Holding cash for market timing

[VanWinkle]

I have seen many posts on various financial blogs lately concerning holding cash for the big dip. People assume they can make a killing by hoarding cash or low paying short term bonds to wait for the "big one". I read this article today and found it very enlightening. If you could time it just right and only buy at market lows, you could realize an extra .40% per year. 40 lousy basis
points for being right every time. Seems futile to me.

https://ofdollarsanddata.com/why-market-timing-can-be-so-appealing/

 

[GrayHare]

If you could time it just right and only buy at market lows, you could realize an extra .40% per year. 40 lousy basis

Something doesn't sound right there. Many stocks routinely go up and down by several percentage points on any given day. If "time it just right" is permitted, you can buy one of those and easily exceed 0.4% by the next day.

 

[NW-Bound]

From the article:

If you only bought the Dow at the lowest possible price and saved up cash in between purchases, how much would this outperform buying the same amount every month (i.e. dollar-cost averaging/DCA)?

The answer: Buying only at the absolute bottoms from 1970-2019 would outperform DCA by about 22% in total, or 0.4% (40 basis points) annually...

The author talks about a youngin' who is still in accumulation mode. He is better off buying stocks every paycheck, instead of trying to time the market.

Retirees generally don't have fresh money to buy low. Instead, they worry about having to sell low to get money for food.

 

[VanWinkle]

From the article:





The author talks about a youngin' who is still in accumulation mode. He is better off buying stocks every paycheck, instead of trying to time the market.

It would also apply to a retire person seeking growth through owning equities and trying to hold cash to buy them at the "perfect" low valuation. This is not about individual stocks, but about the market as a whole.

 

[GrayHare]

Ah, vs. DCA. DCA buys near the lows too, so no wonder buying only at the lows makes little difference.

 

[mickeyd]

So the concept is just to remember to buy low and sell high. Why the heck was I not advised of this practice at an earlier date?

 

[Ed_The_Gypsy]

I convert a bit to cash in anticipation of upcoming expenditures. I have a small TIRA that I use for this. It was at Vanguard with all VSIAX, which I converted to cash and transferred the TIRA to Schwab, creating also a brokerage (necessary; cash withdrawals must go through the brokerage account first) and a checking account with a debit card (recommended to us for international travel). After we get home, it goes back to SCV.

 

[SumDay]

So the concept is just to remember to buy low and sell high. Why the heck was I not advised of this practice at an earlier date?

You must have been asleep that day in class.

 

[VanWinkle]

So the concept is just to remember to buy low and sell high. Why the heck was I not advised of this practice at an earlier date?

The concept is to buy when you have the cash to invest and not try to wait for a market low. The cash drag will reduce any gains by being right.

 

[TheRunningMan]

From the article:

Instead, they worry about having to sell low to get money for food.

Yes...food, the precious, is very important!

 

[audreyh1]

As long as you have a fixed income allocation, say bigger than 15% or 20%, you probably have enough to buy that dip in equities.