The stock market currently is...

If I DCA, should I not worry/think about it at all?

sdfdsfadfsa wrote:

If I DCA, should I not worry/think about it at all?

Dollar Cost Averaging is not magic...the "magic" is just in being in all the time. When you stay in and don't jump in and out of the market, not only do you receive dividends, but you are putting money in the whole time. NO ONE can time the market, and to jump in and out of the market, you have to consistently pick decent entry and exit points...this simply can not be done.

You should:

1) Be debt free but for a home and MAYBE a large student loan if you're a doctor or lawyer who will eventually pay that thing off.

2) Have emergency fund of 3-6 months expenses liquid.

3) Put 15% or more into retirement accounts (example - 401k first to match, then Roth IRA then back to 401k).

You invest money that you do not need today so that you can have money for later when you no longer have work income.

The going up and down of the market should not influence you to stop investing. You ALWAYS invest 15% minimum and then if you have more on occasion, you can put money in. As long as you stay debt free (with exceptions listed above) and have an emergency fund, you should always do that. If the market drops a LOT, and you have more to invest, you can put money in then. This is NOT market timing, because your normal level of investing is always there, and you aren't taking money out ever...ONLY putting in extra...you can do that at any time, even when the market is up if you want.

Thats great for people that are fairly well off. Many many people are living paycheck to paycheck and could in no way afford to pay cash for a car or put 15% of their already meager income into a RA. Even of they did, it would not amount to much.

As for your advice, I have done this for years for my kids college funds. I would have been better off doing almost ANYTHING else. Even putting in a mattress. The good news is, if they dont use it for college, there wont be many gains to tax upon withdrawl :-)

They are positive now (by a little) but there were years where I had put in more than the acccts were worth!

The market just reacted to QE3 to go up last week.

Next it is feeling out the election and will react to that.

Then the fiscal cliff looms at the end of the year.

It may creep down as they push a decision to the last minute and jump back up when they announce extensions of tax cuts and spending.

So we will have down from here to the election

Up right after the election, no matter who is elected

Down in early December as fear sets in

Up right around Christmas when things get settled

Next year, the markets will decide if they are over priced and may react to actual economic data.

worst poster wrote:

Thats great for people that are fairly well off. Many many people are living paycheck to paycheck and could in no way afford to pay cash for a car or put 15% of their already meager income into a RA. Even of they did, it would not amount to much.

As for your advice, I have done this for years for my kids college funds. I would have been better off doing almost ANYTHING else. Even putting in a mattress. The good news is, if they dont use it for college, there wont be many gains to tax upon withdrawl :-)

They are positive now (by a little) but there were years where I had put in more than the acccts were worth!

1) Investing is not just for the well off. Most people who live paycheck to paycheck can change that situation if they want to...requires self-discipline and not buying a bunch of things on credit.

2) 15% of even a meager income over 40 years still returns the money needed for that person to continue their lifestyle in retirement, and that is the goal...to be able to retire. If you make $25,000 a year, then you need to live as if you make that. If you do 15% of your income from age 22 to age 62 and you never get a raise during that time, you'll have $1,049,178.90. Doesn't seem like a lot, and it's not really, but on that meager income that never increased, that's pretty good. Take 4% of that, and that's $41,967.15...way more than the person's salary while working. AND, at age 62, they get to add Social Security also. What if they only did 10%? They'd have $594,853.05. 4% of that is $23,794.12...almost as much as they made while working, and since taxes would be different, it's better...also, they would get to add Social Security to that. Sets them up to be better off than they were while working. This was done with 8% annual return which is well below the average of mutual funds. It was also done with no raise in income for 40 years. Assuming they get some sort of raises in there, they'd have more. If they returned more than 8% annually, they'd have more.

3) Maybe the college funds you have been funding weren't invested properly. Looking back from today all the way back to 2003, the only year in there where I lost money was 2008...a Big loss yes, but all the other up years have more than made up for that.

X-Runner wrote:

The market just reacted to QE3 to go up last week.

Next it is feeling out the election and will react to that.

Then the fiscal cliff looms at the end of the year.

It may creep down as they push a decision to the last minute and jump back up when they announce extensions of tax cuts and spending.

So we will have down from here to the election

Up right after the election, no matter who is elected

Down in early December as fear sets in

Up right around Christmas when things get settled

Next year, the markets will decide if they are over priced and may react to actual economic data.

I think that's a pretty fair guess. Down from here to election suggests over priced. I will agree that in 2013 the markets will again need to be reassessed to see if they are over priced then or not. ULTIMATELY though, the markets will go north. I'm still far enough away from retirement not to care just when.

Thanks. Is that 15% of gross or take-home?

BOOMING!

The stock market no longer reflects the broader economy. Corporations were brutally efficient in trimming their workforce during the recession and quickly returned to profitability. And that is the big problem with the economy. A large segment of the population has essentially been cut off from the economy, namely those who lost work during the downturn and have been unable to reenter the job market. The stock market is up because publicly traded companies have with ruthless efficiency learned how to make great profits without these people in the economy. So, the stock market is not really overvalued. Companies are very profitable and do not need a rebound in employment or consumer demand to continue to be profitable. They have learned to live without the pre-recession demand.

Of course, the fiscal cliff, Europe, Iran, China aggression against Japan and a host of other issues could force markets to retreat. But, this is not the market of 2007. Companies are making real profits and are not riding a speculative bubble that is about to burst.

Flagpole wrote:

...over priced.

No it's not. Look at how much money that fed has been printing in the last few years. The stocks reflect that the $ is worth less than a few months or years ago. Much, much less.

If you look at some major currencies the difference is not that big but still significant:

Now keep in mind that those countries also have a very loose fiscal policy right now.

The $ is pretty much staying constant against the EUR right now but the EUR is collapsing. Why? Because the $ is also collapsing.

Bottom line. Still good to be invested in stocks since this hatches somewhat against inflation.

I mostly agree with this but have concern about one line:

"Companies are very profitable and do not need a rebound in employment or consumer demand to continue to be profitable."

My thought, or at least my hope is that companies do need greater consumer demand to be profitable and therefore do need a rebound in employment.

You can only sustain profits for so long by cutting expenses.

At some point, they will need growth in revenue.

You have to spend money to make money.

Money is cheap right now and it is a good time for companies to invest in R&D and human capital.

A company that gets an edge on its competitors right now could reap long term benefits if they can offer a more attractive product and gain market share.

This would cause others to follow and could build momentum in the job market which in turn will mean higher consumer demand and greater revenues and profits.

I am countng on the ego of the CEO's that desire growth more so than those that fear recessions.

I don't suppose you have any sources that back up the claim that an 8% average annual return is a reasonable expectation going forward? Yes, historically that may be accurate, but past performance does not guarantee future returns. Most of what I've been reading says to expect somewhere between 3-4% real return over the next few decades.

The simple fact of the matter is that if you are among the working poor who never makes over $25K (in today's dollars), you'll probably be SOL when it comes to retirement simply because you will not make enough over your working life to meaningfully save. You'll be dependent on the (imo very slim) chance of outstanding market returns over the next 3 decades. Course, you might get lucky and the market might take off. Hell, even SS and medicare might still be around in 30 years, who knows.

Seriously Flagpole, you can't have it both ways. You said some time back to get out and that it was on it's way down. Now you wait till it hits a certain point and to sound like you know what's going on, you again say get out....I watch the financial reports too and you are just regurgitating what they've already said.

Just met with a financial advisor from my credit union. If I have him run my IRA, there would be a 5% fee. Is that worth it? Keep in mind I don't know much about it.

midwesta wrote:

Just met with a financial advisor from my credit union. If I have him run my IRA, there would be a 5% fee. Is that worth it? Keep in mind I don't know much about it.

you must be joking, but just in case - a 5% fee is way too much. You can do it yourself with a life cycle fund for almost nothing. Or if you pay an advisor pay no more than 1%.

You were doing well until the final sentence. The bubble you are missing is the financial one. When it bursts ......

elopglaF wrote:

Seriously Flagpole, you can't have it both ways. You said some time back to get out and that it was on it's way down. Now you wait till it hits a certain point and to sound like you know what's going on, you again say get out....I watch the financial reports too and you are just regurgitating what they've already said.

You are mistaken. Neither time did I say to get out. In fact, I said just the opposite of that (unless you are retired or very close to it, and in each of those cases, I personally wouldn't get out, but I might make smaller withdrawals for a while).

You are also not necessarily correct about what the "financial reports" say...there are those who believe the market is on the verge of another big uptick...I think that will happen, but not before a big pull back.

You are right that at some point companies will need better consumer spending to sustain and grow profits. But, until then, there are still many ways companies are able to sustain and grow profit. Buying competitors, updating product lines (Apple), expanding markets abroad, reducing employee compensation and increasing productivity, etc. Companies are leaner and meaner. This is not sustainable indefinitely, but the stock market hasn't been a place for long term valuation in a few decades. So, the current market may bounce around with a 500-1000 point correction now and then, but you will not see a big portfolio buster in the next few years.

If your point includes a link to a Ron Paul newsletter, then do not bother. Otherwise, you are correct that there is still risk in the financial sector. However, I did identify that risk by noting the European fiscal crisis. Of course, if the Euro breaks up, that could (will) create another crisis in the financial sector. But the new financial regulations and better internal institutional oversight in big finance have made the sector way stronger than it was in 2008. In fact, the new conservative attitude in the financial sector has been a drag on the economy as it is still very difficult to get financing and capital for big investments even though the cost of credit is negligible.