We might be at the point where US stocks go through a stagnation cycle for a decade or so or crash followed by long recovery. It could well be a poor choice if you are getting close to retirement. Personally I'm hoping for a crash/correction as young enough to benefit from it.
Financial Independence Retire Early (FIRE)
- Thread starter throwaway4372
- Start date
A normal investment strategy is to slowly shift from EFTs and managed funds to bonds and other low risk vehicles as you approach retirement.
I am not sure why you think you could easily benefit from a crash. superficially you might be hoping to buy at the mow point but you have no idea when/what that os, and if the recovery is slow you will still be worse off than if the market was strong.
It's pretty straightforward. I don't try to time the market, I just buy £xxxx a month through my pension and other regular investments (pound cost averaging). If I pound cost average for the next 10 years and the market stagnates, I'll make less than if there is a crash/big dip followed by a recovery because if there's a big dip my average purchase price will be lower. The slower the recovery is the better, within obvious limits.
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I was pondering this the other day, as I believe my pension fund by default moves your investment out of equities over the 5 years leading up to your selected retirement age. It struck me as being a bit odd, because no one spends their whole pension fund on buying an annuity at retirement age these days, so wouldn't it make more sense to make the move to lower risk assets over a period (say 10 years) starting after you retire?
Indeed, some of the traditional methods need some fine tuning, especially WRT to life expectancy. Even with normal state retirement age you should expect about 20 years at least so in the early years it is still OK to have significant investments in stock related vehicles. Imagine if you had to cash out during covid crash, you would have missed about a 50% gain in US market growth over a few years.
This still doesn't really make any sense. You would be much better off if the market continued with strong 10-25% pa growth as seen in the mast few years S&P500 etc, than having a crash and then a slow recovery. All your existing investments would be shrunk and you are then trying to hope for a fast recovery that is not guaranteed to be any faster than a future bull market. Stagnation followed by growth is always going to be better than a crash followed by the same growth.
Ultimately, timing in the market is not important, only time in the market. Hoping that you are in some specific part of a bull-bear cycle is relatively pointless if you investing for long enough
Well, duh, of course it would be better if we just get insane growth every year forever and ever. That doesn't seem very likely to me at the moment though. Looks prices are hugely inflated which means a very long period of stagnation or a correction are likely. The point I'm making is if that is going to happen then I prefer correction to stagnation.
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Well yes, but nobody knows. People forget that US stocks went nowhere between 2000 and about 2012. The market is heavily affected by recency bias right now. I don't advocate being 100% into a single country anyway and approaching retirement requires different planning.
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Not really. The biggest risk at retirement is a large drawdown at the start (sequence of returns risk) if you don't have a cash buffer/lower risk investments you will have to sell equity whilst its down. There is an argument to re risk as retirement goes on, not de risk.
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Man of Honour
As a family man I've accepted that my life will revolve around supporting my family so unless I win the lottery (if I ever played) I know I'm going to be working for a while. That said I'm putting effort into my pension to at least hopefully allow me a comfortable life and able to support my kids as they require support in the future.
It is complete speculation what happens next, the stocks could easily keep rallying.
Is there a point in the video that explains why a correction is better than stagnation, because it really wouldn't make any sense, especially if you already have investments. When investing (in stocks) you are not buying a direct commodity like a house where a correction could let you buy a house cheaper (as long as you didn;t already own property). But a reduction in the stock market doesn't help you in anyway. Sure if a stock is cheaper you have more of them for the same purchase but they are not worth the same. The only thing that matters is growth from the moment you purchase .
E.g., say you are investing in an EFT like Vanguard global and hypothetically it currently costs 100 /share. After 2 years of stagnation it is still worth 100/share, alternatively in another scenario there is a 50% correction and it is only worth 50/share. You invest 1000 under both scenarios and in the 1st you have 10 shares at 100 vs the 2nd scenario 20 shares at 50 each. Your investment value is identical. In both scenarios the stock grows 10% in the 3rd years. In both scenarios you have the identical profits of 100 (10% x 1000). Being cheaper hasn't helped you what so ever.
There is zero expectation that growth will be higher in either scenario. In fact, if anything then if the correction is severe it could be followed by stagnation. Don't let the COVID rebound fool you into thinking crashes quickly recover, this was exceptional due to the nature and it was clear that as soon as COVID was udner control there would be a recovery, even then the recovery has not been equal so unless you were very diversified you could have seen significant continued losses.
This all goes back the point that it doesn't matter when you invest or what the market is currently doing, the only deciding factor is investment duration.
Honestly you've said it "doesn't make sense" so many times at this point regarding a pretty straight forward concept I think you are likely just not very smart but I'll try one more time.
If you pound cost average (ie buy £xxxx of a fund every month) then if there is a correction and dip you will be buying at a lower price until the market recovers. When it recovers, your investment prior to the dip returns to its previous value and you obtain growth from what you bought cheaply during the dip. If the market just stagnates instead of correcting, you continue to buy at the higher stagnated price and your growth also stagnates.
In either scenario, eventually growth above the price prior to the dip will come but in one scenario the value of your investment increased by the point growth above the original price occurs and in the other it didn't. It's really a fundamental concept.
What's an EFT?
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OK, it is clear you really don't understand what you are talking about.
As i said, it makes absolutely no difference if a stock is cheaper to buy. The only thing that matters is growth. You seem to think having 10x £10 notes is somehow better than having 5x £20 notes.
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Soldato
The stock market like the housing market appears to be very carefully monitored by central banks and both are very unlikely to see major corrections, that is imo, although those in the know might say different.
Personally I have absolutely no confidence in the stock market at all so put all my savings in cash. That means I won’t get rich but I will know how much money I have. That may be not enough for someone to retire on though.
The market is all about timing tbh, however after a crash and logic says it can only go up, all confidence is gone so it’s hard to invest.
Personally I have absolutely no confidence in the stock market at all so put all my savings in cash. That means I won’t get rich but I will know how much money I have. That may be not enough for someone to retire on though.
The market is all about timing tbh, however after a crash and logic says it can only go up, all confidence is gone so it’s hard to invest.
Soldato
Stocks can go up as well as down, capital at risk.
lol
The Tale of Two Toy Shops
Once upon a time, there were two toy shops: Crashy’s Toys and Lazy’s Toys. Both shops sold magical blocks that could grow in value, but one day, everyone started saying the blocks were worth too much.Crashy’s Toys panicked. “Oh no!” said the shop. The prices of the magical blocks fell FAST, like a ball rolling down a hill. For a while, the blocks were super cheap! Kids who brought the same amount of money each week (like little Alex, who brought £5 every Saturday) bought WAY more blocks while the prices were low. When the prices went back up later, Alex had so many blocks that they became rich!
Lazy’s Toys, on the other hand, didn’t crash. “We’ll just wait,” the shopkeeper said. Prices didn’t go up or down much; they just stayed the same. Kids like Alex still bought blocks each week, but they didn’t get as many because prices didn’t drop much. Over a long time, the blocks slowly grew in value, but it took MUCH longer for Alex to grow rich.
The Moral:
If you save and invest every week, you might make more money if prices crash first (like at Crashy’s Toys) because you can buy lots of magical blocks for cheap. But if prices don’t drop (like at Lazy’s Toys), you’ll still grow your savings—it’ll just take more time!OK but where do I buy the blocks from???? Why aren't you giving all the info??
I am not a shop?