New Investor - how to invest in this market?!

Discussion in 'Investing' started by nyc20guy, Mar 20, 2020.

  1. nyc20guy

    nyc20guy New Member

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    Hi all, I am a new investor (early 30s) looking to finally get into the market. My plan is to invest as a long-term index funds passive investor (buy-and-hold).

    I have “significant” liquid savings to get in with now and will continue to contribute over time (FYI, I already max out my 401k). My question is, I obviously want to try to capitalize on this recession (depression) as much as possible for my initial investment... I keep reading not to try to “catch a falling knife” so I am no sure which of the following is a better strategy for me to get in?

    1. Dollar cost averaging - my concern is it seems we are clearly destined to go down from here and if we are ~20% away from the bottom, I feel like I got in too early

    2. Wait for all of the volatility to subside and for a glimmer of good news and try to get in as the markets are coming back up, but could catch this wrong and miss big gains on the way up.

    What is the best way to get into index funds in this crazy market?

    Thanks!
     
  2. WXYZ

    WXYZ Well-Known Member

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    MOST people will NEVER be able to time a bottom. I am NOT usually a fan of dollar cost averaging....but in the current situation.....IF IT WAS ME......and I was your age and had money to invest that was NOT short to medium term money. I would probably plan to dollar cost average into a BIG CAP INDEX like the SP500, with companies like AMZN, etc, etc, as part of the index.

    There is NO best way.......it will only be clear in HINDSIGHT. The BIG question is over what time do you dollar cost average. AGAIN....."if it was "me" and my money and I was your age"...I would probably plan to go in over 3-6 months time period. I would reevaluate that time period every 2-4 weeks and adjust as necessary.

    Overthinking and over-analysis is a big danger right now. I would CERTAINLY error on the side of BEING CONSERVATIVE right now in terms of making sure I held enough cash in reserve for any short to medium term eventuality.

    REMEMBER....I am a stranger on the internet....PLEASE I know nothing about you and you know nothing about me. THIS IS NOT...investment advice to YOU. It is general discussion on a stock message board, nothing more.

    SO....do your own homework and thinking. AND.....most importantly take care of yourself.
     
    #2 WXYZ, Mar 20, 2020
    Last edited: Mar 20, 2020
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  3. TomB16

    TomB16 Well-Known Member

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    People want to hear guidance and they cling to it, when it is offered. It seems people would rather follow someone adamant about the future, even if that person doesn't have the first idea.

    If I knew exactly when to buy and when to sell, I would be laying in a hammock right now, with a couple of girls. I have a general idea and some indicators that I've been pretty successful with but I'm wrong a lot and that's just how it goes.

    I have a strategy that involves dividing our cash into thirds and buying at three discount levels.

    I bought a bit of stock when my stocks were 13% off peak. That's a trigger for the first discount level.

    Then I bought quite a bit more on Wednesday but I didn't spend my whole allotment of cash for that discount level.

    Now I'm thinking of not buying again for a couple of months, regardless of the discount level. I'm protecting our cash. We still have about half the cash I've been amassing since last year when I could see the bubble growing beyond reasonable levels.

    These are very unusual times. The path forward isn't clear. With the bond market in flames, I'm not confident some of these companies will survive. I'm not confident our economy will prosper for a long time. It's going to come down to how effectively we can re-start the economy when this is done.

    Points:

    - I don't know what's going to happen, specifically
    - Nobody knows what's going to happen, specifically
    - I'm in a different position in life than you are, as I will need some cash to fund our retirement in the near future
    - You are young enough that you can expose your nest egg to a lot more risk so your approach can/should be different than mine

    I would say this, no matter what you do, I think everyone should have a bit of cash sitting around all the way through summer when the real fall-out to COVID-19 happens.
     
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  4. nyc20guy

    nyc20guy New Member

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    Thank you both for your advice - I did start dollar cost averaging in at the two most recent low points (lucky I guess) - however, it represented such a small amount of what I ultimately want to invest... (about 7%). I have been waiting a bit convinced this is a "dead cat bounce" and that we are destined to at least come close to the March 23 lows again - I have been following your posts WXYZ and see that you have fully reinvested your funds... only time will tell which strategy was the right one. In the end, I will be a long-time investor, who like you, never sells my holdings (except for fear of potential major economic collapse). But, I just can't bring myself to reinvest when we are only 15% off the highs in this full economic shutdown. Maybe I was wrong.... maybe I'll start reinvesting now if the market continues its downward trajectory. As I said in my first post, first time in the markets - will never try to time the market again - I HATE IT! :)
     
  5. WXYZ

    WXYZ Well-Known Member

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    nyc20guy

    There is NO right or wrong way to invest in this rare and completely unknown situation. The main thing is to do what is comfortable for you. Whatever you do........as a long term investor going forward for years, you will be just fine.

    Yes....I have fully invested back into my usual stocks in the same proportion as before going to cash a few weeks back. That proportion was about 59% in the stocks and about 41% in the funds. I averaged in starting on March 26 till this week when I went all in with the remainder of the funds. I always (usually) go........."all in all at once" with money that I am investing......because the academic research shows that this beats dollar cost averaging. BUT....the current situation is an artificial aberration. What I do know is I will hold for the long term from this point on as I have done for 40+ years.

    If you wish to educate yourself about dollar cost averaging versus all in all at once.......google...."dollar cost averaging versus all in all at once". NOT for the present situation....but for the future.
     
  6. TIKR.com

    TIKR.com New Member

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    There are many studies done that show that the individual investor underperforms the broader stock market indices.

    The average investor has underperformed the S&P 500 by ~460bps/year. DALBAR, which performs this annual study, attributes the underperformance to investors attempting to time the market and moving into and out of investments too frequently.

    The best thing to do is to continue to buy and hold for the long-term, especially during market drawdowns such as the one we are currently experiencing.
     

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