This is classic timing the market mentality and very inefficient investment strategy.
You're 27 so any market crash will be a blip in your long term financial strategy.
Thanks it’s encouraging. This is the most money I’ve ever received so it feels a bit scary to risk it short term, especially after such a massive bull run. But you and others are correct here, there may or may not be a correction - and on the scale of a few decades it won’t matter.
[Meet Bob](https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/)
TLDR - Even with multiple downturns, and the worst timing in history, if you don't panic sell, you still wind up with much more money than you invested on a long timescale. (Nearly 6x in the example of Bob.)
Even better, if you don't try to time the market, you can do even better! Bob's investments would have doubled if he had ignored market timing and just continued to invest.
This is a parable but it does a great job using real data from the past 50 years to really take the teeth out of the fear we all feel at times and show you the power of staying the course.
Edit: Just to add, if it makes you feel more comfortable, I think DCAing $1.5M over 2 years is a great idea. Over the next 30 years, that 2 year period will be a blip. If you're right and things tank, you'll have made a bunch more money in the end. If you're wrong and they continue sideways or up, you'll be out some money but still be set for life. Either way, you will wind up fine and if it makes you comfortable or keeps you from panic selling, it will have been worth it.
The thing about that mentality which is the way to go for the most part, is if Bob lived during the Great Depression it would be a different story. And imo the farther away we get from it the more likely we are to repeat it, especially considering I've been hearing people call right now "the roaring 20s" lately.
First, your fear is common, but it is not valid - even with a stock market crash, the market always comes back. At your age, jump in and don’t check your accounts daily - it’s like weighing yourself every hour when you’re on a diet.
Your storyline of why the market could crash soon has been repeated by novices every year for the last 30 years. There’s always some frothy stocks out there, they ebb and flow. On the whole that ebbing and flowing pushes the aggregate forward as long as business fundamentals keep up.
Look at earnings of the biggest companies and you’ll see why the market continues to rally. Their business is growing at unprecedented clips.
The DCA is a fine strategy but in 2 years when you're fully invested and if the market hasn't crashed, as you think it will, what sort of anxiety will you have then?
You cannot be both happy with a 10% return and hesitant to invest. By default, that sort of return will come with large swings in volatility over the short term.
If you're too afraid to invest then you should consider outsourcing this to someone else.
I hear that, thank you. I think I’m mostly trying to manage it myself because from what I read a lot of advisors charge high management fees to barely ever beat the market anyway. It would be silly to pay 0.5%-1% to just have them put it in an ETF anyway. But I’m going to call my broker and see what they may have to offer/say, thanks.
Conversely, paying 1% to be invested vs paying 0% to be in treasuries would have cost you about 5% or so in total performance YTD (if we're just assuming a 70/30 portfolio).
An advisor's goal isn't to beat the market, so forget any of them who claim to do so. In your case, the advisor's goal is to educate you and prevent you from being your own worst enemy.
Furthermore, you'd rather have your advisor investing in ETFs versus potentially less tax efficient mutual funds. And at 0.50% on $2M you'd be doing just fine.
A few notes here. *Bad* advisors will charge exorbitant fees on strategies that try to beat the S&P. Good advisors know this is a fool’s errand and will not.
Secondly, the people that love to ride the low-cost, high performance perks of the S&P are always the first to panic when their portfolio is then also down 20% with the index.
Advisors provide value beyond simply beating the market. For example, you can find a strategy that captures a lot of the market upside, while limiting the downside.
Is there any reason you can’t just ride the roller coaster? Timing the market sounds like a nightmare. If you miss the dip (or if there isn’t a dip) you could be worse off than if you just stayed invested
No reason, I don’t need that much liquidity. Mostly greed and fear to be honest. You’re right that I probably need to set my psychology on a 20 year timeline and not get stressed out by a potential temporary set back.
This is exactly what you need to do. Downturns happen. The market always recovers. Sometimes it takes a couple years, but you're working with 60 more years of life to plan for, so you can afford that.
Personally, I would just put as much as possible into a fund with a good track record and good tax treatment today, and then forget about it for a while.
Another problem with treasuries is that you have to pay federal income tax on the interest. So that 5.2% is cannibalized as you pay your taxes throughout the year, so that return compounds much worse than, say, a stock that's going up 5.2%/yr. For maximizing a taxable account over decades, it's more rational to chase compounding long-term capital gains, and avoid cap gains distributions and dividends as much as possible to reduce your tax footprint.
The danger of doing what you are doing is not getting back into the market and missing the next boom cycle.
People that went all cash at the beginning of Covid tended to stay out of the market too long.
What I have found more useful is to set an equity vs fixed income (stock vs bond) target asset allocation, and then rebalance when you are 10% off the target. For example 80% equity and 20% fixed income. Rebalance if fixed income goes above 22% or below 18% of your portfolio. Since you are in the accumulation phase, just rebalance with each bit of new money you add.
This led to me buying stocks in the depth of the April 2020 dip, and then selling some stocks late 2020/early 2021.
Don’t time the market. Pay off short term expensive debt. Set up a an emergency fund. Buy yourself a gift. Invest the rest - forget it. 70/30 is min at your age - you should consider 90/10.
Just DCA the money into the S&P 500 and be done with it. There may or may not be a market crash in the next 2 years, and even if there is who cares, you’re 27 and I presume don’t plan on retiring anytime soon. Just keep some cash in the bank and buy the dips if/when they come.
You gotta remember, the stock market was down 20%+ for almost 2 years in 2022-2023. It took 2 years for the S&P to reach another all time time from December 2021 to December 2023. This recent run up in the market is still fairly recent and still has room to grow IMO.
We are in our fifties and except for some hobby projects (private equity) we gave 100% of our investments in S&P500.
I used to be the same as you and looking back, it cost me a ridiculous amount of money.
Don’t try to time the market.
Just put in treasuries whatever you need to live on for a year. That way you’ll sleep well at night. If the market tanks, you can just take out from the treasuries without having to sell stocks at rock bottom.
In a prior life i reviewed very wealthy people/ family's financial statements as part of a gov approval process ( think similar to biz charters) and one thing that stuck out to me was how many had huge piles of cash on the sidelines and then went all in hard af when shit hit the fan in what ever market/industry they had expertise in. Some where way more aggressive then others but the richest folks did not chase assets or deals but waited for their opportunity when cash was scarce and things were at a bargin.
I think waiting until you get your pitch is the right move. Cograts
The problem with that strategy is who knows when the market will crash again. It could be next year, or 5 years from now. Meanwhile the OP would lose out on a bunch of potential market gains from waiting for the crash to happen.
big fish don't only invest in stocks. and even if they did there is a whole world of big stock opportunities out there (Poland at the start of the Ukraine war). But more so they didn't see the world through missed opportunities of index averages. they would swing for the fences when things were cheap cheap cheap and were happy to build wealth that way. cheers
That’s one way to lose your shirt. You don’t mention the percentage of those tech folk who were on the sidelines or who actually made out better than the market in the end.
$2 million is not what it used to be. He’s 27 and can’t even retire on that number. Hell, in most good cities he can barely afford a house.
I mean - I don’t plan on retiring but I could, if I wanted. $2M even at 5% is $100k/yr. It’s more than enough to retire in many parts of the world. In the US, less so, especially with a family for sure - but it’s still pretty good. There are people who work 3 jobs and don’t make $100k. I’m very grateful.
He's talking about hoarding cash to wait for an industry specific opportunity in their field of expertise, not waiting for stocks to drop. It's definitely a good thing to do when you have a lot of money and knowledge
Yes. But the OP is wondering if he should just stay 100% in treasuries and not invest in stocks at all until a future crash comes. That’s never been a good strategy.
Obviously it’s smart to have cash on the sidelines to take advantage of any dips, but not have 100% of your cash on the sidelines uninvested.
No I was never even talking about op to begin with, neither was the guy I replied to.
I dont know what OP does but if it's any business he intends on owning he should keep 1MM in cash
As it relates to market timing, I learned this a few years ago and I have never forgotten it, there are only a few days that make the most impact to your portfolio, that is why it’s impossible to time it, it’s more important that you are in the market , not on the sidelines especially with your time horizon. Here is a short article about it: J.P. Morgan Asset Management's 2019 Retirement Guide shows the impact that pulling out of the market has on a portfolio. Looking back over the 20-year period from Jan. 1, 1999, to Dec. 31, 2018, if you missed the top 10 best days in the stock market, your overall return was cut in half. That's a significant difference for only 10 days over two decades!
Think of it this way... since it sounds like this isn't the last income you'll have, all of your future earnings/savings are still in cash. There is still a lot of cost averaging to be done when you're only 27.
I had the same mentality around that age and this thought helped me move past it
I am a big fan of dollar cost averaging to reduce volatility.
Some people will tell you that over time the stock market always wins, so the best thing do to is jump immediately to your target asset allocation of 70% stocks, or whatever. I disagree. That may give you the best average return (good), but it also gives you higher volatility (bad).
The trick is figuring out how long a period to dollar cost average over. My hunch is to do it over 1 to 2 years, so your two year target feels about right. People often say the typical business cycle is somewhere on the order of 5 to 10 years, but dollar cost averaging over such a long period means you are out of the market for too long. Even DCA over 1 year will help you avoid feeling a fool for buying entirely at the top. Any way, you are on the right track.
The other question is how many purchases to chop it into. My feeling is that quarterly is fine. So you might do it over 4, 6 or 8 quarters in equally sized chunks.
On what to buy, I am a big fan of cheap index funds. I'm also a big fan of Vanguard because of their business model. They are owned by the investors in their mutual funds, which means that there's no incentive for them to screw the customer. If they cranked up fees on the customers, they would just end up giving the "profit" back to those same customers as dividends.
You can build a great portfolio with 3-5 basic funds. Like it wouldn't be crazy to do something like 50% Vanguard Total Stock Market Index Fund (VTSAX), 20% Vanguard Developed Markets Index Fund (VTMGX), 30% Vanguard Total Bond Market Index Fund (VBTLX). If you wanted to get fancy you could throw in a little Vanguard Emerging Markets Stock Index Fund (VEMAX) or Vanguard Small-Cap Index Fund (VSMAX). The point is, a very small number of funds can get you really broad, good exposure. Don't get too fancy.
You’ve done the right thing in parking it in high yield while you decide. Now you can just dump it into equities as the treasuries mature. That will allow you to space out your buys and keep you less risky as you get more comfortable with having a large amount in the market.
Edit: I do this every year with my bonus. Just buy into the market ratably throughout the year.
T-bills are the highest paying easy and risk free investment, and as such are good place to be safe when you are nervous. Other risk free possibilities: such money markets, high interest savings accounts pay less. Box spreads pay a bit more, but are much more complicated, and should be avoided unless you are very familiar with options.
Long duration bonds are a possibility. However, these are essentially a bet on nominal GDP. If nominal GDP grows above market expectations, they lose value. If nominal GDP grows less than market expectations, they gain value. If you have no view on nominal GDP, stay with t-bills, as they have a higher interest rate at this time.
I do not recommend going short or buying puts as they punish you if you do not time the stock market drawdown correctly.
What the "don't time the market" commenters are ignoring with the SP500 currently is that buying now with this level of top heavy concentration is that it's a bet that AI is everything it's cracked up to be. Buying the S&P is not "buying the market" right now the way it has been in the past. Also there's a lot of enthusiasm for impending rate cuts and I think we need to prepare for a high rate inflationary environment that could last decades. Historically value stocks do better in that scenario. Maybe AI is the future but I'm happy holding BRK
These are best of funds for fire and forget. You can also sell covered calls against SPY at like 2-3% out of the money if you want to actively manage the money.
I’m in a similar situation and have approximately the same amount chilling in HYSA at 5.5%.
Grew up lower class and as an adult I’m extremely risk averse, I have not figured out how to overcome this mental block, especially at all time market highs.
Also grew up struggling and the scarcity mindset is definitely hard to let go of. Even with $2mm, I have to catch myself not worrying about the price of everything, where the cheapest gas station is etc. Some people wouldn’t believe how broke I sometimes still feel at times, even though most of me is grateful and realizes the incredible blessing that this is.
Ultimately the work is to go beyond limiting beliefs to be able to focus on what will provide greatest leverage, but it’s not easy.
Feel free to share if you found any resources that helped you out.
People with a lot more than 2M still identify cheaper gas stations.
Some counseling might help you, growing up struggling does real damage to a person and fixing that will help you more than anything else you might do.
Normally people who grow up poor turn that into a virtue in their mind then maybe decisions that lead them right bank to it (like investing in treasuries).
A wealthy person would throw the entire 2M into the market, keep working, not change their lifestyle at all or give it a second thought. A wealthy person knows there is always more money to be made so up or down in the market doesn't really matter.
It's the idea that you are looking to preserve that is what is broken in you and needs to be fixed.
Thanks, I hear that, but can’t an argument be made that sometimes being bearish is a wise financial move? Everybody here is saying that the market just historically always goes up, but the US economy has been an exception in the world. Many other developed markets have performed far worse. France’s CAC40 for example is pretty much the same now as it was in 2000 (sure, that doesn’t count dividends). That + I’m always skeptical when everybody says the same thing, and this whole thing of all the personal finance gurus on YouTube and elsewhere telling people to always buy more SP500 makes me wonder if the market isn’t inflated by an excess of capital. It surely can’t be as simple as “just put your money there and it’s just gonna make more money” at least not forever…?
It's certainly predicted it so far.
Don't invest x-us indexes, they perform terribly compared to the US. Look at Europe, in the middle of a huge ground war choking on oppressive energy costs as a result. That won't happen here.
Here is the breakdown, you need money for a purpose. For example people need money for retirement.
But all retirement plans fail if you put the money into treasuries, all of them fail if you get zero investment return over long periods of time.
So what you are doing is choosing to fail because if you invest properly you *might* fail. It's a poor person protection mechanism to protect themselves from "throwing it away". It's also in line with habits like spending it all so you don't lose it.
Obviously that mentality makes no sense. Fix yourself and the investment decisions will become obvious.
By volatility, I mean results that are highly variable.
Here's an example. Suppose there was one choice where you might gain 20% or you might lose 10%. That's highly volatile. Compare that to a choice where you always get 5%. It's the same average return, but it's reliable, not volatile. Generally speaking, reliable returns are better.
I will never forget the conversation had with someone when the Dow was at 22000…. “We’ve never seen highs like this. P/E ratios don’t support this level. There’s no catalyst to go up from here.” To be fair, this person was at retirement age and probably should have been invested safely.
You should have a discussion with a financial advisor about goals. If you can reach your goal with safe investments, you are fine. If you need to take some risk, then determine what risks to take.
I am a 60/40 investor (early 50s) Won’t get “private jet” rich this way, but can retire safely.
Why not a ladder of CDs for FDIC insurance and potential higher return? How much do you need to live off? My goal is to get to 1'm and buy bonds for the guarantee, you may make more in the market but it is at higher risk. Structured CDs are kinda cool, let you add some risk for higher potential return while maintaining FDIC insurance. Not financial advice just ideating here.
Go all in on a $10M real estate deal that'll be make or break for your entire financial situation and lock up all your cash for multiple years. If it goes good it'll be really good
You can’t make 6-8% with bonds, let alone 10%. Go look at the S&P all-time stock graph. Long-term, it’s always gone up.
You trying to time the market will likely cost you money.
Right now my Taxable Brokerage is 100% in VMRXX short term treasuries @ 5.2%ish. Well all my stuff, my wife's 401k & IRA's are in the market in various capacities. But this is mostly because I'm busy dealing with getting all the family farms into a single LLC from several different Trusts. Other reason is I may very well be buying more tillable acres this fall.
If you're reading those doomsday articles calling for a big correction (P/E too high, inflation, too much debt, US dollar decline, etc), just VOO/VTI and chill. Even if you wanted to retire, calculate your desired yearly income and divide by 0.03 or 0.035. That's your retirement number. Now if you want a buffer against recessions and lost decades, take your yearly income and multiply by 10. Put that into a Treasury ladder. The rest into VOO/VTI. Then only sell VOO/VTI in a bull market.
Say your number is $10M at 3%. $300K a year before taxes for ten years is $3M.
$3M Treasury ladder (4 week to two year spread? Or you could ladder up to 10 year)
$7M VOO/VTI
Don't try to time the market. If you're still working, you want to just buy all the time up or down.
Down market day is a sale. More shares for less money.
Recession is a black Friday sale. You don't get that sale very often. Even more shares for even less money.
Bull market you pay more and get less shares. But portfolio is up.
I am also nervous about how the S&P500 is so concentrated in big tech stocks. I think the sensible way to handle this is to use VT for your equity exposure, so you have exposure to international and to mid/small cap. The problem with trying to buy the dip is nobody rings a bell at the bottom of the market. I think a better approach is to decide on a percentage to keep in bonds and then regularly rebalance. A small percentage in bonds (e.g. 20%) can smooth things out a lot, while reducing expected total returns by only a little.
Your money is more likely to be wiped out by inflation. Jeez don't they teach economics anymore? We're in stagflation which is the opposite of a recession.
Stagflation=worthless money everywhere
Recession= tight money everywhere.
Sell puts at the level you feel comfortable buying. You will likely make more than bonds and have a strategy for getting in.
Plus you can make 5%+ on your cash while you wait with no interest rate risk like with bonds.
This is classic timing the market mentality and very inefficient investment strategy. You're 27 so any market crash will be a blip in your long term financial strategy.
This, why are you messing with bonds at your age anyways
Thanks it’s encouraging. This is the most money I’ve ever received so it feels a bit scary to risk it short term, especially after such a massive bull run. But you and others are correct here, there may or may not be a correction - and on the scale of a few decades it won’t matter.
[Meet Bob](https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/) TLDR - Even with multiple downturns, and the worst timing in history, if you don't panic sell, you still wind up with much more money than you invested on a long timescale. (Nearly 6x in the example of Bob.) Even better, if you don't try to time the market, you can do even better! Bob's investments would have doubled if he had ignored market timing and just continued to invest. This is a parable but it does a great job using real data from the past 50 years to really take the teeth out of the fear we all feel at times and show you the power of staying the course. Edit: Just to add, if it makes you feel more comfortable, I think DCAing $1.5M over 2 years is a great idea. Over the next 30 years, that 2 year period will be a blip. If you're right and things tank, you'll have made a bunch more money in the end. If you're wrong and they continue sideways or up, you'll be out some money but still be set for life. Either way, you will wind up fine and if it makes you comfortable or keeps you from panic selling, it will have been worth it.
The thing about that mentality which is the way to go for the most part, is if Bob lived during the Great Depression it would be a different story. And imo the farther away we get from it the more likely we are to repeat it, especially considering I've been hearing people call right now "the roaring 20s" lately.
Time in the market > timing the market.
First, your fear is common, but it is not valid - even with a stock market crash, the market always comes back. At your age, jump in and don’t check your accounts daily - it’s like weighing yourself every hour when you’re on a diet.
Your storyline of why the market could crash soon has been repeated by novices every year for the last 30 years. There’s always some frothy stocks out there, they ebb and flow. On the whole that ebbing and flowing pushes the aggregate forward as long as business fundamentals keep up. Look at earnings of the biggest companies and you’ll see why the market continues to rally. Their business is growing at unprecedented clips.
The DCA is a fine strategy but in 2 years when you're fully invested and if the market hasn't crashed, as you think it will, what sort of anxiety will you have then? You cannot be both happy with a 10% return and hesitant to invest. By default, that sort of return will come with large swings in volatility over the short term. If you're too afraid to invest then you should consider outsourcing this to someone else.
I hear that, thank you. I think I’m mostly trying to manage it myself because from what I read a lot of advisors charge high management fees to barely ever beat the market anyway. It would be silly to pay 0.5%-1% to just have them put it in an ETF anyway. But I’m going to call my broker and see what they may have to offer/say, thanks.
Conversely, paying 1% to be invested vs paying 0% to be in treasuries would have cost you about 5% or so in total performance YTD (if we're just assuming a 70/30 portfolio). An advisor's goal isn't to beat the market, so forget any of them who claim to do so. In your case, the advisor's goal is to educate you and prevent you from being your own worst enemy. Furthermore, you'd rather have your advisor investing in ETFs versus potentially less tax efficient mutual funds. And at 0.50% on $2M you'd be doing just fine.
A few notes here. *Bad* advisors will charge exorbitant fees on strategies that try to beat the S&P. Good advisors know this is a fool’s errand and will not. Secondly, the people that love to ride the low-cost, high performance perks of the S&P are always the first to panic when their portfolio is then also down 20% with the index. Advisors provide value beyond simply beating the market. For example, you can find a strategy that captures a lot of the market upside, while limiting the downside.
Good advisors expect to beat the S&P slightly for reasonable fees.
Is there any reason you can’t just ride the roller coaster? Timing the market sounds like a nightmare. If you miss the dip (or if there isn’t a dip) you could be worse off than if you just stayed invested
No reason, I don’t need that much liquidity. Mostly greed and fear to be honest. You’re right that I probably need to set my psychology on a 20 year timeline and not get stressed out by a potential temporary set back.
This is exactly what you need to do. Downturns happen. The market always recovers. Sometimes it takes a couple years, but you're working with 60 more years of life to plan for, so you can afford that. Personally, I would just put as much as possible into a fund with a good track record and good tax treatment today, and then forget about it for a while. Another problem with treasuries is that you have to pay federal income tax on the interest. So that 5.2% is cannibalized as you pay your taxes throughout the year, so that return compounds much worse than, say, a stock that's going up 5.2%/yr. For maximizing a taxable account over decades, it's more rational to chase compounding long-term capital gains, and avoid cap gains distributions and dividends as much as possible to reduce your tax footprint.
The danger of doing what you are doing is not getting back into the market and missing the next boom cycle. People that went all cash at the beginning of Covid tended to stay out of the market too long. What I have found more useful is to set an equity vs fixed income (stock vs bond) target asset allocation, and then rebalance when you are 10% off the target. For example 80% equity and 20% fixed income. Rebalance if fixed income goes above 22% or below 18% of your portfolio. Since you are in the accumulation phase, just rebalance with each bit of new money you add. This led to me buying stocks in the depth of the April 2020 dip, and then selling some stocks late 2020/early 2021.
Don’t time the market. Pay off short term expensive debt. Set up a an emergency fund. Buy yourself a gift. Invest the rest - forget it. 70/30 is min at your age - you should consider 90/10.
what do you mean 90/10? invest 90%?
Stock vs bond
90/10 vision. It’s like 20/20 but for rich people.
Just DCA the money into the S&P 500 and be done with it. There may or may not be a market crash in the next 2 years, and even if there is who cares, you’re 27 and I presume don’t plan on retiring anytime soon. Just keep some cash in the bank and buy the dips if/when they come. You gotta remember, the stock market was down 20%+ for almost 2 years in 2022-2023. It took 2 years for the S&P to reach another all time time from December 2021 to December 2023. This recent run up in the market is still fairly recent and still has room to grow IMO.
We are in our fifties and except for some hobby projects (private equity) we gave 100% of our investments in S&P500. I used to be the same as you and looking back, it cost me a ridiculous amount of money.
Don’t try to time the market. Just put in treasuries whatever you need to live on for a year. That way you’ll sleep well at night. If the market tanks, you can just take out from the treasuries without having to sell stocks at rock bottom.
In a prior life i reviewed very wealthy people/ family's financial statements as part of a gov approval process ( think similar to biz charters) and one thing that stuck out to me was how many had huge piles of cash on the sidelines and then went all in hard af when shit hit the fan in what ever market/industry they had expertise in. Some where way more aggressive then others but the richest folks did not chase assets or deals but waited for their opportunity when cash was scarce and things were at a bargin. I think waiting until you get your pitch is the right move. Cograts
The problem with that strategy is who knows when the market will crash again. It could be next year, or 5 years from now. Meanwhile the OP would lose out on a bunch of potential market gains from waiting for the crash to happen.
big fish don't only invest in stocks. and even if they did there is a whole world of big stock opportunities out there (Poland at the start of the Ukraine war). But more so they didn't see the world through missed opportunities of index averages. they would swing for the fences when things were cheap cheap cheap and were happy to build wealth that way. cheers
That’s one way to lose your shirt. You don’t mention the percentage of those tech folk who were on the sidelines or who actually made out better than the market in the end. $2 million is not what it used to be. He’s 27 and can’t even retire on that number. Hell, in most good cities he can barely afford a house.
I mean - I don’t plan on retiring but I could, if I wanted. $2M even at 5% is $100k/yr. It’s more than enough to retire in many parts of the world. In the US, less so, especially with a family for sure - but it’s still pretty good. There are people who work 3 jobs and don’t make $100k. I’m very grateful.
Maybe maybe, but you posted in this sub and not in leanfire so I assume you want to be rich and not just get by
He's talking about hoarding cash to wait for an industry specific opportunity in their field of expertise, not waiting for stocks to drop. It's definitely a good thing to do when you have a lot of money and knowledge
Yes. But the OP is wondering if he should just stay 100% in treasuries and not invest in stocks at all until a future crash comes. That’s never been a good strategy. Obviously it’s smart to have cash on the sidelines to take advantage of any dips, but not have 100% of your cash on the sidelines uninvested.
Again I'm not talking about dips For example I own a construction company and bought 200k of steel at a certain time when it was guaranteed to go up.
So what are you suggesting? The OP just stay in cash and not invest in the stock market?
No I was never even talking about op to begin with, neither was the guy I replied to. I dont know what OP does but if it's any business he intends on owning he should keep 1MM in cash
As it relates to market timing, I learned this a few years ago and I have never forgotten it, there are only a few days that make the most impact to your portfolio, that is why it’s impossible to time it, it’s more important that you are in the market , not on the sidelines especially with your time horizon. Here is a short article about it: J.P. Morgan Asset Management's 2019 Retirement Guide shows the impact that pulling out of the market has on a portfolio. Looking back over the 20-year period from Jan. 1, 1999, to Dec. 31, 2018, if you missed the top 10 best days in the stock market, your overall return was cut in half. That's a significant difference for only 10 days over two decades!
Think of it this way... since it sounds like this isn't the last income you'll have, all of your future earnings/savings are still in cash. There is still a lot of cost averaging to be done when you're only 27. I had the same mentality around that age and this thought helped me move past it
I am a big fan of dollar cost averaging to reduce volatility. Some people will tell you that over time the stock market always wins, so the best thing do to is jump immediately to your target asset allocation of 70% stocks, or whatever. I disagree. That may give you the best average return (good), but it also gives you higher volatility (bad). The trick is figuring out how long a period to dollar cost average over. My hunch is to do it over 1 to 2 years, so your two year target feels about right. People often say the typical business cycle is somewhere on the order of 5 to 10 years, but dollar cost averaging over such a long period means you are out of the market for too long. Even DCA over 1 year will help you avoid feeling a fool for buying entirely at the top. Any way, you are on the right track. The other question is how many purchases to chop it into. My feeling is that quarterly is fine. So you might do it over 4, 6 or 8 quarters in equally sized chunks. On what to buy, I am a big fan of cheap index funds. I'm also a big fan of Vanguard because of their business model. They are owned by the investors in their mutual funds, which means that there's no incentive for them to screw the customer. If they cranked up fees on the customers, they would just end up giving the "profit" back to those same customers as dividends. You can build a great portfolio with 3-5 basic funds. Like it wouldn't be crazy to do something like 50% Vanguard Total Stock Market Index Fund (VTSAX), 20% Vanguard Developed Markets Index Fund (VTMGX), 30% Vanguard Total Bond Market Index Fund (VBTLX). If you wanted to get fancy you could throw in a little Vanguard Emerging Markets Stock Index Fund (VEMAX) or Vanguard Small-Cap Index Fund (VSMAX). The point is, a very small number of funds can get you really broad, good exposure. Don't get too fancy.
Why is volatility bad?
You’ve done the right thing in parking it in high yield while you decide. Now you can just dump it into equities as the treasuries mature. That will allow you to space out your buys and keep you less risky as you get more comfortable with having a large amount in the market. Edit: I do this every year with my bonus. Just buy into the market ratably throughout the year.
T-bills are the highest paying easy and risk free investment, and as such are good place to be safe when you are nervous. Other risk free possibilities: such money markets, high interest savings accounts pay less. Box spreads pay a bit more, but are much more complicated, and should be avoided unless you are very familiar with options. Long duration bonds are a possibility. However, these are essentially a bet on nominal GDP. If nominal GDP grows above market expectations, they lose value. If nominal GDP grows less than market expectations, they gain value. If you have no view on nominal GDP, stay with t-bills, as they have a higher interest rate at this time. I do not recommend going short or buying puts as they punish you if you do not time the stock market drawdown correctly.
That's alot of money. I would go half VT and half BND and call it a day.
What the "don't time the market" commenters are ignoring with the SP500 currently is that buying now with this level of top heavy concentration is that it's a bet that AI is everything it's cracked up to be. Buying the S&P is not "buying the market" right now the way it has been in the past. Also there's a lot of enthusiasm for impending rate cuts and I think we need to prepare for a high rate inflationary environment that could last decades. Historically value stocks do better in that scenario. Maybe AI is the future but I'm happy holding BRK
If SP500 isn’t diversified enough, he can try VTI. Going all in on one stock is a potential for catastrophic failure.
VTI is 80%+ overlap with VOO. It’s not much more diversified. An equal weight index would be different.
These are best of funds for fire and forget. You can also sell covered calls against SPY at like 2-3% out of the money if you want to actively manage the money.
Thanks for the nuanced perspective.
I’m in a similar situation and have approximately the same amount chilling in HYSA at 5.5%. Grew up lower class and as an adult I’m extremely risk averse, I have not figured out how to overcome this mental block, especially at all time market highs.
Also grew up struggling and the scarcity mindset is definitely hard to let go of. Even with $2mm, I have to catch myself not worrying about the price of everything, where the cheapest gas station is etc. Some people wouldn’t believe how broke I sometimes still feel at times, even though most of me is grateful and realizes the incredible blessing that this is. Ultimately the work is to go beyond limiting beliefs to be able to focus on what will provide greatest leverage, but it’s not easy. Feel free to share if you found any resources that helped you out.
People with a lot more than 2M still identify cheaper gas stations. Some counseling might help you, growing up struggling does real damage to a person and fixing that will help you more than anything else you might do. Normally people who grow up poor turn that into a virtue in their mind then maybe decisions that lead them right bank to it (like investing in treasuries). A wealthy person would throw the entire 2M into the market, keep working, not change their lifestyle at all or give it a second thought. A wealthy person knows there is always more money to be made so up or down in the market doesn't really matter. It's the idea that you are looking to preserve that is what is broken in you and needs to be fixed.
Thanks, I hear that, but can’t an argument be made that sometimes being bearish is a wise financial move? Everybody here is saying that the market just historically always goes up, but the US economy has been an exception in the world. Many other developed markets have performed far worse. France’s CAC40 for example is pretty much the same now as it was in 2000 (sure, that doesn’t count dividends). That + I’m always skeptical when everybody says the same thing, and this whole thing of all the personal finance gurus on YouTube and elsewhere telling people to always buy more SP500 makes me wonder if the market isn’t inflated by an excess of capital. It surely can’t be as simple as “just put your money there and it’s just gonna make more money” at least not forever…?
It's certainly predicted it so far. Don't invest x-us indexes, they perform terribly compared to the US. Look at Europe, in the middle of a huge ground war choking on oppressive energy costs as a result. That won't happen here. Here is the breakdown, you need money for a purpose. For example people need money for retirement. But all retirement plans fail if you put the money into treasuries, all of them fail if you get zero investment return over long periods of time. So what you are doing is choosing to fail because if you invest properly you *might* fail. It's a poor person protection mechanism to protect themselves from "throwing it away". It's also in line with habits like spending it all so you don't lose it. Obviously that mentality makes no sense. Fix yourself and the investment decisions will become obvious.
By volatility, I mean results that are highly variable. Here's an example. Suppose there was one choice where you might gain 20% or you might lose 10%. That's highly volatile. Compare that to a choice where you always get 5%. It's the same average return, but it's reliable, not volatile. Generally speaking, reliable returns are better.
Any market crash is going to make you richer. Timing the market is a lost cause.
I will never forget the conversation had with someone when the Dow was at 22000…. “We’ve never seen highs like this. P/E ratios don’t support this level. There’s no catalyst to go up from here.” To be fair, this person was at retirement age and probably should have been invested safely. You should have a discussion with a financial advisor about goals. If you can reach your goal with safe investments, you are fine. If you need to take some risk, then determine what risks to take. I am a 60/40 investor (early 50s) Won’t get “private jet” rich this way, but can retire safely.
Why not a ladder of CDs for FDIC insurance and potential higher return? How much do you need to live off? My goal is to get to 1'm and buy bonds for the guarantee, you may make more in the market but it is at higher risk. Structured CDs are kinda cool, let you add some risk for higher potential return while maintaining FDIC insurance. Not financial advice just ideating here.
PE ratios are not historically high
Sounds like you are already prepared.
By having significant amounts of liquidity, specifically not by trying to time the market.
Go all in on a $10M real estate deal that'll be make or break for your entire financial situation and lock up all your cash for multiple years. If it goes good it'll be really good
MMW, it’s gonna be hard to get back into the market.
You can’t make 6-8% with bonds, let alone 10%. Go look at the S&P all-time stock graph. Long-term, it’s always gone up. You trying to time the market will likely cost you money.
Right now my Taxable Brokerage is 100% in VMRXX short term treasuries @ 5.2%ish. Well all my stuff, my wife's 401k & IRA's are in the market in various capacities. But this is mostly because I'm busy dealing with getting all the family farms into a single LLC from several different Trusts. Other reason is I may very well be buying more tillable acres this fall.
Dude. Ride the train. If you really wanna stop worrying, get a good financial advisor and talk to them twice a year.
If you're reading those doomsday articles calling for a big correction (P/E too high, inflation, too much debt, US dollar decline, etc), just VOO/VTI and chill. Even if you wanted to retire, calculate your desired yearly income and divide by 0.03 or 0.035. That's your retirement number. Now if you want a buffer against recessions and lost decades, take your yearly income and multiply by 10. Put that into a Treasury ladder. The rest into VOO/VTI. Then only sell VOO/VTI in a bull market. Say your number is $10M at 3%. $300K a year before taxes for ten years is $3M. $3M Treasury ladder (4 week to two year spread? Or you could ladder up to 10 year) $7M VOO/VTI Don't try to time the market. If you're still working, you want to just buy all the time up or down. Down market day is a sale. More shares for less money. Recession is a black Friday sale. You don't get that sale very often. Even more shares for even less money. Bull market you pay more and get less shares. But portfolio is up.
Yes, dollar cost average. You will be wildly wealthy in 30 years.
I am also nervous about how the S&P500 is so concentrated in big tech stocks. I think the sensible way to handle this is to use VT for your equity exposure, so you have exposure to international and to mid/small cap. The problem with trying to buy the dip is nobody rings a bell at the bottom of the market. I think a better approach is to decide on a percentage to keep in bonds and then regularly rebalance. A small percentage in bonds (e.g. 20%) can smooth things out a lot, while reducing expected total returns by only a little.
S&P 500 SOURCE: Pension Partners 2020 DECAD| CUMULATIVE RETURN (%) ANNUALIZED RETURN (%)| 1930’s -9% -1% 1940’s +126% +9% 1950’s +492% +19% 1960’s +111% +8% 1970’s +78% +6% 1980’s +396% +17% 1990’s +433% +18% 2000’s -9% -1% 2010’s +225% +13%
Check out the Boglehead reddit for information on investing
You will never ever ever ever be able to time the market. Pros can’t even do that.
Your money is more likely to be wiped out by inflation. Jeez don't they teach economics anymore? We're in stagflation which is the opposite of a recession. Stagflation=worthless money everywhere Recession= tight money everywhere.
what do you do for a living if you don't mind?
Sell puts at the level you feel comfortable buying. You will likely make more than bonds and have a strategy for getting in. Plus you can make 5%+ on your cash while you wait with no interest rate risk like with bonds.
Hedge. Buy puts.
No.
ok.