Skip to main content
No. of Recommendations: 9
Depending on your view it is either a correction and buying opportunity or reality setting in. I tend to view it as the latter

If you go back through this board a few years, there are many posts with titles like "Is this the Peak?" and "Are we at a top?" Sometimes these are followed by nothing but the stock market growing to new highs, and sometimes there's been a three or even six month pullback followed by a big runup.

The problem with trying to time the market is that you not only have to guess the peak (to get out), but also guess the bottom (to get back in), or at least get close to those. I've read several articles, some links posted on this board, indicating that investing at each year's low is marginally better than continuously regardless of price, but it's a small difference. Investing at each year's peak is slightly worse, but the biggest killer of returns is being out of the market when the runups occur. Worst of all is staying out of the market waiting for a drawdown to get back in.

The market price (prices for the basket of all stocks) gets driven by rational reasons (interest rates, expectations of earnings, outlook for various industries) and irrational reasons (buzz, how cool something is, expectation of selling something worth little to an even greater fool who has that same expectation). It's really hard to outguess the rational reasons since most information is readily available and baked into prices. It's impossible to outguess the irrational stuff (like Dogecoin...a joke cryptocurrency that keeps making a handful of people big bucks).

What I've done:
-For money I don't need for 10 to 40 years: Be fully invested in stocks (low cost index funds mostly, a few low-ish cost active funds where they routinely beat their index like Emerging Market). I also realize that this will sometimes go down (by a lot) but that's the price to pay for being able to beat inflation long term. Note that the "price to pay" is "volatility," not "loss." if the S&P500 crashes completely, we won't be worried about our 401ks
-For money I need within a year: Cash
-For money I'll need between one year and five: Bonds plus an arbitrage fund that routinely runs at ~3% annually and rarely loses money on the year plus dividend yielding/growing stocks

The money I've made in irrationally propelled markets spends as well as money made with thoughtful analysis. The portfolio value that decreased temporarily on paper (not "lost") didn't hurt because I didn't sell low (locking in the loss) in the hopes of getting back in even lower. I know people that did and missed the eventual recovery.

I feel pretty confident in all this thinking, with a caveat--I held on to my asset allocation through all the downs and ups we had for the last 30 years, with a consoling thought that every check was going to buy more shares at the low prices. Now that I'm living off my portfolio rather than growing it, the emotional side of my brain may still be sweating away despite the logical half repeating the three points made two paragraphs ago. But, hanging on through 2008-09 and subsequently seeing the portfolio grow like crazy the next eight out of ten years helps the logical side comfort the emotional side.
Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.