The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: tgz_lime on December 01, 2016, 03:49:58 PM
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Hi,
I've read through some of the forum topics below and many have exposure to the US stock market. Does anyone recommend buying US stock indexes at these all-time-high levels? My gut feeling rather tells me to buy something that provides a safe & low-yield investment and scale into stocks when they finally come back from historical highs. Does this strategy make sense? If yes, what should be these safe & low-yield investments? Maybe short-term corporate bond ETFs with duration less than a year? Could you recommend such that is also available to european investors?
Thanks for all advice!
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We are at historically high stock prices, which could tank 50% tomorrow. Or they could keep rising to new highs for the next few years.
The answer for me is to dollar cost average into the market as quickly as I feel comfortable. If I had a pile of cash I would put it into index funds every week for the next 3-6 months and continue my regular paycheck contributions.
If I had a crystal ball or the savvy of Warren Buffet I would keep it in cash for the next amazing deal, but I don't think it's worth the risk of missing a surprise bull market like 2013, 2014, etc.
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This question has been asked a thousand times a thousand different ways. The response is always the same: you are trying to time the market which is never a winning proposition. Establish an investment policy statement that outlines your investing plan that is independent of market conditions but based on your goals, timeframe, and risk tolerance. Then stick to this plan come hell or high water (or high P/E ratio, as appropriate).
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IndexView. Have you tried it? Check it out:
http://www.mrmoneymustache.com/2014/08/25/indexview/
Put in any two years.
(http://i.imgur.com/EIGx8pX.png)
Then put in two different years.
(http://i.imgur.com/SvbmDGO.png)
Then two different years again.
(http://i.imgur.com/h9Dos3k.png)
You'll see, no matter which years you put in,
(http://i.imgur.com/MpwK6Wf.png)
it looks like ***OMG A CRASH IS COMING***, because the line is so much up and diagonal to the right, it looks like it has no where to go but down! This year is no different,
(https://i.sli.mg/Gig6NS.png)
Had you sold it all every year it looked like a crash was coming...you'd never be in the market. Let's not argue about whether a crash is coming or not, let's agree that it feels that way right now. Like there's been a turning point, a division between an old era and a new era, and therefore past history is no longer a guide to the future.
And here's my point: it always feels that way. That's always what it feels like. It's not a number, it's a sense that there's been a break, the ground has shifted, the rules have changed.
This is why it's so hard to stay the course. Your investment plan needs to be in tune with your own personal willingness to take financial risk. When you're deciding what your risk tolerance is, it's not a tolerance for the number 10 or the number 15 or the number 25. It's not a tolerance for an "A" turning into a "+". It's a tolerance for accepting genuinely-scary, nothing-like-this-has-ever-happened-before, heralds-a-new-era news events.
This is how it feels to be invested in stocks. This is how it will always feel. Long story short, don't change allocations based on your gut. If you can't handle it, then permanently decide on a new asset allocation you can handle. Maybe it's 40/60 stocks bonds. Maybe it's 20/80. Vanguard has some nice LifeStrategy funds that take care of the details for you:
(https://i.sli.mg/TWExvc.png)
Just pick something and stick to it, you'll do much better than attempting to dart in and out based on your gut.
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Does anyone recommend buying US stock indexes at these all-time-high levels? My gut feeling rather tells me to buy something that provides a safe & low-yield investment and scale into stocks when they finally come back from historical highs.
You manage risk by diversifying into both stocks and bonds at all times -- not by attempting to time the market with allocation ratio changes. If you don't have the risk tolerance for wild market fluctuations then invest more on the bond side. Just understand that you will not participate in big market upside if stocks shoot up.