Market condition

[Neil]

Thanks for opening this board, Ben. Safe Space™… Love it.

So I’ll start the ball rolling and set an appropriately low-level question. I’ve read a number of comments here about waiting for a stock crash, etc. And people buy up more stocks ‘when the markets are down’, etc. I understand what it means, but where does one actually get that information? I mean, it can’t simply be by looking at the S&P500 since it’s only one country…

[RetireJapan]

The easiest way to do this is to buy a set monetary amount of assets every month. This is referred to as 'dollar cost averaging'. When stocks are cheap your set amount will buy more of them, when they are expensive they will buy fewer.

The best thing is that you don't have to think about valuations or try to do market timing (which is almost impossible to do predictably).

Stocks seem expensive now, but they could continue going up for years. If you sat with cash and didn't buy you'd lose out. On the other hand they could crash tomorrow.

We don't know, so dollar cost averaging gives us a workable solution.

[Roman Empire]

The thing I would add is that online securities brokerages - at least SBI Securities does - allow you to set up fund purchases not only once per month but for any time period you choose. So if you would like to buy into a low-cost fund twice a month, four times a month or just once every two months, you can set it up in that way. Some people like to invest directly after getting their semi-annual bonuses from work. The online brokerages allow you to set up extra automatic payments at those times as well. You just have to make sure you have enough money in your brokerage account at the investment date.

[Jamo]

The term "buy when markets are down" essentially means that shares are cheap, right? I.e. the market is undervalued. For example many think that the emerging market is currently much better value than the US market. There's a bunch of valuation ratios (e.g. price/earnings) that can help indicate whether a market is "up" or "down". Financial groups such as Bloomberg probably provide such market level information, but it may require payment to access (unlike individual shares).

In the current situation, as the others have said, probably the wisest thing to do is invest consistently. If the market crashes, dip into your cash saving to increase your stocks if you feel comfortable doing that. In the long-run though, it's unlikely to make much difference (unless you invest heavily during a large downturn, such as in 2008. But for that to happen you could be waiting another 20 years).

[Tony]

If you have a set allocation and re-balance every 6 months or so, when the market does crash, you would likely sell bonds and buy stocks to re-balance to your correct allocations, when stocks rise again, you would sell some of them and buy more bonds to keep your asset allocation (at least in theory).

[kanga]

Same sentiment as the other posts.
Organizations spend millions in predicting the market, yet the mostly fail vs the index.
If you see worldwide shares index, you'll find that even though there have been numerous crashes in history it always recovered.

the question is (how soon to do you need the money) this will determine the risk of your investment.
growth vs defensive assets (ie shares vs bonds)

so in essence.

invest to your level of risk tolerance.
diversify around the world (look what happened with nikkei, never recovered)
seek growth from time in market, not timing the market.
minimize costs

summarising even more (buy total world lifestyle index funds)

[adamu]

Hi Neil.

I really recommend jlcollinsnh's Stock Series of blog posts - it's a great read (although US-focused). And the first post happens to be "There’s a major market crash coming!!!!" which ties into your question perfectly.

http://jlcollinsnh.com/2012/04/15/stock ... -save-you/

[Neil]

Thanks adamu. I'll delve into it over the weekend.