Hear me out. Not panic selling, but one of my colleagues made a valid argument.
Right now, I own VOO at $370 average. In my opinion there is more downside than there is upside; interest rates, regional banking crisis, inflation, commercial real estate bubble and probably other events that aren't obvious right now.
Can see VOO being as high as $390 (25% chance) but as low as $300 (75% chance). Fear moves the market more than greed. To make things more interesting, we can actually earn 5% risk-free in treasuries/CDs, which is not far from what to expect from S&P 500 over 10-20 years (except a lot more risk).
How much would I really miss out on if I move to 100% cash? If I can buy back in $369.99 or less, wouldn't I be better off? And I would have more (5% interest) income to reinvest.
Thoughts?
why do you invest in etfs? they are diversified, low risk, steady returns annually, ofc you will see volatile dips and rises, but they are always known even with recessionary fears to be long term plays. No one invests in VOO or SPY with the intention of making short term gains (options/puts are exceptions). I believe you are fine holding onto your etfs, as the market will rebound sometime in 2024, it is all personal preference and how you view your monetary position in the short/long term.
Thanks for comment. To reiterate, not a least bit worried long-term. But trying to maximize return by doing a little active management.
Your logic isn't wrong, but what you're effectively getting at is market timing. It's reasonable to assume the indexes will decrease based on the statements above and you wish to pull out of the market and earn a risk free rate before jumping back in the market. I know a few people who did this at the start of Covid and then got hammed when the market only flinched for 2 months.
Just dollar cost average, reinvest dividends, and relax.
"Market timers have no need for estate planners."
True. But in 2020, "cash was trash" because interest rates were literally zero. COVID was a surprise attack, but what's happening now is foreseeable. Imagine the return for those that bought in March 2009 or March 2020. Then you ride that *compounded* wave, and you're ahead of most people. Indeed I am timing the market, but NOT anything similar to day trading. Markets go down faster than they go up. And I am not picking individual stocks, which is half the battle.
Do like that last line a lot. Did you come up with yourself?
I heard someone say the last line. I thought it was Buffett, but a google search didn't confirm.
I'm with you on buying, but buying strategically is the challenge. Hence, I dollar cost average and play the market little. I think I tossed a few extra thousand in during March 2020 to capture what I perceived to be a panic driven oversold market. I certainly didn't buy at the exact bottom, but I still made out ok.
+1 to the market timing comment.
Remember to time the market you have to be right twice...
“Market timing” is betting that the market will go up / (down) in X days/weeks/months.
Recognising that risk adjusted returns at the moment appear to be better in money market funds relative to equities — that’s called being “an investor”.
Please sell so markets can rally and I get a bonus this year
Market timing has been proven not to generate additional alpha, mostly because humans are not good at picking the time - time in the market is far more important. I would put the money in and forget about it for 30 years
Also unless you are like 70, there's no reason to sit in a risk-free asset. The S&P500 will likely generate far more total return (including dividends; don't forget every single payment of interest is already priced into the bond you're buying) and you can afford to take some risk as a young person
Do you have a signal or a strategy on when you'll decide it's the right time to buy again?
Nope, not looking for a perfect trade (which would be near impossible). As long as it's below my current average, I'm technically "in the money".
Personally, I believe that regional banking crisis, inflation, war, real estate, unemployment and other hidden risks are wild cards. That's a lot of wild cards. Risk seems elevated (i.e. above-average) for the expected return of 9-10% NOT inflation adjusted.
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