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Should I keep Investing in ETFs in current market?

Started by edward3030, August 28, 2018, 06:48:14 AM

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edward3030

I'm a recent college grad (23), now working full-time. I recently began investing in ETFs on platforms Wealthfront and Acorn, and have a bit of money in Fundrise. As the market continues to hit extreme highs, and as mentioned often, that we may be around the corner of a potential market correction, is it wise for me to continue to invest heavily (about 30% of income after taxes, expenses and savings) into ETFs on a bi-weekly basis, or should I sit on the side lines for a bit, save cash heavily and jump in when the market hits a drop/correction; instead of investing now at overvalued and high prices?

Sam

At 23, I would continue to invest as much as you can on a bi-weekly basis. You don't have a big absolute dollar amount to lose, and nobody can time the market. It does seem like the yield curve will invert in 2019 and a downturn may come in 2020, but who knows for sure. Time in the market is better than timing the market.

It's when you amass an amount you cannot easily recover through work, is when you need to dial down risk.

See: https://www.financialsamurai.com/recommended-net-worth-allocation-mix-by-age-and-work-experience/

Sam
Regards,

Sam

Young And The Invested

Because you're so young and have relatively little at-risk, now is a great time for you to invest if the investing objective is to accumulate wealth for retirement.  With a longer time horizon, you shouldn't have any fear of investing for the long-term in any economic environment.  Using investing during the last recession as an example, if you had the misfortune of buying an S&P 500 index fund the Friday before Lehman Brothers went bankrupt you would've lost 46% over the next 6 months. On the other hand, if you bought that day but never sold, you'd be up 185% at the time of this post.

The biggest determinants for wise investing inevitably come down to:

1) Time spent in quality, low-cost, diversified investments (i.e., index funds)
2) Time horizon for which you are looking to invest
3) Discipline to continue making increasing contributions each year

As I've mentioned above, if this money is meant for long-term investing, timing won't matter as much as time you spend in the market.  I, for one, intend to continue making increasing contributions to my accounts as I age because I know stocks have historically provided an excellent return thanks to the power of compounding.

I talk more fully about these dynamics on my blog in these posts: https://youngandtheinvested.com/2018/09/06/investing-do-less and https://youngandtheinvested.com/2018/07/21/power-of-compounding/.  Sam also has a lot of great content speaking to much of the same.  I strongly advise you to check out what he has to say in more detail.
https://youngandtheinvested.com/

Sam

Quote from: YoungAndTheInvested on September 14, 2018, 08:47:05 AM
Because you're so young and have relatively little at-risk, now is a great time for you to invest if the investing objective is to accumulate wealth for retirement.  With a longer time horizon, you shouldn't have any fear of investing for the long-term in any economic environment.  Using investing during the last recession as an example, if you had the misfortune of buying an S&P 500 index fund the Friday before Lehman Brothers went bankrupt you would've lost 46% over the next 6 months. On the other hand, if you bought that day but never sold, you'd be up 185% at the time of this post.

The biggest determinants for wise investing inevitably come down to:

1) Time spent in quality, low-cost, diversified investments (i.e., index funds)
2) Time horizon for which you are looking to invest
3) Discipline to continue making increasing contributions each year

As I've mentioned above, if this money is meant for long-term investing, timing won't matter as much as time you spend in the market.  I, for one, intend to continue making increasing contributions to my accounts as I age because I know stocks have historically provided an excellent return thanks to the power of compounding.

I talk more fully about these dynamics on my blog in these posts: https://youngandtheinvested.com/2018/09/06/investing-do-less and https://youngandtheinvested.com/2018/07/21/power-of-compounding/.  Sam also has a lot of great content speaking to much of the same.  I strongly advise you to check out what he has to say in more detail.

I'm finishing up a post next week about lessons learned since the financial crisis, and I saw that 185% up figure as well. But, when I did the math, I only got +89%. Which numbers are you using?

Here's a part of my post with the S&P 500 figures:

Even if you had gone all-in the day the S&P 500 peaked on July 1, 2007 (1527), despite losing 50% by October 2008, you'd be up about 89% if you had held on to today (2,889). It's hard to lose money in the S&P 500 over a 10-year period.

Regards,

Sam

Young And The Invested

I saw the same number bandied about on Twitter from Ben Carlson.  I thought I'd verify it before including it in my post (https://youngandtheinvested.com/2018/09/13/millennial-interrupted/) this week using this calculator: https://dqydj.com/sp-500-return-calculator/

I use the 10-year window from end of month September 2008 to the most recent trading close with dividends reinvested and no tax consequences (so, in a tax-advantaged account).

I'd post a screenshot of my results but I don't think I can?  I'm hitting the "Attachments and other options" link below but can't seem to find an option to upload the image.  Regardless, if you just use the default settings when you land on the calculator, you will see the TSR score is ~190%.  With the market's increase the past two days, that likely affected the 185% number I used in my blog post and above. 
https://youngandtheinvested.com/

Sam

Quote from: YoungAndTheInvested on September 14, 2018, 10:28:18 AM
I saw the same number bandied about on Twitter from Ben Carlson.  I thought I'd verify it before including it in my post (https://youngandtheinvested.com/2018/09/13/millennial-interrupted/) this week using this calculator: https://dqydj.com/sp-500-return-calculator/

I use the 10-year window from end of month September 2008 to the most recent trading close with dividends reinvested and no tax consequences (so, in a tax-advantaged account).

I'd post a screenshot of my results but I don't think I can?  I'm hitting the "Attachments and other options" link below but can't seem to find an option to upload the image.  Regardless, if you just use the default settings when you land on the calculator, you will see the TSR score is ~190%.  With the market's increase the past two days, that likely affected the 185% number I used in my blog post and above.

Not sure about the attachments, because of security and spammers.

What is the exact S&P 500 level you used?   That will answer the mystery. Thx
Regards,

Sam

Young And The Invested

I used the closing value on September 12, 2008: 1,251.7.  However, calculating based on that number alone only provides total price appreciation and overlooks the effects of dividends and their reinvestment.  I don't have access to a Bloomberg terminal or FactSet, so I had to rely on an open source calculator that I linked to before.  Using the number from Ben Carlson and backing it up with that TSR calculator I found online, I feel comfortable citing that number.
https://youngandtheinvested.com/

numbers

Quote from: edward3030 on August 28, 2018, 06:48:14 AM
I'm a recent college grad (23), now working full-time. I recently began investing in ETFs on platforms Wealthfront and Acorn, and have a bit of money in Fundrise. As the market continues to hit extreme highs, and as mentioned often, that we may be around the corner of a potential market correction, is it wise for me to continue to invest heavily (about 30% of income after taxes, expenses and savings) into ETFs on a bi-weekly basis, or should I sit on the side lines for a bit, save cash heavily and jump in when the market hits a drop/correction; instead of investing now at overvalued and high prices?

You dont say what ETF you are investing in.
IMO At 23 they should be 100% equity - Large, mid, small, and international, pound that money in there right away (the market cant be successfully timed), don't sell in a down turn, re-balance periodically, and don't cut back on equities until 5-10  years before you need the money. Forget wealthfront etc. you dont need to pay the fees. Do this and you cant imagine the wealth you will create by the time you retire. If I only did that starting at 23 instead of 40 millions more...

Jsmith

http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

I thought this was a great read that I wanted to pass along to anyone wondering the same question as the OP here.

Best