Get Started Now or Wait?

[firemediceric]

Friend of mine is 49 y.o. and became single roughly 18 months ago. She will be debt free in the next month having her car paid off and having her credit cards paid off. She contributes to a retirement plan at work. I don't know how much she contributes nor how much she has accrued in the plan. A 401K I'm guessing, but she's not even sure. Obviously she is pretty ignorant of her own situation. Education is definitely needed, but she's trying to keep it simple. Too simple.

She is aware that I have various investments. I'm not savvy and I'm not set but I'm working on it. When she and I were talking in abstract generalities I suggested a ROTH IRA for her and to increase her retirement contributions. She often sees me checking my brokerage account that I manage myself. Just a simple Schwab account in which I have 4 different mutual funds. The S&P 500 index fund has done the best for me. She wants to jump in starting next month. She's hoping to invest perhaps as much as $1,000 per month on her own.

Given that the market has been rocking with such great returns, is now the time for her to start putting her money into a S&P 500 index fund? I have read the axioms "no one can time the market" and "the best time to start investing was yesterday." Is that still the case or should she wait for a dip hoping to get started when the equities are on sale rather than now when they are going for such a high premium?

Where she sees my S&P index is showing a current return of 20% I hope she won't be frustrated and disillusioned as she checks her returns and they're no where near that.

What direction does the community feel I should give her?

 

[OldShooter]

"The Coffeehouse Investor" by Bill Schultheis and "Bogleheads Guide to Investing" by Taylor Larimore.

 

[Aerides]

Obviously she is pretty ignorant of her own situation. Education is definitely needed, but she's trying to keep it simple. Too simple. <snip> She wants to jump in starting next month. She's hoping to invest perhaps as much as $1,000 per month on her own.

Rather than direct her and give her steps, you'd do better, in my opinion, to help her find some resources to educate herself. A couple of quick-read books, 101 type stuff. Otherwise, she'll just keep asking for help, not learn, and, blame you if there's a downturn. Besides, any financial plan will start with socking away a few months of expenses - which she must not have since she's only just about to become debt free. So I'd say, chill for 90 days, save, and learn. Teach her to fish, etc.

I have read the axioms "no one can time the market" and "the best time to start investing was yesterday." Is that still the case or should she wait for a dip hoping to get started when the equities are on sale rather than now when they are going for such a high premium?

All still true. 6 months from now the current prices might look like they were an all time high and long forgotten, or just the start of the latest rally. This is where dollar-cost-averaging can help, and if she's only putting in 1k per month to start, then no financial reason to wait.

 

[firemediceric]

Both valid replies. I’ve mentioned to her the bogleheads site and I’ve sent her the link. She just doesn’t have the drive to take the time to do the reading there when she is done with work and wants to unwind. I guess you can’t teach the person to fish if they don’t want to hold the fishing pole.

I’m thinking I will encourage her to sock away that six months worth of living expenses and then just increase her contribution to her employer’s retirement plan. I guess that fund will do the thinking for her

 

[travelover]

No good deed goes unpunished. If you put her into the markets today, at an all time high, what are the chances that she will see big losses in the not too distant future? Who will she blame?

 

[Lsbcal]

No good deed goes unpunished. If you put her into the markets today, at an all time high, what are the chances that she will see big losses in the not too distant future? Who will she blame?

I know you mean well but we have had many all time highs going back over several years now. So when do the market highs end? That is a rhetorical question.

 

[Lsbcal]

Both valid replies. I’ve mentioned to her the bogleheads site and I’ve sent her the link. She just doesn’t have the drive to take the time to do the reading there when she is done with work and wants to unwind. I guess you can’t teach the person to fish if they don’t want to hold the fishing pole.

I’m thinking I will encourage her to sock away that six months worth of living expenses and then just increase her contribution to her employer’s retirement plan. I guess that fund will do the thinking for her

Perhaps she is suffering from Fear of Missing Out, FOMO. You might show her that your 20% SP500 gain is for a specific time period. Then point out that it was terrible in the 4th quarter of 2018 with a loss of 7% in October 2018 and a loss of 9% in December 2018. So she should be prepared for some downs and gloom.

And she should realize a Depression at some point is possible, i.e. the worst that we can have thrown at us. No guarantees.

 

[OldShooter]

... She just doesn’t have the drive to take the time to do the reading there when she is done with work and wants to unwind. ...

Tell her that Bill Schultheis gives her a recipe for pumpkin pie. He is about life philosophy in an investing context. Super easy read and no "drive" required, even if she doesn't make the pie.

Some reader comments: http://www.coffeehouseinvestor.com/the-coffeehouse-investor-book/investors-speak-out/

I suggest that you buy her the book.

 

[Gremlin]

^^
Agree with Old Shooter. Start simple with something like The Coffee House Investor. The “I don’t have the drive after work” might actually be her way of saying “I'm overwhelmed and don’t understand what I’m reading.” She needs to start with very easily digestible information, otherwise she’ll give up. The Bogleheads site is fabulous but can be intimidating at first.

Or, she just might not have the drive!

 

[travelover]

No good deed goes unpunished. If you put her into the markets today, at an all time high, what are the chances that she will see big losses in the not too distant future? Who will she blame?

I know you mean well but we have had many all time highs going back over several years now. So when do the market highs end? That is a rhetorical question.

I'd worry about the value of her investments before and after the fall. Sure, in all probability the portfolio value will rise and pass the previous value, but for a nervous novice investor, it will look like you flushed their money down the loo. Just sayin'....

 

[firemediceric]

Regarding the FOMO speculation, I believe she fears that at her age she has already missed the boat. She wants substantial quick returns, but who doesn’t. She feels she doesn’t have the time to be patient. I try to remind her that the safest investments require the most patience.

I showed her some past daily snapshots of my portfolio from this time last year when some items were in the red. She would become manic if she felt she was losing money even briefly. Hence my reluctance to recommend she jump into the stock market at this point in time.

I’ll order that recommended book and give it to her as a Christmas present. I’m sure it will be a good read for me, too.

 

[OldShooter]

... Hence my reluctance to recommend she jump into the stock market at this point in time. ...

I teach an Adult-Ed investment class and a very natural question for me to get from students is "What do you recommend?" My answer is this: "I haven't the faintest idea what you should do. I don't know your circumstances, your goals, your tolerance for risk, etc. What I will do is to tell you what my wife and I do and explain it in as much detail as you like. You can do what you like with that information."

From that, @firemedicric, you can go where you like. I might point out to your friend that that today, when I decide to stay in the market instead of selling, I am effectively making a decision to buy the market.

... I’ll order that recommended book and give it to her as a Christmas present. I’m sure it will be a good read for me, too.

My standard warranty on that recommendation is: If you don't like it, send it to me with a copy of your invoice and I'll refund your money. I have never been asked to pay off.

 

[mystang52]

Why not give her this simple but safe advice: "The standard approach is a mix of stock fund and bond fund. Main decision you have to make is what percentage goes to stock and what to Bond. Keep in mind that in the short term either one can go down in value. Why not start with 50% each until you decide what proportions you are ultimately comfortable with?"

 

[Time2]

I know you mean well but we have had many all time highs going back over several years now. So when do the market highs end? That is a rhetorical question.

I have a similar situation with a neighbor, he came asking me questions.
He got out of the market during 9-11 and never got back in. With that much risk aversion, I don't want to be the one convincing him to put money in the market, now. That said, the market is up about 15% since he ask me. At the the time he ask, I did say, get your feet wet put in $10,000 and start the ball rolling, then as he ask more and more, I wanted to tell him to put his money in less and less.

 

[ckelly78z]

Some folks want to be spoon fed enough information to make a decision, but not learn enough to make their own.