I started investing in stocks in 2010

[Arcadio]

...and I've been told since 2013 that the stock market is about to crash and that I should sell. I know it will crash sooner or later, but why do people still believe that they can predict exactly when it will crash? I'm invested in index funds only, btw. I know there was a minor crash in 2014 I think (I don't even check anymore), but it surprises me that people still think they can predict the stock market.

 

[AznAnarchy99]

...and I've been told since 2013 that the stock market is about to crash and that I should sell. I know it will crash sooner or later, but why do people still believe that they can predict exactly when it will crash? I'm invested in index funds only, btw. I know there was a minor crash in 2014 I think (I don't even check anymore), but it surprises me that people still think they can predict the stock market.

Many of the friends and family were telling me to not buy a house for years, that the market is gonna crash again, and houses would plummet within the next 6-12 months. Well 4-5 years later houses still going up.

 

[dullard]

No one can tell precisely when the stock market will crash or boom. But, you can somewhat tell if it is LIKELY to do either. Even better, you can tell if it is overvalued or undervalued. That doesn't mean that it is going to rise or fall for certain. But it can at least give you a decent idea of whether or not this is a good time to buy or sell in comparison to other past times.

But, ignore all of that. The stock market only goes up in the long run. Thus, in the long run, now is ALWAYS a good time to buy. You should have been buying all along.

 

[rsachoc]

Timing the market, as others have said, won't work - in fact, studies have shown this doesn't work. If you continue to add your index fund over time, you will be buying at both the high points and the low points, so in the end, you have "timed" the market (it's called dollar cost averaging). You also did the (very) right thing buy buying an index fund, lot's of people buy individual stocks, and again studies have shown that stock picking is not the right way to things.

 

[dullard]

It isn't a perfect measure, but I like to look at this calculation:
(S&P 500 Index) / (US CPI) / (US population in millions)^2

This is a broad US stock market index, inflation adjusted, and double population adjusted (to take into account the US population buying stocks AND the world population buying US stocks).

This calculation peaked above 0.7 in these years:

• 1915 (World War 1; the stock market was partly closed and tanked)
• 1929 (Great Depression part 1)
• 1930 (Great Depression continued)
• 1937 (Great Depression part 2, Recession of 1937-1938)
• 1962 (Flash Crash of 1962)
• 1966 (Not technically a bear market since the stock market fell 18% instead of the required 20%)
• 1968 (Start of energy crysis)
• 2000 (Dot Com bust)
• 2007 (US bear market of 2007, financial crisis)
• 2015 (Dow Jones fell 1300 points in 3 days)
• and Now (Who knows what will happen)

This missed a few bad areas (Notably it misses Black Monday in 1987). But it is a quick and dirty way to determine if the stock market is bubbly. Since it is bubbly right now, I've been putting half of my new 401k contributions into a fund that gives steady returns (the rest remains in stocks). But, it is less bubbly than it was in the 1910s, 1929/1930, and 1998 to 2001. So the stock market still has lots of room to go up before it comes crashing down.

 

[rsachoc]

Good responses so far! My portfolio is quite simple 50% world stock index fund, 40% bond index fund and the rest in a gold fund. This allocation should skew more towards bonds as you get older, as they are considered lower risk. The gold is there in those times when both stocks and bonds are going down. People rush to gold still for some reason.

Or you could just buy a Vanguard Lifestrategy and be done with it. It automatically rebalances the split for you. Some from Blackrock even do the balancing with a target date for retirement. Vanguard is generally considered the cheapest for fees.

*edit* oh, and you should keep 3 to 6 months of living expenses in cash in case of emergencies.

 

[KB]

I index some but like picking too. People call stock market crashes because when thy are wrong, people forget it, but if they are right they look like a genius.

 

[DaveSimmons]

An 8 year bull run is unusual, so many financial gurus do expect a correction. Exactly when, who knows? Trump might end up filling the air, waters and your food with toxic waste as he guts the EPA and FDA but removing "burdensome" corporate oversight may keep the profits rolling in for several more years.

It will sting to buy index shares just before the drop, but:
- during and after the drop will be a great buying opportunity
- the shares you bought at peak prices will eventually turn a profit if you hold onto them until the recovery

The safest thing to do is switch to dollar cost averaging if you aren't doing that already, so you are buying before during and after the correction instead of trying to time it.

Whatever you do, don't sell shares during the correction. It's the people who panicked and did that during the recession that wiped out their 401ks. I held onto my shares and lost nothing. (Plus made a very nice profit buying more in my regular brokerage account.)

 

[zCypher]

Picking stocks is gambling *unless* you spend the time to properly educate yourself about valuation and analysis, and that entails quite a bit more than just a bit of googling. It can be done, but don't do it without that due diligence.

Some basic rules of thumb:

- Stick to the plan. Don't withdraw during downturns. Keep investing no matter what, ignore the noise. Invest for the long run (20+ years).
- Don't try timing the market. Time in the market > timing the market. Invest as much as you can, as soon as you can, as often as you can.

Why time in the market instead of timing it? One simple reason is the time-value of money, the effect of compounding over the years. It's the same reason why a small difference in percentage of fees can add up to a huge amount of money over the years.

A good thread on index fund, ETF, dollar cost averaging investing:
http://forums.redflagdeals.com/couch-potato-investing-last-9-years-tracking-my-progress-1489988/

A good thread on stock picking, in this case with the goal of dividend growth:
http://forums.redflagdeals.com/investing-idea-dividend-growth-1587815/

There are a few really good books to read for people looking to take their investing into their own hands seriously. But for those that don't want to put in the time, picking some good index funds with low fees is probably the safest bet to get exposure while beating inflation with minimal risk.

 

[Ken g6]

Timing the market, as others have said, won't work - in fact, studies have shown this doesn't work. If you continue to add your index fund over time, you will be buying at both the high points and the low points, so in the end, you have "timed" the market (it's called dollar cost averaging). You also did the (very) right thing buy buying an index fund, lot's of people buy individual stocks, and again studies have shown that stock picking is not the right way to things.

I've invested with Betterment for a couple of years now. I think their technique is even better than this. They invest in a proportional balance of stocks and bonds. Whenever you add money they put it mostly into the asset that is relatively lowest valued. (Unless the difference gets really big.) So you're always buying whichever asset is most undervalued.

 

[rsachoc]

I've invested with Betterment for a couple of years now. I think their technique is even better than this. They invest in a proportional balance of stocks and bonds. Whenever you add money they put it mostly into the asset that is relatively lowest valued. (Unless the difference gets really big.) So you're always buying whichever asset is most undervalued.

That's awesome, what are the fees like? You can do this yourself, but it's involves your time, so if the Betterment fees are reasonable this is a good trade-off for not have to do the due diligence yourself.

 

[Ken g6]

That's awesome, what are the fees like? You can do this yourself, but it's involves your time, so if the Betterment fees are reasonable this is a good trade-off for not have to do the due diligence yourself.

0.15% - 0.35%, depending on how much you have invested. Plus they have something called "tax-loss harvesting" that should about compensate for the fees.

 

[dullard]

I've invested with Betterment for a couple of years now. I think their technique is even better than this. They invest in a proportional balance of stocks and bonds. Whenever you add money they put it mostly into the asset that is relatively lowest valued. (Unless the difference gets really big.) So you're always buying whichever asset is most undervalued.

Betterment isn't necessarily better than a simple index fund though. I just went to Betterment's website here:
https://www.betterment.com/portfolio/
Then scrolled to the cumulative returns section, choose ten years (end of Dec 2006 until end of Dec 2016), and selected the stock allocation that gave Betterment the very best return. The result: 54.4% return (4.4%/year) in 10 years for the 50% stock / 50% bond option.

Then I went to Vanguard and selected their balanced fund (currently 59% stocks, 39% bonds, the rest in cash):
https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0502
For the same 10 year period: 86% return (6.4%/year).

Just buying one index fund, the simplest possible balanced fund from Vanguard, returned far more than cherry picking Betterment's best fund mix. And Vanguard's fee for that fund is about 1/3rd of what Betterment has. Vanguard does all that Betterment does but they advertise themselves differently. Basically Betterment takes Vanguard funds, adds a fee, and sells them back to you: https://support.betterment.com/cust..._id=9042&_ga=1.175315302.557154610.1489624855
.

 

[shortylickens]

I started investing in mutual funds in 1995.

And I've lost almost all my investment.

So, I think I'm probably gonna work until I die and then leave a bunch of debt for nobody to pay.

 

[DaveSimmons]

I started investing in mutual funds in 1995.

And I've lost almost all my investment.

So, I think I'm probably gonna work until I die and then leave a bunch of debt for nobody to pay.

Were they actively managed funds, or did you buy and sell shares trying to time the market?

If it had been an S&P 500 fund, or a Vanguard Target (year) fund, or any other decent index fund and you'd just held the shares you'd be in nice shape financially. Sorry to hear you didn't invest that way.

 

[louis redfoot]

matt damon's right, the game's rigged (speaking of trading, not index investing). insider trading is everywhere. the news outlets are controlled, most of us are just speculating. why do the same hedge funds make money every year?

i have my house, some other small biz investments, the rest is in clean cash.

 

[Red Squirrel]

The stock market is basically educated gambling. If you really know your stuff you can make some somewhat educated guesses as to what will happen by looking at all the indicators and understanding them, but you can't predict anything 100%.

I see it as a long term casino game or lottery myself. I've been messing with penny stocks, did not break the bank yet, but you can't win if you don't play. Basically any money I make/lose is play money that would otherwise go to a "high interest" savings account.

 

[DaveSimmons]

The stock market is basically educated gambling. If you really know your stuff you can make some somewhat educated guesses as to what will happen by looking at all the indicators and understanding them, but you can't predict anything 100%.

I see it as a long term casino game or lottery myself. I've been messing with penny stocks, did not break the bank yet, but you can't win if you don't play. Basically any money I make/lose is play money that would otherwise go to a "high interest" savings account.

True for trading. If you buy and hold index funds you're betting with the house. You'll win over time as long as America does not descend into a Max Max / Fallout hellscape.

 

[turtile]

I started trading in 2010 too and I a few years ago I thought the market had to slow down but now that I've studied it all of this time, I've realized that there is no such thing as value in the market. If people have money to buy stocks, they'll go up, regardless of how well the actually companies are doing. So as long as there is money getting pumped into the market, we're good. There might be a few small sell offs though.

 

[louis redfoot]

True for trading. If you buy and hold index funds you're betting with the house. You'll win over time as long as America does not descend into a Max Max / Fallout hellscape.

america really needs a ladbrokes

 

[Ken g6]

Betterment isn't necessarily better than a simple index fund though. I just went to Betterment's website here:
https://www.betterment.com/portfolio/
Then scrolled to the cumulative returns section, choose ten years (end of Dec 2006 until end of Dec 2016), and selected the stock allocation that gave Betterment the very best return. The result: 54.4% return (4.4%/year) in 10 years for the 50% stock / 50% bond option.

Then I went to Vanguard and selected their balanced fund (currently 59% stocks, 39% bonds, the rest in cash):
https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0502
For the same 10 year period: 86% return (6.4%/year).

Just buying one index fund, the simplest possible balanced fund from Vanguard, returned far more than cherry picking Betterment's best fund mix. And Vanguard's fee for that fund is about 1/3rd of what Betterment has. Vanguard does all that Betterment does but they advertise themselves differently. Basically Betterment takes Vanguard funds, adds a fee, and sells them back to you: https://support.betterment.com/cust..._id=9042&_ga=1.175315302.557154610.1489624855
.

Hm, a fee of even 0.35% does not a 2%/year difference make. Oh, I see, that fund doesn't include international investments. Europe be draggin' Betterment down, I guess.

 

[dullard]

I started investing in mutual funds in 1995.

And I've lost almost all my investment.

So, I think I'm probably gonna work until I die and then leave a bunch of debt for nobody to pay.

Such a shame. But your experience is actually very common. People either (a) try to time the market and lose, or (b) don't diversify and lose, or (c) invest in very expensive mutual funds with high fees and lose.

The best advice that anyone could have is to buy a low-fee S&P tracking fund. Vanguard's S&P tracking fund VFINX was about $44/share in Jan 1995 and is $221/share now. Even without counting dividends, anyone who followed that most basic investment would be up by 5x. Counting dividends and subtracting fees, you'd still be up well over 5x your original investment.

 

[eng2d2]

I dedicate this to OP https://www.youtube.com/watch?v=kK62tfoCmuQ

 

[shortylickens]

Such a shame. But your experience is actually very common. People either (a) try to time the market and lose, or (b) don't diversify and lose, or (c) invest in very expensive mutual funds with high fees and lose.

The best advice that anyone could have is to buy a low-fee S&P tracking fund. Vanguard's S&P tracking fund VFINX was about $44/share in Jan 1995 and is $221/share now. Even without counting dividends, anyone who followed that most basic investment would be up by 5x. Counting dividends and subtracting fees, you'd still be up well over 5x your original investment.

Perhaps thats true. But I didnt time anything.
I bought the funds when a very expensive and supposedly competent financial advisory told me to get into them.
The stocks within the Mutual Fund were diverse.
There were no fees.

It just tanked.
And I lost money. Like, most of it.

 

[NesuD]

I started investing in mutual funds in 1995.

And I've lost almost all my investment.

So, I think I'm probably gonna work until I die and then leave a bunch of debt for nobody to pay.

I started investing in mutual funds in 1994 and I've built a fairly nice portfolio. I don't try and time the market. I have a percentage in various index funds but they are a diversified collection of indexes not just the s&p 500. Some are more targeted indexes to to take advantage specific markets for a more diversified approach than simply modeling the S&P 500. It is more aggressive but has served me well so far. I review and rebalance annually. I take the long view and don't bail on a fund with a good 10 year track record because they had a couple of flat years unless I can find a proven superior alternative as a replacement. I don't leave my money on the sidelines ever. You have to be in it to win it. I am always a buyer never a seller. By the time most investors decide it is time to sell it is to late. All they do is lock in their losses. When you are at that point it is time to buy so not selling is actually like buying at that point. It's about patience and not allowing emotion to make your investment decisions. Put together a sound plan review and rebalance annually and stick to the plan. That is what works. By the way I have never spoken to a financial advisor in my life.