Author Topic: Going in at all time highs  (Read 6725 times)

thorstach

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Going in at all time highs
« on: March 31, 2017, 12:23:40 PM »
Assume you're all in cash ($250K) and it's 2007, except QE isn't an option in case of a crash because interest rates are already near 0. Oh and bonds are also expected to underperform with interest rates rising and may even go down with stocks in a crash. Do you go all in ? 50/50 stocks to bonds ? 90% stocks / 10% 2008 puts ?


MDM

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Re: Going in at all time highs
« Reply #1 on: March 31, 2017, 12:53:48 PM »
You figure you can do better than Bob and go for it.

thorstach

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Re: Going in at all time highs
« Reply #2 on: March 31, 2017, 01:25:14 PM »
Bob could have retired 20 years earlier with twice as much money if he shifted all his purchases by one year (73, 88, 00, 08) . Also, bob's first purchase was the most important since it's the one that will have the most time to compound. So if only his first purchase was at the bottom instead of the top, he'd have twice as much money by retirement.

caracarn

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Re: Going in at all time highs
« Reply #3 on: March 31, 2017, 01:30:43 PM »
Yes and if Bob has been sitting around in November just as Trump was being elected and 99% of the market predictions were that things could only go down if Trump won, then he'd be in a piss poor mood now too wouldn't he?  Point being, you are as likely to be right that this is a peak as people were in November and as Bob was at guessing what was going to happen next.  If you want to be a market timer feel free is what MDM is saying.  You will not be the first of last to think that this is an all time high, and today it is.  But next year we may be looking at 25,000 or we may be looking at 10,000.  If the only investment you are going to make it today, then certainly pondering has merit, but if you intend to be an ongoing constant investor as nearly everyone here is, then pick your asset allocation and use it ALWAYS, not when it "feels" like the market is at an all time high and set to drop and you invest 50/50 and when it is down and you expect a run up and you invest 80/20 then.  MDM and myself suggest you will be wrong much more often then you are right.  Warren Buffet said guessing about markets is a fool's game.  If Bob is not good enough for you maybe Warren is.  If not, then godspeed.
« Last Edit: March 31, 2017, 01:32:15 PM by caracarn »

frugledoc

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Re: Going in at all time highs
« Reply #4 on: March 31, 2017, 01:34:03 PM »
Bob could have retired 20 years earlier with twice as much money if he shifted all his purchases by one year (73, 88, 00, 08) . Also, bob's first purchase was the most important since it's the one that will have the most time to compound. So if only his first purchase was at the bottom instead of the top, he'd have twice as much money by retirement.

Hey, we could all retire very quickly if we had perfect market timing.  Unfortunately, it's not possible except for a handful of lucky people.  If you want to try and get rich quickly, go ahead, but you will probably end up getting rich more slowly than you otherwise would have.

tyort1

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Re: Going in at all time highs
« Reply #5 on: March 31, 2017, 01:37:56 PM »
If I'd listened to the market timer folks, I'd have sat out all of 2016 waiting for a drop.  That would have been.... a mistake.

caracarn

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Re: Going in at all time highs
« Reply #6 on: March 31, 2017, 02:36:56 PM »
I just quickly scanned the "Bob" article but it clearly points out that Bob became a millionaire in spite of his incredibly poor (and might I say stupid) decisions to only make 4 stock investements over a 35 year period which all happened to be at the "worst" times ever.  As opposed to the OP who feels this offers some kind of lesson that encourages procrastination or caution, I contend that it shows you basically can't help but win if you are in the market and do not lock in your losses by selling.  Had Bob had the poor misfortune of selling at the bottom as well becoming the best reverse market timer in history and then sitting on the sidelines until he went in again, he'd be a sorry sort indeed having nothing more to show for his efforts than a box of Kleenex and mush less cash than he invested.  Instead by not panicking and staying in he showed the immense wealth building power of the market to not only make up his losses but move him ahead as well.  He invested only $184,000 and still turned it into over five times that value even though having the worst luck imaginable. 

The piece that is not in the article but a simple model would show is that had Bob continued investing after that first period instead of waiting he'd have had more wealth, but it is not the "waiting a year" as the OP suggests it that would have helped him there, it is just buying the stocks on sale on the way down and riding them up, which is the whole point of of buy and hold investing.  He specifically say so in the article saying he'd be at $2.3 million instead if he did that.  So no need to follow OP model of waiting a year.  You would get even a better result by just investing and not worrying about if we are at an all time high.

thorstach

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Re: Going in at all time highs
« Reply #7 on: March 31, 2017, 03:16:15 PM »
My main point had nothing to do with bob actually, it just got derailed by my response. I do have to add, at the risk of continuing to derail the topic, that adjusted for inflation or compared to bonds-only portfolio, bob barely doubled his money.

My post is about a 2007 scenario without QE or bonds to save the day, do you still "stay the course" at 80/20 ? There is no backtesting to predict this scenario because this QE-fueled bull run is unlike anything we've ever seen before and traditional hedges/correlations to other asset classes have already shown to break down.

tyort1

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Re: Going in at all time highs
« Reply #8 on: March 31, 2017, 03:30:33 PM »
Assume you're all in cash ($250K) and it's 2007, except QE isn't an option in case of a crash because interest rates are already near 0. Oh and bonds are also expected to underperform with interest rates rising and may even go down with stocks in a crash. Do you go all in ? 50/50 stocks to bonds ? 90% stocks / 10%

This assumes that you know the future.  If I knew the future I'd wait a year and invest at the bottom.  Since I don't know the future, I'll just keep putting my money into my 80/20 split.

This idea people have of "the market is up, we're due for a crash, I'll wait to put $$ in" will end up costing you a lot of money the large majority of the time.  Big crashes happen once every 5 (or more, much more) years.  $250k sitting around for several years waiting for a crash?  Man that's a lot of $$ lost right there....

The other mistake people engage in is "Well, based on factors x, y, and z, I can reasonably predict the market will crash soon".  But people do that EVERY YEAR.  Do we have crashes every year?  Heck no.  Which means that most factors and most reasonings are wrong the vast majority of time. 

Eric

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Re: Going in at all time highs
« Reply #9 on: March 31, 2017, 04:00:29 PM »
I skeptical that the market is at all time highs.  I bet you $20 that any market of your choosing will be higher in 2030 than it is now.

moof

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Re: Going in at all time highs
« Reply #10 on: March 31, 2017, 04:34:26 PM »
I had roughly 200k in 2007.  I was all stocks, as retirement was still far off.  It stayed in all stocks throughout the crash.  As a buy and hold strategy I would be much WORSE off today if I had moved it to all cash, or all bonds in 2007.

My only regret was I was ignorant about expense ratios and have lost a few percent of probable gains due to fees.  My strategy back then was to stick it into whatever 401k fund had the best 10 year historic performance, as I expected the money to soak for another 30 years such that gains mattered more than volatility.

I am now about 7-8 years from retirement, so I have gradually shifted to about 80/20 stocks/bonds.  I aim to be about 70/30 by time I pull the plug.

Do I wish I was all seeing and could magically time the market?  Sure, I would be retired a gazillionaire years ago.  But since I can't do so, I am sticking with my plan.

Market might be up 20% in a year, or down 50%, who knows...  What matters to me is that I have a plan that has a high probability of being fully funded in January 2025.

Retire-Canada

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Re: Going in at all time highs
« Reply #11 on: March 31, 2017, 06:22:17 PM »
Go 100% stocks. Stop thinking about it. You can't "pretend" its' 2007....that assumes you know what the future holds and you do not know so give up on that fallacy.

Khan

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Re: Going in at all time highs
« Reply #12 on: March 31, 2017, 06:27:35 PM »
I know it's the wrong mathematical option, but if I was to suddenly inherit 90% of my wealth such as in the scenario given, I'd DCA it over at least 2 years, and also invest in long term payoff cash items/upgrades, such as maybe reinsulating a primary home, or a solar system. (The correct option is to dump it into the market and not DCA it)

thorstach

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Re: Going in at all time highs
« Reply #13 on: April 01, 2017, 01:11:38 PM »
Is DCA in this situation really not more responsible than lump sum ? Aren't the chances of a correction purely from a historical point of view, high enough to justify it versus going all in ?

MDM

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Re: Going in at all time highs
« Reply #14 on: April 01, 2017, 01:44:59 PM »
Is DCA in this situation really not more responsible than lump sum ? Aren't the chances of a correction purely from a historical point of view, high enough to justify it versus going all in ?
Depends on how one interprets "high enough".

The most likely best course is lump sum, based on Does Market Timing Work?

One is always free to pursue a less likely, but still possibly correct, course of action.

Classical_Liberal

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Re: Going in at all time highs
« Reply #15 on: April 01, 2017, 02:55:33 PM »
Is DCA in this situation really not more responsible than lump sum ? Aren't the chances of a correction purely from a historical point of view, high enough to justify it versus going all in ?

DCA is only to help "feelings", lump sum works out better most of the time. 

Heres the deal thorstach, if you are not comfortable investing in 100% stocks and bonds, don't do it!!  The best passive investment strategy is one you can stick with, even when you think valuations are at "all time highs" or "all time lows".  If you need some cash, take a portion of your stash and keep it in cash to mitigate your risk. But be consistent and please have reasons why you want your AA.  Timing the market is not an acceptable reason, you can't do that!  Do research.  However, if you don't invest a reasonable portion of your money in stocks (they don't all have to be US) you are guaranteed to lose, big-time!...  nobody wants to be a loser, do they?
 
Check out Tylers site for fun playthings, his personal thoughts, and references for additional reading regarding AA.

Oh, and if you find it absolutely necessary to be hands on, take a small portion of your stash and invest it per your personal opinions.  Be prepared to lose, and be prepared for it to take lot's of time to properly research. If you consistently beat the passive portion for 10+ years, feel free to start expanding this "bucket".  Hint: indexing is probably the worst way to actively invest.

positiveogre00

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Re: Going in at all time highs
« Reply #16 on: April 01, 2017, 03:58:56 PM »
Fun little thought on market timing: I did a small research assignment in my finance class a few weeks back. I had to simulate how much money a "perfect market timer" would have if he/she invested $1 in Jan 1926. Every month the investor knew if either the S&P500 or US 30 Day T-Bill would be the better performer for the month. By December 2015 the investor had $285,791,102,995!

thorstach

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Re: Going in at all time highs
« Reply #17 on: April 02, 2017, 01:27:08 PM »
There is definitely an element of luck depending on where you fall in the spectrum between Bob and the $1 at the bottom guy.

talltexan

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Re: Going in at all time highs
« Reply #18 on: April 03, 2017, 09:26:34 AM »
While the "perfect market timer" is an interesting experiment, I'm curious about a market timer who can reliably predict whether stocks or treasuries will outperform for 7 months out of every 12.

Classical_Liberal

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Re: Going in at all time highs
« Reply #19 on: April 03, 2017, 06:54:09 PM »
I know it's the wrong mathematical option, but if I was to suddenly inherit 90% of my wealth such as in the scenario given, I'd DCA it over at least 2 years, and also invest in long term payoff cash items/upgrades, such as maybe reinsulating a primary home, or a solar system. (The correct option is to dump it into the market and not DCA it)

Actually using DCA over a year or two is the right answer.

Right answer based on what data?

Khan

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Re: Going in at all time highs
« Reply #20 on: April 03, 2017, 10:04:52 PM »
I know it's the wrong mathematical option, but if I was to suddenly inherit 90% of my wealth such as in the scenario given, I'd DCA it over at least 2 years, and also invest in long term payoff cash items/upgrades, such as maybe reinsulating a primary home, or a solar system. (The correct option is to dump it into the market and not DCA it)

Actually using DCA over a year or two is the right answer.
https://investor.vanguard.com/investing/online-trading/invest-lump-sum
-Dollar-cost averaging spreads the risk of investing.
-Lump-sum investing gives your investments exposure to the markets sooner.
-Your emotions can play a role in the strategy you select.

What the research says
Our research indicates that it's prudent to invest a lump sum immediately.

Markets going up
If markets are trending upward, it makes sense to implement a strategic asset allocation as soon as you can.
History shows that investors taking such a risk have been rewarded with positive returns over the long run that should be greater than the expected return of cash investments.

Mighty-Dollar

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Re: Going in at all time highs
« Reply #21 on: April 04, 2017, 12:50:26 AM »
If you can't take stock volatility then you diversify more into bonds and stick to your allocation ratio. It's really that simple. Nobody can time the market. We will never get advance notice of a stock market crash.

Khan

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Re: Going in at all time highs
« Reply #22 on: April 04, 2017, 01:31:39 AM »
If you can't take stock volatility then you diversify more into bonds and stick to your allocation ratio. It's really that simple. Nobody can time the market. We will never get advance notice of a stock market crash.

Mentally, I (believe, untested since I had effectively no net worth during the financial crash) I can take the volatility of a 100% stock allocation, as long as I DCA'ed into my position over years, and especially if I DCA into it during market crashes.

The problem in this case is were I to suddenly inherit a lump sum, I really don't want to waste much of it in bonds, but I don't want to kick myself if the black swan cometh. Maybe increasing bond allocation and then DCA'ing the bond position into stocks over time might alleviate that somewhat, but I just don't have any positive feelings whatsoever for bonds at this point, and especially with a long time horizon where stocks wipe the floor with them. Bonds... as an alternative to market timing/DCA'ing and then reallocating over time might be a somewhat suitable alternative, or in conjunction with it...

Part of it for me is anchoring, and the value of your investment dollar. I'm barely at 100k/year and a 250k stash. If I was starting from 0, a 250k injection of money would be equivalent to ~5 years or more of saving. So avoiding having a year or two of that evaporate, not due to random volatility, but poor timing would be mentally, and economically devastating. Alternatively, anchoring to the 100k/year salary, pumping ~100k/year into the market on top of whatever savings rate you can manage works out mentally for me, even if after 2 1/2 years the market goes boom, I did what I could to invest properly. Adding a bond allocation to that and then moving away from it would probably be a prudent third step to the mental gymnastics. With a 250k stash starting out, the lump sum probably wouldn't be invested all at once, but the time period for the DCA would probably be shorter, say, <2 years.

Like I said, the math and Vanguard's own research indicates one thing, but avoiding getting mentally devastated and putting as much in front of that damage as possible is worth it, even if as an investor you might be comfortable with a 100% equity allocation, a lump sum falling into your lap that far outstrips a year of savings and/or your entire networth is something you treat a little bit differently, or at least, I can't imagine not treating it differently.
« Last Edit: April 04, 2017, 01:54:29 AM by Khanjar »

AnswerIs42

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Re: Going in at all time highs
« Reply #23 on: April 04, 2017, 03:24:50 AM »
If you can't take stock volatility then you diversify more into bonds and stick to your allocation ratio. It's really that simple. Nobody can time the market. We will never get advance notice of a stock market crash.

Mentally, I (believe, untested since I had effectively no net worth during the financial crash) I can take the volatility of a 100% stock allocation, as long as I DCA'ed into my position over years, and especially if I DCA into it during market crashes.

This. I think if I had a big lump sum I needed to invest, I'd invest half of it now, and DCA the other half over a couple of years.

It's weird to me the different responses between this thread and the Why do you do x and pay off your mortgage early thread.

DCA'ing a lump sum over a couple of years reduces risk, at the expense of a slightly worse return on average only because the market goes up on average.

Paying off your mortgage and losing up to 25 years of market returns gets given a free pass because "emotional reasons", but DCA-ing and losing up to two years of market returns doesn't get that same pass? Huh?

Retire-Canada

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Re: Going in at all time highs
« Reply #24 on: April 04, 2017, 06:56:40 AM »
Paying off your mortgage and losing up to 25 years of market returns gets given a free pass because "emotional reasons", but DCA-ing and losing up to two years of market returns doesn't get that same pass? Huh?

No I think both paying off your mortgage early and DCAing over a period like two years are both sub-optimal. The difference is the accelerated mortgage can cost you hundreds of thousands of $$ and adds risk while the DCA probably costs you only tens of thousands of $$ and doesn't add risk.

So if you were my friend I'd spend more time explaining the issues with the mortgage than the DCA since you can do less damage with the DCA option.

DarkandStormy

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Re: Going in at all time highs
« Reply #25 on: October 24, 2017, 11:35:19 AM »
Is DCA in this situation really not more responsible than lump sum ? Aren't the chances of a correction purely from a historical point of view, high enough to justify it versus going all in ?

Ahhh, thorstach.  This didn't age well.

tyort1

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Re: Going in at all time highs
« Reply #26 on: October 24, 2017, 02:04:42 PM »
Is DCA in this situation really not more responsible than lump sum ? Aren't the chances of a correction purely from a historical point of view, high enough to justify it versus going all in ?

Ahhh, thorstach.  This didn't age well.

Tru dat. 

March 31st 2017 S&P 500 Close - 2368
October 23rd 2017 S&P 500 Close - 2575

Jesus Christ, how many times can a dude be utterly and completely wrong before he learns his lesson?  My guess is (in this case) - never. 

Either that, or thorstach has been trolling us this whole time.  I suspect this is actually the case.

Retire-Canada

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Re: Going in at all time highs
« Reply #27 on: October 24, 2017, 02:09:10 PM »
Either that, or thorstach has been trolling us this whole time.  I suspect this is actually the case.



I've been of this ^^^ opinion for a few months. He's an entertaining troll through.

anisotropy

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Re: Going in at all time highs
« Reply #28 on: October 24, 2017, 03:13:59 PM »
troll or not he's been wrong. One day I will be wrong too, until then let me cast the stones. pew pew.

Mr. Green

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Re: Going in at all time highs
« Reply #29 on: October 24, 2017, 03:14:33 PM »
With no QE or bonds it's possible the whole system would have collapsed. No one can know. If it would have, it wouldn't have mattered what you did. Stocks-broke. Bonds-broke. Cash-probably next to broke as the dollar devalues and inflation runs rampant. As long as there are rich people who want to see the system remain intact they will invent ways, if necessary, to keep everything working. Wondering about variables that don't even exist yet is a fool's errand.

Eric

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Re: Going in at all time highs
« Reply #30 on: October 24, 2017, 04:27:56 PM »
Jesus Christ, how many times can a dude be utterly and completely wrong before he learns his lesson?  My guess is (in this case) - never. 

To be fair, this thread was from 3/31/17.  The infamous "Top is in" thread is from 4/11/17.  So it's not likely anyone would learn their lesson in 11 days.

JAYSLOL

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Re: Going in at all time highs
« Reply #31 on: October 24, 2017, 05:02:16 PM »
Jesus Christ, how many times can a dude be utterly and completely wrong before he learns his lesson?  My guess is (in this case) - never. 

To be fair, this thread was from 3/31/17.  The infamous "Top is in" thread is from 4/11/17.  So it's not likely anyone would learn their lesson in 11 days.

I had forgotten about this thread and thought he had started a new one, lol

Mr Mark

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Re: Going in at all time highs
« Reply #32 on: October 26, 2017, 12:35:08 AM »
I get the impression a lot of these market timing posts are from people who are not very experienced and don't have a big stache. They have a lot of 'recency bias' from 2009 (as we all do, to be honest). I would imagine the least likely thing they have is 'a quarter of a million dollars in cash ready to invest'. It's a hypothetical.

IMHO they are more likley to have such a small stache that they are (1) very afraid of getting into the market and "losing" their hard earned tiny amount of money, and (2) are drawn by the shiny lure of successful market timing magically making them rich (instead of the grind of being frugal, saving regularly, and compounding in a sensible low fee AA over 10-20 years).

They buy into the whole 'the stock market is gambling' meme that, to be honest, floods the retail media space and possibly was instilled into them by their parents. Not helped either by the recent run up of bitcoin, FANG, Tesla etc.

theolympians

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Re: Going in at all time highs
« Reply #33 on: October 27, 2017, 12:24:18 AM »
I get the impression a lot of these market timing posts are from people who are not very experienced and don't have a big stache. They have a lot of 'recency bias' from 2009 (as we all do, to be honest). I would imagine the least likely thing they have is 'a quarter of a million dollars in cash ready to invest'. It's a hypothetical.

IMHO they are more likley to have such a small stache that they are (1) very afraid of getting into the market and "losing" their hard earned tiny amount of money, and (2) are drawn by the shiny lure of successful market timing magically making them rich (instead of the grind of being frugal, saving regularly, and compounding in a sensible low fee AA over 10-20 years).

They buy into the whole 'the stock market is gambling' meme that, to be honest, floods the retail media space and possibly was instilled into them by their parents. Not helped either by the recent run up of bitcoin, FANG, Tesla etc.
+1

RedmondStash

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Re: Going in at all time highs
« Reply #34 on: October 27, 2017, 12:13:11 PM »
Another way to look at it is that over the past 70+ years, more years than not have had all-time stock-market highs. Although the past does not necessarily predict the future, it's the best gauge we've got.

Even if there isn't another all-time high next year, or the year after that, chances are (based on past performance), the year after that will top this year. So if you invest and don't sell, you'll still come out ahead after the market corrects and then recovers. Over time, so far, the market has grown inexorably upward.

Or, possibly, there will be rampant chaos, a total breakdown of society, and Thunderdome cage matches. But in that case, we'll have bigger worries than the stock market.

OurTown

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Re: Going in at all time highs
« Reply #35 on: October 27, 2017, 12:57:43 PM »
Rampant chaos = nuclear first strike on N.K., or alternatively default on the debt from failure to raise the debt limit.  If we get out of this administration without either of those happening, it's a winner.  The market will continue doing what it does more likely than not.  Bumps in the road?  Yes.  Long term stagnation or a permanent unrecoverable crash?  I don't think so.

Also, the proposed pending 401(k) tax would personally boof me up the ass, but it would not result in the end of civilization as we know it.  Nor would it have any lasting impact on the market.

tyort1

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Re: Going in at all time highs
« Reply #36 on: October 27, 2017, 01:26:25 PM »
Oh, and here's a bunch of other historic reasons you should never, ever invest in the stock market, ever.  Look at all the terrible crap that happened even since 1950 and you can see for yourself that it totally and completely destroyed the stock market.

Oh wait, that actually DIDN'T happen:


TomTX

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Re: Going in at all time highs
« Reply #37 on: October 27, 2017, 04:00:36 PM »
Assume you're all in cash ($250K) and it's 2007, except QE isn't an option in case of a crash because interest rates are already near 0. Oh and bonds are also expected to underperform with interest rates rising and may even go down with stocks in a crash. Do you go all in ? 50/50 stocks to bonds ? 90% stocks / 10% 2008 puts ?

Well, if I had gone all-in on the day you posted this, I would be up 9.3% (VTI)

Not bad!

Mighty-Dollar

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Re: Going in at all time highs
« Reply #38 on: October 27, 2017, 11:55:30 PM »
Going in at all time highs
on: March 31, 2017, 12:23:40 PM
I love reading these threads. And I've been reading them for years!
Stock market up about 11% since this thread began. NASDAQ absolutely killed it today up 2.2%. And if tax cuts go through... lookout!!!! DOW 25,000 and beyond.
Money has to go somewhere. There is no reason to be afraid of BOTH bonds and stocks. You own them both for consistent returns. Sit in cash and you go nowhere.

frugledoc

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Re: Going in at all time highs
« Reply #39 on: October 28, 2017, 03:08:48 PM »
Going in at all time highs
on: March 31, 2017, 12:23:40 PM
I love reading these threads. And I've been reading them for years!
Stock market up about 11% since this thread began. NASDAQ absolutely killed it today up 2.2%. And if tax cuts go through... lookout!!!! DOW 25,000 and beyond.
Money has to go somewhere. There is no reason to be afraid of BOTH bonds and stocks. You own them both for consistent returns. Sit in cash and you go nowhere.

Your post is just as misguided as thorstach.

Sure Dow will go beyond 25000 but it could well drop to 12000 before it does.

Nobody knows, just keep buying.