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That question is addressed A Random Walk Down Wall Street by Burton Malkiel (which the OP should read ASAP). If I remember correctly, he suggests figuring out a

by diego 17y ago

That question is addressed A Random Walk Down Wall Street by Burton Malkiel (which the OP should read ASAP). If I remember correctly, he suggests figuring out a decided asset allocation and then buying into it over the course of a time period (say 20 months), on the first day of each month. In this case, that would mean investing 250k per month. The idea is that if you buy a fixed amount dollars worth of whatever, you get more of it when it's down and less when it's up. The idea is to get at least the average of the market over 20 months and avoid being burned by a crash (of course, you might miss out on a market surge). By doing it in a methodical fashion you avoid the temptation of trying to time the market.

mechanical_fish 17y ago
I agree with all of this. I'll also chip in my usual recommendation: Bernstein's The Four Pillars of Investing, which will tell you everything you just heard, only in a different and slightly more recent voice. ;)
- xal 17y ago
  His newer book "Investors Manifesto" is even better and incorporates the recent recession. As always, it's brilliantly structured and easy to read. http://www.amazon.com/Investors-Manifesto-Prosperity-Armageddon-Everything/dp/0470505141/ http://www.amazon.com/Investors-Manifesto-Prosperity-Armaged...
rphlx 17y ago
Advising many people to buy on a predictable date smells like an attempt to create a profitable liquidity trade: short on the 1st, cover on the 2nd when prices return to normal demand levels. Buy on a random day, or a down day. :-)
- borism 17y ago
  250k purchase of SPY/QQQQ/any other liquid paper won't move the market a dime.
DenisM 17y ago
They also have a name for this technique - dollar cost averaging. http://en.wikipedia.org/wiki/Dollar_cost_averaging http://en.wikipedia.org/wiki/Dollar_cost_averaging
ct 17y ago
with DCA (dollar cost averaging) let's say right now you started buying at the market bottom. And so you're just averaging up in price each month you buy. In this instance it would've been better to have bought everything all at once in the beginning. Everyone seems to always hail DCA as the best investment advice ever but fail to realize it's flaws as well.
- riffer 17y ago
  It's true that one can do worse with DCA. But if stocks go up one makes money, just less. And if they go down one loses money, but less. In other words, one is more likely to get a return closer to the long term average, which is the objective.
  - ct 17y ago
    It boggles my mind that so many people are complacent with wanting a return close to the average. If the average is negative then is that a good thing? No. People think the market will always go up -- but for the limited data that the stock market has been open there's less than 100 data points (years) to say with a 98% confidence level that the market will always go up. If you've been averaging starting at the top of 2000 and putting the same amount of money in each month you'd be losing money right now 10 years later. You can say well I'm not retiring in 10 yrs and would be saving for 40 yrs. But that's 20% of the time which is a lost time opportunity of a decade.
    - Retric 17y ago
      The secret of dollar cost averaging is vary simple it let's you buy into the market at below the average price. That big dip at the start of 09 made a lot of money for any using dollar cost averaging not so much for people who where already in the market. As to average returns, investing is not going to make you rich, if you plod along for 35 years you can comfortably retire which is not a bad thing. If you want to get rich you need to do something else, on the other hand if you are rich maintaining that wealth is more valuable than significantly increasing it.
bokonist 17y ago
I really disagree with this advice. You should always pay attention to the yields when you buy any financial asset. Buying based on rules is silly. If stocks are paying 1.5% yields, and corporate bonds paying 7.5%, as they were in 2000, don't buy stocks! If stocks are paying 5.2% and long term bonds 8% like they were in 1978, go long on stocks (stock dividends will increase as nominal national income increases, usually about 5% a year, if stock prices can be a better buy even if dividends are lower than bond yields). The market is not rational, not even close. But if you are investing long term, and behave rationally yourself (buying stocks when cheap, buying bonds when stocks are expensive) you can beat the market. Right now is a really tough time to invest because both stock yields and interest rates are abnormally low. I'd probably maintain a balanced portfolio, but keep the bonds short term in hopes of a rise in interest rates in a few years.

by diego 17y ago

mechanical_fish 17y ago

I agree with all of this. I'll also chip in my usual recommendation: Bernstein's The Four Pillars of Investing, which will tell you everything you just heard, only in a different and slightly more recent voice. ;)

xal 17y ago
His newer book "Investors Manifesto" is even better and incorporates the recent recession. As always, it's brilliantly structured and easy to read. http://www.amazon.com/Investors-Manifesto-Prosperity-Armageddon-Everything/dp/0470505141/ http://www.amazon.com/Investors-Manifesto-Prosperity-Armaged...

rphlx 17y ago

Advising many people to buy on a predictable date smells like an attempt to create a profitable liquidity trade: short on the 1st, cover on the 2nd when prices return to normal demand levels. Buy on a random day, or a down day. :-)

borism 17y ago
250k purchase of SPY/QQQQ/any other liquid paper won't move the market a dime.

DenisM 17y ago

They also have a name for this technique - dollar cost averaging. http://en.wikipedia.org/wiki/Dollar_cost_averaging http://en.wikipedia.org/wiki/Dollar_cost_averaging

ct 17y ago

with DCA (dollar cost averaging) let's say right now you started buying at the market bottom. And so you're just averaging up in price each month you buy. In this instance it would've been better to have bought everything all at once in the beginning. Everyone seems to always hail DCA as the best investment advice ever but fail to realize it's flaws as well.

riffer 17y ago
It's true that one can do worse with DCA. But if stocks go up one makes money, just less. And if they go down one loses money, but less. In other words, one is more likely to get a return closer to the long term average, which is the objective.
- ct 17y ago
  It boggles my mind that so many people are complacent with wanting a return close to the average. If the average is negative then is that a good thing? No. People think the market will always go up -- but for the limited data that the stock market has been open there's less than 100 data points (years) to say with a 98% confidence level that the market will always go up. If you've been averaging starting at the top of 2000 and putting the same amount of money in each month you'd be losing money right now 10 years later. You can say well I'm not retiring in 10 yrs and would be saving for 40 yrs. But that's 20% of the time which is a lost time opportunity of a decade.
  - Retric 17y ago
    The secret of dollar cost averaging is vary simple it let's you buy into the market at below the average price. That big dip at the start of 09 made a lot of money for any using dollar cost averaging not so much for people who where already in the market. As to average returns, investing is not going to make you rich, if you plod along for 35 years you can comfortably retire which is not a bad thing. If you want to get rich you need to do something else, on the other hand if you are rich maintaining that wealth is more valuable than significantly increasing it.

bokonist 17y ago

I really disagree with this advice. You should always pay attention to the yields when you buy any financial asset. Buying based on rules is silly. If stocks are paying 1.5% yields, and corporate bonds paying 7.5%, as they were in 2000, don't buy stocks! If stocks are paying 5.2% and long term bonds 8% like they were in 1978, go long on stocks (stock dividends will increase as nominal national income increases, usually about 5% a year, if stock prices can be a better buy even if dividends are lower than bond yields). The market is not rational, not even close. But if you are investing long term, and behave rationally yourself (buying stocks when cheap, buying bonds when stocks are expensive) you can beat the market. Right now is a really tough time to invest because both stock yields and interest rates are abnormally low. I'd probably maintain a balanced portfolio, but keep the bonds short term in hopes of a rise in interest rates in a few years.