When it is the time to buy stocksGood morning
Travis,
As you may know, I recently have joined the irregulars on SGS after
spending quite a while as a free visitor.
Since I am ready to constitute my portfolio now, I would like to know
if you have any suggestion regarding the right time to buy the stocks
I want?
Obviously, I don’t expect you to give me a specific date but I would
rather like your view on this time of the year?
If you have any advice or information I may have missed regarding
this, that would be really appreciated!
Thanks again for your hard work Travis!
Best regards,
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Everything depends on your personal situation, but over the long term the best time to invest has been “when you have the money”. The bias in the stock market is to the upside, so even though I consider the market to be pretty richly valued now, I can’t with a straight face claim to have any idea where it will go in the next six months.
If I had a lump sum to invest today, I would first make my allocation decisions (how much in stocks, bonds, cash, how much international vs us, etc), and then divide the lump sum up by those allocations and invest it in monthly installments over the next six months or so, just to avoid the risk of possibly investing a lump sum at a certain point in time and, if it turns out you were unlucky, hating yourself for choosing the peak of the market. We’re entering what is seasonally the weakest half of the year for stocks, but that doesn’t mean stocks will go down for five months.
If I were just starting out today and had a set amount per month to invest, I’d do the same thing — and I’d build up a base position in an index fund while I’m reading everything and trying to learn stock analysis, so that once you have some individual stock ideas you’ll have a base portfolio that you can waver from with just a portion without risking everything.
Thanks for this wise answer Travis.
I will follow your recommendation to act on a 6-month basis rather than rush at all cost.
Once again, thanks a lot for your time !
What index fund? What one would be a smart move?
Thanks
For a base stock index fund I’d always use either the S&P 500 (with SPY or similar) or the “total international” indexes (VTI), they move roughly the same, though the global markets have been a bit more volatile and have outperformed the S&P 500 by a bit over the past 10-15 years. Most of the ETF providers have both an S&P 500 and a Global market index fund, and they compete on price so the expense ratios should be extremely low.
If I were going to choose just one fund I’d definitely look into the ‘Permanent Portfolio’ fund that is based on Harry Browne’s ideas. (IIRC it has low volatility (so you’re not likely to bail at the wrong time) and a very decent longterm return of around 9 or 10 pc.)
And his ideas are well worth looking at too – a simple approach that could avoid the need to be forever checking up on your portfolio. (Its the sort of thing I’d like to use if I could escape from the precious metals miners!)
Here’s a good starting point:
http://www.harrybrowne.org/Archives/Archives.htm
(I downloaded the series and listened to the whole thing a few times a couple years back. Don’t let the dinky music at the start put you off.)
Kindest regards –
Permanent Portfolio (PRPFX) is an interesting fund, right now they’re very much set up for interest rates to stay very low or even fall further — they have a huge overweight in REITs and a large position in physical gold and silver, as well as overweights in miners and a very long-duration bond portfolio compared to their peers (ie, they have a lot more 7-10 and 20-30 year bonds than most, not much in short-term bonds, which means their bonds will fall more in value if rates rise sharply)
In that radio series Harry explained how the 25% physical gold allocation was an insurance against those rare economical climates where the other three classes (cash, bonds, equities) all suffer – but in those situations it tends to go into orbit and more than make up for losses in the other sectors. Then you do your annual rebalancing act and lather, rinse and repeat… I love the simplicity but had personal reasons that prevented me from using his approach. Great listening to his radio episodes during commutes though.