Is Now a Good Time to Invest Or Should I Wait for a Crash?
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- เผยแพร่เมื่อ 6 ก.ค. 2024
- Is Now a Good Time to Invest Or Should I Wait?
Investing right now is scary. Stocks are near all-time highs. Bond prices are high, sending yields to historic lows. The Fed keeps buying bonds to keep yields low. And our country's debt is nearing $30 trillion.
Whether and how to invest today depends in part on whether you are dollar cost averaging or have a lump sum to invest. The effect of a bear markets is vastly different between these two approaches. In this video, we'll use the tech bubble crash to back-test whether you should start investing now or wait. And for those with a lump sum to invest, we'll compare investing it all at once versus spreading it out over 12 to 24 months.
One thing I didn't discuss in the video is whether one should not invest at all--lump sum or dollar cost averaging--until the market changes. The problem with this approach is knowing when to get back into the market. Most people miss a lot of returns because they bought in too soon or waiting too long. Timing the market rarely works, and it never consistently works over a lifetime of investing.
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While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (amzn.to/3by10EE)
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One thing I failed to mention is this--what about an investor who wants to sit on the sidelines--no dollar cost averaging or lump sum investing--until some time when the markets are more hospitable? The question you have to answer is what will trigger you to start investing? A 5% drop? 10%? 15%? 20%? If 20%, that's where the SP500 was at the start of the year. And what happens if the market goes up 10% first, and then back down to today's level. Will you invest then? And whatever decision you make today, how confident are you that you'll stick to it? If your plan is a 20% drop, what will you do if it drops 19.5% and then starts to rise again? Timing the market is tricky business.
Well said. Another great argument for dividend growth investing. Much more psychologically palatable to “buy income at a discount” when the market crashes. Most investors who follow this strategy are typically very long term holders, which basically gives you a psychological suit of armor during turbulent times. ESPECIALLY if your dividends continue to increase during recessions.
Thank you for pointing it out this out. I've learned that you have to start somewhere the sooner the better and just ride it out. Waiting for that sweet spot might not come for a long time or never at all and you've lost a lot of time.
I agree that timing the market is impossible, but the fact is that we are in a Fed-fueled bull market that has gone on for 12 years and stock valuations have only been this high in 2 other historical periods 1) right before the Great Depression and 2) right before the 2008 crash.
Capital is at risk. You have to be committed to buy and hold while the market drops as much as 50% in this market. Great if you are still building wealth and dollar cost averaging. Very painful if you have your life savings in the market. Tread carefully.
I didn't see you consider a lump sum investment in stock (I wouldn't put into bonds at negative rates after the capital losses and BEFORE CPlie is subtracted) then setting (trailing) stop loss orders using something like SmartStops for the level (stop) or trail trailing stop. BTW, I am against selling to rebalance. Why move money from winners to losers? Instead ride the winners and just set trailing stops to sell what you would have sold to rebalance.
But if you must $ cost average in, I would stop buying if there news that you think could cause the market to drop significantly (for example China starts building emergency hospitals overnight -- though it did take about a month 4 the market to tank) then start buying on the 3rd up day (which is when I did -- also did $99K Roth conversion from my 401K). I actually sold some before it started down because I watched the news in January.
When a retail business has a sale they may have 5% off signs or 25% off signs. All are better times to buy than at full price, but like shopping for clothes, don’t buy something you would never want to wear just because it’s advertised at a discount. Make sure you buy good investments regardless of what you have to pay for them.
Best time to invest was yesterday the second best time to invest is today.
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+•1•3•1•4•9•0•4•7•1•3•9 🗼
Well said
I think that's kind of not always the best advice. If you're buying in at an all time high during an obvious bubble, I would wait. I haven't invested $ in a while until the market started crapping out recently. Why get 100 shares when you can see a bear market and get 150 shares for the same price just by waiting a little bit?
This is good stuff. I like how down to earth about it. No one knows where the top is or where the bottom will be. Subscribed.
Rob you totally blew my mind with this episode.. my jaw drop to the ground when I realized the bad turns in the stock market can actually be an opportunity to create more wealth when the stock market comes back up.. all of this is so new to me my 54 year-old brain, trying to catch up on all of these Concepts
Very helpful Rob. We recently sold our commercial property-Jan. 2022, and are 65 and 66. Big lump sum that I've been scratching my head about and doing crash learning as I want to do this one on my own without paying the 1% to my advisor. Between you and Paul Merriman and a few others I've learned so much and despite being somewhat uncomfortable and nervous I think I can do it on my own and move forward. Thank you for all the info which has been one right after the other what I've needed to know, learn and hear!
If you're a long-term investor (10 years minimum) it's always a good time to invest.
Great video, you earned my subscription today!
What a balanced confirmation about some of my "Undefined Gut Fears" that I have held for months about the markets. Great presentation of sane options for us early retirees.
Yet another great video, perfect timing for me to choose between lumpsum and dollar cost investing, probably I am more inclined to distribute into a 12 month period or more rather than lumpsum based on the facts and observations made in this episode, big thank you Rob again. Cheers
Very timely for me. I just received a lump sum and had this very question. I think I’ll spread out my purchases over a 12 month period. Thanks.
Sound advice! Thanks
Great info. These are unprecedented times, and the next few years are bound to be interesting for better or worse. I'm sitting tight and playing things very close to my chest. I'll see how 2022 plays out before making any major moves.
Well thought out advice that has aged well. I wish I had seen this when you posted it.
Thanks Rob for this! I’m a very new to investment and having a lump sum to invest. I was thinking to invest in three fond portfolio in lump sum. But the situation now confuses me… will you still invest over time VS lamp sum today april 2022…? Also is it safer to do six fund portfolio or invest in mortgage real estate at a time like now..? As you said it is hard to pull the trigger for lump sum, especially when it is most of the live saving… thank you for your advice!
This a very timely video for me. We have a lump sum to invest and I was leaning towards dollar-cost averaging over 12 months.
Outstanding analysis. Unique from other advisors. Agree 100%
That part of not skipping years 2000-2002 while still using DCA is eye-opening.
Can you briefly explain why the Final Balance is so much lower if you do the lump sum in 2002 vs. 2003? Thanx
Excellent analysis 👍
Rob - this channel and you are legit. Thank you
Risk vs reward from what it seems. Dollar cost averaging is the safer play but with less rewards while hitting it big on timing could prove fortuitous.
I lump summed into crypto near the all-time-high in April. Dumb rookie error. But it forced me to educate myself quickly. I DCA'd at the bottom and improved my positions - using the 'buy when there is blood in the streets' approach. My advice would be if you have a lump sum after a dip/crash or during a consolidation period, go all in. If the market is hot, DCA. The opposite of what I did. My return would be double if I had done that.
Thank you for your opinion. It’s very reasonable to take into consideration the current market conditions. Even with DCA I prefer not to invest all money into stock market but part of it invest into cash equivalents.
Simply question Rob... IVV or VOO long term?
Rob can you ablaze VTWAX vs VTSAX and add your thoughts as a one fund stock portfolio 💰💰💰
I started investing 1000 a month a year ago, knowing the market would be down in 2022 still doing well because stocks were at a discount. Great video to watch again.
If a lump sum should be invested over 12 to 24 months, why should a portfolio, already invested, not be hedged 23/24th's today?
You made a lot of good points. I agree to most of them. I myself struggle between dollar cost averaging vs. Lump sum. In my case, i came to the stock market game quite late, so im doing catch up now, and since im retiring in few years, i feel its crucial for me to put in money as early as possible for it to gain momentum and "ripe" on time. So lump sum makes more sense in my case.
I bet in 1 to 3 years we will see a market crash. I can’t see any other way to get out of the mess we are currently now.
great video!
What would be a very useful statistic, how long have conditions like we are experiencing today, ie. P/E, bond . etc as you mentioned, lasted in the past? How long can the market continue to rise under current parameters?
Very helpful.
I agree. I'm dollar cost averaging. I could not take it emotionally if I put a lump sum in and the market crashed the next week. 😊 Every asset class is overpriced right now so it's not a question of if but when. I'm too close to full retirement to lose a huge chunk of my portfolio so I'm playing it very conservative right now with a 55/45.
Hi! My name is João, I’m from Brazil, love your videos
Thanks. I was looking for exactly this video. Really appreciate your time and the details behind the answer you arrived at. However, my question is where would you invest it? S&P 500 index, or somewhere safer? (I realize there are many factors going into this question, but I’m curious what you personally would do. Or did do, with your lump sum.). Thanks again!
Thanks Rob, that's awesome. And if you were to spread over 24 months, where would you keep the lump sum balance as it very slowly drops to zero?
A money market savings account but won't earn much in interest.
Great video Rob
good analysis ....
Awesome!!
How many stocks would you have
This is golden Information!
I have recently got to a point where our household income allows for £1,000 to be invested monthly and I have been closely eyeing up contributing the 1k a month into Vanguard.
I was a bit hesitant due to the fact that there is speculation that a crash is on the horizon, but you’ve completely changed my view on this entirely - I’m either going to not endure a dip or I am and that’s not a bad thing because my future contributions during the dip or at sale… why I don’t think of these aspects sometimes is strange as I have strong interest within investing and forex.
22 years old with a plan of retiring between 47-52
I have no need to rush, as for the majority trying to I will wait patiently and use my 9-5 lifestyle to accomplish wealth.
Good luck to everyone and I really appreciate your advice, and I will now setup ready for the future :)
Being 60 and how to manage the sequence of returns in those early periods is what seems quite scary in the current market. The market is never a loser in a twenty year cycle, but the 2000s decade scenario scares me and could really disrupt my retirement. When you’re no longer accumulating but withdrawing its hard to be anything but cautious.
Couldn't have said it better
I'm almost 59.5, still working but probably not for long, what's your plan?
@@coocoocachooglin I'm retired, invested in the Vanguard Wellesley fund. It's a moderately conservative investment with decent returns and low volatility when compared against a S&P 500 fund or a 60/40 stock/bond fund. Like you said, I don't want any large drawdowns that could wreck my retirement.
@@redchevy3307 Agree. SOR is a great risk. As I believe Mark Twain said (paraphrased) “Don’t promise me a return ON my money, but a return OF my money” The Golden Butterfly Portfolio is an intriguing portfolio due to it’s recovery period after a big crash regarding this SOR risk.
Cash, Gold, short/long bonds, small cap/ large cap.
@@johnbirman5840I like the Mark Twain quote!
Dr. Berger - Your reply last month gets close to the question that I have. But more to the point, I am looking at the amounts that I have in my 401k and my wife's, as well as cash accounts as "lump sums". If I leave it in now it is effectively like investing those amounts as lump sums every morning when the market opens. I wrestle every day with the decision to park that money until something "significant" happens. Considering I'm 58 and retiring in two years (+/-), if I do park the money, where would you suggest? Also, I think I would watch for some indication that the d$/dt (rate of change of market value) is slowing to some target and then move back in over a period of time. Any thoughts on how to analyze the market trends in this case?
Interesting perspective that staying in the market is like lump sum investing every month. I've never thought of it that way. If I were going to park a large amount of money, it would be in a money market fund or short-term treasury fund. The big question is when do you get back in. I've never had confidence that I could make that decision with any degree of competence.
Such a reasonable way to tackle the issue Rob 👍
So in current scenario, is it prudent at all to invest in total bond fund at all for a lump sum investor according to your 3 fund investing rule? Please guide. Thank you. Your videos are really educational and honest. You explain things in simple manner, easy to understand. I'm sure you will keep up the good work
so much useful information in a short vid. Extremely useful - thanks Rob
Your treasure direct i bonds The process takes at least 14 weeks Will be in 2023 by then?
Amazing how much has changed in a year. The correct answer was to wait, especially for bonds.
Sounds like being cautious now, and then dollar cost averaging with the lump sum all the way down the next crash is the way to go. I’m putting most of my future contributions into a stable value fund for the time being. I don’t feel good about investing in the broader market at the moment.
What is an stable value fund? Could you provide an example?. Thanks in advance.
@@Gabriel.Jarelys My 401k and my wife’s 401k offer a “Stable Value Fund” option. I don’t think there is a direct option or correlation in the open market. According to the description on the funds website, it invests in short term government bonds and insurance contracts. It yields very little, but should not lose value. Basically, it’s just a tad better than holding cash.
How would we send you our portfolio mix info? I heard you mention this on a couple of videos.
Just a note. The S&P PE ratio is for the market cap weighted S&P. If you use the equal weighted S&P like ticker RSP, the PE ratio is much lower. It might be another way to reduce your risk some.
That makes sense.
Very clear and logical explanations by you! Makes it easy to understand and develop the right mindset for investing Thanks
No one can ever time the market. NO ONE.
Where is the lump money as one spreads it over 12-24 months?
Excellent sharing 👏
Quality CEF’s are nice because they have such high yields. If the market does tank you will just be able to buy more wirh the yields from your investments. When the market heads back up be even better off then when you started. Plus if possible you can be putting your own money in the entire time dollar cost averaging.
For lumpsum investing, are you saying that for example $10,000 should be invested over 12-15 months whether the market is up or down. Did I understand it right?
I'm a geezer. With inflation @ 7%, where should I be investing? I just want to protect what I have.
Great video, well explained!
Noughties were flacid in US and here in UK the Teens have been flacid too. UK stock market (FTSE) has been awful last 21 years - only about 1-2 % over compounded inflation - all other asset classes have beaten it incl Gold/Property/Vintage Cars/Guitars/Watches and Art and Wine and...and...thank God for U.S and Asian markets!
I agree with the points you made and I understand why you chose US large cap stocks for your examples - it's much easier to explain the concepts this way.
You could make another video with a globally diversified portfolio. If I remember correctly, emerging markets and value stocks had decent returns from 2000 to 2010. Perhaps with factor exposure - large and small cap value for example. Perhaps then it won't be so wise to DCA for 12-24 months.
I'm so scared of inflation that , i don't keep cash at all it goes right to my investment account I'm down to one account. I have but two stocks and a couple ETFs I can be out of the market pretty fast. I get a monthly dividend 100 % reinvested plus my side hustles. All max dividend growth. Some body said cash is king.
I like lump sum due to the human behavior reasons. Many people who intent to DCA with an inherited sum never actually follow through. Why? Often, if they haven’t been investing before, they “let life get in the way.” A car, vacation and home renovation later, no or little money gets invested. A lump sum is good to get the ball rolling and never look back. Years later, you’ll be happy you did.
Well.... this video aged amazingly well! I would like to hear your opinion on what if you had a lump sum to invest today?
Ugh how did i miss this video? I just invested a lump sum 2 months ago :/
Great video. I've been catching up on all your videos, you present some very useful financial information on your channel. Well done 👏
What is preventing S&P 500 from ending up like Nikkei 225?
what happened to Nikkei 225, could you explain further please?
Hi Rob, could the same principle of dollar cost averaging be used when withdrawing from an investment, say if the investment has made gains but not sure witch way the Investment will go? Love your videos Thank you
I've never thought of it that way, but I suppose it could. To me the question is why you are taking money out. Is it to spend or because you no longer believe in the investment?
The chart of S&P 500 P/E ratios over time is a helpful data point, but to make it even more helpful, it needs to be compared to other investment's data points.
For example, if an investor is trying to decide whether he should buy a 10-year note, or buy the S&P 500, he cares about the P/E ratio in relation to the bond's yield.
It's less important to him how expensive the S&P 500 is to itself over time, and more important how expensive the S&P 500 is compared to other investments during the same period.
Right now, using the example above, the S&P 500 is still the inexpensive choice when compared to the 10-year note.
Your videos are great by the way!
apple was 28 in 2016 to145 in 2021
msft was 58 in 2016 to 285 in 2021
in 2026 what do you think ? is he trend will be same 5x from today price ?
I've been watching and enjoying your videos. I flinch a bit every time you use the word CRASH. I've been hoping you would offer clearer definition of the correction vs. crash scale of events.
You said the worst time would have been 2000 for this example, which was a zero point, but wouldn't it have been even worse to buy
at the top in 1999?
can we get an update on this video please!
@6:30 Wouldn't the worst time to invest be something like 1998, before the start of the crash?
Not necessarily. That may be a bad time to lump sum invest a lot of money. But right before a crash would be an excellent time to start dollar-cost averaging, say in a 401k or IRA.
I made a lump sum last month. The writing is on the wall that the current economy will crash given current policy makers and leadership. I'll make periodic contributions but am ultimately going to wait to buy on sale
either way is fine, just depends on how long youre planning to keep it invested. the worst thing you can do is to panic sell when things drop, thats the best time to accumulate
Hi Rob, Thank you for making your videos. I find them very educational. I do have a couple of questions. First, I am a 54 year old who contributes 20% to a 401k every paycheck. My work matches 5%. The 20% is going towards a retirement fund that makes less than 8% annually. Do you think it’s a good idea to open up an ira and put some $ in that as well? Also, I have a 2nd 401k from a previous employer just sitting there not making anything. What are my options with that money? Thank you.
Many work-sponsored funds (including yours apparently) underperform the broader market, even simple index funds. I'd only contribute the 5% to get your full match, and use the rest to start your own to have better/broader choices.
@@jesuguru2394 The only thing is that he can only contribute $7000 to an IRA, but $26000 (because he's over 50) to his 401k. If he wants to save more than $7000, it would have to be in an after tax brokerage account which would be a tax drag on his savings. I don't know the specifics of his current 401k (fees, investment choices, is it a ROTH 401k?) to provide any other opinions/options. With his previous employer's 401k, I would definitely roll that one over to an IRA where he has a choice of many low cost funds to improve his returns.
What if one has a lump sum but they also aren't going to be receiving income for the next three years? Do you still recommend DCA the entire lump sum or do u recommend doing so until a cash balance % is reached etc? Ty
I'll set a forget. I have time, but I ain't got time to wait for dips
S&P500 always grow since 1913 if invested on long term.
For individual stocks, play some agressive and hold it like FFIE, MVST, VXRT…
Just like those who bought TSLA 5 years ago
Curious Rob, has your channel been hacked with fake responses? Shows your name but not your pic and random numbers? I'm probably just naive but again curious.
Yeah, it's a bot. Not sure why it frequently happens for YT finance-related videos.
It hasn't been hacked. This is a problem across all of TH-cam. People create fake accounts using names of other TH-camrs. I block them as I see them.
I have a lump sum and I have a similar approach, but a bit different, if the market tanks I will absolutely contribute more per month by drawing from other months
Hey Rob, I’m loving your channel. Great job. I do have a question and would like your perspective. I started investing in vanguard funds following the 3 fund approach. I do have money invested with Edward jones (American funds target date) paying .75 expense ratio. I was thinking I should keep the American funds money with Edward Jones (that I have already contributed) and not transfer the money to vanguard because I have already paid the 121-B fee. If you don’t mind I would love your input?
Truth be told, American Funds have done well historically. At least some of them. As actively managed funds go, they aren't bad. I still prefer index funds (of course). To answer your question, I'd look at the 5.75% fee as sunk costs. They've already been paid, whether you stay with American Funds or not. So if I were in your situation, I wouldn't base my decision on fees I've already paid.
play sectors with A ETF
What about option #3? A lump sum say with a 40/60 stock/bond split. A more conservative investment that will handle a drawdown better. If you're dollar cost averaging on a lump sum, you have a lot of money on the sidelines for a long time. Any thoughts? You're right about the studies. All of them are over a long period of time, not before a crash. Good point.
Stocks is the only market where people run for the exit when the products are on sale.
Great info, very timely
8.9K views thus far! Great topic Rob.👍
What if I continue to contribute to 401k each month, but invest only half in index fund and keep the other half sitting in money market fund at the moment? If we expect a likely downturn in the near future, I would have cash to buy low when that happens?
The question is always timing. Can you stick with that plan if stocks go up for a couple more years? And at what point would you start investing the cash?
@@rob_berger true…market is hard to time.
Make money from a market crash. Buy a bear market fund like PBRCX.
Wait for a crash, and also show up just before the winning lottery ticket is printed, then go to the casino just before the machine with the giant handle hits. Perfect.
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Market Timing is a fools game! No matter how overvalued the stock market may be by historical metrics, there is nothing to prevent it from going higher. Conversely when the market falls 15% or more, nothing stops it from continuing to fall 30% or more. Other than RMD’s I buy stocks ( through Index Funds) every month. This approach has been very successful in building wealth over time.
What type of index do you recommend to build a 3 funds portfolio?
I have had great success with market timing through intentional long-term patience. Bought in March 2020 during the pandemic with my second contribution (12,000 total) which ended the year about 20k. I then bought AMC stock in 2021 after they obtained a 1 billion loan to stave off bankruptcy (via daily Google alert notifications upon finding and buying 20 $3 dollar movie tickets at Costo which I still have and use to this day) and ended 2021 with 45k. I then pulled out all of my money in third quarter 2021 due to various indicators indicating that the market was vastly overbought (PE ratios, lack of alternatives, tech stocks double 2019 levels). The market has fallen approximately 30% and I just re-invested the entire sum of 50k (including a third contribution) after the crash in 60% mutual funds - tgt retirement and mid cap growth - as well as 40% individual stocks. While there is still risk of loss, the risk has reduced substantially, and the upside has increased. I did however lose approximately 8.5k shorting Tesla stock after it shot up (though if I had maintained the same intentional patience, would've come out ahead)
Fantastic, balanced analysis. Thanks
Thanks Rob. It was really useful. It's always a good time to invest. And one more thing. Dollar Value Averaging method will be much better then Dollar Cost Average method. Isn’t it?
His dollar cost average was only a 60,000 dollar investment over the 20 year period vs a 100,000 lump sum so not really a fair comparison
A great great program, Rob. Exactly my issue today. So many people have been waiting for a correction incl. Myself, which didn't really come. Thank you!
Crash or not, I will continue buying more stocks!
yea the question is your age, risk tolerance how that goes down .
You need to diversify. Don't ignore bond funds.
What to do if your a year away from retirement? I am 61 , hoping to retire in about a year, have a lot of $ in cash, about 800 k. Studies I have looked at show that if the market tanks in the first few years or retirement, it can put you in a world of hurt.......
You are risk adverse. The stock market is not for everyone.
this is what i would do, when the DOW falls 5% invest 5% of your cash if it falls 10% invest the next 10% if it drops 30% invest 30% of the cash you were saving into stocks, probably ETF's is best if the DOW crashes 50% invest 50% of your cash into ETF's
Dang… another great video! So clear and informative!
Question is should I get out of market now and get back after the correction.
That makes sense - if you are clairvoyant.
I addressed this in my pinned comment below the video. In theory it sounds great, but I've yet to meet anybody who can actually time the market correctly and consistently over time.
@@ld4974 All investors, one way or another, are trying to time the market. Selling, buying, or stay put are timing the market. For example, if you know for sure you need cash out $300k in 2-3 years from now. Whatever you do (or don't do) now is timing the market.
Absolutely if you can do this. Problem is that you, nor anybody else, absolutely cannot do this consistently over time.
yep the talk of a 20% pull back give or take seems to have legs ,housing is overvalued too .
great video - thankyou