How To Time The Market
Did we just experience a dead cat bounce or are we in the midst of an actual rally? Are the bears going to take over or were the bulls just getting a drink before they plow onward? Correction or actual sustained downturn? I have the answer.
Don’t worry about it.
If you’re like me, all your investments are in either a 401(k) or a Roth IRA. No matter how the market moves, up up down down left right left right (A B Select Start), you won’t “benefit” until you have retired. Even if you have non-retirement accounts, are you in it for the long haul or are you day trading? If you’re a day-trader, you probably aren’t reading this because you know a lot more than I do and shouldn’t be considering my opinions. (If you’re a day-trader and don’t know more than I do, get out, you’re the sucker the table!) A month-long slide followed by a week-long bounce shouldn’t bother you at all because you won’t see any of it until you’re pushing 65. In fact, in 20 years you won’t even remember what happened that fateful May in 2006 when commodities and emerging markets dropped from near all-time highs.
Don’t bother timing the market, go enjoy the outdoors, do something you can enjoy now (Spend some money at the mall! Keep our economic engine humming!) - don’t spend your time worrying about something you won’t see for another few decades.
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This advice works best if you are well diversified. As a rule of thumb, at least 20 percent of your investments should be in each of the following:
1) US Stocks
2) US Bonds
3) Foreign stocks
That gives you a minimum of 60 percent of your investments. The rest of them can be allocated to the same three categories or to other asset classes such as commodities, cash, or variations on the themes (high yield bonds, emerging markets).
Two large-cap US stock funds are not diversification. But three ETFs fitting into the above categories could provide a great deal of diversification and help you weather all kinds of markets.
Ah, playing 2-player Contra with the bro. I’d forgotten all about that ’til now. Good times, good times…
Ignorance is Bliss
One especially nice thing about index investing is, I don’t pay a lick of real attention to the day-to-day goings on of the stock market. That said, of course I like seeing the market go up, and am not a huge fan of watching it go down (unless i…
Hmmm, sorry about that trackback. Not sure why it ended up with that <pre> formatting - did the same thing when I pinged 43folders a while back.
[...] Me, I’m with Jim at Blueprint for Personal Finance: Don’t worry about it. Unless you needed that money soon - in which case, the stock market was probably not your best vehicle to put it in the first place - the ups and downs of the market are nothing but normal. What’s abnormal are constant, uninterrupted gains. I find it laughable that some investors and financials pundits (who should know better, but then, all segments of the press corp have been atrocious for several years now) talk like the end is nigh. [...]
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