Bad time to invest in equities?
Discussion
I’m about to invest a chunk of inheritance money by opening a Fidelity investment account and putting the money into a selection of index tracking funds.
But I’m very conscious of the fact that both the FTSE and the Dow Jones are currently trading at their all-time highs. My suspicion is that the stock market is a little over-excited* at the moment and is due a mini correction.
I’ll be investing for the long term so arguably it doesn’t matter too much, but it would be a pity to put a load of money in only to see it drop 5% straight away.
So what should I do?
* A friend of mine who spends a lot of her time trading equities thinks that traders should be forced to have a w
k every morning before starting work, to calm them down a bit. She may have a point!
But I’m very conscious of the fact that both the FTSE and the Dow Jones are currently trading at their all-time highs. My suspicion is that the stock market is a little over-excited* at the moment and is due a mini correction.
I’ll be investing for the long term so arguably it doesn’t matter too much, but it would be a pity to put a load of money in only to see it drop 5% straight away.
So what should I do?
- Put all the money in at once and not worry about it,
- Wait a week or two to see if we get a correction, and put money in once things have settled to a more sensible level,
- Drip-feed the money in over the course of a few months?
* A friend of mine who spends a lot of her time trading equities thinks that traders should be forced to have a w
k every morning before starting work, to calm them down a bit. She may have a point!The Dow started hitting fresh all time highs in 2013. And continued to do so. You would not have done badly over the last 5 years buying at all time highs. Don’t use all time highs as a reason not to invest.
Saying all that, if I was in your position and had a lump to invest, it does make more sense to buy in tranches over some sort of period of time (for me it would be one year minimum).
Good luck with whatever you decide.
Saying all that, if I was in your position and had a lump to invest, it does make more sense to buy in tranches over some sort of period of time (for me it would be one year minimum).
Good luck with whatever you decide.
I'd probably drip feed, generally over less than a year depending on how big a fraction of my net worth I was dealing with.
This analysis argues that it's generally poor strategy to drip feed over a period of more than twelve months, http://www.efficientfrontier.com/ef/997/dca.htm
This analysis argues that it's generally poor strategy to drip feed over a period of more than twelve months, http://www.efficientfrontier.com/ef/997/dca.htm
Edited by xeny on Sunday 14th January 11:14
Dr Mike Oxgreen said:
I’ll be investing for the long term so arguably it doesn’t matter too much, but it would be a pity to put a load of money in
only to see it drop 5% straight away.
only to see it drop 5% straight away.
Your worries about just a 5% drop might be a concern. Be prepared for bigger fluctuations.
If you would be kept awake at night, worrying about a 5% decline, then equity investment might not be right for you.
Obviously there is movement constantly in stock markets, and ending some weeks with an (on paper) big capital loss, is something that has to be coped with. Having confidence in the business progress of companies is what helps me, because if profits continue to increase, then eventually the share prices will follow.
The recent annual chart (below) is during the current bull market, but even so it does illustrate a significant market decline.
Worrying for some at the time, but a recovery did follow. I have forgotten what cause those jitters. Can anyone remember?
Crystal balls never tell us what is going to happen, but this bull market is already a longer one than many before.
Just have to wait and see.
Dr Mike Oxgreen said:
I’m about to invest a chunk of inheritance money by opening a Fidelity investment account and putting the money into a selection of index tracking funds.
But I’m very conscious of the fact that both the FTSE and the Dow Jones are currently trading at their all-time highs. My suspicion is that the stock market is a little over-excited* at the moment and is due a mini correction.
I’ll be investing for the long term so arguably it doesn’t matter too much, but it would be a pity to put a load of money in only to see it drop 5% straight away.
So what should I do?
* A friend of mine who spends a lot of her time trading equities thinks that traders should be forced to have a wk every morning before starting work, to calm them down a bit. She may have a point!
A correction to stock markets at current levels is likely to be double digit rather than 5%. A correction in a week or two whilst possible, it's a likely to be in a month or 2, or 6 months, or a year. There is no telling.But I’m very conscious of the fact that both the FTSE and the Dow Jones are currently trading at their all-time highs. My suspicion is that the stock market is a little over-excited* at the moment and is due a mini correction.
I’ll be investing for the long term so arguably it doesn’t matter too much, but it would be a pity to put a load of money in only to see it drop 5% straight away.
So what should I do?
- Put all the money in at once and not worry about it,
- Wait a week or two to see if we get a correction, and put money in once things have settled to a more sensible level,
- Drip-feed the money in over the course of a few months?
* A friend of mine who spends a lot of her time trading equities thinks that traders should be forced to have a w
k every morning before starting work, to calm them down a bit. She may have a point!i don;t think anyone knows what is going to happen, so it comes down to your own feel & appetite for risk. If long term mean 5yrs plus i would't lose to much sleep over the timing. If this money is your only source of savings you may want to think about putting all of it in equities.
As for w
king before work I take it you've seen the Wolf of Wall Street. 
GT03ROB said:
A correction to stock markets at current levels is likely to be double digit rather than 5%. A correction in a week or two whilst possible, it's a likely to be in a month or 2, or 6 months, or a year. There is no telling.
i don;t think anyone knows what is going to happen, so it comes down to your own feel & appetite for risk. If long term mean 5yrs plus i would't lose to much sleep over the timing. If this money is your only source of savings you may want to think about putting all of it in equities.
As for wking before work I take it you've seen the Wolf of Wall Street.
This ^^^i don;t think anyone knows what is going to happen, so it comes down to your own feel & appetite for risk. If long term mean 5yrs plus i would't lose to much sleep over the timing. If this money is your only source of savings you may want to think about putting all of it in equities.
As for w
king before work I take it you've seen the Wolf of Wall Street. Rob is correct, we are due a correction but the markets will return to normal in a month or so. On the other hand, the American markets (that's where I invest) have been bullish. We had a correction mid-November and they are returned to even high prices in a month and 10 days.
Just look at TTWO, it returned 116% just in one year.
limpsfield said:
The Dow started hitting fresh all time highs in 2013. And continued to do so. You would not have done badly over the last 5 years buying at all time highs. Don’t use all time highs as a reason not to invest.
I can't quite believe that my Fundsmith units have more than doubled in that timeframe - but I am frozen about what to do now. Stuck a load in premium bonds last year, which I always said I would never do.Thanks folks!
A drop of 5-10% isn’t enough to worry me; it would just be a pity, that’s all. But you’re all right that it’s impossible to know when the correction might come, so perhaps it’s best not to be too concerned about it.
I think drip-feeding over 6 to 12 months is what I’ll do, and make use of “pound cost averaging”. It’s reassuring to hear that investing at all-time highs has not historically been a problem.
A drop of 5-10% isn’t enough to worry me; it would just be a pity, that’s all. But you’re all right that it’s impossible to know when the correction might come, so perhaps it’s best not to be too concerned about it.
I think drip-feeding over 6 to 12 months is what I’ll do, and make use of “pound cost averaging”. It’s reassuring to hear that investing at all-time highs has not historically been a problem.
Dr Mike Oxgreen said:
I think drip-feeding over 6 to 12 months is what I’ll do, and make use of “pound cost averaging”.
Yes, probably the best plan.Dr Mike Oxgreen said:
It’s reassuring to hear that investing at all-time highs has not historically been a problem.
What! That is only true during a bull market.
It is very different when each bull market ends.
I don't have a chart handy, but if you had invested for example, in December 1999, during the next three and a quarter years, you would on average have lost about 40% of your capital (minus dividends received). That was before the payment of any fees.
There would have been many novice investors who were sucked into the final stages of that bull market, and have never touched equities again (buy high, then panic sell low).
Dr Mike Oxgreen said:
It’s reassuring to hear that investing at all-time highs has not historically been a problem.
You may find this thought experiment helpful:http://awealthofcommonsense.com/2014/02/worlds-wor...
Obviously behaving more sensibly would leave you with a siginificantly better return.
Jon39 said:
What!
That is only true during a bull market.
It is very different when each bull market ends.
By definition a market hitting all time highs IS a bull market!That is only true during a bull market.
It is very different when each bull market ends.
You would have course not have done very well at all in buying the Nikkei at it’s very last all time high point. But, that’s the risk of investing in equities to try and achieve bigger gains. If people can’t live with the risk, there’s always premium bonds.
limpsfield said:
You would have course not have done very well at all in buying the Nikkei at it’s very last all time high point. But, that’s the risk of investing in equities to try and achieve bigger gains. If people can’t live with the risk, there’s always premium bonds.
Correct Japan was unique for a variety of reasons, which could also apply in the UK or US. However past performance is............If you hold for long enough you investment if spread will recover. However you have to remember a 33% fall, needs a 50% rise to take you back to even.
limpsfield said:
By definition a market hitting all time highs IS a bull market!
Not after it has hit the final high point, which is the situation I was referring to.
When sentiment finally changes, we often don't realise for a while (unless it is a crash) that the bull market has already ended, and that the comment mentioned in the post I was replying to ( It’s reassuring to hear that investing at all-time highs has not historically been a problem ) eventually becomes a false hope.
Of course there will normally be many peaks reached during a bull market followed by recoveries, but towards the end, another peak will occur, which we only later find out, was not followed by a recovery.
We have enjoyed a very good run since March 2009, quite an historically long bull market, so anyone going into the market for the first time now, will clearly not be 'getting in the lift on the lower floors'.
limpsfield said:
You would have course not have done very well at all in buying the Nikkei at it’s very last all time high point. But, that’s the risk of investing in equities to try and achieve bigger gains. If people can’t live with the risk, there’s always premium bonds.
You certainly have chosen an excellent example there.
I assume many PHers on here might be too young to know about that.
The Nikkei market peak was in 1990 (about 36,000 points), and that level has never been reached since (12 January 2018 = 23,653.82).
There must have been a lot of pain for those involved during the aftermath of that.
At the time I spoke to a stockbroker (we don't do that now) and asked what was going on, because the Nikkei P/E was at ridiculously high levels and the Yield percentage was virtually nil. I don't think he said, "It is different this time", but some were saying that at the time. It was of course just a frenzied bubble, with people buying without doing any research, but only because they thought the market would go up further.
The old saying that goes something like 'time in the market beats timing the market'.
I had a similar dilemma roughly this time last year, FTSE trading highest it had been for a while and I thought about waiting it out. Then after reading so many books and as most have also suggested in this thread if you're investing for long term there needn't be too much to worry about. As it stands some of the vanguard life strategy funds are now up 7-8% from when they were purchased last year so point in case really.
If you're really concerned look at dollar cost averaging over the next 'X' amount of months/years so you're buying in a different prices, though it's still not completely risk adverse pending a crash.
I had a similar dilemma roughly this time last year, FTSE trading highest it had been for a while and I thought about waiting it out. Then after reading so many books and as most have also suggested in this thread if you're investing for long term there needn't be too much to worry about. As it stands some of the vanguard life strategy funds are now up 7-8% from when they were purchased last year so point in case really.
If you're really concerned look at dollar cost averaging over the next 'X' amount of months/years so you're buying in a different prices, though it's still not completely risk adverse pending a crash.
Jon39 said:
You certainly have chosen an excellent example there.
I assume many PHers on here might be too young to know about that.
The Nikkei market peak was in 1990 (about 36,000 points), and that level has never been reached since (12 January 2018 = 23,653.82).
There must have been a lot of pain for those involved during the aftermath of that.
40,000 in late 90 and then still bumping around 8,000 23 years later. Painful.
But it is very much the exception.
If it was me I would be looking to drip it into something like CSPX - iShares S&P tracker.
https://www.ishares.com/uk/individual/en/products/...
The *only* thing that matters is what will happen to the Dow.
The US runs the world and almost all major stock markets (except insular Japan) just follow New York.
We are clearly in the final 25% of a massive bull run that began in 2009. Some stats indicate it is the longest US bull run in history.
Thus, it is a boom. And after a boom always comes a bust...
So, drip feed in the cash. But be mindful that there may well be a big dip in 2019 or 2020 that will provide a fantastic buying opportunity. Perhaps invest 50% today and 50% in a year or two.
The US runs the world and almost all major stock markets (except insular Japan) just follow New York.
We are clearly in the final 25% of a massive bull run that began in 2009. Some stats indicate it is the longest US bull run in history.
Thus, it is a boom. And after a boom always comes a bust...
So, drip feed in the cash. But be mindful that there may well be a big dip in 2019 or 2020 that will provide a fantastic buying opportunity. Perhaps invest 50% today and 50% in a year or two.
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