Asked on 01 Oct 2019
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.
Hey Anon, if you're starting a regular investment and plan to invest continuously regardless of market conditions, then no, it's not a bad time to start, because when markets do crash, you'll be buying low along the way.
However, if you're looking to place a large lump sum right now, then we really don't know if this is a bad time to invest. Analysts have been predicting a market crash since 2016. And as you can see, that wasn't the case. I personally am still bullish and optimistic until about 2022-2024.
But one thing we have seen is that even after a recession, the US markets tend to rebound. So as long as you have a long term horizon and do not require this money for at least another 10 years or so, you should be able to stomach the short term volatility.
So something you may want to consider is also to diversify outside of the US, invest regularly instead of a lump sum, have a long term horizon, and make sure you don't exit the markets when things do turn south, wait for the rebound.
You should only look at two things
The return you want
Most people misunderstand the current situation.
Investing in US markets right now for the 10-15year time frame will result in pretty low gains because a lot of the future gains are already priced in. A recession may or may not happen - you should not worry about that because no one can predict it. As long as your required return is satisfied, you can still invest in the US today.
If you are looking at short term, then definitely there will be high gains in some pockets, but index funds are probably not what you should invest in, because they are just not volatile enough to give you that kind of gain.
If the financial analysts are so good at predicting crashes, they would start their hedge funds or ask for VC money.
Having said that, if your investment time horizon is more than 2 decades, then you should pray for a market crash as I do. Buy stocks like how you buy groceries. The cheaper the better.
Every year you have a crisis. Every year there is something bad or troubles brewing.
I have been hearing crisis after crisis since 1998. =)
You are right, time in the market is more important than timing in the market. My father invested in 1996, just before the market collapse in 1997. He's fine ;)
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.
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.