Stock Market - would you buy now or wait?

[totoro]

We have now been waiting six months to invest $200,000 following the Canadian Couch Potato method (like Vanguard). 

No going back and changing that decision - I know I should invest and forget, but I thought there would be a better time.

So my question is what should we do now that there has been a drop. 

My inclination is to invest in $50,000 increments over the next four months, but I'm hesitant to pull the trigger...

[trailrated]

Mark W. Riepe, from Charles Schwab, tests perfect market timing against four other investment strategies in his article, Does Market Timing Work?

The study tracks the performance of five hypothetical long-term investors following one of the five following  investment strategies.

Perfect timing: investing at the market low each year;
Invest immediately: invest at the beginning of each year;
Dollar cost average: invest in 12 monthly installments (also mirrors payroll installment investments in a 401-k type retirement plan);
Bad timing: invest at the market high each year;
Stay in cash investments: stay invested in treasury bills.
Each investor received $2,000 at the beginning of every year for the 20 years ending in 2012 and left the money in the market, as represented by the S&P 500 index.

The table below shows the ranking order of performance  and  accumulated wealth over the 1993 – 2012 period for each investment strategy:

Strategy   Terminal wealth
Perfect timing   $87,004
Invest immediately   $81,650
Dollar cost averaging   $79,510
Bad timing   $72,487
Stay in cash investments   $51,291
The totally unrealistic strategy of perfect timing will always occupy the top place in the ranking.  The measured period was also one which included a realized equity premium return over cash investments.

The study then examined 68 rolling 20-year periods dating back to 1926. In 58 of the 68 periods, the ranking order was exactly the same. In only one period did investing immediately fall to the fourth ranking  (in 1962 to 1981, a period of weak equity markets). However, during that period, fourth, third and second places were virtually tied.

The study concludes that “the best strategy for most of us mere mortal investors is not to try to market-time at all. Instead, make a plan and invest as soon as possible.”

If you are confident you will buy and hold I would say go ahead and pull the trigger. If you are squeamish, or are planning to use some of the money short term, I would leave that portion out.  Hope this helped, I lifted it from the Bogleheads forum and used it in response to another post yesterday as well. Best of luck!

Keep in mind this is coming from someone that pulled the trigger and invested in the total stock market fund last week and "lost 5%" already. Am I worried, not at all because I am planning on holding for a very very long time.

[Pooperman]

Bogleheads info:

Lump-sum is the best you can do (i.e. invest all at once as soon as you can. The next crash could come tomorrow or in 5 years. Would you be willing to lose 3% of your money per year for 5 years (~16%) waiting for a 25% drop and deny yourself the ~2% from dividends over that time (combined ~27% loss compared to investing today). That also doesn't include that the market will grow until the crash (assume 10%/yr including inflation during good times). If you do, then your loss is ~32% when you buy at the bottom as compared to if you bought today!

http://awealthofcommonsense.com/worlds-worst-market-timer/

[swiper]

Hey totoro, would you mind sharing your planned fund/etf allocations?

I'm considering changing over from e-series to ETFs soon as the fees (for my balance/# trades) are about equal.

[Melf]

LOL.  I'm bringing the markets down as I've been investing recently.  I've rolled 130K from cash into VTSAX over the last two months and still riding it down.  I've got about 40K left to go so we're not at the bottom yet!  I didn't want to do it but I can't just keep waiting and waiting.

Marlan

[totoro]

Yes, I can post that info.  I ordered the book from the Canadian Couch Potato website and am following their advice entirely.  I have lent the book to my friend, but will get it back and post.  Might take a few days.

I don't have enough experience to feel confident not following a proven track.  I might reserve a bit to invest based on research on companies.

[Gone Fishing]

I'm plowing in some cash I should have invested a long time ago.  Sure the market may go lower, but it is already a much better deal than it was a month ago. 

[Allie]

LOL.  I'm bringing the markets down as I've been investing recently.  I've rolled 130K from cash into VTSAX over the last two months and still riding it down.  I've got about 40K left to go so we're not at the bottom yet!  I didn't want to do it but I can't just keep waiting and waiting.

Marlan

I also have some cash to move over but don't want to catch it on the way down.  Let me know when you are done!  :)

[hexdexorex]

Market timing is all speculative. I would buy and be happy you lucked out on getting it at a lower price than anyone else did this year.

[RichMoose]

Hey totoro, would you mind sharing your planned fund/etf allocations?

I'm considering changing over from e-series to ETFs soon as the fees (for my balance/# trades) are about equal.

If you are talking about purchase commission, then you don't need to wait. Just open up accounts with Questrade. They don't charge any commissions at all on ETF purchases (they do charge commission when selling). So as long as you're a buy & hold type of person with a predetermined asset allocation that you can stick to thick or thin then change now. As far as your account fees go, your bank will likely charge you about $150 per account to transfer to another institution. Check the Questrade website for promos because they frequently run promos to cover these costs for you if your account balances are over $25,000.

[totoro]

I'm not concerned about commissions, I'm concerned about market timing as there seems to be a bit of downturn right now.  I'm following the Canadian Couch Potato method which already minimizes fees:

http://canadiancouchpotato.com/model-portfolios/

[RichMoose]

I'm not concerned about commissions, I'm concerned about market timing as there seems to be a bit of downturn right now.  I'm following the Canadian Couch Potato method which already minimizes fees:

http://canadiancouchpotato.com/model-portfolios/

Historically lump-sum is often the best choice from a financial perspective, but that doesn't factor in your nerves I guess. Investing over 4 months isn't a bad idea as long as you stick to your plan and don't attempt to further time the markets. You may come out ahead, you may not, but as the saying goes "hindsight is always 20/20".

Also, international markets look pretty cheap right now when compared to North America and Canada looks cheap compared to US, so that might be a good starting point.

[cjottawa]

Read this: http://www.efficientfrontier.com/ef/997/dca.htm

It's hosted by none other than highly respected financial author William Bernstein. (Four Pillars of Investing, The Birth of Plenty et al)

TL;DR: don't DCA for more than 6-12 months; the advantages (statistically) aren't there.

YMMV.

[hybrid]

Another thing to consider is how much exposure do you already have to the market. I pulled out some of my funds from the market a few months back when more and more talk of necessary corrections kept popping up, and locking in a nice 13% gain for the year. If I do nothing else with that money it's been a good year. As I write the S&P is within 6% of that zenith, much of the bleeding earlier in the week has reversed when the S&P was closer to 9% off.

For me, right now, stocks may be 6% lower than in the summer but I am going to stay a bit more diversified by keeping some funds in cash for the interim. Stocks may be on sale relatively speaking, but not by all that much.

If the OP has no exposure to the market, OP needs to jump in the pool eventually. At some point OP just has to say %^&* it, here we go. If the money is going to be there for the long haul, the odds are with the OP. It's all just a gamble in the end, but better to gamble with the house odds, and the house odds say get in and stay in for the long haul. That is what my 401K funds are doing.

[DarinC]

I wouldn't go all in to the market right now, mostly because the P/E ratio is on the high side. Not that your money should just sit there, but you could go for something that might be less volatile like a bond/treasury/etc... (Currency?) mix, and invest some/all of that in the market after the P/E ratio drops a bit.

[bootyman]

Has any one considered going in immediatley with a conservative allocation, like 80/20 (bonds/stocks) then shifting it more aggressive id the market dips?

[johnny847]

Bogleheads info:

Lump-sum is the best you can do (i.e. invest all at once as soon as you can. The next crash could come tomorrow or in 5 years. Would you be willing to lose 3% of your money per year for 5 years (~16%) waiting for a 25% drop and deny yourself the ~2% from dividends over that time (combined ~27% loss compared to investing today). That also doesn't include that the market will grow until the crash (assume 10%/yr including inflation during good times). If you do, then your loss is ~32% when you buy at the bottom as compared to if you bought today!

http://awealthofcommonsense.com/worlds-worst-market-timer/

On the Bogleheads forum, some people respond to the "should I invest now?" question with "oh it must be Tuesday" =P

OP, as Pooperman advocates, lump sum is statistically the better choice (it works out to be better about 2/3 of the time). And I love pointing out that world's worst market timer article! Even if you invest at the worst of times you're still going to be just fine.

If you still can't stomach the chances of a drop, then put in half now and average the rest into the market over 6-12 months (but don't stretch that window out, it statistically doesn't work out for you if you do). But know that you are probably going to miss out on some investment gains by doing this.

[Bracken_Joy]

Following this. Recently had this debate with my dad. Enjoying the math.

[lostamonkey]

I'm also a Canadian and a firm believer in index investing.

IMO, if you have determined your asset allocation based on risk tolerance and are willing to keep your money in the market through thick or thin for an extended period of time, invest NOW.

Timing the market is next to impossible so just invest now and let the market do what it will and know that in the long run you made the right decision.

[dhlogic]

We have now been waiting six months to invest

I would have done it 6 months ago. Next best option? Tomorrow.

I second all the people mentioning that market timing is a losing proposition and DCA is good for losing out on gains.

[ShoulderThingThatGoesUp]

Market timing is for suckers.

[josstache]

J Collins has something on point:
http://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/

[morning owl]

I hear a lot of "don't try to time the market" blanket advice on this forum.

And while I agree with the premise of it -- it helps remove the fear of investing, or the illusion of false confidence -- there are circumstances where it doesn't make sense to put money into certain markets.

For example, we had a discussion in Investor Alley about whether or not a Canadian should buy US stocks right now. As in an index of US stocks.

To this I would say no, it's not a good time to do this. And yes, I realize this is timing the market. But when the CAD is at a low point, and the US markets are at a high, it is not a logical time to buy. There is some sense to looking for value in one's investments. And sure, the US market could go higher, and the CAD could go lower. But it's not being speculative, IMO, to presume the opposite. It's being cautious, especially since there are two factors, in two somewhat independent cycles, at play here.

What I mean by this is, one of 4 things can happen:

- US markets go higher, and CAD goes lower
- US markets go lower, CAD goes lower
- US markets go higher, CAD goes higher
- US markets go lower, CAD goes higher

3 out of those 4 things are in the Canadian investor's advantage to wait for. One of those things is not in their advantage. So, what path to take? It seems like waiting for one of the other 3 options would be worthwhile. This is what I mean by being cautious vs. being speculative.

[ysette9]

I am so glad I found this thread. We are in a very similar position as the OP but have a little more to move from savings over to Vanguard Total Market. We had decided to do $50K/week but now I think I have to go back home and talk with my husband again about moving it all at once.

[waltworks]

This comes up over and over - you don't know *when* the situation is going to change. While you wait to invest, you will lose money. If your advice is just to invest in CA stocks because they are undervalued, that's a different argument about efficient markets, of course, and maybe about catching a falling knife. But it's not market timing like just waiting is. 

-W

I hear a lot of "don't try to time the market" blanket advice on this forum.

And while I agree with the premise of it -- it helps remove the fear of investing, or the illusion of false confidence -- there are circumstances where it doesn't make sense to put money into certain markets.

For example, we had a discussion in Investor Alley about whether or not a Canadian should buy US stocks right now. As in an index of US stocks.

To this I would say no, it's not a good time to do this. And yes, I realize this is timing the market. But when the CAD is at a low point, and the US markets are at a high, it is not a logical time to buy. There is some sense to looking for value in one's investments. And sure, the US market could go higher, and the CAD could go lower. But it's not being speculative, IMO, to presume the opposite. It's being cautious, especially since there are two factors, in two somewhat independent cycles, at play here.

What I mean by this is, one of 4 things can happen:

- US markets go higher, and CAD goes lower
- US markets go lower, CAD goes lower
- US markets go higher, CAD goes higher
- US markets go lower, CAD goes higher

3 out of those 4 things are in the Canadian investor's advantage to wait for. One of those things is not in their advantage. So, what path to take? It seems like waiting for one of the other 3 options would be worthwhile. This is what I mean by being cautious vs. being speculative.

[morning owl]

This comes up over and over - you don't know *when* the situation is going to change. While you wait to invest, you will lose money. If your advice is just to invest in CA stocks because they are undervalued, that's a different argument about efficient markets, of course, and maybe about catching a falling knife. But it's not market timing like just waiting is. 

-W

I'm saying she should wait to invest *in US stocks.* But again, this depends on a lot of things -- her asset allocation goals, etc. If she is already invested in the US, and US market is at a high point, then she will probably be better off investing in Canadian stocks instead, to balance things out. If she had zero invested in US (which she did not), and wanted to increase that allocation, then *maybe* it makes sense to invest in the US while the CAD is low and US market is high. Again, I'm talking about being cautious, and using individual judgement, rather than applying the blanket "Do not try to time the market, ever" advice. Sometimes people can use their intelligence and look for value, too. It depends on the situation, and there is no one-size-fits-all rule for everyone, in all situations.

[waltworks]

I disagree - if you want to be a "lazy" investor (which most of us do, basically) and not make it your full time job, you need to avoid trying to outsmart anything/anyone when it comes to equities, because you are just going to shoot yourself in the foot.

The OP should indeed have some sort of CA/US/International and stock/bond/whatever allocations in mind. Once that's figured out, invest invest invest to hit that allocation and don't sweat whether particular markets are "overvalued" or not.

Maybe we are just talking past each other. It seemed you were advocating *waiting* to invest, which is almost always a bad idea.

-W

This comes up over and over - you don't know *when* the situation is going to change. While you wait to invest, you will lose money. If your advice is just to invest in CA stocks because they are undervalued, that's a different argument about efficient markets, of course, and maybe about catching a falling knife. But it's not market timing like just waiting is. 

-W

I'm saying she should wait to invest *in US stocks.* But again, this depends on a lot of things -- her asset allocation goals, etc. If she is already invested in the US, and US market is at a high point, then she will probably be better off investing in Canadian stocks instead, to balance things out. If she had zero invested in US (which she did not), and wanted to increase that allocation, then *maybe* it makes sense to invest in the US while the CAD is low and US market is high. Again, I'm talking about being cautious, and using individual judgement, rather than applying the blanket "Do not try to time the market, ever" advice. Sometimes people can use their intelligence and look for value, too. It depends on the situation, and there is no one-size-fits-all rule for everyone, in all situations.

[subbs]

Not sure if this has been said.

You could buy all your ETFs now.  Allocate more to bonds for comfort, and quarterly or bi-annually, slowly liquidate your bonds into your risk tolerance as opposed to try market timing for the next possible crash or correction. So lets say you were looking at 80/20, you could start out at 60/40 and slowly contribute to rebalance towards a 70/30 or 80/20 depending on what you like.

Hope this made sense.  Just a different approach.

[powersuitrecall]

Not sure if this has been said.

You could buy all your ETFs now.  Allocate more to bonds for comfort, and quarterly or bi-annually, slowly liquidate your bonds into your risk tolerance as opposed to try market timing for the next possible crash or correction. So lets say you were looking at 80/20, you could start out at 60/40 and slowly contribute to rebalance towards a 70/30 or 80/20 depending on what you like.

Hope this made sense.  Just a different approach.

Interesting - I've read that this approach could be used at the beginning of the early retirement phase.

Almost a year ago, I decided to move from a financial advisor to TD waterhouse account (another Canadian here).  I took the opportunity to start from a clean slate.  I started with 60/40 and have moved to ~65/35 for 2 reasons: 1) the gains down south and 2) all dividend proceeds have gone back into equities.  I feel comfortable with this allocation and will allocate evenly from this point on.

I think we spend too much time worrying about "when".  Getting invested now and contributing often is way more important.

Here is what I've got:
25%  Can Equity     (VCN)
25%  US Equity      (VUN)
15%  Intl Equity    (VXUS)
10%  Real Rtn Bond  (XRB)
25%  Agg Bond       (VAB)

[subbs]

Have you looked at reddit.com/r/personalfinancecanada  ?

Lots of guidance over there for our very much Canadian situation.

[sleepyguy]

I'm lazy and don't time... I'm all for the "let the money do it's work now!"... so one lump sum if you don't need the cash to be accessible any time soon.

[Left]

what helped me with the thought of investing then the market drops is that i switched my thinking to # of shares owned and not $ invested. sure if it drops, you can buy more shares but I'm happy with purchase at time so I wont regret it. If market crashes, i dont lose shares and $ doesnt matter until i sell which i can pick the time to do so.

i view it as same as buying a house. if you bought/paid it off and lived in it through the housing crash, were you better off than if you rented through it? the comparison is from people saying if you had a house and lost job, you still have a roof over head. if market crashes you still have shares kicking out some dividends.