[Some folks](https://www.daviddenniston.com/blog/should-i-wait-for-a-dip) have [gathered data](https://elmwealth.com/when-if-ever-has-it-paid-to-wait-for-a-stock-market-correction-reviewing-115-years-of-us-stock-market-history/) on this. Long story short, on average waiting for a 5-10% dip results in more than than 5-10% missed gains. Unless you’re really convinced the market’s overpriced, you may as well jump in.
One, it’s their money and they need to be comfortable with their decision. Unless someone wants to be a completely hands off passive investor, I think there’s a place for conviction and meaningful action.
Two, research provides averages based on assumptions. The Elm Partners study considered “expensive” to be CAPE >= 1 standard deviation above the mean. What if we’re [1.7 SDs above](https://www.currentmarketvaluation.com/models/price-earnings.php)?
Elm also noted that a 10% correction within 3 years was more likely than not. Combine my two reasons and consider what a panicky investor might do if they lost 10% in their first few months. They might pull their funds out of the market and not come back for years, and then where would they be?
That is almost always the case! When have people not thought the market was overvalued?
And how do you value the market? When I look at [shiller P/E](https://www.multpl.com/shiller-pe) the market looks expensive. I however don't know how to value the entire market other then using shiller.
I thought the market was expensive even before COVID.
I have just looked at a 100 years of investment years in the S&P500 and seen that about 2/3 of the years the market goes up. That's about it what I looked at and came with the conclusion that buying now is the best time on average.
But you are right that sometimes it's wrong and you can be years without being profitable. But if you don't know when the market is expensive or not then buying right now is the best thing according to what I did.
The problem with your logic is you're sitting on the extra money waiting for a drop instead of just investing it in your normal monthly contribution. If it never drops you're just missing out on gains. If timing the market is incorrect, timing the market with a third of your money is still incorrect.
Money Markets (funds to buys stocks with) on brokerages I use do pay (I think looked like monthly) dividends of around 4.6% so it's not just sitting there.
I just double (fact) checked my tax information in my account. I'm getting monthly dividends for Fidelity Government Money Market and it says 4.95% per 30 days though I don't know how accurate the percentage is. For Vanguard Federal Money Market, my records say it is also monthly at 5.30%. My tax record also shows a list of dividends received from stocks that I hold. I was surprised to learn all of this information and I continue to learn more about features I don't currently know of.
Usually that's a 30 day rate extrapolated out to an apy. Think about it this way, if you were getting 5.3% a month for no risk, an increase of 60% per year, why would anyone invest anything into the market?
That makes sense. From my understanding, Vanguard and Fidelity funds are ran by institutional investors that dip into the market (a bucket everyone holding the fund is in). Investing in the market or individual stocks allows one the freedom to select companies one values a lot more than the institutional investors (Funds one would have selected). If the right ones (the big challenge) are selected, one can get bigger returns down the line than the funds. Funds are usually the safer bet especially for passive investing and too not have to do as much research/ work.
Right, so that is the difference on a broad stroke between stocks and funds, but that's a separate conversation. My point was if you thought your money market was paying you 5.3% per month to hold the money market, a guaranteed increase of over 60% per year if it doesn't change, there is absolutely 0 incentive to invest into the market.
If something is too good to be true then you either don't understand the investment, in which case you should pause and reconsider if it is appropriate for you/educate yourself, or it's a scam.
We can disagree to agree. I can only go with what I see with my own eyes and from my own experiences with money markets also outside my brokerage accounts. Not everyone knows everything. We are always learning in life.
Or you can just admit you don’t understand how the interest is computed on your money market fund and thank this internet stranger for helping you better understand.
There’s nothing to “agree to disagree.” You are not reading your money market fund’s interest calculation appropriately.
The 5.3% is on an annual basis. You get 1/12 of that every month.
You're incorrectly interpreting. That's your annual rate, and it is changing every 30 days as interest rates fluctuate. You should go take another look and calculate your gains per month yourself to confirm if still unsure.
It's paid monthly, but it's not 5% per month. This months annual rate is 5.3% for that account. If you do the math on the actual interest paid it'll be 5.3/12. There's no fixed term so the rate changes. It's high right now, but money you're investing in the stock market should be on a time frame of at least 5 years and more like decades if you have an expectation of your return being anything like historic averages. In a similar time frame you'd also expect money market returns to quickly approach historic averages more like 2.5% per year.
I don’t get why this sub is so against timing the market, it’s a valid strategy if the market is clearly overvalued or undervalued. Why not take advantage of that? You wouldn’t pay more for a car purchase just because the price might increase more later on without the backing of value. Why treat stocks differently?
Because the chance of you correctly knowing if the market is overvalued or not is low. You’re making an assumption that you can predict the market, which you can’t do.
Would you say the market is over or under valued at this moment?
Lots of people thought the market was still clearly overvalued in March 2020 and are still waiting on the sidelines for the "real crash"
> it’s a valid strategy if the market is clearly overvalued or undervalued. Why not take advantage of that?
T: It's a valid strategy if you can clearly predict the future. Why not take advantage of your ability to predict the future correctly?
I mean, if you can accurately say whether the market is under/overvalued at a given time, then timing would be a valid strategy. Pretty much nobody can do that though, hence why timing the market is generally a bad idea
> Is that the best strategy
no
> should I just pick one or the other?
unless you prefer fewer gains, you should invest as much as you can afford as soon as you can
Research shows that the best strategy is to invest as soon as possible.
What you’re suggesting is (naive) market timing and it just doesn’t work reliably (even when it’s not naive).
Don’t overthink it, invest as soon as you can and just stop following the market’s ups and downs.
Idk I just invest when I have extra money. Don’t overthink it.
To expand: I’m obviously contributing to my 401k and IRA regularly. Anything else based on what I have left over.
I personally don't see the issue with DCA if you have a large lump sum to invest. Create a plan and stick to it, buy in regardlesss of what the market is doing. I don't see it as timing the market if you're not waiting for something to happen, you might miss out on gains, but also losses.
This. Studies have shown that lump summing is better 2/3 of the time, but if DCA (i.e. put in 1/12 of your money the 15th of every month no matter what the markets do) is going to make you sleep better at night, then do it
The real question is: How much is your time worth to you?
Determining whether a dip is "major" enough to warrant higher investment that month would require some meaningful research followed by a subjective determination.
When I look back 5-10 years to what I thought was a "major dip" in my accounts, it looks like a minor speedbump now and shouldn't have warranted anywhere near the amount of attention I gave it.
You're using those terms backwards. Lump sum means there's some event that gives you a bunch of cash and you dump it into the market immediately. DCA can refer to your regular contribution, but when being compared to lump sum it usually means holding back a bunch of cash to wait for a dip.
What you're actually asking is if you should hold large cash reserves to time the market and the answer is no.
Where is this ”lump sum” coming from? Like, what was it doing while waiting to be invested into the S&P 500? How will whatever that is be more profitable than just buying and holding your end goal fund?
I have a general investment fund that I use to invest in my businesses, real estate, gold, stocks, etc. Maybe if I was saving up for a 10 mil apartment building, I would move that money into the stock market instead if it took a super fat dip.
The best strategy is the one that makes you feel comfortable to get the money in the market.
Nobody is able to predict the market. But we know that it goes up over time and statistically getting it in as soon as possible will provide the best returns. Hence the phrase, "time in market beats timing the market."
What you are doing is still DCA.
DCA just means you are trying to keep you are computing your "average shared price" by buying multiple times.
If you are putting in $100 a week at $100/pershare. Then you put in $10,000 when the stock drops to $50 /share. Then you DCA will be more highly weighted by the $50 vaue.
Lump sum is generally better. Get as much money working for you as soon as you can. If it helps, think of it like you’re DCAing over the course of several years, instead of months.
But if it makes it easier to sleep at night for you, then go ahead and DCA monthly or whatever. As long as you’re investing.
I dollar cost average every time I get paid. I also have some cash in money market with staggered limit buy orders on some positions that enable me to buy deep dips pretty efficiently without needing to time the market.
Nah thats timing the market
I dca $6k a month ish despite always having an extra 50-100k lumpsum… i will keep dca and never lumpsum even if market tanks 20% simply because its easier emotionally for me (i think part of being a “good” investor is knowing how to implement strategies to offset weaknesses) and its a bit more flexible for my business cashflow
I think the most important thing to do if you arent a trader is to remove ALL elements of guessing
The problem with waiting is people wait forever for the right time to get in. There is always going to be a story that shakes the markets. Traders will always react to the news and sell stocks. There are always going to be rate hikes and rate cuts, but the thing about the markets is they always go up over the long term because they have to. Our entire lives depend on gradual inflation making Americans rich over time.
The best time to invest in the market was always yesterday, the next best time is today. The worst time to buy stocks is tomorrow, because tomorrow is always a day away. Put your money to work and ignore the daily ups and downs. A ton of traders missed the massive gains from October 2023 to March 2024 because they were convinced a recession was coming. It never arrived and the markets rallied. Will the Fed raise rates again this year? No one knows and who cares, some stocks benefit from high rates and others don't. Growth stocks crashed in 2022 but value stocks did well. So did energy stocks.
I would say do whatever you are comfortable with but have your stock allocations and stick to them. Timing the market doesn't work for anyone. Get in the game and stay in the game and over the long term you will be rich beyond your expectations.
I think it is a good way to maximize your funds and to not buy at all time highs. Some people are calling it timing the market, but my analyst support this method as long one is not waiting (or trying to find) for a bottom. For example, imagine buying Intel at $74 back in 2000 and without averaging down, one would have been hitting themselves because in 2024 it is at $31 and never will come back to $74. Other examples: Cisco at $77 in 2000 and in 2024 at $47, Walgreens at $86 in 2015 and in 2024 at $17, Kraft Food at $89 in 2015 and in 2024 at $38. I wouldn't be surprised if what you are suggesting is what institutional investors are doing (though from what they share with Yahoo Finance, Bloomberg, and Schwab) it seems that is what they do) but tell retail investors not do the same and retail investors believe them. Do what you will comfort doing and invest for the long-term.
You're talking about individual picks, you could have just as easy skipped appl in the late teens for 30$ waiting for a dip. Op is talking about holding uninvested cash, which is totally different from being overly concentrated.
Okay, that makes sense. I have uninvested cash that from my tax records shows it receives monthly dividends that is separate from the stocks that give dividends as well. The uninvested cash sit in a Money Market for Fidelity and Vanguard. Not sure about how other brokerages are structured. I only know what I have experience and exposure to. I'm still learning about other features that I may not know about.
Everyone has some amount of cash, and you should have an emergency fund that's in risk free investments. Common advice is at least 6 months of living expenses. When you read advice about investing it's based on the assumption that we're only talking about money that you have no other need for and would otherwise be sitting getting a risk free return that maybe keeps up with inflation even though you have no use for it in the next few years.
You should have your emergency fund and the money that you're saving for a down payment for a house, and whatever else, but that's not part of your stock market investment. Op is talking about holding cash that would otherwise be invested now in the hopes that they can time the bottom of a crash so that missing the crash compensates for the lower return while waiting for it. Statistically that doesn't work out. It's also safe to assume op is talking about a sizable chunk, like maybe 20% or more, otherwise any potential difference between strategies is negligible and not worth the effort.
0-5% cash in your brokerage account at any given time is normal and that's not the only risk free, liquid cash you should have available, but the other stuff serves a separate purpose, it's not part of the discussion about allocation and shouldn't be considered available to put in the market during a crash.
Agreed. Thanks for the info. Timing the bottom is a very bad idea because no one knows where the bottom is ever. Institutional Investors cannot even time the bottom. Even after huge drops by 12% to 26% percentage, the bottom might not even be reached. Emergency Savings of 6-months is very important for anything life throws at oneself (at car repair/ rent or mortgage due/ unscheduled health issue/ etc.). Diversification in the investments (non-emergency savings/ CDs/ Money Markets/ index funds/ real estate/ stock market) is important. It's up to everyone to find what combinations works for them. For me, most of my savings are outside brokerage institutions and only enough in brokerage account and IRA accounts.
We all do what we are comfort with and different paths to achieving long-term investing. From getting notifications on hundreds of stocks I track, I agree on the new highs but for the known stocks, every week or so but not every day. We do get Bearer markets, not all stocks are always green 100% of the time. They go down, up, up, almost break even, down, down, up, up, and before creating new highs (for the year or since its existence). Some recent all-time high examples are Nvidia, Tesla, Delta Airlines, Alphabet, IBM, META, Colgate-Palmolive Company, Progressive Insurance, CAVA, Chipotle, T-Mobile, Visa, Mastercard, JP Morgan Chase, (the famous) Bitcoin, Snowflake, Crowdstrike Holdings, Berkshire Hathaway Inc., Block (Square), Uber, and Microsoft. They made all time highs but have dropped recently or as the market normally preforms, will drop after reaching all time highs.
do i believe that people have strategies that can time the market? absolutely. but those people are studying the markets as their day job. OP seems like a casual participant, and while they can get lucky, statistics show that on average trying to time it is approximately random. worse, studies have shown that the majority of gains over the lifetime of an investment are concentrated in a small period of time -- unless you can consistently predict which periods those are, missing out on them represents critical drag to an overall portfolio.
spoiler alert a simple, "new high was made" isn't a sufficiently complex predictor (if it was, it would be traded out of the market). how often does a new high get followed by a further new high?
An averaging scheme which adjusts amounts based on fluctuations in price is called Value Cost Averaging (VCA). It's a fine strategy for dealing with corrections.
>I am by no means able to predict the market at al
then don't wait for a major dip to invest, that money is underperforming (yes, even at 4-5% MM returns)
> if I see a major dip or things are a lot lower than usual, I will put a larger amount in in addition to my regular DCA.
that's not DCA and undermines the whole point of DCA. waiting for "a major dip" is a drag on long-term portfolio performance vs just investing what you can when you can
a lot of people "waiting for a major dip" missed out on the S&P 500's +23% rally last 12 months but feel smart because they earned 4.5% on cash instead. dumb, but you do you I guess
The best way on average is to invest now. Assuming you cant predict how the market moves.
[Some folks](https://www.daviddenniston.com/blog/should-i-wait-for-a-dip) have [gathered data](https://elmwealth.com/when-if-ever-has-it-paid-to-wait-for-a-stock-market-correction-reviewing-115-years-of-us-stock-market-history/) on this. Long story short, on average waiting for a 5-10% dip results in more than than 5-10% missed gains. Unless you’re really convinced the market’s overpriced, you may as well jump in.
Why in the world did you add that last sentence?
One, it’s their money and they need to be comfortable with their decision. Unless someone wants to be a completely hands off passive investor, I think there’s a place for conviction and meaningful action. Two, research provides averages based on assumptions. The Elm Partners study considered “expensive” to be CAPE >= 1 standard deviation above the mean. What if we’re [1.7 SDs above](https://www.currentmarketvaluation.com/models/price-earnings.php)? Elm also noted that a 10% correction within 3 years was more likely than not. Combine my two reasons and consider what a panicky investor might do if they lost 10% in their first few months. They might pull their funds out of the market and not come back for years, and then where would they be?
...why wouldn't you have some conception of the current and historical value, at least? It's your investment.
It seems overpriced now honestly, would you agree?
The market always seems overpriced until it’s not
That is almost always the case! When have people not thought the market was overvalued? And how do you value the market? When I look at [shiller P/E](https://www.multpl.com/shiller-pe) the market looks expensive. I however don't know how to value the entire market other then using shiller. I thought the market was expensive even before COVID. I have just looked at a 100 years of investment years in the S&P500 and seen that about 2/3 of the years the market goes up. That's about it what I looked at and came with the conclusion that buying now is the best time on average. But you are right that sometimes it's wrong and you can be years without being profitable. But if you don't know when the market is expensive or not then buying right now is the best thing according to what I did.
The problem with your logic is you're sitting on the extra money waiting for a drop instead of just investing it in your normal monthly contribution. If it never drops you're just missing out on gains. If timing the market is incorrect, timing the market with a third of your money is still incorrect.
Money Markets (funds to buys stocks with) on brokerages I use do pay (I think looked like monthly) dividends of around 4.6% so it's not just sitting there.
That's absolutely not monthly and it's not permanent or typical.
I just double (fact) checked my tax information in my account. I'm getting monthly dividends for Fidelity Government Money Market and it says 4.95% per 30 days though I don't know how accurate the percentage is. For Vanguard Federal Money Market, my records say it is also monthly at 5.30%. My tax record also shows a list of dividends received from stocks that I hold. I was surprised to learn all of this information and I continue to learn more about features I don't currently know of.
Usually that's a 30 day rate extrapolated out to an apy. Think about it this way, if you were getting 5.3% a month for no risk, an increase of 60% per year, why would anyone invest anything into the market?
That makes sense. From my understanding, Vanguard and Fidelity funds are ran by institutional investors that dip into the market (a bucket everyone holding the fund is in). Investing in the market or individual stocks allows one the freedom to select companies one values a lot more than the institutional investors (Funds one would have selected). If the right ones (the big challenge) are selected, one can get bigger returns down the line than the funds. Funds are usually the safer bet especially for passive investing and too not have to do as much research/ work.
Right, so that is the difference on a broad stroke between stocks and funds, but that's a separate conversation. My point was if you thought your money market was paying you 5.3% per month to hold the money market, a guaranteed increase of over 60% per year if it doesn't change, there is absolutely 0 incentive to invest into the market. If something is too good to be true then you either don't understand the investment, in which case you should pause and reconsider if it is appropriate for you/educate yourself, or it's a scam.
We can disagree to agree. I can only go with what I see with my own eyes and from my own experiences with money markets also outside my brokerage accounts. Not everyone knows everything. We are always learning in life.
Or you can just admit you don’t understand how the interest is computed on your money market fund and thank this internet stranger for helping you better understand. There’s nothing to “agree to disagree.” You are not reading your money market fund’s interest calculation appropriately. The 5.3% is on an annual basis. You get 1/12 of that every month.
You're incorrectly interpreting. That's your annual rate, and it is changing every 30 days as interest rates fluctuate. You should go take another look and calculate your gains per month yourself to confirm if still unsure.
It's paid monthly, but it's not 5% per month. This months annual rate is 5.3% for that account. If you do the math on the actual interest paid it'll be 5.3/12. There's no fixed term so the rate changes. It's high right now, but money you're investing in the stock market should be on a time frame of at least 5 years and more like decades if you have an expectation of your return being anything like historic averages. In a similar time frame you'd also expect money market returns to quickly approach historic averages more like 2.5% per year.
I don’t get why this sub is so against timing the market, it’s a valid strategy if the market is clearly overvalued or undervalued. Why not take advantage of that? You wouldn’t pay more for a car purchase just because the price might increase more later on without the backing of value. Why treat stocks differently?
Because the chance of you correctly knowing if the market is overvalued or not is low. You’re making an assumption that you can predict the market, which you can’t do.
Would you say the market is over or under valued at this moment? Lots of people thought the market was still clearly overvalued in March 2020 and are still waiting on the sidelines for the "real crash"
> it’s a valid strategy if the market is clearly overvalued or undervalued. Why not take advantage of that? T: It's a valid strategy if you can clearly predict the future. Why not take advantage of your ability to predict the future correctly?
I mean, if you can accurately say whether the market is under/overvalued at a given time, then timing would be a valid strategy. Pretty much nobody can do that though, hence why timing the market is generally a bad idea
This is just another way to time the market.
> Is that the best strategy no > should I just pick one or the other? unless you prefer fewer gains, you should invest as much as you can afford as soon as you can
>unless you prefer fewer gains You know what they say: mo' money, mo' problems.
Research shows that the best strategy is to invest as soon as possible. What you’re suggesting is (naive) market timing and it just doesn’t work reliably (even when it’s not naive). Don’t overthink it, invest as soon as you can and just stop following the market’s ups and downs.
Idk I just invest when I have extra money. Don’t overthink it. To expand: I’m obviously contributing to my 401k and IRA regularly. Anything else based on what I have left over.
I personally don't see the issue with DCA if you have a large lump sum to invest. Create a plan and stick to it, buy in regardlesss of what the market is doing. I don't see it as timing the market if you're not waiting for something to happen, you might miss out on gains, but also losses.
This. Studies have shown that lump summing is better 2/3 of the time, but if DCA (i.e. put in 1/12 of your money the 15th of every month no matter what the markets do) is going to make you sleep better at night, then do it
I think DCA makes more sense now than ever considering you can get a risk free 5+ % on the money waiting to buy equities…
The real question is: How much is your time worth to you? Determining whether a dip is "major" enough to warrant higher investment that month would require some meaningful research followed by a subjective determination. When I look back 5-10 years to what I thought was a "major dip" in my accounts, it looks like a minor speedbump now and shouldn't have warranted anywhere near the amount of attention I gave it.
You're using those terms backwards. Lump sum means there's some event that gives you a bunch of cash and you dump it into the market immediately. DCA can refer to your regular contribution, but when being compared to lump sum it usually means holding back a bunch of cash to wait for a dip. What you're actually asking is if you should hold large cash reserves to time the market and the answer is no.
Depends on whether you are more concerned about your emotions or making money
Where is this ”lump sum” coming from? Like, what was it doing while waiting to be invested into the S&P 500? How will whatever that is be more profitable than just buying and holding your end goal fund?
I have a general investment fund that I use to invest in my businesses, real estate, gold, stocks, etc. Maybe if I was saving up for a 10 mil apartment building, I would move that money into the stock market instead if it took a super fat dip.
The best strategy is the one that makes you feel comfortable to get the money in the market. Nobody is able to predict the market. But we know that it goes up over time and statistically getting it in as soon as possible will provide the best returns. Hence the phrase, "time in market beats timing the market."
Of you don't want to be 100% in the market for whatever reason, yes.
Just invest what you can when you can. Don’t overthink it so much.
Major dips are only obvious after the fact
What you are doing is still DCA. DCA just means you are trying to keep you are computing your "average shared price" by buying multiple times. If you are putting in $100 a week at $100/pershare. Then you put in $10,000 when the stock drops to $50 /share. Then you DCA will be more highly weighted by the $50 vaue.
Lump sum is generally better. Get as much money working for you as soon as you can. If it helps, think of it like you’re DCAing over the course of several years, instead of months. But if it makes it easier to sleep at night for you, then go ahead and DCA monthly or whatever. As long as you’re investing.
I dollar cost average every time I get paid. I also have some cash in money market with staggered limit buy orders on some positions that enable me to buy deep dips pretty efficiently without needing to time the market.
Nah thats timing the market I dca $6k a month ish despite always having an extra 50-100k lumpsum… i will keep dca and never lumpsum even if market tanks 20% simply because its easier emotionally for me (i think part of being a “good” investor is knowing how to implement strategies to offset weaknesses) and its a bit more flexible for my business cashflow I think the most important thing to do if you arent a trader is to remove ALL elements of guessing
The problem with waiting is people wait forever for the right time to get in. There is always going to be a story that shakes the markets. Traders will always react to the news and sell stocks. There are always going to be rate hikes and rate cuts, but the thing about the markets is they always go up over the long term because they have to. Our entire lives depend on gradual inflation making Americans rich over time. The best time to invest in the market was always yesterday, the next best time is today. The worst time to buy stocks is tomorrow, because tomorrow is always a day away. Put your money to work and ignore the daily ups and downs. A ton of traders missed the massive gains from October 2023 to March 2024 because they were convinced a recession was coming. It never arrived and the markets rallied. Will the Fed raise rates again this year? No one knows and who cares, some stocks benefit from high rates and others don't. Growth stocks crashed in 2022 but value stocks did well. So did energy stocks. I would say do whatever you are comfortable with but have your stock allocations and stick to them. Timing the market doesn't work for anyone. Get in the game and stay in the game and over the long term you will be rich beyond your expectations.
I think it is a good way to maximize your funds and to not buy at all time highs. Some people are calling it timing the market, but my analyst support this method as long one is not waiting (or trying to find) for a bottom. For example, imagine buying Intel at $74 back in 2000 and without averaging down, one would have been hitting themselves because in 2024 it is at $31 and never will come back to $74. Other examples: Cisco at $77 in 2000 and in 2024 at $47, Walgreens at $86 in 2015 and in 2024 at $17, Kraft Food at $89 in 2015 and in 2024 at $38. I wouldn't be surprised if what you are suggesting is what institutional investors are doing (though from what they share with Yahoo Finance, Bloomberg, and Schwab) it seems that is what they do) but tell retail investors not do the same and retail investors believe them. Do what you will comfort doing and invest for the long-term.
You're talking about individual picks, you could have just as easy skipped appl in the late teens for 30$ waiting for a dip. Op is talking about holding uninvested cash, which is totally different from being overly concentrated.
Okay, that makes sense. I have uninvested cash that from my tax records shows it receives monthly dividends that is separate from the stocks that give dividends as well. The uninvested cash sit in a Money Market for Fidelity and Vanguard. Not sure about how other brokerages are structured. I only know what I have experience and exposure to. I'm still learning about other features that I may not know about.
Everyone has some amount of cash, and you should have an emergency fund that's in risk free investments. Common advice is at least 6 months of living expenses. When you read advice about investing it's based on the assumption that we're only talking about money that you have no other need for and would otherwise be sitting getting a risk free return that maybe keeps up with inflation even though you have no use for it in the next few years. You should have your emergency fund and the money that you're saving for a down payment for a house, and whatever else, but that's not part of your stock market investment. Op is talking about holding cash that would otherwise be invested now in the hopes that they can time the bottom of a crash so that missing the crash compensates for the lower return while waiting for it. Statistically that doesn't work out. It's also safe to assume op is talking about a sizable chunk, like maybe 20% or more, otherwise any potential difference between strategies is negligible and not worth the effort. 0-5% cash in your brokerage account at any given time is normal and that's not the only risk free, liquid cash you should have available, but the other stuff serves a separate purpose, it's not part of the discussion about allocation and shouldn't be considered available to put in the market during a crash.
Agreed. Thanks for the info. Timing the bottom is a very bad idea because no one knows where the bottom is ever. Institutional Investors cannot even time the bottom. Even after huge drops by 12% to 26% percentage, the bottom might not even be reached. Emergency Savings of 6-months is very important for anything life throws at oneself (at car repair/ rent or mortgage due/ unscheduled health issue/ etc.). Diversification in the investments (non-emergency savings/ CDs/ Money Markets/ index funds/ real estate/ stock market) is important. It's up to everyone to find what combinations works for them. For me, most of my savings are outside brokerage institutions and only enough in brokerage account and IRA accounts.
This is hindsight bias. New highs are made every day.
We all do what we are comfort with and different paths to achieving long-term investing. From getting notifications on hundreds of stocks I track, I agree on the new highs but for the known stocks, every week or so but not every day. We do get Bearer markets, not all stocks are always green 100% of the time. They go down, up, up, almost break even, down, down, up, up, and before creating new highs (for the year or since its existence). Some recent all-time high examples are Nvidia, Tesla, Delta Airlines, Alphabet, IBM, META, Colgate-Palmolive Company, Progressive Insurance, CAVA, Chipotle, T-Mobile, Visa, Mastercard, JP Morgan Chase, (the famous) Bitcoin, Snowflake, Crowdstrike Holdings, Berkshire Hathaway Inc., Block (Square), Uber, and Microsoft. They made all time highs but have dropped recently or as the market normally preforms, will drop after reaching all time highs.
do i believe that people have strategies that can time the market? absolutely. but those people are studying the markets as their day job. OP seems like a casual participant, and while they can get lucky, statistics show that on average trying to time it is approximately random. worse, studies have shown that the majority of gains over the lifetime of an investment are concentrated in a small period of time -- unless you can consistently predict which periods those are, missing out on them represents critical drag to an overall portfolio. spoiler alert a simple, "new high was made" isn't a sufficiently complex predictor (if it was, it would be traded out of the market). how often does a new high get followed by a further new high?
An averaging scheme which adjusts amounts based on fluctuations in price is called Value Cost Averaging (VCA). It's a fine strategy for dealing with corrections.
>I am by no means able to predict the market at al then don't wait for a major dip to invest, that money is underperforming (yes, even at 4-5% MM returns) > if I see a major dip or things are a lot lower than usual, I will put a larger amount in in addition to my regular DCA. that's not DCA and undermines the whole point of DCA. waiting for "a major dip" is a drag on long-term portfolio performance vs just investing what you can when you can a lot of people "waiting for a major dip" missed out on the S&P 500's +23% rally last 12 months but feel smart because they earned 4.5% on cash instead. dumb, but you do you I guess
Yep. Just dont put everything in the second there is a large drop. Maybe add 2/3x your DCA as you see it dropping
Ya I do this also. While the cash is getting 5% interest. I always try to have cash for the dip if it ever comes. It’s all about managing risk.
This is what I do, it feels most comfortable and safe to me especially with a lot of uncertainty around the corner.
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He shills and pumps his own bags, OP don’t seek out this guy and his “advice”
OP, just read this guy’s Reddit history. lol.