I put some money into my 401K now, but have a pretty big sum of money (~$6,000) sitting in a money market account. Is now a good time to put it into the stock market or should I wait?
I put some money into my 401K now, but have a pretty big sum of money (~$6,000) sitting in a money market account. Is now a good time to put it into the stock market or should I wait?
Wait....for Flagpole's response
If you think 6k is a pretty big sum of money...Flagpole's wisdom will be your best bet.
It peaked. Wait.
10-year bond rates are rising. Somewhere between 2.20% and 2.40%, people can start making more on bonds than dividends. That will take a large amount of money out of the stock market. You also have the effects of sequestration coming and a slowing of QE by the end of this year.
It has been 4 1/2 years since the last bear market. Conditions are lining up to produce another one soon. There will be some great opportunities in the future but I'm being cautious at the moment.
Too late mate!
BigTex wrote:
10-year bond rates are rising. Somewhere between 2.20% and 2.40%, people can start making more on bonds than dividends. That will take a large amount of money out of the stock market. You also have the effects of sequestration coming and a slowing of QE by the end of this year.
It has been 4 1/2 years since the last bear market. Conditions are lining up to produce another one soon. There will be some great opportunities in the future but I'm being cautious at the moment.
Thanks for your answer. Are you saying I should wait?
After today it would be a good time to get $ out of the market. I know I've made some great gains.
I would definitely wait. Stocks have had a tremendous run-up the last 4 years, and an even more impressive last 6 months, and the market as a whole does not look cheap here.
If you want a very simple way to avoid a horribly-timed entry point, I would check out the link below, and buy when the very top line is below, or around 30. Avoid buying when it is at or above 70, like it is now. Be prepared to buy despite all the newspaper headlines that will be telling you the world is ending, and stocks are going to zero, at that particular time.
http://stockcharts.com/h-sc/ui?s=
$INDU&p=W&st=1998-02-20&en=(today)&id=p45735814839
The only exception is if you are putting this money in and won't be touching it for another 20+ years. Then, go ahead and buy. Stocks will probably be lower, even much lower, in the next 4 years, but 20+ years from now it won't matter that much.
Carnivore 69 wrote:
It peaked. Wait.
Yup, the only question is the timeframe. As I pointed out at the time, we had a KEY REVERSAL on May 22 as I recall, and this is a chart pattern that often marks significant tops.
But what has not been mentioned until now is the SP500 Commitment of Traders. The Large Commercials-- who have been long since the summer of 2011 while John Q Public been betting against the market--have been selling since March. Repeat: The big boys are selling.
I sold my long SP position on a stop in Late May. Looking for either (1) a breakout above the Key Reversal (which I think would say the buy-and-hold is back as the primary investment method); or (2) a another top in the long term trading range that goes back really to 1997. If it's a top of the same magnitude of 2000 and 2007, it will likely take most of a year to develop.
coach d wrote:
Carnivore 69 wrote:It peaked. Wait.
Yup, the only question is the timeframe. As I pointed out at the time, we had a KEY REVERSAL on May 22 as I recall, and this is a chart pattern that often marks significant tops.
But what has not been mentioned until now is the SP500 Commitment of Traders. The Large Commercials-- who have been long since the summer of 2011 while John Q Public been betting against the market--have been selling since March. Repeat: The big boys are selling.
I sold my long SP position on a stop in Late May. Looking for either (1) a breakout above the Key Reversal (which I think would say the buy-and-hold is back as the primary investment method); or (2) a another top in the long term trading range that goes back really to 1997. If it's a top of the same magnitude of 2000 and 2007, it will likely take most of a year to develop.
So you're completely out of the market?
It depends on your time frame for the money. Less than 5 years? Then, it is never a good time to put it in the market. More than 10 years? Then, there is never a bad time. In between? Answer is probably yes.
Time to invest? wrote:
I put some money into my 401K now, but have a pretty big sum of money (~$6,000) sitting in a money market account. Is now a good time to put it into the stock market or should I wait?
I'm not a big fan of putting chunks of money into the market (even though I do it once in a great while if the market has really tanked).
If you have $6,000 sitting around, I would ask yourself these questions:
1) Are you debt free other than a mortgage (or MAYBE a HUGE student loan)? If so, use that money to pay off debt.
2) Do you have an emergency fund of 3 months of expenses? If not, perhaps that is all or part of your emergency fund.
3) Are you putting enough into your 401k? If you're not doing 15%, then I would consider upping your contribution...you don't have to go all the way to 15% if yo are only doing 8%, but maybe bump it to 12% and wait to increase until you make more money. I would hold on to this $6,000 while you up your 401k contribution just to make sure you can handle it.
4) Do you have an IRA? If not, consider opening one with this money.
5) Do you anticipate a big purchase in the next few months? For example, if your car is on its last legs, perhaps you can drive it long enough to save up another $4,000 and just buy a $10,000 car (used) for cash. It is great not having car payments.
If your world is great in all ways...you are debt free, you have an IRA and 401k and are contributing 15% or more of your salary to both, you have a separate Emergency Fund and you have no large purchases anticipated, and you want to invest that money, then I would consider either putting it in a non-retirement mutual fund (you'll LIKELY get a bigger return than in that Money Market account), or research and buy a "basket" of no fewer than 5 stocks. Those stocks should all be in different sectors of the market. Personally I wouldn't do the individual stock thing unless you are debt free AND are doing 15% into retirement accounts AND own a home outright though.
Good luck.
Open a ROTH IRA. Max it out at $5,500. You can take the principle out at any time without penalty (but you can't put it back in...), but your earnings are tax-free.
Flagpole wrote:
Time to invest? wrote:I put some money into my 401K now, but have a pretty big sum of money (~$6,000) sitting in a money market account. Is now a good time to put it into the stock market or should I wait?
I'm not a big fan of putting chunks of money into the market (even though I do it once in a great while if the market has really tanked).
If you have $6,000 sitting around, I would ask yourself these questions:
1) Are you debt free other than a mortgage (or MAYBE a HUGE student loan)? If so, use that money to pay off debt.
2) Do you have an emergency fund of 3 months of expenses? If not, perhaps that is all or part of your emergency fund.
3) Are you putting enough into your 401k? If you're not doing 15%, then I would consider upping your contribution...you don't have to go all the way to 15% if yo are only doing 8%, but maybe bump it to 12% and wait to increase until you make more money. I would hold on to this $6,000 while you up your 401k contribution just to make sure you can handle it.
4) Do you have an IRA? If not, consider opening one with this money.
5) Do you anticipate a big purchase in the next few months? For example, if your car is on its last legs, perhaps you can drive it long enough to save up another $4,000 and just buy a $10,000 car (used) for cash. It is great not having car payments.
If your world is great in all ways...you are debt free, you have an IRA and 401k and are contributing 15% or more of your salary to both, you have a separate Emergency Fund and you have no large purchases anticipated, and you want to invest that money, then I would consider either putting it in a non-retirement mutual fund (you'll LIKELY get a bigger return than in that Money Market account), or research and buy a "basket" of no fewer than 5 stocks. Those stocks should all be in different sectors of the market. Personally I wouldn't do the individual stock thing unless you are debt free AND are doing 15% into retirement accounts AND own a home outright though.
Good luck.
1) No.
2) No.
3) 401K is maxed out.
4) No.
5) No.
Time to invest? wrote:
I put some money into my 401K now, but have a pretty big sum of money (~$6,000) sitting in a money market account. Is now a good time to put it into the stock market or should I wait?
All times are equally good/bad for putting money in the market since you (and everyone else) has no way of predicting whether the market will be heading up or down in the near future.
So, if you are pretty certain that you will not be needing to take this money out of the market for the next ten years AND you will not be losing any sleep if the market drops by 50% (taking your $6000 down with it) then go ahead and invest. Otherwise no.
This advice is valid today. It will continue to be valid in November 2013, in January 2015, in August 2173 and every day in between. If you do not understand this simple truism then I would suggest that it would behoove you to develop a better understanding of the stock market.
Bigfoot Investments wrote:
All times are equally good/bad for putting money in the market since you (and everyone else) has no way of predicting whether the market will be heading up or down in the near future.
You may not be able to predict the short-term market direction, but one can certainly determine if stocks are relatively cheap or expensive. Determining value is possible, and avoiding overpaying is critical to long-term success in investing.
Your advice is dangerous.
Bigfoot, I'm interested to see how you respond to yeppers, there.
I believe you are a value investor - how do you take valuation into account when putting new money to work?
Now valuations are fairly neutral so they don't matter - but if PEs were 25...would you still recommend putting 100% of you money in on day one?
yeppers wrote:
Bigfoot Investments wrote:All times are equally good/bad for putting money in the market since you (and everyone else) has no way of predicting whether the market will be heading up or down in the near future.
You may not be able to predict the short-term market direction, but one can certainly determine if stocks are relatively cheap or expensive. Determining value is possible, and avoiding overpaying is critical to long-term success in investing.
Your advice is dangerous.
Indeed, it is not. It is the most sensible of investment advice, though one that many find difficult to grasp.
The only meaningful definitions for "relatively cheap" or "expensive" are "likely to lead to above average market returns" and "likely to lead to below average market returns". Otherwise talking about market P/Es or P/Bs or P/Xs is simply a cute exercise in irrelevancy.
Why do you care if the market P/E is at some historical high/low? Assuming that you care about your money I would posit that the reason is because you care about what this will mean for your future returns. And so we are back to my definition - "will we be seeing above/below average market returns in the near future?" Since at all times I do not know the answer to this question, it follows that at all times investing in the market is equally good/bad.
Now, if I may expand upon this just a bit, what matters is whether or not the market is the best investment vehicle to meet your financial objectives. For many people with a long term time horizon and the stomach to handle the ups and downs the answer is 'yes'. Nobody, including you, has the ability to time the market sufficiently well to overcome the transaction costs associated with said timing and, more importantly, losing out on the general upward direction of the market by being out at times when you consider the market to be "expensive". This is a simple fact that has been proven to any reasonable observer's satisfaction in innumerable studies. Start with "A Random Walk" if you wish to understand beyond the emotional story telling that passes for wisdom among the Wall Street in crowd.
Now, out of respect to agip (for whom I have a great deal of respect), I address the questions:
"How do you take valuation into account when putting new money to work?"
The most important part of the answer is - "EXACTLY the same way that I take valuation into account when leaving old money to work". A remarkably high percentage of amateur and professional investors draw a distinction between "new money" and "old money" (I am not saying that you are one of them). Money is money. There is no red money vs yellow money. It is all the same. If you think that "new money" should not be invested today then you must also think that "old money" should be taken out of the market today. (of course this ignores transaction costs but that is really the tail and not the dog so I will do so for the moment).
To complete the answer - I do not take overall market valuation into account when putting new money to work (nor when leaving old money to continue to work).
"Now valuations are fairly neutral so they don't matter - but if PEs were 25...would you still recommend putting 100% of you money in on day one?"
I have gone through the fallacy of dollar cost averaging more times than I care to recount on these pages so I will not repeat myself here. Suffice it to say that one needs to wrap one's mind around two simple concepts if one is to invest rationally.
1) There is no difference between new money and old money.
2) It is not the date when one puts money into the market that matters but rather ALL of the dates while your money is in the market.
This second fact is the one that more people find so difficult to grasp. But once one truly understands the ramifications of this questions about "is now a good time to invest?" or "should I gradually put money into the market or all at once?" are immediately seen to be nonsensical.
Sorry, but I'll take Flagpole's advice over yours any day.
Bigfoot Investments wrote:
yeppers wrote:You may not be able to predict the short-term market direction, but one can certainly determine if stocks are relatively cheap or expensive. Determining value is possible, and avoiding overpaying is critical to long-term success in investing.
Your advice is dangerous.
Indeed, it is not. It is the most sensible of investment advice, though one that many find difficult to grasp.
The only meaningful definitions for "relatively cheap" or "expensive" are "likely to lead to above average market returns" and "likely to lead to below average market returns". Otherwise talking about market P/Es or P/Bs or P/Xs is simply a cute exercise in irrelevancy.
Why do you care if the market P/E is at some historical high/low? Assuming that you care about your money I would posit that the reason is because you care about what this will mean for your future returns. And so we are back to my definition - "will we be seeing above/below average market returns in the near future?" Since at all times I do not know the answer to this question, it follows that at all times investing in the market is equally good/bad.
Now, if I may expand upon this just a bit, what matters is whether or not the market is the best investment vehicle to meet your financial objectives. For many people with a long term time horizon and the stomach to handle the ups and downs the answer is 'yes'. Nobody, including you, has the ability to time the market sufficiently well to overcome the transaction costs associated with said timing and, more importantly, losing out on the general upward direction of the market by being out at times when you consider the market to be "expensive". This is a simple fact that has been proven to any reasonable observer's satisfaction in innumerable studies. Start with "A Random Walk" if you wish to understand beyond the emotional story telling that passes for wisdom among the Wall Street in crowd.
Now, out of respect to agip (for whom I have a great deal of respect), I address the questions:
"How do you take valuation into account when putting new money to work?"
The most important part of the answer is - "EXACTLY the same way that I take valuation into account when leaving old money to work". A remarkably high percentage of amateur and professional investors draw a distinction between "new money" and "old money" (I am not saying that you are one of them). Money is money. There is no red money vs yellow money. It is all the same. If you think that "new money" should not be invested today then you must also think that "old money" should be taken out of the market today. (of course this ignores transaction costs but that is really the tail and not the dog so I will do so for the moment).
To complete the answer - I do not take overall market valuation into account when putting new money to work (nor when leaving old money to continue to work).
"Now valuations are fairly neutral so they don't matter - but if PEs were 25...would you still recommend putting 100% of you money in on day one?"
I have gone through the fallacy of dollar cost averaging more times than I care to recount on these pages so I will not repeat myself here. Suffice it to say that one needs to wrap one's mind around two simple concepts if one is to invest rationally.
1) There is no difference between new money and old money.
2) It is not the date when one puts money into the market that matters but rather ALL of the dates while your money is in the market.
This second fact is the one that more people find so difficult to grasp. But once one truly understands the ramifications of this questions about "is now a good time to invest?" or "should I gradually put money into the market or all at once?" are immediately seen to be nonsensical.