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I put 250-500 dollars a month in my Roth IRAs (mine and my wife's). As of now I have it set up to invest in a few mutual funds the day it transfers. After thinking about this to me it seems like this strategy is akin to investing in a given stock regardless of the price.
I was thinking about moving the money over in cash and watching the market to see where it is before I convert it into an investment. To me this is akin to placing a limit order on a stock.
IMO it makes no sense for me to invest in an ETF or mutual fund just because it is the 11th of every month regardless of the price. It makes more sense to convert it over in cash and invest if the market is in good shape or hold off a few days to a week if we are in the middle of a big spike.
since markets are usually up 2/3's of the time and down only 1/3 you will shoot yourself in the foot.
I'm not talking about necessarily holding off for a pullback, more not jumping in on a spike. Most of the time markets trade up a few tenths of a percentage point. I'm not talking about holding off on those days. I'm talking about looking at the market the day it is transferred over (because I usually do Mutual Funds, the purchase doesn't happen until the market is closed) and if we see a 2-3%+ spike that day not investing that particular day. To me this is more just being cognizant of what the market is doing the day I put it in instead of just blindly investing.
I would probably work out a rule, like it gets invested unless the market is up 2%+ that day.
I do see what you guys are saying and I'm not necessarily trying to time the market, just not blindly throw money into it because it is the 11th of every month.
I put 250-500 dollars a month in my Roth IRAs (mine and my wife's). As of now I have it set up to invest in a few mutual funds the day it transfers. After thinking about this to me it seems like this strategy is akin to investing in a given stock regardless of the price.
I was thinking about moving the money over in cash and watching the market to see where it is before I convert it into an investment. To me this is akin to placing a limit order on a stock.
IMO it makes no sense for me to invest in an ETF or mutual fund just because it is the 11th of every month regardless of the price. It makes more sense to convert it over in cash and invest if the market is in good shape or hold off a few days to a week if we are in the middle of a big spike.
Does this strategy make sense to anyone else?
What do each of you do?
You do realize that if you are investing this money for the long term, waiting a day or a month is practically pointless....
think about this....10-15 years from now are you going to remember if this made any difference, and what's the chance you have any knowledge what the markets will do?
See what i mean? If you are a long term investor, its pointless to wait a couple days/weeks to try to 'time' it.....
Not trying to be ugly, but for instance, I have no idea what I did 5 years ago and if 'waiting' two months or so for a dip would've been a good idea...
You do realize that if you are investing this money for the long term, waiting a day or a month is practically pointless....
think about this....10-15 years from now are you going to remember if this made any difference, and what's the chance you have any knowledge what the markets will do?
See what i mean? If you are a long term investor, its pointless to wait a couple days/weeks to try to 'time' it.....
Not trying to be ugly, but for instance, I have no idea what I did 5 years ago and if 'waiting' two months or so for a dip would've been a good idea...
Why is it pointless when you could easily save a few % points on an investment? That would be like saying there is no difference between a 4% annual return and a 6% annual return.
Let's look at a recent example.
I had 3k I wanted to invest from an old 401k. I got the money, knew what I wanted, but thought the market was a little too high, so I held it in cash for a few days.
On January 23rd it was trading at 149.60.
On January 24th it was trading at 145.45.
I got in at 145.45 instead of getting in at 149.60. Right now I am only down 99 cents a share instead of potentially being down 5.14 a share.
Yes I am in it for the long run, but saving 4 dollars a share is essentially a 2.5-3% gain right off the bat. So now if it trades flat the rest of the year I at least saved myself a 3% loss by just waiting 2 days. It had gone from 138 to 149 in a matter of 8 days so I figured it had to at the very least begin to flatten out and at the very best pullback a little.
Why is it pointless when you could easily save a few % points on an investment? That would be like saying there is no difference between a 4% annual return and a 6% annual return.
Let's look at a recent example.
I had 3k I wanted to invest from an old 401k. I got the money, knew what I wanted, but thought the market was a little too high, so I held it in cash for a few days.
On January 23rd it was trading at 149.60.
On January 24th it was trading at 145.45.
I got in at 145.45 instead of getting in at 149.60. Right now I am only down 99 cents a share instead of potentially being down 5.14 a share.
Yes I am in it for the long run, but saving 4 dollars a share is essentially a 2.5-3% gain right off the bat. So now if it trades flat the rest of the year I at least saved myself a 3% loss by just waiting 2 days. It had gone from 138 to 149 in a matter of 8 days so I figured it had to at the very least begin to flatten out and at the very best pullback a little.
After year 15 assuming a 6% gain, you come out ahead $9.94 per share after compounding......
That is before inflation also....
This is all assuming your guess is correct about a pullback.
I get your logic, but odds are most timers make incorrect guesses most of the time.
After year 15 assuming a 6% gain, you come out ahead $9.94 per share after compounding......
That is before inflation also....
This is all assuming your guess is correct about a pullback.
I get your logic, but odds are most timers make incorrect guesses most of the time.
I see what you are saying.
Is this how you approach stocks too? Just pay what the rate is (if you think the P/E is in line with competitors/industry and all other fundamentals look good) rather than placing a limit order to save .5-1% on your initial purchase?
I'm just curious, I'm pretty new to investing, but it has always interested me and I have a quant. background, so following the stock market has become a natural hobby to me this past year.
Is this how you approach stocks too? Just pay what the rate is (if you think the P/E is in line with competitors/industry and all other fundamentals look good) rather than placing a limit order to save .5-1% on your initial purchase?
I'm just curious, I'm pretty new to investing, but it has always interested me and I have a quant. background, so following the stock market has become a natural hobby to me this past year.
Stocks are a different animal because you can analyze them individually and set buy/sell points based off of your analysis.
You can't really do that with mutual funds because their NAV is based upon ALL of the stocks in that fund; all stocks gains are diluted by the loses (and vice versa) so "timing" a buy based on the aggregate performance isn't really possible. In other words, what exactly would you look at to time a buy...when half of the stocks in the fund are going up? What does that really mean?
Buying mutual funds is boring because you buy in when you can buy in, and allow stocks within that fund increase the value over time. Boring but it is productive.
As others have noted, what you propose is an attempt to time the market. The odds of failure are greater than 99%. DCA is not the only way to go, however. You could just opt to make a lump sum payment, if you are disciplined enough to save the money ahead of time. That's basically what I do--each year in the first week of January I lump sum my Roth. The idea is to have the most amount of money working for me as long and as early as possible. I also suggest you switch from mutual funds to a total US stock market index, like the one offered by Vanguard.
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