Long-term Buy & Hold wins the day.
https://www.morningstar.com/economy/what-weve-learned-150-years-stock-market-crashes
Don’t put any money you’ll need to spend in less than 10 years (college tuition, down payment on a home, etc.) in the stock market – everything else in equities.
Glad I learned this lesson by age 32 when I got spooked by the 22.6% one day loss in 1987 during Black Monday – stayed out of the market for the next 2 years. I’m at least 25% poorer today as a result.
intercst
You say that as though it’s an immutable law, yet the Nikkei cratered in 1989 and took 30 years to get back to the same level. (Adjusted for inflation, it’s still not back.)
It’s happened multiple other times around the the world. In Rio de Janeiro in that same year, in Germany and in Japan leading up to, and/or following the 1930’s, and others.
Is it unlikely? So it would seem. Then again so is a tsunami, flood, airline crash, or electing a guy with 34 felonies on his record, so anything is possible.
No, it’s not an immutable law. Just more profitable than the market-timing alternatives that cost you in fees, commissions, trading costs and taxes.
intercst
Makes me wonder if the 529 plan (will start withdrawing in 4.5 years) needs to be ultra conservative at this point.
Yep. I’d start moving 10% per year to fixed income, 10 years before your child’s expected graduation date. So if you’re going to start withdrawing in 4.5 years and graduation is in 8.5 years, you should be about 85% stock/15% fixed income today.
intercst
Nothing is 100% safe. LTB&Y just happens to be superior to the alternatives.
intercst
Not ultraconservative, just normal conservative. The drawdown risk is greatest if it happens at the at the beginning of retirement. If you have enough to live on – Social Security, savings, dividends, etc. – without making withdrawals during the first four years you should be fine.
DB2
Some people live a scared and sad life and lose decades of compounding.
Be Optimistic. US stock market will be much higher 5,10,15 years from now and innovation will solve many problems in health, space, environment and education.
Sounds like you speak from experience.
It cost me no fees, commission, trading cost or taxes to sell my QLD holdings less than a month ago, that protected me from a 17% loss.
I can easily put in a limit order (again at no cost or taxes) to rebuy it below my sell price, and come out ahead.
It’s tough. The key thing that makes it challenging is that it’s very difficult to estimate what a college education will actually cost until your student starts getting offers from schools.
From a “rack rate” perspective, Furman was by far the most expensive school my daughter applied to. When she got her offer, after scholarships, it would have been cheaper for her than almost any of the in-state public colleges in our home state. (She elected to go to a different school…)
I’m a fan of keeping money you know you will need to spend in the next few years in more conservative assets than stocks. Indeed, my college-aged kids’ 529 plans are now virtually completely invested in CDs that mature just before the semester bills come due.
The thing is, though, that I didn’t set up those CDs until I had a sense for what I would owe and when. When the bill can vary somewhere between $0 and $100,000+ per year, it makes it difficult to plan effectively without either being way too conservative or way too aggressive.
Regards,
-Chuck
Yeah I’m trying to figure out who is still paying commissions, trading costs, or taxes (in a sheltered account, obviously.)
Just did a quick look at what I sold over the past 4 weeks, and I have $20k that I wouldn’t have if I hadn’t sold them. Oh, including commissions, trading costs and taxes it’s, uh, the same figure.
That’s not huge, but then it’s not nothing. (I looked at every transaction, there isn’t a single one that’s higher.) Commissions! Ha!
Nikkei total return since 1989 is 54% (n Yen terms). But had you presciently sold in 1989 and instead invested in Japanese treasuries, you would have a lower total return of -1.1% (in Yen terms). This example you brought of the Nikkei is yet another example of the importance of equity investing over the long-term for better real returns.
The S&P500 total return since 1989 is 1586% (in US$ terms). That’s the difference between a country that is still growing and thriving versus a country that is shrinking and is on the trajectory of effectively disappearing over the next 10 or 15 generations.
About 80% of my assets are in taxable accounts today and the 12% or so that’s still in a traditional IRA will give me tax problems at age 73 once the RMDs begin.
When I retired in 1994, the split was just about 50/50 IRA/taxable. I started withdrawing money from the IRA with a SEPP in 1996 at age 40 and left the taxable account intact. Since the IRA had my 2 biggest winners (DELL, PFE), even then I saw that RMDs would be a problem with decades of compounded growth.
I doubt I’d be in this position if I’d been trading the taxable account in and out of the market over the past 40+ years. “Skim-free” growth over 3 or 4 decades is very powerful.
intercst
Just for the record, this is not a market crash.
Yet.
The “canary in the coal mine” is the push to privatize Social Security and turn it over to Wall Street with the customary and confiscatory skim rate. They only get that bold in the late stages of the bull market.
intercst
lessee…
Dated May 16, 2005, two years before the collapse.
Steve
You can bet there are costs for retail traders, they just might not be all that transparent (shock).
There is of course bid-ask spread, payment for order flow, and how interest might be earned by you vs broker on cash.
Although I would agree with someone who might say “trading costs have come down substantially over last few decades for retail investors.”
And also your mileage may vary, an informed investor (vs less informed) can sidestep many costs, but this crowd knows that.
That, and “we don’t need no stinking regulations anymore.”
Why do we need the FDIC? Banks haven’t gone bankrupt in years.
Privatize gains, socialize losses.
There’s that Russian Roulette again. Like most religions it’s a one-way street