# If you came into a substantial amount of money, would you wait till the next market crash to invest? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [January 1, 2014, 7:44am UTC](https://boards.straightdope.com/t/if-you-came-into-a-substantial-amount-of-money-would-you-wait-till-the-next-market-crash-to-invest/677622 "2014-01-01T07:44:45Z")\ **Posts on this page:** 7\ **Page:** 2
**Author:** ![QueenOfClubs](https://avatars.discourse-cdn.com/v4/letter/q/53a042/32.png) [@QueenOfClubs](https://boards.straightdope.com/u/QueenOfClubs)\ **Post date:** [January 2, 2014, 5:15am UTC](https://boards.straightdope.com/t/if-you-came-into-a-substantial-amount-of-money-would-you-wait-till-the-next-market-crash-to-invest/677622/21 "2014-01-02T05:15:55Z")
And it all gets solidified by the way we approach economics as a nation. Giving money to rich people doesn’t create jobs. DEMAND creates jobs and there won’t be solid demand until wages rise, which half the nation is viciously against and is even trying to remove minimum wage to make the U.S. more competitive, so they say, with like… Calcutta. Great. Sucks to be the bottom 98% in Calcutta and we’ll all get to enjoy that soon because of our political stalemate and the greed of our elite. Until we create a tax code that pays people to create money through opening businesses and hiring Americans, and then pay them living wages, this spiral will continue. When and if people are employed and paid decent wages, they will buy services and items and again and THAT will create jobs and real national growth. Won’t happen at this rate, though. ---
**Author:** ![Bill\_Door](https://avatars.discourse-cdn.com/v4/letter/b/50afbb/32.png) [@Bill\_Door](https://boards.straightdope.com/u/Bill_Door)\ **Post date:** [January 2, 2014, 1:17pm UTC](https://boards.straightdope.com/t/if-you-came-into-a-substantial-amount-of-money-would-you-wait-till-the-next-market-crash-to-invest/677622/22 "2014-01-02T13:17:16Z")
> [@septimus](#): > > (snip)Interesting how often that, after paying lip-service to “can’t time the market”, someone will discuss how to time a given market. ;)(snip) That’s just asset allocation and portfolio balancing. Yeah, that’s the ticket. > [@septimus](#): > > (Putting $10,000 into each of ten stocks might be thin, but individual stocks have several advantages over funds, at least for some smart confident people. Good stock pickers might not be uncommon. A friend had Harley-Davidson and Philip Morris at the top of his recommendation list in the early 1990’s – I’d be farting in silk if I’d put all my money into these two stocks! (MO was especially sweet; you could buy more at a low price whenever some lung-cancer widow got a half-billion dollar jury award!) If you avoid risk by limiting exposure in any one stock to 10% you’d need ten great picks, not two, to get great performance. My friend’s reply to that: “Diversification is de-worsification.”(snip) Well, you probably shouldn’t have more than say, 50 stocks in your portfolio unless you’re doing it full time, I’ve got around 45, and some of them are stocks that I only look at quarterly, and none of them are stocks I need to look at every day. Ten great picks out of ten would be a lot. You’re going to pick up a dog or two. I try not to let any stock become more than 5% of my holdings, except for GE, which I bought like a madman back when it was under $10.00 a share after the dividend cut. That I’m way overweight on, but can’t bring myself to part with. ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [January 2, 2014, 1:49pm UTC](https://boards.straightdope.com/t/if-you-came-into-a-substantial-amount-of-money-would-you-wait-till-the-next-market-crash-to-invest/677622/23 "2014-01-02T13:49:56Z")
> [@Bill\_Door](#): > > That’s just asset allocation and portfolio balancing. Yeah, that’s the ticket. > > Well, you probably shouldn’t have more than say, 50 stocks in your portfolio unless you’re doing it full time, I’ve got around 45, and some of them are stocks that I only look at quarterly, and none of them are stocks I need to look at every day. Ten great picks out of ten would be a lot. You’re going to pick up a dog or two. I try not to let any stock become more than 5% of my holdings, except for GE, which I bought like a madman back when it was under $10.00 a share after the dividend cut. That I’m way overweight on, but can’t bring myself to part with. I feel similarly, I have about 20. My portfolio isn’t large enough to have $10k in each (well, it is, but I don’t). My “minimum investment floor” in a single stock is $1000. If it goes up 10%, I’ve made the same 10% that I’d have made had I invested $100,000. But I don’t have $200,000 to put into 20 stocks, and putting it all in one place isn’t diversification. I could put it all in mutual funds (and much of it is, which is why I don’t have enough for $10k in each of the stocks I own), but for me, individual stocks is a learning experience. Not only in how to track and analyze a stock, but in my own personality - will I let go of it appropriately, or will I hang on inappropriately? The only way for me to learn dispassion is to do it repeatedly, I need to do that with a lot of little investments. And since I get 100 free trades a year with my brokerage (and have never used more than 20), it doesn’t cost me anything. But I had to make this decision about two years ago, and put it in over the course of a year into mutual funds in a couple of categories - something that pays dividends, something that grows, and an index fund. Vanguard’s version of each. That way if the market did a 30% dip the week after I put it all in, I wouldn’t be jumping out of a window. But it was more a concession for my nerves than true risk avoidance. ---
**Author:** ![DCnDC](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dcndc/32/2842_2.png) [@DCnDC](https://boards.straightdope.com/u/DCnDC)\ **Post date:** [January 2, 2014, 2:45pm UTC](https://boards.straightdope.com/t/if-you-came-into-a-substantial-amount-of-money-would-you-wait-till-the-next-market-crash-to-invest/677622/24 "2014-01-02T14:45:33Z")
Obligatory Simpsons quote: > [@Homer Simpson](#): > > This year I invested in pumpkins. They’ve been going up the whole month of October, and I’ve got a feeling they’re going to peak right around January and BANG! That’s when I’ll cash in! ---
**Author:** ![jasg](https://avatars.discourse-cdn.com/v4/letter/j/f0a364/32.png) [@jasg](https://boards.straightdope.com/u/jasg)\ **Post date:** [January 2, 2014, 4:48pm UTC](https://boards.straightdope.com/t/if-you-came-into-a-substantial-amount-of-money-would-you-wait-till-the-next-market-crash-to-invest/677622/25 "2014-01-02T16:48:55Z")
No. Waiting until the next crash is an unwise approach to investing. When I was 40 I started investing in quality stocks and low fee index funds. I held on, never selling, kept investing and am now comfortably retired. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [January 2, 2014, 6:48pm UTC](https://boards.straightdope.com/t/if-you-came-into-a-substantial-amount-of-money-would-you-wait-till-the-next-market-crash-to-invest/677622/26 "2014-01-02T18:48:38Z")
> [@Machine\_Elf](#): > > You can play with this in a spreadsheet: > > -pick any 25-year period in the last 100 years. > -Watch the S&P500 index, and see how long you would have to wait for a crash (one that meets your definition of a crash). > -Calculate two net values: one as if you had invested $100K at the start of your 25-year period, and another as if you had waited for a crash before investing. See which strategy wins, and record the results. > > Now pick another 25-year period (it’s OK if there’s some overlap with your previous test period), and do the math again. Repeat a few dozen times > > How often does the “wait for a crash” strategy produce a bigger return? I’m gonna guess that once in a while it works, but that most of the time it results in a lesser return. Make sure, when you do this experiment, that you come up with a precise and well-defined definition for “investing after a crash”. Does it mean x% lower than the last peak? x% lower than day 1 of your test range? x days of dropping prices? Also (and this should be obvious, but you’d be surprised how many people do it wrong), you can only consider previous data when determining when to buy on a given day. If you don’t do this, you can very easily end up with a totally skewed and unreasonable result by using a different definition for a crash (whichever one works better for the sample you’ve tested on), or even worse, just magically investing at the bottom of the market each time. That will prove that someone with perfect foresight can indeed make money timing the market, but that result is neither surprising nor useful. The simplest argument I know for why timing the market is a bad plan: On average, you expect the stock market to go up in the long term (otherwise why are you investing in it). Therefore, on average, you should expect that the prices tomorrow will be a bit higher than the prices today. So your best expected value is to invest immediately. Note that this strategy does increase the potential for loss. If you want to limit the chance that you invest right before a crash, then averaging into the market (say, invest 1% a day for the next 100 days, or 10% a month for the next 10 months) will limit your downside risk, but it will **also** reduce your average earnings. ---
**Author:** ![JustinC](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/justinc/32/8083_2.png) [@JustinC](https://boards.straightdope.com/u/JustinC)\ **Post date:** [January 3, 2014, 4:52pm UTC](https://boards.straightdope.com/t/if-you-came-into-a-substantial-amount-of-money-would-you-wait-till-the-next-market-crash-to-invest/677622/27 "2014-01-03T16:52:44Z")
Another call for averaging in, except I say do it more slowly. Market cycles are actual things and so we can say, with 99% safety, markets will go down at some point, just not when they will go down. Cycles last, what, five years on average? So if you make paying in that 100k last 5 years you’ll have _a good chance_ of buying low with some of it. This’ll also give you time to look around and choose what you feel comfortable with; if you decide you want low risk (with probably lower return) you choose a World index tracker, or maybe you like risk and choose individual penny stocks, or a mixture or something in between. Or buy OJ futures, whatever suits your investing preferences, but you won’t know your investing preferences until you’ve had skin in the game for a while. [Previous page](https://boards.straightdope.com/t/if-you-came-into-a-substantial-amount-of-money-would-you-wait-till-the-next-market-crash-to-invest/677622.md?page=1)