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I was about to buy another sp500 index fund from my savings today but the news made me pause. SP500 is on free fall due to corona virus.. should I wait till the epidemic has been cured/controlled?
Same! It just happens that I have -had- $47k being rolled from one brokerage firm to another. It will be liquidated at some point this week and then waiting for me in a money market account. I'm trying to figure out when to jump in (when I get it of course)
I was about to buy another sp500 index fund from my savings today but the news made me pause. SP500 is on free fall due to corona virus.. should I wait till the epidemic has been cured/controlled?
People who do well financially invest regularly in good times and bad. So, if you were planning on buying an S&P 500 Index fund for the long term (think 15 years or more), then buy and be done with it.
However, I wouldn't be putting any money into the stock market if:
--You have high debts (other than a mortgage that doesn't gobble up too much of your income).
--You have less than a few months of living expenses in liquid cash savings. (i.e. you should probably have a minimum of $2500 in cash before you put money in the stock market, unless you're putting a small amount into a 401k to get the employer match).
For the record, I put an extra $100 into one of my stock mutual funds today. I try to buy extra shares when the market is down. But I do have money in cash savings, no debts, etc. $100 is not a lot of money compared to what I have invested, so it's not going to make a big difference (not bragging, but if you invest consistently for 23+ years like I have, you'll have a significant amount invested). But I always think it's good to get in the habit of buying extra shares when the market is down, if you can.
actually if this were really true and it was the best way , we would all reach our desired allocation over time , sell everything and start over .
you can see that would have not worked well at all .
the problem is markets are up 2/3's of the time and down only 1/3 so you will buy way more shares higher than lower over time
Selling everything and reinvesting is no where close to the same action or allocation - very different results - I never suggested anything close - would not have worked but that is not what was suggested. That is nowhere close to the same thing and you know it - don't put words in my mouth.
The OP is trying to move from savings into stocks, dollar cost average is a good way to do it - don't try to time or overthink it. Markets may be up more than down but you don't know which way it is going NOW. Split into say 1/3 and put that 1/3 in each month is easier for many than trying to time one chunk and hope it works.
Selling everything and reinvesting is no where close to the same action or allocation - very different results - I never suggested anything close - would not have worked but that is not what was suggested. That is nowhere close to the same thing and you know it - don't put words in my mouth.
The OP is trying to move from savings into stocks, dollar cost average is a good way to do it - don't try to time or overthink it. Markets may be up more than down but you don't know which way it is going NOW. Split into say 1/3 and put that 1/3 in each month is easier for many than trying to time one chunk and hope it works.
Quote:
Originally Posted by ddeemo
Best to dollar cost average, put a little in at a time - don't try to time.
you said dollar cost averaging is best... those were your words ..
dca is not best financially , it is the worst way to invest if you have the money to lump sum in ....
if dca worket better then lump sum we would all dca in , reach our desired allocation and start over again dca'ing in .
but the fact is dca'ing in when you have a choice is not a good idea financially . dca'ing in is a mental thing that can make things more comfortable mentally but financially it is likely to not be the " best way "
markets go up over time and you are buying less and less shares over time as higher highs and higher lows hurt performance when dca'ing in.
as micael kitces points out :
Executive Summary
Conventional investment wisdom suggests that dollar cost averaging is a good approach to allocating investment dollars over time. By always investing a constant dollar
amount, the strategy ensures that fewer shares will be bought as prices rise, while more shares are purchased if prices decline, bringing down the average cost per share in the long run. The only question is over what time horizon it’s best to average in.
Yet as it turns out, the answer is “none”. In reality, a dollar cost averaging investment strategy doesn’t actually enhance returns in volatile markets that have similar
upside gains and downside losses on a percentage basis. And given that on average, markets go up more often than they go down, choosing to dollar cost average is more likely to just leave gains on the table (and the longer the time period, the greater the risk of foregone returns).
you said dollar cost averaging is best... those were your words ..
dca is not best financially , it is the worst way to invest if you have the money to lump sum in ....
if dca worket better then lump sum we would all dca in , reach our desired allocation and start over again dca'ing in .
but the fact is dca'ing in when you have a choice is not a good idea financially . dca'ing in is a mental thing that can make things more comfortable mentally but financially it is likely to not be the " best way "
markets go up over time and you are buying less and less shares over time as higher highs and higher lows hurt performance when dca'ing in.
as micael kitces points out :
Executive Summary
Conventional investment wisdom suggests that dollar cost averaging is a good approach to allocating investment dollars over time. By always investing a constant dollar
amount, the strategy ensures that fewer shares will be bought as prices rise, while more shares are purchased if prices decline, bringing down the average cost per share in the long run. The only question is over what time horizon it’s best to average in.
Yet as it turns out, the answer is “none”. In reality, a dollar cost averaging investment strategy doesn’t actually enhance returns in volatile markets that have similar
upside gains and downside losses on a percentage basis. And given that on average, markets go up more often than they go down, choosing to dollar cost average is more likely to just leave gains on the table (and the longer the time period, the greater the risk of foregone returns).
Dollar cost average is NOT the worst way by any means. The worst way is what most do - buy when market goes up and sell when it goes down - try to time it or alternatively do nothing, stay on the sidelines which is what he was asking if should do. The whole point of the OP question was the mental part. Dollar cost averaging is a way to keep emotions out of the equation - overcome fears of timing. The minor differences in results would be negligible.
Dollar cost average is NOT the worst way by any means. The worst way is what most do - buy when market goes up and sell when it goes down - try to time it or alternatively do nothing, stay on the sidelines which is what he was asking if should do. The whole point of the OP question was the mental part. Dollar cost averaging is a way to keep emotions out of the equation - overcome fears of timing. The minor differences in results would be negligible.
the comparison is not about bad investor behavior . it is whether lump sum or dca is better for someone . it can be mentally better but financially inferior . which way the op wants to go is up to them once they have the facts on dca vs lump sum .
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