5 ms·

As someone who is graduating college in December and currently looking at starting a Roth IRA with money I saved from internships. Should I wait to invest unti

As someone who is graduating college in December and currently looking at starting a Roth IRA with money I saved from internships. Should I wait to invest until this downturn actually happens? Or does that not matter and the sooner I start investing the better? Not well versed in this subject, appreciate all advice:)

fullshark 9y ago
The basic rule of thumb is to not try to time the market. In your case I might avoid putting the money in an IRA though until you are sure you are happy at your employment post graduation. That nest egg could give you crucial flexibility in the short run if your job doesn't work out which is probably more important than starting an IRA ASAP.
eof 9y ago
Well, if you know it will go down, you shouldn't invest. In general for IRA stuff the sooner the better though.
- kspaans 9y ago
  If the money isn't going to be used for 30+ years it really, really doesn't matter if it gets invested today right before a downturn. And if it is going to be used in significantly less than 30 years it should be something other than stocks (like bonds perhaps).
  - kgwgk 9y ago
    If he buys today for 100 something he could have bought in a couple of years for 65, I’m not sure he will agree that “it really, really doesn’t matter”. Market timing is difficult and there may not be a crash but stocks are objectively expensive now and it’s hard to see how the recent performance could continue for long: https://www.gmo.com/docs/default-source/research-and-commentary/strategies/asset-allocation/the-s-p-500-just-say-no.pdf https://www.gmo.com/docs/default-source/research-and-comment...
codelitt 9y ago
Just saw this from mabbo and it's relevant: https://www.wealthsimple.com/en-ca/magazine/data-downturn https://www.wealthsimple.com/en-ca/magazine/data-downturn Pretty decent article. TL,DR if you're saving for retirement then ignore the markets and don't try to time things. The markets over time (IRA is for retirement) will always increase significantly.
plandis 9y ago
The best day to invest was yesterday. If you can't invest yesterday then today is an alright backup.
- loco5niner 9y ago
  >The best day to invest was yesterday. I like the point you are making, but how about... "The best time to invest was 20 years ago" (or similar) ;-)
sethammons 9y ago
Dollar cost averaging is your friend. You can't predict markets. Buy now, buy regularly. If the price drops, then it is "on sale" for a bit. You won't be pulling the money out for years and years to come. The biggest gains in value come in very small spurts. If you are not in the market, you will miss them.
option 9y ago
IRA is investment until your retirement. A lot will happen by then. The classical advise is to devise a simple strategy (say age in bonds, 100-age in S&P500) and stick to it, contributing regularly. When downturn or upturn comes you rebalance to stick to you strategy.
rm_-rf_slash 9y ago
Put money into your Roth IRA regardless of the market. Your annual contribution limit is likely to be $5,500 like most folks. Keep it in cash if you're worried. Just consider: if you max out your contributions over the next 40 years of your life, the most you can ever contribute to your Roth IRA is about $220,000. That's it.
acscott 9y ago
No. :) You are asking about timing the market. No one can do it, it is said. (I think it can be done, but it would be through illegal means, i.e. insider trading, which I believe happens all of the time since it's too easy to do and too hard to catch). Also, you don't have to invest in stocks. You can buy and hold on to bonds (AGG or ACWI). You might see your holdings value go way down. People sell then. It's normal psychology. It is so tough to see the dollar value of assets go down and sit on it. But if it's the best investment, you don't sell. Hold. The best investment has a holding period of forever. It will go back up--eventually. If it is a good investment and it does not go back up, money will not be very useful anyway (i.e. asteroid hits, etc.) This is why common advice is to only put money into stocks that you will not need for at least five years or more. Some people have said that some of the biggest gains in the stock market are just before it drops. You do not want to miss out on these, since that is often where the 9.5% return on stocks comes from. This is free advice and I am not licensed to advise. Oh, and good on you to start saving now. That's _your_ money that you worked for. Keep it yours. Get out a spreadsheet and run the numbers assuming different % returns and _consistent_ savings over time. You might see you can become a millionaire.
- jogjayr 9y ago
  > Some people have said that some of the biggest gains in the stock market are just before it drops. You do not want to miss out on these, since that is often where the 9.5% return on stocks comes from. This may sound like a stupid question but if you don't sell at that time (hold good investments forever etc), and you don't know that it's the peak at the time, how do you lock in those gains?
  - acscott 9y ago
    It is a good question. Locking in gains means selling. But you do not know the right time to do that unless you know something no one else does. Sell if you want less volatile returns to get a monthly income during retirement for example. Otherwise you are trying to time the market. There may be some kind of magic options strategy to lock in those gains, but it also would include taking on other risks (interest rate changes, market risk, commodities etc.) and you have to have a big bank roll to play in that game to make it worth while--and now you have another job which could be full time to manage it all... I guess to answer your question in another way, you lock in those gains by not trying to time the market, by paying the lowest commissions and fees possible. :)
refurb 9y ago
The worst thing you can do is try and time the market. You're young, think long term. If you wait, what will mostly likely happen is you'll jump in after 80% of the recovery happens. Far better to invest now, hold steady through the downturn and be in the market when it goes back up.
chocolatebunny 9y ago
If you're investing for the long term then you won't even notice the impact of the recession by the time you take out your money (if you graph out your gains over time it'll look like a small bump). If you wait, then you may wait several years for the recession to happen, several years during the recession and then several years because you're not sure if the market is recovering or if it'll drop back down again. So at the end of the day there's a good chance you'd be worse off than if you invested right away.
tzs 9y ago
There are two fundamentally different approaches to investing. 1. Pick individual investments, based on extensive research, and monitor their performance closely. Move money between investments in response to market changes. Put a lot of effort into predicting upcoming changes and investing accordingly. This can work OK, if you put in a lot of effort and keep it up. It means essentially turning investment into a second full time job. (And you are competing with people who do investment as their first full time job, and have much bigger budgets for research and much better technology that you do). 2. Take the long, broad view. This is based on the assumption that over the next few decades the economy is going to grow. There will be ups and downs, but 30 or 40 years from now when you may want to start leaving the working world and live off you investments there will have been considerable net growth compared to now. With this approach you put money in things like index mutual funds tied to broad indexes that tend to follow the economy as a whole or major sectors of the economy. Almost everyone should be going with #2, starting as early as they can afford it, and steadily investing more over the years. Do this starting from graduation, and but 5% of your paycheck every month into investments in this order: A. Any investment program sponsored by your employer where they make matching contributions. That's free money! If that doesn't use up the 5%, then... B. An IRA. (I'll leave it to others to pontificate on the Roth vs. Conventional question). If that doesn't use up the 5%, then... C. Broad index mutual funds. (Others can go into more detail on which mutual funds). Take that 5% off the top, investing it as soon as you get paid. That way you get used to living on 95% pay and you stop noticing the 5%. Can this fail? Yes, but since you are betting on the economy as a whole with approach #2 such failure over a long enough time (35+ years) would mean the economy has developed such serious problems that you probably were screwed no matter you did.

fullshark 9y ago

The basic rule of thumb is to not try to time the market. In your case I might avoid putting the money in an IRA though until you are sure you are happy at your employment post graduation. That nest egg could give you crucial flexibility in the short run if your job doesn't work out which is probably more important than starting an IRA ASAP.

eof 9y ago

Well, if you know it will go down, you shouldn't invest. In general for IRA stuff the sooner the better though.

kspaans 9y ago
If the money isn't going to be used for 30+ years it really, really doesn't matter if it gets invested today right before a downturn. And if it is going to be used in significantly less than 30 years it should be something other than stocks (like bonds perhaps).
- kgwgk 9y ago
  If he buys today for 100 something he could have bought in a couple of years for 65, I’m not sure he will agree that “it really, really doesn’t matter”. Market timing is difficult and there may not be a crash but stocks are objectively expensive now and it’s hard to see how the recent performance could continue for long: https://www.gmo.com/docs/default-source/research-and-commentary/strategies/asset-allocation/the-s-p-500-just-say-no.pdf https://www.gmo.com/docs/default-source/research-and-comment...

codelitt 9y ago

Just saw this from mabbo and it's relevant: https://www.wealthsimple.com/en-ca/magazine/data-downturn https://www.wealthsimple.com/en-ca/magazine/data-downturn Pretty decent article. TL,DR if you're saving for retirement then ignore the markets and don't try to time things. The markets over time (IRA is for retirement) will always increase significantly.

plandis 9y ago

The best day to invest was yesterday. If you can't invest yesterday then today is an alright backup.

loco5niner 9y ago
>The best day to invest was yesterday. I like the point you are making, but how about... "The best time to invest was 20 years ago" (or similar) ;-)

sethammons 9y ago

Dollar cost averaging is your friend. You can't predict markets. Buy now, buy regularly. If the price drops, then it is "on sale" for a bit. You won't be pulling the money out for years and years to come. The biggest gains in value come in very small spurts. If you are not in the market, you will miss them.

option 9y ago

IRA is investment until your retirement. A lot will happen by then. The classical advise is to devise a simple strategy (say age in bonds, 100-age in S&P500) and stick to it, contributing regularly. When downturn or upturn comes you rebalance to stick to you strategy.

rm_-rf_slash 9y ago

Put money into your Roth IRA regardless of the market. Your annual contribution limit is likely to be $5,500 like most folks. Keep it in cash if you're worried. Just consider: if you max out your contributions over the next 40 years of your life, the most you can ever contribute to your Roth IRA is about $220,000. That's it.

acscott 9y ago

No. :) You are asking about timing the market. No one can do it, it is said. (I think it can be done, but it would be through illegal means, i.e. insider trading, which I believe happens all of the time since it's too easy to do and too hard to catch). Also, you don't have to invest in stocks. You can buy and hold on to bonds (AGG or ACWI). You might see your holdings value go way down. People sell then. It's normal psychology. It is so tough to see the dollar value of assets go down and sit on it. But if it's the best investment, you don't sell. Hold. The best investment has a holding period of forever. It will go back up--eventually. If it is a good investment and it does not go back up, money will not be very useful anyway (i.e. asteroid hits, etc.) This is why common advice is to only put money into stocks that you will not need for at least five years or more. Some people have said that some of the biggest gains in the stock market are just before it drops. You do not want to miss out on these, since that is often where the 9.5% return on stocks comes from. This is free advice and I am not licensed to advise. Oh, and good on you to start saving now. That's _your_ money that you worked for. Keep it yours. Get out a spreadsheet and run the numbers assuming different % returns and _consistent_ savings over time. You might see you can become a millionaire.

jogjayr 9y ago
> Some people have said that some of the biggest gains in the stock market are just before it drops. You do not want to miss out on these, since that is often where the 9.5% return on stocks comes from. This may sound like a stupid question but if you don't sell at that time (hold good investments forever etc), and you don't know that it's the peak at the time, how do you lock in those gains?
- acscott 9y ago
  It is a good question. Locking in gains means selling. But you do not know the right time to do that unless you know something no one else does. Sell if you want less volatile returns to get a monthly income during retirement for example. Otherwise you are trying to time the market. There may be some kind of magic options strategy to lock in those gains, but it also would include taking on other risks (interest rate changes, market risk, commodities etc.) and you have to have a big bank roll to play in that game to make it worth while--and now you have another job which could be full time to manage it all... I guess to answer your question in another way, you lock in those gains by not trying to time the market, by paying the lowest commissions and fees possible. :)

refurb 9y ago

The worst thing you can do is try and time the market. You're young, think long term. If you wait, what will mostly likely happen is you'll jump in after 80% of the recovery happens. Far better to invest now, hold steady through the downturn and be in the market when it goes back up.

chocolatebunny 9y ago

If you're investing for the long term then you won't even notice the impact of the recession by the time you take out your money (if you graph out your gains over time it'll look like a small bump). If you wait, then you may wait several years for the recession to happen, several years during the recession and then several years because you're not sure if the market is recovering or if it'll drop back down again. So at the end of the day there's a good chance you'd be worse off than if you invested right away.

tzs 9y ago

There are two fundamentally different approaches to investing. 1. Pick individual investments, based on extensive research, and monitor their performance closely. Move money between investments in response to market changes. Put a lot of effort into predicting upcoming changes and investing accordingly. This can work OK, if you put in a lot of effort and keep it up. It means essentially turning investment into a second full time job. (And you are competing with people who do investment as their first full time job, and have much bigger budgets for research and much better technology that you do). 2. Take the long, broad view. This is based on the assumption that over the next few decades the economy is going to grow. There will be ups and downs, but 30 or 40 years from now when you may want to start leaving the working world and live off you investments there will have been considerable net growth compared to now. With this approach you put money in things like index mutual funds tied to broad indexes that tend to follow the economy as a whole or major sectors of the economy. Almost everyone should be going with #2, starting as early as they can afford it, and steadily investing more over the years. Do this starting from graduation, and but 5% of your paycheck every month into investments in this order: A. Any investment program sponsored by your employer where they make matching contributions. That's free money! If that doesn't use up the 5%, then... B. An IRA. (I'll leave it to others to pontificate on the Roth vs. Conventional question). If that doesn't use up the 5%, then... C. Broad index mutual funds. (Others can go into more detail on which mutual funds). Take that 5% off the top, investing it as soon as you get paid. That way you get used to living on 95% pay and you stop noticing the 5%. Can this fail? Yes, but since you are betting on the economy as a whole with approach #2 such failure over a long enough time (35+ years) would mean the economy has developed such serious problems that you probably were screwed no matter you did.