-term trajectory -- maybe more, maybe less, but overall, going up. Frankly, if that doesn't happen, it will be the result of major shifts in the global economy or political situations, in which case none of us will be FIREing anyway. If you don't think the market will go up over the long term, you shouldn't be investing in it; go by rental properties, or start a business, or something else. If you do think the market will go up over the long-term, then the money you are investing for that long-term should always be in the market, period. And if your long-term money is going to be in the market, you want it there now -- because, duh, our entire premise is that buying the same number of shares will cost you more tomorrow (or next week/month/year) than they cost today. Sure, there will be fluctuations, and you might guess wrong. But the odds are pretty good that you're not going to luck into investing the very day before a giant market nosedive. Play the averages.
Of course, if some of that money isn't long-term money -- if you may need it in the next 3-5 years -- then don't put all of it in the market. The best way to guarantee you panic and cash out in a down market is to invest money that you need right then. Make sure your short-term is covered, then invest the rest and ignore it for the next however many years.
*I'm probably pretty massively jaded here, but there's very little over the past few decades that has made as much of an impression on me as my teenage years waiting for the Soviets to nuke us all.
