To buy or not to buy?

[wanaberetiree]

I have a serious reserve of money that I parked in bonds, but they are really have to be in stocks. And for an unknown reason I am paralyzed and can't buy stock now. the longer I think the higher stocks go

Just wondering what this group thinks about timing the market and when to commit new funds in order to satisfy AA ratio.

Thx

 

[Mill]

Almost nobody here will say that timing the market is a good strategy. Almost everyone here will agree that your AA needs to be at your desirable range at all times (within reason).

That being said, you are being emotional. Emotions can be a huge downfall in personal finance. You say those assets need to be in stocks, so just put them there. And I get where youre coming from with your regret from not having invested earlier...but you cant go back in time. Might as well put them into stocks now to satisfy your desired asset allocation. Then stay the course.

FWIW, Im a hardcore Boglehead, so I would just suggest a set it and forget it approach.

 

[Tyro]

Just wondering what this group thinks about timing the market and when to commit new funds in order to satisfy AA ratio.

Hmm... Let me put it this way... I don't view 'market timing' as being a dirty word as some folks do. In fact, I think it's a great idea, IF (<-- big if) one can figure out how to do it. That said, the reputed 'expert' we paid $185/year -- for many years -- to tell us exactly when to do it missed the debacle of '08-'09 ENTIRELY. Did he refund his subscribers for even one year for screwing up so badly? Not even one cent. Just, "Sorry, folks, we screwed up. Better luck next time. Don't forget to renew your subscription!"

THAT said, IMO there's market timing, and there's market timing. IOW, there are different degrees/types of timing different aspects. Many 'experts' are now saying that a correction (10%±) is imminent (there's that word again). Corrections do happen after significant run-ups, so it's not unlikely that one will happen. But again, the question is when, and by how much?

There are also all kinds of cycles -- both real and alleged -- by which the market can be "timed". market cycles - Google Search

While I may like the idea (there are LOTs of ideas I like that are not practical), I'm also on the fence about timing, because I know that I don't know enough to do it (which is why I paid some guy to do it for me and we know how THAT [-]worked[/-] didn't work out).

Personally, I think it's likely that we'll see a correction between now and when interest rates begin to rise. But that's just, ya know, like, my opinion, man, and I could be wrong.

Beyond that, anyone's guess is probably as good (or bad) as mine.

That's what I (currently) think about timing the market.

Tyro

 

[obgyn65]

When in doubt I would say don't buy. But please note I am one of the most conservative posters here.

Just wondering what this group thinks about timing the market and when to commit new funds in order to satisfy AA ratio.

Thx

 

[MichaelB]

I have a serious reserve of money that I parked in bonds, but they are really have to be in stocks. And for an unknown reason I am paralyzed and can't buy stock now. the longer I think the higher stocks go

Just wondering what this group thinks about timing the market and when to commit new funds in order to satisfy AA ratio.

Thx

Maybe your equity allocation is too high for your comfort level. If you're still committed to the higher level perhaps a DCA type approach, with a fixed % each quarter for the next year or two.

 

[LOL!]

I suggest you go read a book on behavioral finance. I have found Gilovich & Belsky's "Why Smart People Make Big Money Mistakes" to be the easiest and best one of this genre to read because it gives some action-items for folks to use to overcome behavioral finance traps.

The book will help you get out of your loss aversion trap.

In a situation like the OP, I would write down how I would DCA (although lump-sum may be better, who cares!), so that I reached my desired asset allocation in less than a year

For example, invest 50% now and 5% each month for the next 10 months. If the market goes down, then accelerate the DCA by investing another chunk earlier. The important point is that this is written down which is really helpful in followig it. Or start a market timing newsletter thread and publicly declare what you are going to do. This is also helpful.

For 2013 YTD, bonds are down about 0.5% to 1.0%, while equities are up 5% to 7%. Just look at US small-cap index funds! If the rest of the year is flat, we have already made a year's worth of expenses in January.

 

[Alex in Virginia]

I'm one of the investing heretics around here (it seems), so here are my 2 cents...

I don't time the market; I time the buy point for specific dividend-paying stocks -- and only dividend-paying stocks. I identify a price support point for the stock, either based on a moving average line or an established price-bounce line. Then I add the amount of the annual dividend to that price point. And that's the most I will pay for that stock at that time, so I set GTC buy orders accordingly.

For example, if stock XYZ pays an annual dividend of 1.00 and its price support point is 17.45, no matter what it is selling for today, I will set up a GTC buy order at a limit of 18.51. That way, I give myself a reasonable chance of limiting the downside (for me) on that stock in the medium term to the amount I will collect from the dividend in one year, which then makes up for the downtick.

And I don't chase the stock up the price chart. There's always another stock and another day.

Theoretically, one could do something similar for a market index as a whole, but I'm not saying one could.

Alex in Virginia

 

[jollystomper]

In my view, the average person should never try to time the market (of course, many feel they are above average, but that is another story ).

Among the many things to consider is when you need the money. For example, f this is stuff you aren't going to have to touch for 10-20 years, there is no reason to focus on the current market levels. If this is money you will need within the next 5 years, it might be too risky to move in.

Also bear in mind that returns are not not market prices but dividends. I have some investments that are below the market price I paid, but have generated enough dividends to have more than made up for it. Since I'm not planning to touch the investments for a while those paper losses are not hurting me.

For asset allocation ratio the best strategy I found was to do it on a regular basis regardless of the market. Once a month, one a quarter... the key is to do it without regard for the market levels, because you cannot predict the future. There *always* be corrections and runups. IMHO the best way to deal with that is via both consistent DCA and rebalancing of AA.

 

[padlin00]

Like Mill says, you sold because of emotions and now want to buy for the same reason, neither is profitable in investing, I've been there too. You need to go figure out how to setup your AA so you stop worrying about it. Determining your risk tolerance is the hardest part, you had/have it wrong as you sold when you shouldn't have or at least failed to put it in when you should have if this is new $. Google Bogleheads if you want to find a decent strategy to follow.
For now you have the choice of plunking it all in at once (AFTER you've determined a more comfortable AA), or DCA'ing it in a bit at a time. There are pros and cons to both with no clear better choice. Or you can wait for the market to tank again some day and buy when it low, if you can tell when that is, I can't.

 

[easysurfer]

As others have said, I think the best approach is be certain of your AA, then move towards that. Otherwise, you'd be always wondering is it the perfect time or not which leads to the paralysis by analysis which you currently have.

 

[Lsbcal]

I have a serious reserve of money that I parked in bonds, but they are really have to be in stocks. And for an unknown reason I am paralyzed and can't buy stock now. the longer I think the higher stocks go

Just wondering what this group thinks about timing the market and when to commit new funds in order to satisfy AA ratio.

Thx

If you are wondering this then so are many thousands of other investors. That is part of the dynamic that drives stock prices up.

Look at the chart I posted here: http://www.early-retirement.org/forums/f28/where-will-the-teens-take-equities-64368.html
We are up about 5.5% on that blue line since the start of the year. So to me it does not feel like a frenzy in the equity markets. Look at the other time periods and all the broad time period slopes. There have been years of much better market gains then we've seen recently. So that is the optimistic case.

If you are going to get to your AA as per your plan, now is as good a time as ever. Last month would have been better but you don't get to go back.