* Benjamin Graham, the father of value investing: “If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what’s going to happen to the stock market.”

* Warren Buffett, chairman of Berkshire Hathaway: “We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

* John Templeton, pioneer of global investing and legendary manager of the Templeton Growth Fund: “I never ask if the market is going to go up or down next year. I know there is nobody who can tell me that.”

* Peter Lynch, the best performing mutual fund manager of all time, in his book, “One Up on Wall Street”: “Thousands of experts study overbought indicators, oversold indicators, head-and-shoulder patterns, put-call ratios, the Fed’s policy on money supply, foreign investment, the movement of the constellations through the heavens, and the moss on oak trees, and they can’t predict the markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack.”

The market has slipped off an absurd high. That doesn’t mean we’re in a recession or even headed toward one.

This isn’t a time to NOT buy, but it could be a time to be careful.

You’ll never be sure you’ve got the perfect allocation, and procrasinating probably costs more money.

Actually, Aleks has it right. The theory behind DCAing is that you mitigate risk by diversifying over time as well as over asset classes. However, since the market tends to rise over the long term, it is more likely that the cost of this reduced risk is lower returns.

There have been many academic studies that have refuted the notion that DCAing yields optimal returns. All of them show that a lump sum investment is more likely to yield higher returns. The original study can
be found at here but many other studies have confirmed the findings of the first study.

Real risk mitigation is found in appropriate asset allocation. Effective asset allocation can considerably reduce risk to a level appropriate to an individual’s risk tolerance without the need for ineffective dollar cost averaging. This of course still follows the rule that risk/reward are irrevocably linked. An asset allocation heavy in equities is inevitably higher in risk while offering greater potential returns. This is why asset allocations tend to become more conservative over time as capital preservation take precedence over capital appreciation.

As for investing in the market now, I think people should first learn more about the market and how it works. It’s always a good idea to understand what you’re investing in. And just picking an index fund to put money in doesn’t really mean you understand what the money is really invested in.

Best Wishes,
D4L

This is only one example of its application. It is very useful for going from one sector to another or for re-balancing a portfolio. You may not agree with it but since I have begun investing in a systematic, well calculated manner, my risk has gone down and my returns have gone up. I equate large hasty moves with gambling, not investing. Besides, the reason I brought it up is because it relates to market timing risk which is a main concern apparently brought up by JD’s readers.

As far as getting involved in investing, I don’t ever think that it’s a bad time to start. Analyzing the market and looking for upswings and downturns is only as excuse to put off the process for so many. A good investor has a long-term look on things, and in the long-term, regardless of where or when you start, you’re going to finish off ahead.

And in theory, the transition will happen gradually. Boomers have been starting to cycle their investments from stocks to bonds slowly over the last few years. You don’t cash in all your equities on the day you turn 65, you start adjusting your portfolio over time. And people rarely get to the point where all their money is in bonds. (Even my 89 yo grandfather holds some stocks.) Hopefully the echo boomers will start getting serious about their retirements and start investing in coming years, and start buying the boomer’s stocks.

That’s just my point of view. I’m not a big investor; I just put some excess cash into index funds when I have them, but this strategy has helped me. Before, I tried timing it, or even buying individual stocks, oh boy, I’m not doing that again!

Actually, as long as you aren’t going to need the money for at least 10 years you should pray that the market DOES CRASH! Why? All of the new purchases you make will be much cheaper, and in the end when the market recovers (which it always does eventually) then you will be happy you bought!

As for worries that the baby boomers retiring causing a crash with a massive sell off- I doubt it. If they are prudent investors:

#1 They should have moved most of their investments away from equities and into bonds or other conservative investments already.

#2 If they want to be certain they don’t outlive their $ they should only be selling off ~4%/year for living expenses.

Another point that should be touched on is that you don’t want to invest in just one area, your investments should be diversified- a certain % in stocks/mutual funds (with different amounts in small cap, large cap, foreign and domestic stocks), some in bonds, some in cash, some in real estate (i.e. RETIs). The actual percentages depend on the amount of time you have and your tolerance for risk.

Studies have shown that the difference in buying at the absolute worst time and buying at the absolute best time has very little impact on an investors average rate of return for periods longer than 20 years. What’s more, those “determinants of control” I mentioned have much more impact…

Put simply, the ideas of dollar-cost averaging, taking advantage of employer match in a 401(k), moderation, and self-awareness will take you much farther than trying to guess your entry point..

“Time IN the market” wins over “timing the market…”

Is the Dow higher or lower than it was 6 months ago? Wow, some downturn.

The idea that the market will crash because of people retiring is a myth. Stocks are held disproportionately by people with a large amount of assets. These wealthy stock owners will need to only liquidate a very small portion of their holdings (4% at most per year) to support themselves in retirement. Bonds are even more stable because they are held by retirees to generate income and who then ignore small fluctuations in the secondary market of bond prices.

The Baby Boomers are a whole generation of people who range in age from 62 to 42. Their retirements will be staggered over the next 20 years. Many of them are (and will be for a long while yet) in their prime earning and saving years as opposed to withdrawing en mass as your comment would suggest.

Finally, you must remember that Boomer retirements are not a surprise to ANYONE. This theory has been hashed out in news articles and debunked by investment professionals for years and years. What that means is the market price currently reflects any risk this hypothetical sell off may entail. Efficient Markets have long ago included this news into the price of stocks and bonds.

With a time horizon of greater than 10 years it is always best to invest in the stock market. Ignore the conspiracy theories and start buying low cost index funds right now.

JD, with as many subscribers as you have, you are not regulated as an investment adviser, and suits against you generally wouldn’t hold up because you aren’t compensated by the people acting on your advice. Thank you for not being another Suze Orman or Jim Cramer throwing out specific advice to a general population.

One of the reasons I started reading your blog was because you don’t pretend to hold The Answer for everybody. It’s important for people to understand these ideas and learn to apply them to their own life. You sincerely show us your path (even when its painful), but remind us we need to find our own. Thanks

Just worried that the money would have done better in a interest-savings account (ie. HSBC).

Any thoughts or education on this would be appreciated. =)

Warren Buffet should be trusted on this:
“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

and this as well:

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”

I think that guy has proven that he knows what he’s talking about.

Being good at investing requires a lot of knowledge and experience that most people never acquire. Jumping in-and-out with a large percentage of your portfolio is a rookie mistake. I know a lot of people who think they’re investing, but they are really gambling. And no, I am NOT a financial adviser. I am the CFO for a global company and I did stay at a Holiday Inn Express last night.