A look at investing during difficult times. Does the market always go up? And should you invest a lump sum all at once or slowly over time?
Silver Linings
Laura cut Brad’s hair for the first time and it went really well! Brad doesn’t think he will go back to getting professional hair cuts again.
MK is excited just to go pick up her grocery order from the store.
Brad’s community had an art walk. The neighborhood set up tables at the end of the driveway and displayed artwork they had made. Brad’s family set up chairs a few feet back into the driveway and neighbors could walk around and see everyone’s artwork. It was a lot of fun.
The Market Goes Up
JL Collins often writes that “the market always goes up”. Saying that yes, the market goes up and down over the short term but over the long term it always goes up.
He isn’t saying that market crashes don’t happen. He’s referencing the fact that for the buy and hold long term investor the market is just about guaranteed to rise over time. We have to think in terms of decades, not quarters.
The stock market had a wild ride in March, with the low being when the S&P 500 hitting 2,237 on March 23rd.
On March 16th, Goldman Sachs predicted that the S&P 500 would get to 2,000, which would mean a 41% fall, by the middle of the year. On March 29th, Seeking Alpha predicted that the bottom of the S&P 500 would be around 1,400.
However, the market rebounded after March 23rd and the S&P 500 is sitting at about 2,700–as of April 13th. And now Goldman Sachs has abandoned their original predictions and is saying that we’ve already seen the worst of the market downturn.
The point here is that no one knows! No one can predict the future, and if you are investing for the long term, you have to ignore these kinds of predictions and just stay the course. Invest according to your own personal plan and be in it for the long term.
Check the episode about Jonathan’s investor policy statement to learn more about getting our own investment plan. This will help you when the market is in turmoil.
Lump Sum Vs Dollar Cost Averaging
Brad realizes that his own brain interferes with his investing. He knows intellectually that investing lump sums makes sense mathematically he has a hard time doing it. Time in the market is better than timing the market.
Dollar cost averaging is putting in regular amounts of money over a set period of time. Such as, $1,000 on the 1st of every month. Brad prefers this method because then he’s “just investing constantly”. Rather than dumping all his money in at once.
Jonathan had a friend who was rolling over his 401(k) during the market downturn in March. This rollover wasn’t instant, he had to sell the securities in his 401(k) and then a period of time passed while money transferred before he was able to buy again in his new account. So he experienced a loss, since the market fell during while his money was in cash. He’s conflicted if he should buy now and just get back in asap or wait and see if the market is going to go down further.
This is a personal decision but Brad and Jonathan believe that time in the market is important.
Check out CIT for your cash savings, it is a high yield savings account that will earn you a great interest rate.
If you are ready to invest, check out M1 Finance. It’s Jonathan’s preferred robo-advisor and it’s fee free.
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