Saw this on Schwab’s newsletter:
We crunched the numbers on five hypothetical investors who start each year with $2,000 to invest over a 20-year run. Putting that money to work at the market’s bottom year after year would be a fine strategy indeed—though, pulling it off is about as likely as winning the lottery. A more reasonable approach would be to invest the full $2,000 immediately, or even smaller amounts each month.
What is the financial instrument used for investing?
In a multi-year bull market, best is to invest immediately.
This approach won’t work if there is a Depression.
Also don’t work if there is a multi-year bear market at the end of the last few years where you need to draw out the money.
Anyhoo, the reason for DCA into an index fund is based on the thesis that US stock market will be in a bull run for a very long long long time perspective.
I think 2001-2020 was a pretty rough 20 years. First the Dot-com and then the Great Recession. Any strategy that “worked” during this time period will most likely work in any period.
Also please don’t try on individual stocks. It works extremely well on broad-based index but not on individual stocks.
Any1 who invest in index fund knew this assumption.
I don’t know who wrote the Schwab’s newsletter. A young punk? Saying what everybody know.
No investors left behind, and
Common sense is uncommon.
Everyone on this forum is a market genius who picks 100x winners at just the right time. The beauty of an anonymous forum.
But, investing in the SP500 index and forgetting everything else will not make you 100x either (unless you bought SP500 index at a major dip/market bottom and sell at peak- which will be market timing anyway).
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Actually no need to market time index. Index is the closest to a sure 100x investment.
Without DRIP, GSPC takes 65 years to achieve 100x
With DRIP, GSPC would take 50 years to hit 100x
If you want to fire and forget and then go about your life, index funds/etfs are the best. I have a S&P index fund, still DCA purchasing it regularly, no market timing, invest immediately once have money.
How does the payback period of above compare with a well picked/well timed stock?
Look at Manch chart. Timing isn’t as helpful because of all the time fallow money sits in the sidelines. Pretty much like RE. Don’t wait to invest. Invest then wait. Conservative approach… go for index stocks. Or go for home runs like Tesla. Or go Ape for meme stocks and crypto. Just remember home run hitters strike out the most and Ape investors will be slaughtered at the trough.
Fed has killed cash by printing dollars and killing purchasing power/ . Staying in cash would be a good strategy Otherwise all these 100x would mean very little because most investments cannot theoretically be 100 in short term.
Will hurricane Ida crash the market??. $95 billion in damages from LA to NY. Makes our fires seem moderate . $20billion last year? $30 billion this year?
Or maybe nothing compared to the New Democratic tax plan to raise taxes $3 trillion.
Bad news for stocks? Or is the news of AMC and crypto dominating ?
Definitely bullish for oil
Prices still found some support from Hurricane Ida’s impact on U.S. output. About three quarters of the offshore oil production in the Gulf of Mexico, or about 1.4 million bpd, has remained halted since late August. read more
“Hurricane Ida was unique in having a net bullish impact on U.S. and global oil balances - with the impact on demand smaller than on production,” Goldman Sachs analysts said in a note dated Sept. 9.
I recall there is something called holding period analysis where you analyze the returns on the investment in a given holding period. Holding period is duration for which you hold an investment. To understand the impact of the holding period on the return.
You vary the length and the start/end time of the holding period and then record the return for each.
Holding periods could be 3 weeks, 1 year, 5 year, 10 year. Larger the holding period, better returns from the buy and hold. But, can a person realistically have a holding period of 65 years?
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Boil down to intent of the investment. For me, it is intended to be inherited and passed from generation to generation. There is no end date. The only reason for selling has to be due to huge unexpected expenses.
If your intent is for your retirement and you has less than 10 years to retirement, you has to manage it like stock.
It essentially is a time-horizon question. That is why CASH was an excellent storage of value before governments around the world started killing cash to save bankers, big borrowers, and loosing and connected companies (TBTF types). Actually, for short term to medium term, CASH may indeed by the king. Now people are forced to invest in risky stock market and wait for 65 years.
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Isn’t that bad since life expectancy has increased to near 100. You start work in early 20s, got 70s years of life. If you DRIPed, only need 50 years. So can retire at the age of 70 and enjoy 30 years of retirement.
As a father, you can give your children a helping hand by opening an education account (+ a brokerage account for gifts if you can afford it) for them and start investing in index funds/ ETFs. They would thank you since you have shortened the time to retire by 20 years i.e. can retire at age of 50 and enjoy 50 years of retirement.
Another installment:
The reason why Buy the Dip usually fails is simply because market dips, especially larger dips, are rare. Without dips to buy, Buy the Dip is just an 100% cash strategy, which is a terrible way to invest for the long term. More importantly, while large dips can generate larger returns, predicting them beforehand is near impossible. So be careful before waiting for one because your portfolio is likely to miss out.
What the lines above say makes sense when someone is waiting to buy the crash. Market Timing is more than buying the dip (or crash or correction). Ain’t Pretty much everyone on this forum picking stocks (some even choose leveraged securities), picking a price, and timing the entry into the market? Do all these not constitute market timing?
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Warren Buffett strongly believe in market timing and buying deep. He sugar coats it as margin of safety, buys at 30% below intrinsic value.
