There it is … the S&P 500 is just 6 points short of record territory, despite the CV-19 pandemic.
I was chatting about the amazing rebound in the market yesterday with an old MegaCorp colleague and we were both astounded that it could jump back so quickly.
He asked what I thought about the stock market right now and what I would do in his situation. He & his wife are just retiring and he shared that about 80% of their portfolio is in cash, since they are between houses – selling one in Minnesota and building another in Florida.
Thankfully, they cashed out of the market before the CV-19 crisis took hold and plunged -35%. “I was feeling pretty smart when that happened,” he said. He resisted buying stocks at a discount when the S&P 500 was at its lowest, although he admitted to sitting on more cash than his real estate needs required.
I shared with him what I have shared here before: the market’s price/earnings ratio continues to be very high. It’s higher now than it was at the start of the pandemic, since corporate earnings have taken such a hit. It was about 25x before the pandemic, but now sits at a lofty 31x.
While the stock market has had a ‘V’ shaped recovery, there may also be some false hope out there on how quickly corporations can recover their profitability. If they can’t deliver what investors expect in Q3 & Q4 this year, I’m guessing a lot of this enthusiasm will collapse.
My advice for him – once he gets his old/new houses settled – is to buy back into the market gradually. It seems to me at this valuation, there is more risk than upside in the short-term. Buying back slowly – perhaps putting 5-10% of his cash into the market over the next 4-6 quarters – might be a nice way to ease back into the market.
What advice would you give someone with so much cash to invest right now?
MrFireStation 
Hi Mr. Firestation, I’ve switched my view on this one. What happens if the market crashes right after you complete your dollar cost averaging investments out of cash? Here is an article from Vanguard that I thought was interesting…(time in the market vs. timing the market) https://investor.vanguard.com/investing/online-trading/invest-lump-sum
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Interesting – Vanguard is certainly more of an authority on investing research than I am. I often tell people ‘don’t try to time the market’, but I guess the market’s quick rebound has me worried right now.
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I am as well but trying everything possible to keep emotions out of equation.
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The Stock series by J Collins has a great post which I think is relavent. https://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/
If you have money to invest put it in the market right away. Time in market beats timing the market. Of course there are some considerations like asset allocation and knowing what stage of wealth accumulation or preservation you are in.
I agree with dapo emotions are the hardest part of investing. My emotions have caused most of my bad investment choices and prevented me from correcting some that I have made.
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Good comment & article. I like that phrase you use: “Time in market beats timing the market.” Very well put!
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When things were starting to go down in early March I decided to let things ride, as I’m still relatively young and think about the markets as a long game. Like the markets in general, my investments fell on the order of 20% at rock bottom which would amount to between 5-10 years of retirement spending. I did make some smallish sales for tax purposes and purchased new investments with the proceeds, as well as continuing to make purchases with CG and Dividend income. Overall, we have recovered fully and are maybe 1-2% up from our pre-covid highs.
While I worry about bubbles, I think a lot of the growth we are seeing is in technology and this is getting a bump from changes in how people are working. I have a good chunk of a blue chip from a previous career with a consumer goods Mega Corp, and it has done well through Covid because people still need those consumer goods. Likewise, a lot of us have been spending our confinements looking at our portfolios and maybe even buying equities with the money we would have otherwise been spending on vacations, restaurants, and shopping.
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Like you, I didn’t sell equities through the CV19 crisis. I was able to shift $ from high-flying MegaCorp options into S&P 500 index fund when it was very low on St Patty’s Day. That traunch of $$$ is probably up 30%, with the rest pretty flat right now. Not bad work for a pandemic – it sounds like we’ve both come through pretty well!
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Dollar Cost Average. Over time, FIRE or not, we need a healthy degree of market exposure for actuarially longer lifetimes. Don’t try to time the market. It’s a suckers game, in which all but a lucky few are the suckers.
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I am a bit of a hybrid. I’ve generally DCA’d my way into purchases if I felt that the market was high and gone lump sum if the market was historically low. That way I can always be disappointed in my timing! 🙂
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I maintain a target asset allocation & adjust from there. Pivoted our of our standard 75/25 position prior to retirement a couple months ago to 60/40. Will add a point back to equities every year over the next 10 years when I’ll be back to 70/30 at 70 years old. By then SRR risk won’t be as much of an issue. I try to automate this so I’m not tempted to time the market.
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That’s a very disciplined approach! 👍🏻
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