Hi everyone,

I just received a large amount of money that represents 33% of my net worth.

Investing isn't my thing, so I am probably just going to invest in various funds (I live in Canada) in a tax sheltered retirement account.

Taking in account the relatively large amount of money, and apparently the risk of a recession coming, I am hesitating. And I'm curious of the impact a market drop in the first years of my investing that amount in one go can have.

So I am also considering just buying guaranteed certificates for the next 12 to 24months (2% return or less)... And buying my funds later.

Am I wrong to trying to time the market?

Yes.

The printing press keeps rolling. Anytime you hold on to cash you are losing your ass.

https://en.wikipedia.org/wiki/Dollar_cost_averaging

Posts like this worry me about the general populations thought about money/ investing. Just do some research.... YouTube is great resource about invest/ different strategies/ retirement accts etc.

I wouldn’t try to time the market. Hedge fund managers that invest for the ultra wealthy can’t time the market perfect so why could any average joe do it unless by immense luck? If you are worried, I would just invest in either mutual funds / ETFs (would lean etf) and maybe include a utility or consumer staple etf and less small cap.

Investing wise, maybe it’s best to take the money you have received and invest in over the next 2-4 years if you are worried that much about a downturn. example say you received 100k. Maybe put 20k in the market and then invest remaining 80k over next 12-36 months as to have the ability to purchase cheaper if we do go through a recession.

While I agree the market seems long overdue for a recession, you can lose out on a lot of potential gains if you avoid the market and invest in safe assets that don’t even beat inflation.

a friend and I were recently talking about the big indices making ath after ath with all this FUD going around and he sent me this:



Now there are obviously tons of **** to talk about in this one chart (his text and timeframe being cherrypicked, yada yada), but it was just funny for me to today looking at it (being zoomed as a trader looking for shorter term opportunities) and almost forgetting about the big picture. You can argue that the capital markets today are fundamentally flawed, but the economy and business in general is just going to continue to get better and better and more efficient as time goes on.

Me posting here is part of my research.

Yes it is.

Noted.

ETFs are and have been my preferred vehicle, but they don't insulate from the risk of a crash, not to mention a possible ETF bubble (which granted I have no idea if its real or not, nor will I probably ever develop the skill to one day be capable of such analysis).

Thanks for this. Seems like the way to go taking in account my pessimistic tendencies.

That 2008 drop is scary lol. And I'm just paranoid about the idea of starting a long term investment (20 - 25 years) with a drop of a large % in the first 2 or 3 years.

Graph is kind of silly. You can pretty much wipe out all of the 80s because the world went from 17% interest rates (and an average company P/E of 5) down to 5% interest rates. That's not repeatable from here.

Where do interest rates go from here to support another long expansion off ultra-cheap lows like that?

A major fed paper out recently said that productivity gains are nearly non-existent in the economy. So I disagree that things are getting more efficient. If you take out the debt and money printing putting its foot on the accelerator, where is the economy, really? Even Munger yesterday bashed US companies, saying Chinese businesses are more robust than US businesses. Charlie Munger, the queen of US stock investing.

When I said there was lots of **** to talk about, I was alluding to it being a silly chart.

But, I guess like the chart, you can't really extrapolate much from the past to predict the future. I'm sure in 1980 if someone told you in 2020 P/E ratios would be astronomically high and interest rates at all time lows and trending down you might scratch your head and tell yourself that would be very very very unlikely. My assumption is its all due to information flow. We hit a singularity (although imo, and this is offtopic, one could argue every "moment" is a singularity).



Human innovation has always seemed to stem from the want to be comfortable. Are you speaking to productivity on an individual basis? I think there is a ways to go until every human is as comfortable as they want to be and the "economy" (businesses? I don't know what you want me to say here) will produce until that happens. Not to mention the ones that are comfortable now, and will always want more.

In terms of how I think the growth specifically sustains itself with all things moving around in the background and continuing to move in the background, is well, a question for the ages.

I'm not a fan of market timing, but this isn't true at all.

OP,
You have an extremely valid data-based concern. Here are 20 year returns vs P/E:



This seems a lot more useful/relevant than the S&P 500 graph. Anything over about 17 or so is a big fat "yikes" for a buy. Anything over 22 is a guaranteed 20 year loss (inflation adjusted) in all the data so far. Guaranteed! The bulk of 20+ is negative 20 year real return.

The only possible reason you'd have to throw out this data hoard and buy anyway is because you think the S&P will permanently be at these ratios and yet keep growing (i.e. that the market will never dip again and P/Es never contract). That's a possibility, but how big a possibility? Another data point is that recessions happen reliably and that stocks get a lot cheaper when they do.

The above is like an expectation graph of starting hands. Buying at P/E of 22 is the 96s of starting hands. The only reason you'd play is because you believe there will never be another good starting hand dealt to you.
Or following the data?

So what do you suggest he do? Wait for the coronavirus or some other catalyst to slaughter the S&P down to a P/E of 17? That would require over a 30% drop in the S&P, which given how the Fed operates in the current paradigm, may have him on the sidelines for decades. Are you suggesting he put it in t-bills collecting a nominal 2.0% and just wait?

Let's say the investment you want will drop 20% in year 4, but goes up 12% in each of the 3 years preceding that. Where are you if a) you hold cash until after the drop and then buy, or b) you buy now?

I tried to time the market when I started investing recently, cost me 15%. Looking back now I should of just set a 5% stop loss or something like that. S P 500 was at 2900 at the time, there are so many articles that will freak out new investors if you pay attention to it. Why not just go for it and set a limit for losses?

Yeah I've been cautious on this market since at least 2700 or so. Missing out doesn't really say much. People who didn't buy in 1999 lost out on 30% or something ridiculous. Of course, they also killed it when they had cash to get Amazon at a 93% discount two years later, owning 14x more of the stock than they could have at the highs. That's the difference between doing ok and filthy rich.

Tooth, in your past posts you've seemed to be pretty optimistic about human ingenuity and innovation going forward over the next 20 years. Machine learning, gene editing, self driving cars, cheap energy extraction etc. You don't think that transitions to the market and prosperity overall? US political climate being a shitshow not withstanding.

Also, think low rate/QE environment is here to stay as the developing world continues to "Japanificate"

And that's not me saying I don't think the market has major concerns either. It has probably never diverged this much from the overall economy before.

We're entering the best of times for insane returns, we're <20 years away from making easily clonable intelligent workers. But we're not quite there yet.

If China didn't exist the US would be growing at 4%/year and would have been for the last 20 years (and no GFC) and S&P 500 companies would own world trade, banking on their far superior knowhow, and I'd recommend shove long. Instead the US has got a massive parasite sucking over a trillion in wealth per year out of US companies and deliberately targeting US vitality. Debt has been covering that loss but won't forever. And as China gets more powerful and competent that will get worse; US companies (after sharing their technology and knowhow and capital) will get muscled out of the Chinese market with their sham public/private partnerships going "all public".

So there are risks that weren't there before. US as the sole economic superpower is close to over and you have another growing powerful economy deliberately waging economic war to weaken the US economy. That means 1950+ last man standing superpower returns are not as certain any more either.

What's scary is nobody ITT has asked this person how old they are and what they plan to do in the near/distant future, risk tolerance, etc

It is not so much our capital markets that are flawed as it is our system(s) of currency.

That being said, the equities markets do (currently) pretty much operate on the greater fool theory. So no, I would not invest a large chunk of money at all time highs. Given the environment.

Someone earlier said something like, cash is trash. And yes, I would also not pursue a long term plan, say 10 years of just holding cash. But there is nothing wrong with being patient and having dry powder. These are completely different.

Here is where I would start (in no particular order):
Asset Classes
Gold & other PMs
BTC and little to none of the other cryptos
Real Estate
Bonds
Equities
Private Equity / VC

Personally, I would minimize / eliminate bonds, paper, etc. But if you have a need for something like duration matching, liquidity etc, fine.

I would be sure to have exposure to some of the others. Weighting is up to you / for debate. But two starting places are Taleb's barbell strategy (80-low risk / 20-high risk) and Faber's 25 / 25 / 25 / 25.

If you are smart and know what you are doing you will get the best returns w/ Angel / VC / Private equity approach. But this will require your time.

Btw, so long as we have central banking and not a crazy inflation problem, you won't really *** up with buy and hold. But you may be leaving cash on the table, opportunity cost, etc.

Youd have made something like 50% if you bought and held the SnP from Dec 2018 until today. But that would have meant that you entered right after a multi month 25% correction. And really, you don't make anything unless you sell. So you would have to exit too...

Does this mean generally speaking US stock's P/E are way to high for long term positive returns? Therefore that I shouldn't put my money in US indexes, and instead handpick a selection of (diversified) stocks with better P/E?

Or do you recommend not putting any money in stocks at this time, in which case I'd be curious to know where you are putting your money in while you wait for a US correction.

I'm also curious as to why this theory of indexes not being a good long term investment is nowhere to be found in general personal finance literature / videos etc. Everyone and their mother is telling me to invest in index funds.

Brass, I'd be curious to know what you suggest.

Thanks. I need to think about this.

Money will be parked for 20 years, to be used for retirement (or generate interests / dividends for retirement).

To me it looks like you should be in cash. All prior data shows market has expected negative real return over the next 20 years.

I'm perfectly fine in cash. The best spot (for me) to park money is Australian bank stocks, they pay out a reliable 8% dividend (tax prepaid), and the dividend is so reliable they paid it through the entire GFC. They're priced reasonably as dividend factories (10-13 P/E). The AUD is near historical lows versus the USD. But that's probably not up your alley, you just asked where I'd park my money, 8% rock solid dividend that survives financial crises is where I personally park it. Oh and totally liquid, you can sell out any time unlike the higher return CDs.

The same reason most received wisdom is generally right but wrong in special circumstances. P/E of 12? You're a moron for timing the market. P/E of 15? Yup, still a moron. P/E of 23? You're probably a moron for being in the market. But these high P/Es are so rare (compared to stock history) that they don't make it into received wisdom.

Data is data. It's right there in the graph above. I don't think it's a good idea to play starting hands guaranteed to lose money. Your mileage may vary, but if we're believing the data, you're gonna have a bad time on a 20 year time frame buying now. Are you gonna hit the one (as yet non-existent) outlier year buying now at 3370 SPY where it's not only not highly negative, not mildly negative like every single other data point ever recorded, but is instead not only slightly positive but at least moderately positive? That's a brave bet.

If all we care about is P/E then it's probably worth noting that the P/E for non-US stock indices is ~15 right now

https://www.youtube.com/watch?v=w_aOERmUWdA

A great video on this topic, and the creator even addresses OP's exact situation.

Cliffs
-there is a relationship between valuations and future returns, but
-stocks can be over or undervalued for decades at a time
-there is always uncertainty, and market timing doesn't work

Such an incredibly dumb video. It basically goes like this:

1. Yes, there is a very strong inverse relationship between P/E and market returns
2. But that doesn't mean you should market time!
3. Because look at all these very weak relationships!
4. Give us your money

It was like being fish-slapped with stupid. Might I remind you they're a capital firm trying to get scared investors to give them their money ,so they can take that investor for fees?

100 years of data shows - with no exceptions - that you lose money on a 20 year time frame (OP's time horizon) when you buy in at a P/E above 23.