Anonymous
Is it a bad time to invest in US index funds now (eg. S&P500)?
I know that time in the market is more important than timing in the market, but a lot of Financial Analysts seem to talk about a market crash that is supposed to come and it doesn't seem to come in the end.
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Hi Anon!
I think that time in market outweights timing the market because of the time horizon of the investment. If you are familiar with the Efficient Market Hypothesis (where all information about a trade will be reflected in the price of the stock), timing the market will be akin to assuming that the Efficient Market Hypothesis does not hold as you are waiting for that key moment to buy low and sell when it is high. The nature of these trades are that they are relatively short-termed as compared to "time in market" approaches and this could mean many years in the market.
As you mentioned, in the "unfortunate" event that you started off investing now and a market "crash" happens, there is an alternative view of the stock market because a "crash" could also imply that you can buying into the market at a cheaper price. The spirit of DCA is in hopes that your average price of buying into the market is superior simply by averaging out the higher prices ("bad" purchases) and the lower prices ("good" purchases). I think it is also nice to note that lump sum investments do better than DCA if you expect the markets to be bullish! However, if you have a regular stream of small capital, DCA might be the way to go!
If it were me, I would be equally skeptical of investing after a market "crash" simply because the sentiments after a crash would be equally negative. Because I cannot speak for you, I feel that it is a dilemma that I would be facing and therefore I would rather ensure a more disciplined and consistent approach to my investing. Perhaps admist all this discussion, the key idea of diversification is really important so that you will not be suffering a total meltdown in your portfolio should a market crash happen.
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Cedric Jamie Soh
11 Oct 2019
Director at Seniorcare.com.sg
Every year you have a crisis. Every year there is something bad or troubles brewing.
I have been he...
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Yes, they are crash prophets, a very minority is right, at least post hoc.
We should not listen to market noise, Corona is a bad thing, as are property or corporate bond bubbles.
To be spared all the hassle and noise, and retain one's equinamity
buy & hold strategy investments as boring as well diversified (world, U.S., China, progress sectors) passive indexing ETFs was, is and will be my investments of choice.