Somebody else wrote:
Rather than put money into my mutual funds every month, I'm thinking of putting it into a cash fund.
Then, whenever the market (s&p 500 for example) drops >= 5% from its high, I move it all into stocks. Future monthly contributions go into stocks until market is < 5% off its high, in which case back to cash.
Good idea or not?
Good idea wrote:
Buy low. Nothing wrong with that strategy.
Actually it is a very bad idea. This "method" is a classic case of something that makes sense to the non-mathematically oriented but when examined more closely is absolutely ridiculous.
Here is the fundamental problem: Your method keeps you out of the market (at least with new money) for every major bull market. Not exactly a good idea.
On a more general note: Treat new money and old money (already in the market) EXACTLY the same. IF it makes sense to keep new money out then it also makes sense to take ALL of your old money out during the same time period. It should be obvious why this is so so I will not waste my time with spelling out the details (give it some thought - it will serve you well). If you consistently do this and think this way you will be ahead of 90% of investors (and most of the folks on this thread).