What i really like in your videos is the fact that you document them with strong academics studies. Which gives much more value than the usual blablabla of the many FIRE youtubers.
My sure-fire recipe for market timing that only works for *others* is for them to invest approximately two weeks after I invest a considerable lump sum.
As long as you sale after two weeks and I can benefit. From buying 10% lower than you bought . But the problem my purchase will perpetuate the down trend.
I tried timing the market in late 2017-2018. I was right. Prices were high and a drop was due. It dropped a lot. I didn't get back in. I missed out on most of 2019 and I lost more potential returns than I saved on my losses. I'll never do that again.
"I'll never do that again" - well, never forget to reinvest once the skies start clearing and the sun comes out again. The WRONG deduction is to "never do that (whole thing) again". Correct what needs correcting. No more, no less.
I only discovered this channel a week ago Ben and your videos have been another tool to help me understand the financial markets further. It's great that you quote a lot of studies and research, something I feel others don't do. Good luck with everything!
In addition I would like sources not only being mentioned but a reference in the video description. This would allow curious follower to educate themselves further. On that note: What is the source of the graph sown at 5:19 min (ruclips.net/video/w_aOERmUWdA/видео.html)? I'm not able to read the notes below it. (bare with me, not a native english speaker) Thank you!
These videos are gold , I have started my index investing journey around a year ago . (UK investor) I found myself sitting on the fence due to current fears that the market is to high. I have cash sitting and I am waiting for a dip but as you have pointed out I’m just timing the market. This video has definitely helped me revaluate my behaviour towards to whole idea of index investing. Another well thought out and professional video, keep up the good work
I have been investing in index funds for a couple of years with a fixed monthly sum. However, sometimes after the markets drop, I have invested some additional cash that had piled up. This worked well in December 2018, but less so after smaller drops during the summer of 2018. This spring I increased my monthly investment to avoid building up extra cash and then needing to think about the timing.
David, which index funds do you invest in? Also, is there a reason why you invest the full £20k in index funds instead of investing £16k in index funds and £4k in a Lifetime ISA? Anyone from the UK is free to share their opinion on the second question
@@undercovermc Hi there! I like to be globally diversified, plus I'm young, so no bonds. I put it all in Vanguard global all cap accumulation. I do actually have a LISA too, just didn't mention that. I do the 4k/16k split as you mentioned. Extra money goes into Revolut for single stock "bets" and my SIPP is in Vanguard S&P 500 index.
These videos are gold , I have started my index investing journey around a year ago . (UK investor) I found myself sitting on the fence due to current fears that the market is to high. I have cash sitting and I am waiting for a dip but as you have pointed out I’m just timing the market. This video has definitely helped me revaluate my behaviour towards to whole idea of index investing. Another well thought out and professional video, keep up the good work 👍
I timed the Market on March because I have tons of cash lying on side lines. Bought Index funds and glad I did. I will stay in the market until I get may target total amount for my retirement. Thank you for this video 🙂
You are quite lucky. It's usually hard to have such a moment when you have cash and the market crashes. I have now quite some cash but the market is at its peak :/
I'm fine with DCA. At the beginning of the month, I invest. That's the plan. I chose the funds I want to be in and I don't pull out. Like your research shows, 1/3 of the time lump sum doesn't work and can be painful. I see how it can be considered market timing, but I'm more comfortable going slow. Thanks for the video :-)
Ben, I'm not surprised by the growth of this channel. Consistently high quality content and thought-provoking ideas. For example, most consider dollar-cost averaging an "orthodox" position. Today's video offers alternative considerations. "Confirmation Bias" reminds us of Charles Munger's The Psychology of Human Misjudgment talk he gave years ago (text and helpful summaries available online).
Hi Ben, I’m not Canadian or even on the same continent, but after discovering your channel a week ago, you became my go to binge channel. Your videos are to the point, and your channel name couldn’t have been better chosen. I’m DIY investor, and many things you say are things that I follow, but you widen your audience’s perspective, add data and research, and put simple words on simple concepts, that are too often filled with jargon to refrain the common man to understand the concepts. And all in one single channel. Trying to explain these concepts to friends to friends and family is often quite hard for me, and linking your videos on specific topics is a great tool for financial understanding. Thanks a lot for what you do, and I look forward to your next videos!
Well For Goodness sake, did you make this video for me!?!?!? This is great information and just what I needed to hear. Not surprising that the company I WAS using promotes dollar cost averaging as a good strategy. Everyone should to watch your videos regardless of what stage of investing they're at. Thank you again for another very educational video!
Thanks. Dollar cost averaging is very popularly knows as SIP (systematic investment plan) in India. I think the key justification behind it would be the fact that most individuals earning or cash flow is monthly like Salary. This instills very good financial discipline like setting aside some good %age to be invested into the SIPs like Index Funds/MFs montly.
The last few months I was so caught up on all of this talk about market crashes, I totally forgot about how crucial buying consistently. So I ended up putting all of my portfolio cash that I had on reserve into the DOW. Thank God for Benjamin Graham and Ben Felix for their knowledge.
This is easily Ben’s best video. Every investor should see and understand what is shown here. Yet I could only grasp this video after watching maybe 40-50 other videos of Ben. Thank you so much again Ben
It is really hard to change long-held biases and rationalizations. This series of discussions is very helpful. I have heard so many of these mantras and viewpoints before, but I seem to have a very thick skull and just will not change my bad habits. I appreciate this approach to showing us how our best inclinations can still be counterproductive.
It's like your videos are talking directly to me. Get out of my head! Haha. Thanks for the rational investment advice to keep me on the correct path. For far too long I thought if I followed the markets religiously, I be able to pick individual stocks that will beat the market. What I've found out is I tend to win less and lose more based on my investment style; high beta, low alpha. From now on I'm changing my ways. The bulk of my profolio will be broad-based ETFs, along with a mix of bonds. No more trying to hunt for the next Amazon or Facebook. Thanks again for your level-headed advice.
Great video as always Ben. I finally decided to invest in index funds (as a Canadian no less :P ) and that was in large part to your great insight and advice.
Hi Ben, I actually sent you this exact question a couple of weeks ago through Linkedin. I never replied back because I wanted to put my money where my mouth is before saying anything. I have been "timing the market" by leaving all of my assets divided between TDB aggregate bond ETF and cash. Now I have invested the cash portion of my portfolio in XAW+VCN ETFs to produce a balanced portfolio. I aim to achieve an assertive portfolio quite soon and so on. Thank you so much for making this video. Part of me feels like it was made just for me even though, as you pointed out, you get this question quite often! Let's fill up those TFSAs and RRSP accounts!!! :)
Watching this in May 2020, while sitting on a significant amount of cash and observing the recovery of the market after the Corona low in March, just two months ago. While statistics and mathematics are one thing, psychology is a completely different issue. I catch myself thinking: Have we seen the Corona lows already? Was that it? Or will there be still much better opportunities in the next 12 or 24 months? If I go in now, will I regret that in the near future? It is really difficult, but I will watch this video again and again...
Hi Ben, great video! I'm not sure all market timing is bad. Is rebalancing not a form of market timing? Example: rebalancing on a set asset allocation for a client retirement portfolio of 80% stocks, 20% bonds. There is a great year of growth in the stock market bringing them to 85% stocks and 15% bonds. Then selling 5% equity to purchase 5% bonds. Selling when high and buying when low. If there is a big down year in stocks, do the reverse. I know Vanguard rebalances by asset allocation between international versus domestic, large cap, mid cap, small cap, and rebalances if there are major market move. They have research that this adds an additional value to the gains of the market (ideally done in retirement accounts to avoid taxation). Love to get your thoughts on rebalancing or a video (just in case you need more ideas).
This is a good question, James. I don't think of rebalancing as market timing. I think of it as maintaining appropriate risk exposures. Rebalancing is not carried out based on anything other than the portfolio being of target from its investment policy statement. Market timing would be delaying rebalancing based on expectations for an asset class to continue its rise.
Even beyond guessing right, the other problem with market timing is opportunity cost. If you are not in the market where are you? Every one of your timing trades may work in isolation (buy low and sell high) but if your money is just sitting around in banks or bonds when you are out of the market, you need to hit a lot of home runs to overcome the opportunity cost of waiting for the trades that work out.
This is literally the best advice any investor can get but many ignore. I know many people who should have heeded this advice but do not because they believe against all odds they can beat the market more than 50% of the time.
Hi Ben, though I consider myself a trader rather than an investor, I have found your channel to be an absolute gold mine of great information for people looking to begin investing. I often share these videos with friends and colleagues to stop them attempting to time the markets and pick stocks. Usually I try to convince them to paper trade their stock picks, and put the real money into the S&P500, or our local market index here in South-Africa if they are feeling more patriotic. This year has been especially good for the S&P, with most of my colleagues averaging < 8% in their stock picks, but gaining twice that in their holdings on the S&P500 index. Anecdotal evidence, sure, but still. Keep up the good work!
As someone that is starting to invest I am quite obsessed with when to get in and out of market, that is why i'm trying to get the more information i can. Thanks for this video.
You're videos are the best. I really love your advise. I think you're right about market timing, but for some reason I just can't get myself to invest in this soaring market. Everything just feels overpriced due to speculation. But I see in your previous comments that people have been saying this since 2013 and they would have been out of a terrific market since then. You caught me, I was saying a few years ago when I finally paid off my student loans and had surplus income for the first time. I thought in 2015 that the market was too high and didn't invest because of it, my loss. Not sure how I can fix my psychology to take the risk since i felt then and still feel it's way too high... I'm not trying to time the market at the lowest price, but rather I am just not trying to get in at the highest price either.
I had a lump sum and invested in Boeing and Southwest in Feb 2020 since they were down and Boeing was supposed to come back from the 737 MAX failure... Then the next week COVID shut everything down and my portfolio balance looked like I hadn't even invested anything. LOL So looking back, yeah I could have waited.. but hindsight is 20/20 and there's no way I could have known. That event made me so mad, but I'll never try to time the market. It is what it is, and all of my other lump sums have performed really well, so I have nothing to be mad about.
Thank you, very informative. The issue that I have is that most of the growth stock market have been driven by deficit spending. If you graph stock price and government deficit spending they look the very correlated. But eventually that game comes to an end when governments can not borrow, print money. Also government unfunded liabilities are far more than even the debt. So, until that time comes, I do know that every 6 to 10 years we have a correction. So the time to buy will be as the market is dropping. Warren Buffet is sitting on a heavy cash position right now waiting for this. I have down the same since historically a PE ratio greater than 30 is never sustained.
government spending has increased under every president now, it could well increase for another 10 years until borrowers send the US$ to a downward spiral, and by then the stock market will have doubled. PE ratios do often come down because companies grow and increase earnings, not because prices shrink. Prices are supposed to reflect expectations, not current earnings. You assume wrong expectations, i.e. market inefficiency when you think that stock prices are 'high'. Markets have corrected already in 2015 and 2018, no need to wait 6 years.
This is a fantastic channel, Ben! Your videos are concise and illuminating, backed by solid research. You have a permanent subscriber for your channel and I'm going to start listening to your podcast as well. If I may, here are some suggestions for topics for you to consider covering: Emergency funds (How much? in Stocks/Bonds/GICs/Savings/Cash?) ETFs vs. mutual funds for the same index (which one is better? does it matter?) REITs (Are REITs anti-correlated with the stock market? Does it make sense to overweight them to reduce risk?) Stock-bond correlation (Have stocks and bonds always been negatively correlated as is "common wisdom"? If yes, is there a reason it should be so?) If a Canadian living in Canada were able to open a taxable brokerage account in the US, would you recommend doing that? (potentially because of lower fees? better tax treatment?) Stock buybacks (since this has been in the news lately, what does it mean and how does it compare to paying out dividends?) Employer stock purchase plans (should you participate? it sounds like a slam dunk to me: just buy discounted shares and sell them ASAP) Does it make sense for Canadians to have more US equities than the rest of the world, even though the US is only 50% of the world's market cap? Finally, if you're comfortable with it, you could do a video on your personal asset allocation including investments, emergency funds, real estate you own, etc. I think it would help viewers to see how a professional implements their own advice in their life.
Hi Ben, could you make a video of deeper analysis cap weighted vs equal weighted etfs? There is not so much data on the internet about it. The oldest equal weighted etf I found started 2003 and outperformed the cap weighted s&p 500 . It would be interesting to know how it would behave in longer periods and different markets. Thank you
Market cap weighted funds are concentrated in large cap and growth stocks. Because an equal weight fund weights every stock equally, it will have a tilt towards small cap and value stocks compared to a cap weighted fund. This gives it some exposure to the small cap and value factors, which come with risks and rewards independent of the market as a whole. If you'd like to know more, Ben Felix has a bunch of videos about factors.
@@ricklenegan2294 Buffett would probably say he's not worried about timing and that he just looks for good businesses that yield solid long term profits. I don't think he tries to figure out whether a stock will go up or down next week, he just looks at it and if he likes it at the current price he buys it.
I did some market timing just recently when the us lifted steel tariffs. I heard on the Wednesday that they were in talks to lift them. I bought stlc and made a 22% return in three days then sold. A while ago I bought air Canada and made 50% in a few weeks. I also bought home capital group when they dropped and almost doubled my money before selling. The market presents opportunities every now and then and when you have cash you can take advantage. The vast majority of my portfolio is in index funds though. I just keep a bit of cash to play with. I’ve gained a good chunk with timing the market. Haven’t lost money yet. But I don’t try to do it every day or with a big chunk of my portfolio
When comparing market timing, there is often the assumption that we're comparing waiting for the perfect time vs. continual investing over time. My objection to this would be in a case where someone has built up substantial savings without having considered investing and is now looking to invest a large amount. In this scenario the time prior to the intent to invest shouldn't be considered part of the calculation, but as unrecoverable sunk cost (you can't count the gains for this period against them because they weren't waiting during this period, they simply hadn't considered investing at all). Advising them to dump it all in the market right now could have far larger implications for their returns. E.g. dumping in money just before 2008 could have resulted in 5-10 years just to get back where you started, dumping the same money in 2009 undeniably would have been much more profitable. This is of course with hindsight, but the point is that the money input in this case is not spread over time, so there is more volatility for the result of your single large input. Perhaps such people should be advised to invest 1/10th or 1/20th of their large sum now, and to continue regularly. I see, you get around to discussing dollar cost averaging. You say a pretty key phrase there though, "on average." The problem with appealing to averages for this is that the average return doesn't say much about my return. And yes, doing better 2/3rds of the time does sound better than 50:50, but not by much. What I want to know is (at a minimum) the standard deviation for lump sum investing vs. dollar cost averaging. I'm pretty sure the Vanguard study showed that dollar cost averaging incurred lower losses in a down market and that the while the gains for lump sum were higher 2/3rd of the time, the actual difference in gains was quite small, like 2.3% after a 10 year period. My impression is that it's about one's risk tolerance. Lump sum carries greater risk. More likely to gain and to higher gains, but also has higher losses when it loses.
Good video. As a seasoned investor, on the cusp of making my first RMD, I can just say that making a plan and sticking with it, is the best plan. I have enough in cash for my living expenses for several years. I didn't market time in 2001 or 2008 and all worked out fine. I'm a low spender too. Family trait. :)
Dear Ben, I would like to make a question: Let's suppose you leave your money always in, without any strategy "to time" the stock market, then how you will try to minimize the drawdown from big crashes?
I was a student and had a rather large portion of money in the market this last year, I saw all the red flags of supply chain problems, decreased work due to covid and saw the writing on the wall that we were about to go home and not come back. So I sold 20% of my portfolio. The market had its large drops over the next week. I didn’t wait though. I knew I had got lucky so I immediately started buying back in as I knew it was lower priced and I was in it for the long run. I bought back in small amounts at a time and it’s resulted in me almost having a 70% roi in 2020.
Ben, I've been watching a few weeks now and the impression you've left on me is that investers are a lot dumber than they think they are and they operate under the illusion of knowledge. Mea Culpa.
I have come to the conclusion that if you remain a dumb investor you will achieve gains superior to when you get smart . Doing online stock analysis signals the provider of the interface in which you are using your investment strategy. The manipulators are in the business of providing the retail trader all the bells an whistle so they can monitor your impending failure. If you follow the advise offered in publication like money magazine or USAToday newspaper the manipulators will let you slide . Once you get sophisticated and open a margin account you become a gambler ripe for plucking
Hello Ben, thanks for your channel, it's really helping. I have read a recent paper (2017) wrote by Robert Shiller for Barclays named "The many colours of CAPE". It highlights the usefulness of using CAPE ratio to predict sectorial or even basket of single stocks performance relative to an index. Have you read this paper? and if so, what are your thoughts on implementing such strategies for a DIY investor? Also, with the data you presented, isn't it logical to just stay fully invested but to tilt the portfolio toward any region that has a smaller CAPE ratio?
great videos, Ben! I would have never imagined there's so much research on the topic, although on hindsight it seems kinda obvious there would be. I just discovered your channel and I've learned a lot!
Ben, i have a question about automatic investing and I tried to find a video of yours on it, but couldn't find it. So i use auto-investing through Vanguard and automatically investment into a few funds of theirs. I know that lump sums win out of the longer time frames, but this is not a question of lump sum vs DCA. All i want to know is what is the best time period to choose for DCA? Is monthly better than weekly? or bi-monthly? *Assuming the transactions are free. Is there an optimal setting for automatic investments? Mine are set weekly. Couldn't find a good answer on Google so i am taking it to the Investment Guru of RUclips. Is there a best day of week to invest?lol Best day of month? i guess i will stick with the weekly purch schedule for now. Now that i think about this, i think that you should dump as much as you can in depending on your paychecks and your projected costs and set the frequency based on that. So probably, a 2 week interval would work and get the most in at the earliest time. If lump sums win out long term, then i am using that information to figure this out. Did i just figure this one out myself?
I assume it is best to be invested. You should invest all your spare money immediately except for your financial reserve. Regarding the DCA period - it depends on how frequently you get your spare money. So you are right with the second part of your post. :-)
I invested consistently throughout the pandemic and post pandemic and didn’t look at what the market was doing even if I felt a shiver at times that I should hold off. I’m glad I didn’t fear and kept going in a consistent way
About DCA, the video only says that lump sum investing gives you more money in most cases. It doesn't go into best or worst case scenarios of the two methods or the probabilities of those scenarios. DCA may be suboptimal when looking at a thousand investors, but for you personally it eliminates the risk of investing all the money a day before the market crash. At the cost of just some theoretical optimality, I'd take that insurance every day.
To some degree, "timing the market" by being hesitant to buy when stuff is expensive or sell when it is cheap is just mitigating the normal human tendency to sell any time you have incurred losses and to buy more of what you have made money on. You don't want to do either too much.
Thx for video. Please prove me wrong, so I can avoid the stupid move. What ab sell PUT option. Or more advance, sell one at the money put and one at the money call and buy one unit (100) stock as a combo to limit down and up potential?
Hey, Ben. Great content. Yours is the best investing channel on youtube. What about other asset classes? There is some substantial evidence that market timing with trend following rules works for a diversified portfolio of commodities futures.
I would never try to time the market with Index/ETFs. It makes little sense. Since I am still young, the only time I sell Index funds/ETFs, is when I rebalance my portfolio allocation (due to age) or I sell once a cheaper fund becomes available. - Was investing in a JP Morgan fund at 2.53% expense ratio - only option. My portfolio allowed for a Vanguard fund at around 1% - I sold as quickly as I could and am enjoying better average results!
Really insightful. Thanks Ben for preparing this video. An interesting paper about this topic is the one by Barber and Odean “Trading is hazardous to your wealth”. The takeaway is basically don’t let overconfidence caught you. You can beat the market for a while by mere chance, but that won’t last and overconfidence will lead you to over trade and perform badly in the long term. As for how to use the predictive power of the CAPE with the fact that trading is bad, I find a good alternative is to rebalance the portfolio, say, annually. For instance, if you have 80/20 equities/bonds and equities do perform well so your portfolio is 85/15, sell this 5 and buy bonds. What do you think about this? Which other ways to incorporate the CAPE predictive power (and its weaknesses) do you know?
The only way that I use CAPE in practice is for developing financial planning assumptions, which inform spending and saving decisions. If CAPE is high, expected future returns are lower. On the Portfolio management side I do not use CAPE. The AQR paper that I mentioned recommended delaying rebalancing trades to capture momentum. I thought that was interesting.
@@BenFelixCSI I appreciate your answer. So what I get is 1) don't modify your portfolio according to CAPE, and 2) use CAPE only to adjust your "expected return" (for example 6% long run +/- how over/undervalued is the market) when planning your wealth/retirement goals. Thanks!
What about, not so much Market timing, but life stage timing. By that I mean buying/selling in the 2 to 3 yrs before retirement. A lot of people including myself are in this position where we will retire in the next 36 to 48 months---all of us now riding this amazing equity wave of record profits. Is it 'timing' to think maybe we should take some--a lot of the gains off the table and put money in lest volatile investments like government bonds etc. Most of us in this position lived through the disaster of 2008.
Thank you so much for these excellent videos, Ben! They've been really helpful. I'm about to inherit quite a bit of cash and this video was just what I needed to see right now.
What I'd love to know is whether market timing works in property markets. Property is a far less efficient market, and participants will act "irrationally" because they will treat the asset as a consumption good first and a financial asset second. It's also heavily influenced by demographic factors which can be reliably forecast. I'm particularly interested in this because various institutions are forecasting falls in property over the next 12 months, whereas they would never attempt to forecast the stock market.
Around minute 7:00, you said that lump investing beat dollar cost averaging 2/3 of the time as if it was no big deal. This is by no means a slum dunk argument. Also, we don't know by how much it beat the other strategy. Did they also consider investing in an asset first and another one later, rather than just cash and a particular asset (or combination of assets) later? Doesn't look like it from what was said. Maybe bonds or money markets first, and stocks later, do a better job a majority of times.
Great content Ben and backed up by thorough research and case studies as usual. I agree in the main with most of what you've said and would like your views on some of my observations over many years regarding the topic in certain situations. I've studied the currencies of some of the emerging markets and there are clearly times of political instability where the currency depreciates substantially against the USD for example. If such a period of instability can be identified as being temporary in nature due to a possible regime change would it not be prudent to sit it out in cash? This is indeed market timing and justified? The market timing inferred in your video is due largely to market cycles and other macro economic factors unlike political instability. Here I'm specifically referring to waiting it out until the local currency stabilizes in terms of long term trends before investing in a foreign currency. I've seen piles of research supporting your views so my query relates specifically to currency instability deemed to be temporary in nature though this could last a while.
Tough one. In the end you are betting on re-stabilization, which may or may not happen. On top of that, currency does not have a positive long-term expected return, so this is pure speculation.
Also, just an observation, whether the returns are high or low also depends on the purchase point at the time the lump sum is invested. For example, 1999 vs 2002. Very hard to use that prospectively though.
Even though I'm a 20-something who has many years to buffer any major downturns, the urge to try and time the market is almost uncontrollable lol. I dumped a large sum into VFV etf and it has gone down almost 2% since. Now I think about how many more shares I could have bought for the same dollar amount if I had just waited a liiiiitle bit longer. Ah.... I know you're right, but it just stings to buy in and have it go down right after, even if it is temporary. The other issue is that I find the best returns I have consistently are stocks that I bought into at a very good price (ie. during a market correction). I seem to never be in the red on those. All of these are long term holds for me, so none of these gains or losses are realized atm, but it is nice to check in and see that you are in the green instead of the other way around.
I'm fully aligned with your work and that of Dan Bortolotti as well. Great video. But following a Meb Faber question, at what point might you, Ben, be tempted to market time. not an impossible scenario that the CAPE goes past 40 - say it's now at 50. You have a parent with a 40% equity, 60% FI portfolio and they are very near 65 years of age. Knowing the impact of a market crash on a new retiree, would you not advise them to pull back on equities? What if the CAPE was 60? 70? Is there not a point that you would advise someone nearing retirement to "time the market?"
That would be a challenging situation. I cannot say that I would advise timing the market without having context for why the CAPE was so high. Larry Swedroe did some work a while ago on why the CAPE needs context before using the current CAPE relative to the past to make decisions buckinghamadvisor.com/cape-10-ratio-in-need-of-context/ I think that the furthest that I could go with market timing would be dollar cost averaging. I don't think that I would be able to advise someone to get out of the market.
Hi Ben, does this advice still apply in this seemingly bearish year? I mean in Vanguard study if I understand correctly, DCA beats lumpsum investing third of the time. Curious to know your take.
The question I have here is not really about selling but getting into the market. In the current climate, the market seems over-valued based on fundamentals and state of the economy all over the world, so the stock market seems a bit detached from the economy in my opinion. In this case, if a person has a time horizon of 10+ years, do you advice to get into the market when it's at all time highs or wait for the gap between fundamentals and the stock market to decrease ?
Hi, Could you comment on leverage? If, on average, in the long run, markets tend to rise, it doesn't make sense to put some percentage of leverage to optimize the returns? just small enough to be statistically sure that you won't run out of money in a fall, or that the interest would eat most of the extra returns. Apparently, people that do that are just doing it to bet on good timing. I'm guessing that interests are matching the average extra returns, making pointless the extra risk for a permanent way to invest, but I don't know. Thanks!
I think that if you have a house to borrow against for the much lower interest rate this can be very interesting. It is an asset allocation decision though. Just like 100% stocks is statistically optimal but not every has a 100% stock portfolio, leverage will depend on the risk appetite of each individual. I agree though that it is optimal statistically.
I've done market timing once. It worked perfectly but the reasons behind the decision were so stupid that I decided to not try it again. In december 2018 I planned to put my monthly savings into an US stock ETF. On the day when my salary arrived the price of the chosen ETF went just below the threshold that could enable me to buy it (in brief, my bank does not allow investments under 1000 EUR, I had slightly more than 1000 and the price of the ETF went under 333.33). Without making any detailed research, I've jumped to an European stock ETF, and set a limit buy order with a price around 5% lower than the then price of the ETF. This order would have been valid for a month but after 3 weeks it was activated (on 27th December). On this day the price went back to the level where it was 2 years ago. I did not catch the minimum price of the day, but it was still good enough. This was a slingle day opportunity, since that day the stock prices and the ETF price have been growing almost continuously. What were the chances? :-)
I feel this is a tricky subject. I agree that jumping around is likely to get you nowhere but screwed. Having said this, making gentle tilts one way or the other - perhaps within some boundaries to which you've agreed with yourself - is not unreasonable. Say you're 60:40, stocks:bonds: When stocks (i.e., broad index) are selling at an earnings multiple of 10:1, shifting your balance a bit in their favor probably is a good idea. Likewise, moving a little in the other direction, when this multiple is, say, 30:1, probably is just as acceptable.
Hi Ben, the Vanguard study is often cited as beating Dollar cost averaging about 2/3rds of the time. But, I wonder, how would the results change if they only looked at 10 year rolling averages that started in months when the markets were at all time highs?
That's a good question. The AQR paper did not do exactly that, but they did do something similar. They adjusted equity weights based on the Shiller CAPE. I agree it would be interesting to re-test DCA vs. lump sum at all time highs.
I actually do use a momentum strategy based on dollar cost averaging. The only indicator I use is the 200 day moving average. I invest montly in a world fund and when the price is above the 200 day moving average, I don't invest; when it is below the 200 day moving average; I invest 4x my montly investment budget. It is based on a back test on the S&P which is 25% of the time below the 200 day moving average, hence 4 times the sum. The risk in this is that there are months where I don't invest anything and after a period the fund is prices below the 200 day average which may be higher than the moments I did not invest. In other words, say in January the fund is priced 75 which is above the 200 day average, in March it is priced 72 but it is below the 200 day average, then I should invest even though it is priced higher than in January. So far it has worked for me and I have outperformed the market every year, but I wanted to address the risk involved. Also there is the risk of being underinvested, however, to me it gives more peace of mind to not invest all my money at once and that is a big part of investing, someones risk tollerance.
Ben, do you advise Market Timing with a smaller portion of your total portfolio? Say, 90% of your portfolio is diversified buy & hold, and 10% seeks to take advantage of market swings. Thank you.
I believe most feel comfortable with dollar cost average because many people invest that way by nature (401K contributions). I've reviewed hundreds of index related funds and calculated the compounded return as if I purchased in each month. One common theme is that returns are nearly identical on long duration held funds, even through recessions. Not only until you calculate compounded returns for the last couple of years do they not match historic averages. I guess the key fundemental understanding is to hold long term. So, index funds, hold 15+ years. Lower bound (2 deviation) is rarely below 0%.
7:04 Lump Sum investing beat DCA 2/3 of the time. It's very important to point out then that DCA is better 1/3 of the time. So DCA (or market timing possibly) wins when you are near a market peak/recession, like we may be now. It could be argued that at some point in the next 5 years we will definitely be below the level we are at now, so instead of invest now, wait for a serious pull back like we had in Dec. (at least) and then add 10% investment for each 5% retracement, for example. We are at a time when global stability is in question, and US long overdue for recession, and current inverted yield curve, outlandish rents, debt, etc....Now seems to be the time to wait if you are going to buy and hold?
Thanks for the videos Ben. I would be interested to get your view on whether lump sum investing trumps averaging even in times of expected market volatility/uncertainty (eg right now !).... would it be a special case or follow the same rules? Thanks
It's like buying a house. There's never a good time to buy. But a choice has to be made one way or the other. At some point being okay with discomfort and being reasonable.
There are some really shitty stocks out there that are poor investments. That should be elementary. And there is no good time to buy even if you think there is. Life ain't all that black and white.
Great job explaining this using a data-driven approach. Can you make a video explaining how stocks like the XAW ETF or any index-tracking ETF can compound (without dividends)? Is it through consistent monthly payments? I don’t get how investing $5000 for 10 years causes any compounding, since it will just go up and down in relation to the ETF, and I don’t see where the “compound” effect comes from; unlike interest in bonds.
I dont know if i agree with the lump sum comment. Plenty of indexes have not reached their ATH - the nikkei, euro stoxx 50, MSCI emerging markets. If you dollar cost averaged you may have made money, because you would also buy the cheap shares even if they never reached the ATH.
![Felix "Unfair" | [Stray Kids : SKZ-PLAYER]](http://i.ytimg.com/vi/Oswujxm2Ag0/mqdefault.jpg)
What i really like in your videos is the fact that you document them with strong academics studies. Which gives much more value than the usual blablabla of the many FIRE youtubers.
Agreed, he's like the Jeff Nippard of finance..
@@TabletsandTrees 🤣 Underrated comment!!!
@@jackmoore9709 That's exactly what I thought when I started watching Ben. Research-based investment coach🙂
simp comment stop it
He a true Boglehead who unlike other passive lazy investors actually backs it up with research.
My sure-fire recipe for market timing that only works for *others* is for them to invest approximately two weeks after I invest a considerable lump sum.
Seems like a solid strategy. Let me know next time you have a lump sum to invest.
Your ideas are intriguing to me and I wish to subscribe to your newsletter
As long as you sale after two weeks and I can benefit. From buying 10% lower than you bought . But the problem my purchase will perpetuate the down trend.
Yeah me too, apparently I can make any financial asset go down simply by believing that it will rise and buy in
There is a sure fire way to overcome to problem of a stock always going down after you commit money to it and that is to sell it short.
I tried timing the market in late 2017-2018. I was right. Prices were high and a drop was due. It dropped a lot. I didn't get back in. I missed out on most of 2019 and I lost more potential returns than I saved on my losses. I'll never do that again.
This hurts to read. I hope you are doing well now!
If you want to time the market, you should always exit early and enter once is dropped a certain amount, even if you are exposed to some downside
Amateur
@@TheBigShort11 yep
"I'll never do that again" - well, never forget to reinvest once the skies start clearing and the sun comes out again.
The WRONG deduction is to "never do that (whole thing) again".
Correct what needs correcting. No more, no less.
Buy high, sell low. Works every time.
hard to beat leaving it in for a long period of time.
Works 30% of the time, every time.
@@joshbartl276 like sex Panther ?
I'm the Warren Buffet of doing that
@@darthforexvader7201 only if it has real pieces of the market and is banned in several countries
I only discovered this channel a week ago Ben and your videos have been another tool to help me understand the financial markets further.
It's great that you quote a lot of studies and research, something I feel others don't do.
Good luck with everything!
In addition I would like sources not only being mentioned but a reference in the video description. This would allow curious follower to educate themselves further.
On that note: What is the source of the graph sown at 5:19 min (ruclips.net/video/w_aOERmUWdA/видео.html)? I'm not able to read the notes below it.
(bare with me, not a native english speaker)
Thank you!
Thank you! It's great to know that the videos have been helpful.
Thanks @Nord. I will keep that in mind. The chart is sourced from a slide deck that I have, which is not available online at the moment.
These videos are gold ,
I have started my index investing journey around a year ago . (UK investor) I found myself sitting on the fence due to current fears that the market is to high. I have cash sitting and I am waiting for a dip but as you have pointed out I’m just timing the market.
This video has definitely helped me revaluate my behaviour towards to whole idea of index investing.
Another well thought out and professional video, keep up the good work
Made me feel dumb about investing everytime and yet come out more knowledgeable. Thanks Ben. Keep it up. My go to channel when in doubt.
Ben is probably THE best investment coach on YT for long-term investors. I am so glad that I found this channel
I have been investing in index funds for a couple of years with a fixed monthly sum. However, sometimes after the markets drop, I have invested some additional cash that had piled up. This worked well in December 2018, but less so after smaller drops during the summer of 2018. This spring I increased my monthly investment to avoid building up extra cash and then needing to think about the timing.
Thanks for all the effort Ben, I've watched every video. Investing £20k a year in index funds, tax free (UK ISA). Keep up the great work!
Thanks David!
Hi. Thanks for sharing. What was your reasoning behind your choices? Any particular ISA funds your having great results? or poor results?
David, which index funds do you invest in? Also, is there a reason why you invest the full £20k in index funds instead of investing £16k in index funds and £4k in a Lifetime ISA? Anyone from the UK is free to share their opinion on the second question
@@undercovermc Hi there! I like to be globally diversified, plus I'm young, so no bonds. I put it all in Vanguard global all cap accumulation. I do actually have a LISA too, just didn't mention that. I do the 4k/16k split as you mentioned. Extra money goes into Revolut for single stock "bets" and my SIPP is in Vanguard S&P 500 index.
These videos are gold ,
I have started my index investing journey around a year ago . (UK investor) I found myself sitting on the fence due to current fears that the market is to high. I have cash sitting and I am waiting for a dip but as you have pointed out I’m just timing the market.
This video has definitely helped me revaluate my behaviour towards to whole idea of index investing.
Another well thought out and professional video, keep up the good work 👍
That's great!
I timed the Market on March because I have tons of cash lying on side lines. Bought Index funds and glad I did. I will stay in the market until I get may target total amount for my retirement. Thank you for this video 🙂
You are quite lucky. It's usually hard to have such a moment when you have cash and the market crashes. I have now quite some cash but the market is at its peak :/
I did exactly the same on March, I went from 80% cash to 20% cash in a month
@@one2sree no. /now/ it is at it's peak ;)
@Sree Kanth @jinjurbreadman no now it is at it's peak :D
@@ricardomoralestorres7968
Well it's definitely not at it's peak now. ;(
Honestly one of the best channels on RUclips. Thank you for your insight!
I'm fine with DCA. At the beginning of the month, I invest. That's the plan. I chose the funds I want to be in and I don't pull out. Like your research shows, 1/3 of the time lump sum doesn't work and can be painful. I see how it can be considered market timing, but I'm more comfortable going slow. Thanks for the video :-)
Nothing wrong with DCA especially if it makes investing more comfortable.
Ben, I'm not surprised by the growth of this channel. Consistently high quality content and thought-provoking ideas. For example, most consider dollar-cost averaging an "orthodox" position. Today's video offers alternative considerations. "Confirmation Bias" reminds us of Charles Munger's The Psychology of Human Misjudgment talk he gave years ago (text and helpful summaries available online).
Thank you, Sam!
Hi Ben, I’m not Canadian or even on the same continent, but after discovering your channel a week ago, you became my go to binge channel.
Your videos are to the point, and your channel name couldn’t have been better chosen. I’m DIY investor, and many things you say are things that I follow, but you widen your audience’s perspective, add data and research, and put simple words on simple concepts, that are too often filled with jargon to refrain the common man to understand the concepts. And all in one single channel. Trying to explain these concepts to friends to friends and family is often quite hard for me, and linking your videos on specific topics is a great tool for financial understanding.
Thanks a lot for what you do, and I look forward to your next videos!
Thanks for watching, and for the kind words!
I am from India... I want to thank Ben for providing us such honest and sensible content.. thank u so much 🙏👍
Well For Goodness sake, did you make this video for me!?!?!? This is great information and just what I needed to hear. Not surprising that the company I WAS using promotes dollar cost averaging as a good strategy. Everyone should to watch your videos regardless of what stage of investing they're at. Thank you again for another very educational video!
I’m glad that it was helpful!
Thanks. Dollar cost averaging is very popularly knows as SIP (systematic investment plan) in India. I think the key justification behind it would be the fact that most individuals earning or cash flow is monthly like Salary. This instills very good financial discipline like setting aside some good %age to be invested into the SIPs like Index Funds/MFs montly.
The last few months I was so caught up on all of this talk about market crashes, I totally forgot about how crucial buying consistently. So I ended up putting all of my portfolio cash that I had on reserve into the DOW. Thank God for Benjamin Graham and Ben Felix for their knowledge.
This is easily Ben’s best video. Every investor should see and understand what is shown here. Yet I could only grasp this video after watching maybe 40-50 other videos of Ben. Thank you so much again Ben
It is really hard to change long-held biases and rationalizations. This series of discussions is very helpful. I have heard so many of these mantras and viewpoints before, but I seem to have a very thick skull and just will not change my bad habits. I appreciate this approach to showing us how our best inclinations can still be counterproductive.
It's like your videos are talking directly to me. Get out of my head! Haha.
Thanks for the rational investment advice to keep me on the correct path. For far too long I thought if I followed the markets religiously, I be able to pick individual stocks that will beat the market. What I've found out is I tend to win less and lose more based on my investment style; high beta, low alpha.
From now on I'm changing my ways. The bulk of my profolio will be broad-based ETFs, along with a mix of bonds. No more trying to hunt for the next Amazon or Facebook. Thanks again for your level-headed advice.
Very nice! Well done.
Great video as always Ben. I finally decided to invest in index funds (as a Canadian no less :P ) and that was in large part to your great insight and advice.
Hi Ben, just want to say that I really appreciate your videos and podcast, its truly among the best
Thank you, Jonathan! I appreciate the kind words.
Hi Ben,
I actually sent you this exact question a couple of weeks ago through Linkedin. I never replied back because I wanted to put my money where my mouth is before saying anything. I have been "timing the market" by leaving all of my assets divided between TDB aggregate bond ETF and cash. Now I have invested the cash portion of my portfolio in XAW+VCN ETFs to produce a balanced portfolio. I aim to achieve an assertive portfolio quite soon and so on. Thank you so much for making this video. Part of me feels like it was made just for me even though, as you pointed out, you get this question quite often! Let's fill up those TFSAs and RRSP accounts!!! :)
Thanks for watching Waldo! I'm glad it answered your question.
Watching this in May 2020, while sitting on a significant amount of cash and observing the recovery of the market after the Corona low in March, just two months ago. While statistics and mathematics are one thing, psychology is a completely different issue.
I catch myself thinking: Have we seen the Corona lows already? Was that it? Or will there be still much better opportunities in the next 12 or 24 months? If I go in now, will I regret that in the near future?
It is really difficult, but I will watch this video again and again...
Did you invest or not?
Doesn't matter whether I try to time the market or just dive straight in, the price always plummets immediately after buying :-(
literally same
Haha. Same.
Hi Ben, great video! I'm not sure all market timing is bad. Is rebalancing not a form of market timing? Example: rebalancing on a set asset allocation for a client retirement portfolio of 80% stocks, 20% bonds. There is a great year of growth in the stock market bringing them to 85% stocks and 15% bonds. Then selling 5% equity to purchase 5% bonds. Selling when high and buying when low. If there is a big down year in stocks, do the reverse. I know Vanguard rebalances by asset allocation between international versus domestic, large cap, mid cap, small cap, and rebalances if there are major market move. They have research that this adds an additional value to the gains of the market (ideally done in retirement accounts to avoid taxation). Love to get your thoughts on rebalancing or a video (just in case you need more ideas).
This is a good question, James. I don't think of rebalancing as market timing. I think of it as maintaining appropriate risk exposures. Rebalancing is not carried out based on anything other than the portfolio being of target from its investment policy statement. Market timing would be delaying rebalancing based on expectations for an asset class to continue its rise.
@@BenFelixCSI Fair point! Thank Ben. Wishing you continued success in life and business.
@@jameshargrave9933 Thank you!
Even beyond guessing right, the other problem with market timing is opportunity cost. If you are not in the market where are you? Every one of your timing trades may work in isolation (buy low and sell high) but if your money is just sitting around in banks or bonds when you are out of the market, you need to hit a lot of home runs to overcome the opportunity cost of waiting for the trades that work out.
This is literally the best advice any investor can get but many ignore. I know many people who should have heeded this advice but do not because they believe against all odds they can beat the market more than 50% of the time.
Hi Ben, though I consider myself a trader rather than an investor, I have found your channel to be an absolute gold mine of great information for people looking to begin investing. I often share these videos with friends and colleagues to stop them attempting to time the markets and pick stocks. Usually I try to convince them to paper trade their stock picks, and put the real money into the S&P500, or our local market index here in South-Africa if they are feeling more patriotic. This year has been especially good for the S&P, with most of my colleagues averaging < 8% in their stock picks, but gaining twice that in their holdings on the S&P500 index. Anecdotal evidence, sure, but still. Keep up the good work!
A total US market or total world market fund is better than the S&P 500 because it's more well diversified.
Of all the advice out there, this is the only source that seems stringent in its thinking to me.
Thanks Niklas!
As someone that is starting to invest I am quite obsessed with when to get in and out of market, that is why i'm trying to get the more information i can. Thanks for this video.
"THAT, is called confirmation bias."
Damn I feel scolded as hell
Excellent work here building on the genius of Jack Bogle who was far ahead of his time.
Thanks Mike.
You're videos are the best. I really love your advise. I think you're right about market timing, but for some reason I just can't get myself to invest in this soaring market. Everything just feels overpriced due to speculation. But I see in your previous comments that people have been saying this since 2013 and they would have been out of a terrific market since then. You caught me, I was saying a few years ago when I finally paid off my student loans and had surplus income for the first time. I thought in 2015 that the market was too high and didn't invest because of it, my loss. Not sure how I can fix my psychology to take the risk since i felt then and still feel it's way too high... I'm not trying to time the market at the lowest price, but rather I am just not trying to get in at the highest price either.
Sounds like dollar cost averaging could be a good compromise.
i'm from Brazil, and this is the best youtube channel about investment for me, keep going man.
I had a lump sum and invested in Boeing and Southwest in Feb 2020 since they were down and Boeing was supposed to come back from the 737 MAX failure... Then the next week COVID shut everything down and my portfolio balance looked like I hadn't even invested anything. LOL So looking back, yeah I could have waited.. but hindsight is 20/20 and there's no way I could have known. That event made me so mad, but I'll never try to time the market. It is what it is, and all of my other lump sums have performed really well, so I have nothing to be mad about.
Thank you, very informative. The issue that I have is that most of the growth stock market have been driven by deficit spending. If you graph stock price and government deficit spending they look the very correlated.
But eventually that game comes to an end when governments can not borrow, print money. Also government unfunded liabilities are far more than even the debt.
So, until that time comes, I do know that every 6 to 10 years we have a correction. So the time to buy will be as the market is dropping. Warren Buffet is sitting on a heavy cash position right now waiting for this.
I have down the same since historically a PE ratio greater than 30 is never sustained.
government spending has increased under every president now, it could well increase for another 10 years until borrowers send the US$ to a downward spiral, and by then the stock market will have doubled. PE ratios do often come down because companies grow and increase earnings, not because prices shrink. Prices are supposed to reflect expectations, not current earnings. You assume wrong expectations, i.e. market inefficiency when you think that stock prices are 'high'. Markets have corrected already in 2015 and 2018, no need to wait 6 years.
feeling that market timing urge right now with the coronavirus making waves on the stock markets
I hope you didn't give in. We're back at new records!
@@MrMineHeads. I gave in an I did beat the market.
@@sukkeri okay, try doing that consistently.
This is a fantastic channel, Ben! Your videos are concise and illuminating, backed by solid research. You have a permanent subscriber for your channel and I'm going to start listening to your podcast as well.
If I may, here are some suggestions for topics for you to consider covering:
Emergency funds (How much? in Stocks/Bonds/GICs/Savings/Cash?)
ETFs vs. mutual funds for the same index (which one is better? does it matter?)
REITs (Are REITs anti-correlated with the stock market? Does it make sense to overweight them to reduce risk?)
Stock-bond correlation (Have stocks and bonds always been negatively correlated as is "common wisdom"? If yes, is there a reason it should be so?)
If a Canadian living in Canada were able to open a taxable brokerage account in the US, would you recommend doing that? (potentially because of lower fees? better tax treatment?)
Stock buybacks (since this has been in the news lately, what does it mean and how does it compare to paying out dividends?)
Employer stock purchase plans (should you participate? it sounds like a slam dunk to me: just buy discounted shares and sell them ASAP)
Does it make sense for Canadians to have more US equities than the rest of the world, even though the US is only 50% of the world's market cap?
Finally, if you're comfortable with it, you could do a video on your personal asset allocation including investments, emergency funds, real estate you own, etc. I think it would help viewers to see how a professional implements their own advice in their life.
These are great suggestions! Thank you.
This is really excellent content. I’m getting a lot of value from your videos. Please keep up the great work, and thank you!
Thanks, Mike!
Hi Ben,
could you make a video of deeper analysis cap weighted vs equal weighted etfs? There is not so much data on the internet about it.
The oldest equal weighted etf I found started 2003 and outperformed the cap weighted s&p 500 .
It would be interesting to know how it would behave in longer periods and different markets. Thank you
Market cap weighted funds are concentrated in large cap and growth stocks. Because an equal weight fund weights every stock equally, it will have a tilt towards small cap and value stocks compared to a cap weighted fund. This gives it some exposure to the small cap and value factors, which come with risks and rewards independent of the market as a whole. If you'd like to know more, Ben Felix has a bunch of videos about factors.
When Buffett says buy when others are fearful a form of market timing?
Love your videos!
Yes, it is market timing. Buffett is an outlier who can speak from his experience of successful market timing. That does not mean it is repeatable.
@@BenFelixCSI in that case John Bogle DOES know (of) somebody who's successful at it.
@@ricklenegan2294 Buffett would probably say he's not worried about timing and that he just looks for good businesses that yield solid long term profits. I don't think he tries to figure out whether a stock will go up or down next week, he just looks at it and if he likes it at the current price he buys it.
I did some market timing just recently when the us lifted steel tariffs. I heard on the Wednesday that they were in talks to lift them. I bought stlc and made a 22% return in three days then sold. A while ago I bought air Canada and made 50% in a few weeks. I also bought home capital group when they dropped and almost doubled my money before selling. The market presents opportunities every now and then and when you have cash you can take advantage. The vast majority of my portfolio is in index funds though. I just keep a bit of cash to play with. I’ve gained a good chunk with timing the market. Haven’t lost money yet. But I don’t try to do it every day or with a big chunk of my portfolio
Those are some good wins!
Your channel is pure gold.Thank you and i will recommend your channel to everyone i know!
It's crazy rewatching your videos now, they seem prophetic =)
When comparing market timing, there is often the assumption that we're comparing waiting for the perfect time vs. continual investing over time. My objection to this would be in a case where someone has built up substantial savings without having considered investing and is now looking to invest a large amount. In this scenario the time prior to the intent to invest shouldn't be considered part of the calculation, but as unrecoverable sunk cost (you can't count the gains for this period against them because they weren't waiting during this period, they simply hadn't considered investing at all). Advising them to dump it all in the market right now could have far larger implications for their returns. E.g. dumping in money just before 2008 could have resulted in 5-10 years just to get back where you started, dumping the same money in 2009 undeniably would have been much more profitable. This is of course with hindsight, but the point is that the money input in this case is not spread over time, so there is more volatility for the result of your single large input. Perhaps such people should be advised to invest 1/10th or 1/20th of their large sum now, and to continue regularly. I see, you get around to discussing dollar cost averaging. You say a pretty key phrase there though, "on average." The problem with appealing to averages for this is that the average return doesn't say much about my return. And yes, doing better 2/3rds of the time does sound better than 50:50, but not by much. What I want to know is (at a minimum) the standard deviation for lump sum investing vs. dollar cost averaging. I'm pretty sure the Vanguard study showed that dollar cost averaging incurred lower losses in a down market and that the while the gains for lump sum were higher 2/3rd of the time, the actual difference in gains was quite small, like 2.3% after a 10 year period. My impression is that it's about one's risk tolerance. Lump sum carries greater risk. More likely to gain and to higher gains, but also has higher losses when it loses.
Very well explained. Haven't seen anyone yet explain this well for lumpsum vs dollar cost averaging.
Thanks!
Good video. As a seasoned investor, on the cusp of making my first RMD, I can just say that making a plan and sticking with it, is the best plan. I have enough in cash for my living expenses for several years. I didn't market time in 2001 or 2008 and all worked out fine. I'm a low spender too. Family trait. :)
True words spoken from experience. Thanks!
Dear Ben, I would like to make a question: Let's suppose you leave your money always in, without any strategy "to time" the stock market, then how you will try to minimize the drawdown from big crashes?
You don't. You pick a mix between stocks and bonds that results in a maximum expected drop that you are able to endure.
Brilliant work Ben. Nothing speaks like data. Everytime I feel like timing the market, I'm gonna come back and watch this. 👍
I was a student and had a rather large portion of money in the market this last year, I saw all the red flags of supply chain problems, decreased work due to covid and saw the writing on the wall that we were about to go home and not come back. So I sold 20% of my portfolio. The market had its large drops over the next week. I didn’t wait though. I knew I had got lucky so I immediately started buying back in as I knew it was lower priced and I was in it for the long run. I bought back in small amounts at a time and it’s resulted in me almost having a 70% roi in 2020.
Ben, I've been watching a few weeks now and the impression you've left on me is that investers are a lot dumber than they think they are and they operate under the illusion of knowledge. Mea Culpa.
I have come to the conclusion that if you remain a dumb investor you will achieve gains superior to when you get smart . Doing online stock analysis signals the provider of the interface in which you are using your investment strategy. The manipulators are in the business of providing the retail trader all the bells an whistle so they can monitor your impending failure. If you follow the advise offered in publication like money magazine or USAToday newspaper the manipulators will let you slide . Once you get sophisticated and open a margin account you become a gambler ripe for plucking
Hello Ben, thanks for your channel, it's really helping.
I have read a recent paper (2017) wrote by Robert Shiller for Barclays named "The many colours of CAPE".
It highlights the usefulness of using CAPE ratio to predict sectorial or even basket of single stocks performance relative to an index.
Have you read this paper? and if so, what are your thoughts on implementing such strategies for a DIY investor?
Also, with the data you presented, isn't it logical to just stay fully invested but to tilt the portfolio toward any region that has a smaller CAPE ratio?
Brilliant presentation.
Timing is impossible in the stock market.
great videos, Ben! I would have never imagined there's so much research on the topic, although on hindsight it seems kinda obvious there would be. I just discovered your channel and I've learned a lot!
Thank you, José! It is indeed a field of deep research.
Time in the market > Timing the market. Thanks Ben your videos are amazingly great.
This video is helping me now, the Covid pandemic is the perfect scenario when you would think that it's a good a idea to delay investing.
Ben, i have a question about automatic investing and I tried to find a video of yours on it, but couldn't find it. So i use auto-investing through Vanguard and automatically investment into a few funds of theirs. I know that lump sums win out of the longer time frames, but this is not a question of lump sum vs DCA. All i want to know is what is the best time period to choose for DCA? Is monthly better than weekly? or bi-monthly? *Assuming the transactions are free. Is there an optimal setting for automatic investments? Mine are set weekly. Couldn't find a good answer on Google so i am taking it to the Investment Guru of RUclips. Is there a best day of week to invest?lol Best day of month? i guess i will stick with the weekly purch schedule for now. Now that i think about this, i think that you should dump as much as you can in depending on your paychecks and your projected costs and set the frequency based on that. So probably, a 2 week interval would work and get the most in at the earliest time. If lump sums win out long term, then i am using that information to figure this out. Did i just figure this one out myself?
I assume it is best to be invested. You should invest all your spare money immediately except for your financial reserve. Regarding the DCA period - it depends on how frequently you get your spare money. So you are right with the second part of your post. :-)
I invested consistently throughout the pandemic and post pandemic and didn’t look at what the market was doing even if I felt a shiver at times that I should hold off. I’m glad I didn’t fear and kept going in a consistent way
Best investment channel on the RUclipss
Thanks!
About DCA, the video only says that lump sum investing gives you more money in most cases. It doesn't go into best or worst case scenarios of the two methods or the probabilities of those scenarios.
DCA may be suboptimal when looking at a thousand investors, but for you personally it eliminates the risk of investing all the money a day before the market crash. At the cost of just some theoretical optimality, I'd take that insurance every day.
Hello ben. Congratulations on the promotion. I remember you used to introduce yourself as associate now your portfolio manager.
Those two terms aren't mutually exclusive. He likely has always been a portfolio manager and an associate, and is still both
"Time in the market beats timing the market"
true that.
To some degree, "timing the market" by being hesitant to buy when stuff is expensive or sell when it is cheap is just mitigating the normal human tendency to sell any time you have incurred losses and to buy more of what you have made money on. You don't want to do either too much.
Great channel, great quality....new concepts and arguments are so easy to follow !!
Thx for video. Please prove me wrong, so I can avoid the stupid move. What ab sell PUT option. Or more advance, sell one at the money put and one at the money call and buy one unit (100) stock as a combo to limit down and up potential?
Selling puts has the same payoff as selling covered calls. It’s nothing special. ruclips.net/video/YMLVdY8y8vM/видео.htmlsi=bgK3yLojfvTprS0-
Hey, Ben. Great content. Yours is the best investing channel on youtube. What about other asset classes? There is some substantial evidence that market timing with trend following rules works for a diversified portfolio of commodities futures.
I would never try to time the market with Index/ETFs. It makes little sense.
Since I am still young, the only time I sell Index funds/ETFs, is when I rebalance my portfolio allocation (due to age) or I sell once a cheaper fund becomes available.
- Was investing in a JP Morgan fund at 2.53% expense ratio - only option. My portfolio allowed for a Vanguard fund at around 1% - I sold as quickly as I could and am enjoying better average results!
Really insightful. Thanks Ben for preparing this video. An interesting paper about this topic is the one by Barber and Odean “Trading is hazardous to your wealth”. The takeaway is basically don’t let overconfidence caught you. You can beat the market for a while by mere chance, but that won’t last and overconfidence will lead you to over trade and perform badly in the long term. As for how to use the predictive power of the CAPE with the fact that trading is bad, I find a good alternative is to rebalance the portfolio, say, annually. For instance, if you have 80/20 equities/bonds and equities do perform well so your portfolio is 85/15, sell this 5 and buy bonds. What do you think about this? Which other ways to incorporate the CAPE predictive power (and its weaknesses) do you know?
The only way that I use CAPE in practice is for developing financial planning assumptions, which inform spending and saving decisions. If CAPE is high, expected future returns are lower. On the Portfolio management side I do not use CAPE. The AQR paper that I mentioned recommended delaying rebalancing trades to capture momentum. I thought that was interesting.
@@BenFelixCSI I appreciate your answer. So what I get is 1) don't modify your portfolio according to CAPE, and 2) use CAPE only to adjust your "expected return" (for example 6% long run +/- how over/undervalued is the market) when planning your wealth/retirement goals. Thanks!
Thanks for sharing the information. I am now sitting on some cash and wanting to time the market for investment. 🤣
If market timing doesn't work why are they open between 0830 and 1630?
lol
Checkmate Ben Felix!
What about, not so much Market timing, but life stage timing. By that I mean buying/selling in the 2 to 3 yrs before retirement. A lot of people including myself are in this position where we will retire in the next 36 to 48 months---all of us now riding this amazing equity wave of record profits. Is it 'timing' to think maybe we should take some--a lot of the gains off the table and put money in lest volatile investments like government bonds etc. Most of us in this position lived through the disaster of 2008.
Changing your long-term asset allocation based on your life circumstances is not market timing.
Thank you so much for these excellent videos, Ben! They've been really helpful. I'm about to inherit quite a bit of cash and this video was just what I needed to see right now.
What I'd love to know is whether market timing works in property markets. Property is a far less efficient market, and participants will act "irrationally" because they will treat the asset as a consumption good first and a financial asset second. It's also heavily influenced by demographic factors which can be reliably forecast. I'm particularly interested in this because various institutions are forecasting falls in property over the next 12 months, whereas they would never attempt to forecast the stock market.
Around minute 7:00, you said that lump investing beat dollar cost averaging 2/3 of the time as if it was no big deal. This is by no means a slum dunk argument. Also, we don't know by how much it beat the other strategy. Did they also consider investing in an asset first and another one later, rather than just cash and a particular asset (or combination of assets) later? Doesn't look like it from what was said. Maybe bonds or money markets first, and stocks later, do a better job a majority of times.
How to Invest New Cash: Dollar Cost Averaging vs. Lump Sum Investing
ruclips.net/video/KwR3nxojS0g/видео.html
Great content Ben and backed up by thorough research and case studies as usual. I agree in the main with most of what you've said and would like your views on some of my observations over many years regarding the topic in certain situations. I've studied the currencies of some of the emerging markets and there are clearly times of political instability where the currency depreciates substantially against the USD for example. If such a period of instability can be identified as being temporary in nature due to a possible regime change would it not be prudent to sit it out in cash? This is indeed market timing and justified? The market timing inferred in your video is due largely to market cycles and other macro economic factors unlike political instability. Here I'm specifically referring to waiting it out until the local currency stabilizes in terms of long term trends before investing in a foreign currency. I've seen piles of research supporting your views so my query relates specifically to currency instability deemed to be temporary in nature though this could last a while.
Tough one. In the end you are betting on re-stabilization, which may or may not happen. On top of that, currency does not have a positive long-term expected return, so this is pure speculation.
Also, just an observation, whether the returns are high or low also depends on the purchase point at the time the lump sum is invested. For example, 1999 vs 2002. Very hard to use that prospectively though.
As a friend told me, investing is almost like faith, you set a time and stick to it to not selling everytime there is a drop
Even though I'm a 20-something who has many years to buffer any major downturns, the urge to try and time the market is almost uncontrollable lol. I dumped a large sum into VFV etf and it has gone down almost 2% since. Now I think about how many more shares I could have bought for the same dollar amount if I had just waited a liiiiitle bit longer. Ah.... I know you're right, but it just stings to buy in and have it go down right after, even if it is temporary. The other issue is that I find the best returns I have consistently are stocks that I bought into at a very good price (ie. during a market correction). I seem to never be in the red on those. All of these are long term holds for me, so none of these gains or losses are realized atm, but it is nice to check in and see that you are in the green instead of the other way around.
I'm fully aligned with your work and that of Dan Bortolotti as well. Great video. But following a Meb Faber question, at what point might you, Ben, be tempted to market time. not an impossible scenario that the CAPE goes past 40 - say it's now at 50. You have a parent with a 40% equity, 60% FI portfolio and they are very near 65 years of age. Knowing the impact of a market crash on a new retiree, would you not advise them to pull back on equities? What if the CAPE was 60? 70? Is there not a point that you would advise someone nearing retirement to "time the market?"
That would be a challenging situation. I cannot say that I would advise timing the market without having context for why the CAPE was so high. Larry Swedroe did some work a while ago on why the CAPE needs context before using the current CAPE relative to the past to make decisions buckinghamadvisor.com/cape-10-ratio-in-need-of-context/
I think that the furthest that I could go with market timing would be dollar cost averaging. I don't think that I would be able to advise someone to get out of the market.
Hi Ben, does this advice still apply in this seemingly bearish year? I mean in Vanguard study if I understand correctly, DCA beats lumpsum investing third of the time. Curious to know your take.
The question I have here is not really about selling but getting into the market. In the current climate, the market seems over-valued based on fundamentals and state of the economy all over the world, so the stock market seems a bit detached from the economy in my opinion. In this case, if a person has a time horizon of 10+ years, do you advice to get into the market when it's at all time highs or wait for the gap between fundamentals and the stock market to decrease ?
Hi,
Could you comment on leverage? If, on average, in the long run, markets tend to rise, it doesn't make sense to put some percentage of leverage to optimize the returns? just small enough to be statistically sure that you won't run out of money in a fall, or that the interest would eat most of the extra returns. Apparently, people that do that are just doing it to bet on good timing. I'm guessing that interests are matching the average extra returns, making pointless the extra risk for a permanent way to invest, but I don't know. Thanks!
I think that if you have a house to borrow against for the much lower interest rate this can be very interesting. It is an asset allocation decision though. Just like 100% stocks is statistically optimal but not every has a 100% stock portfolio, leverage will depend on the risk appetite of each individual. I agree though that it is optimal statistically.
I've done market timing once. It worked perfectly but the reasons behind the decision were so stupid that I decided to not try it again.
In december 2018 I planned to put my monthly savings into an US stock ETF. On the day when my salary arrived the price of the chosen ETF went just below the threshold that could enable me to buy it (in brief, my bank does not allow investments under 1000 EUR, I had slightly more than 1000 and the price of the ETF went under 333.33). Without making any detailed research, I've jumped to an European stock ETF, and set a limit buy order with a price around 5% lower than the then price of the ETF. This order would have been valid for a month but after 3 weeks it was activated (on 27th December). On this day the price went back to the level where it was 2 years ago. I did not catch the minimum price of the day, but it was still good enough. This was a slingle day opportunity, since that day the stock prices and the ETF price have been growing almost continuously.
What were the chances? :-)
Can’t complain about that outcome!
I feel this is a tricky subject. I agree that jumping around is likely to get you nowhere but screwed. Having said this, making gentle tilts one way or the other - perhaps within some boundaries to which you've agreed with yourself - is not unreasonable.
Say you're 60:40, stocks:bonds: When stocks (i.e., broad index) are selling at an earnings multiple of 10:1, shifting your balance a bit in their favor probably is a good idea. Likewise, moving a little in the other direction, when this multiple is, say, 30:1, probably is just as acceptable.
8:37 So basically, if you want to market time, at least do it the less dumb way;)
Hi Ben, the Vanguard study is often cited as beating Dollar cost averaging about 2/3rds of the time. But, I wonder, how would the results change if they only looked at 10 year rolling averages that started in months when the markets were at all time highs?
That's a good question. The AQR paper did not do exactly that, but they did do something similar. They adjusted equity weights based on the Shiller CAPE. I agree it would be interesting to re-test DCA vs. lump sum at all time highs.
I actually do use a momentum strategy based on dollar cost averaging. The only indicator I use is the 200 day moving average. I invest montly in a world fund and when the price is above the 200 day moving average, I don't invest; when it is below the 200 day moving average; I invest 4x my montly investment budget. It is based on a back test on the S&P which is 25% of the time below the 200 day moving average, hence 4 times the sum. The risk in this is that there are months where I don't invest anything and after a period the fund is prices below the 200 day average which may be higher than the moments I did not invest. In other words, say in January the fund is priced 75 which is above the 200 day average, in March it is priced 72 but it is below the 200 day average, then I should invest even though it is priced higher than in January. So far it has worked for me and I have outperformed the market every year, but I wanted to address the risk involved. Also there is the risk of being underinvested, however, to me it gives more peace of mind to not invest all my money at once and that is a big part of investing, someones risk tollerance.
Ben, do you advise Market Timing with a smaller portion of your total portfolio? Say, 90% of your portfolio is diversified buy & hold, and 10% seeks to take advantage of market swings. Thank you.
No. If you thought that you could add value by market timing you would not limit it to a small portion. Market timing has a negative expected return.
I believe most feel comfortable with dollar cost average because many people invest that way by nature (401K contributions). I've reviewed hundreds of index related funds and calculated the compounded return as if I purchased in each month. One common theme is that returns are nearly identical on long duration held funds, even through recessions. Not only until you calculate compounded returns for the last couple of years do they not match historic averages. I guess the key fundemental understanding is to hold long term. So, index funds, hold 15+ years. Lower bound (2 deviation) is rarely below 0%.
7:04 Lump Sum investing beat DCA 2/3 of the time. It's very important to point out then that DCA is better 1/3 of the time. So DCA (or market timing possibly) wins when you are near a market peak/recession, like we may be now. It could be argued that at some point in the next 5 years we will definitely be below the level we are at now, so instead of invest now, wait for a serious pull back like we had in Dec. (at least) and then add 10% investment for each 5% retracement, for example. We are at a time when global stability is in question, and US long overdue for recession, and current inverted yield curve, outlandish rents, debt, etc....Now seems to be the time to wait if you are going to buy and hold?
Thanks for the videos Ben. I would be interested to get your view on whether lump sum investing trumps averaging even in times of expected market volatility/uncertainty (eg right now !).... would it be a special case or follow the same rules? Thanks
It's like buying a house. There's never a good time to buy. But a choice has to be made one way or the other. At some point being okay with discomfort and being reasonable.
Its not like buying a house because a house is a shitty costly investment where stocks are not.
Its not like buying a house because a house is a shitty costly investment where stocks are not.
There are some really shitty stocks out there that are poor investments. That should be elementary. And there is no good time to buy even if you think there is.
Life ain't all that black and white.
Could you share your comments on Gary Antonacci's Dual Momentum?
That's the most rational timing model I know, but may be you can destroy it. :)
Great job explaining this using a data-driven approach. Can you make a video explaining how stocks like the XAW ETF or any index-tracking ETF can compound (without dividends)? Is it through consistent monthly payments? I don’t get how investing $5000 for 10 years causes any compounding, since it will just go up and down in relation to the ETF, and I don’t see where the “compound” effect comes from; unlike interest in bonds.
I can't believe how few likes and views this video(and channel) has. It should have at least a few dozen times more.
I dont know if i agree with the lump sum comment. Plenty of indexes have not reached their ATH - the nikkei, euro stoxx 50, MSCI emerging markets.
If you dollar cost averaged you may have made money, because you would also buy the cheap shares even if they never reached the ATH.