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what's supporting the market?
Posted on 4/8/11 at 7:37 am
Posted on 4/8/11 at 7:37 am
Greetings. First post on the MT board - my brother in law who I consider to be somewhat intelligent for an Alabama fan has put his entire 401k into money markets. He did this because he claims nothing is supporting the market at 12000+ and thinks a "correction" down to 8000 is imminent. Was he wise to do so? I say ride it out as he is in his late 30's.
This post was edited on 4/8/11 at 9:15 am
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Posted on 4/8/11 at 7:49 am to Nyala
If he is that confident on it coming down, he should be shorting it rather than putting money in money markets.
Posted on 4/8/11 at 7:53 am to LSU1018
Do you know of a 401k plan that gives people the ability to short equities? Mine sure doesn't...
Posted on 4/8/11 at 7:54 am to LSU1018
quote:
If he is that confident on it coming down, he should be shorting it rather than putting money in money markets
first rule is don't lose money...
Posted on 4/8/11 at 8:27 am to Nyala
quote:
who I consider to be somehwat intelligent
quote:
put his entire 401k into
Does not compute.
Posted on 4/8/11 at 9:15 am to RasinCane
Are you saying that QE is, in fact, the (only) reason we are above 12000?
Posted on 4/8/11 at 10:03 am to Nyala
I did not say that but I do believe that an end to QE will bring a large sell off in equities if the Fed doesn't buoy equities by some other method. And, not only equities but other asset classes.
What happened when QE1 stopped?
What happened when QE1 stopped?
Posted on 4/8/11 at 10:16 am to Nyala
quote:
401k
quote:
"correction"
quote:
late 30's
quote:
Was he wise to do so?
nope. 401k's are the purest form of dollar cost averaging there is. Why would you attempt to time the market and miss out on accumulating a far greater number of shares if he is correct through timing? Plus, he has 20+ years to ride out the market. He can at least continue to collect dvidends and reinvest those along the way.
Posted on 4/8/11 at 2:14 pm to Nyala
He may or may not end up being right this time, but if he does this 10+ times over the next 30 years, he will be wrong more often than right and end up leaving money on the table because of it.
And he creates a whole seperate problem for himself, when say the Dow rises to 14,000 for example. He's been in cash the whole time, and will be tempted to stay in cash rather than move in at 14k because in his mind, if he thinks the market is inflated now he's certainly going to think it's inflated at 14k... so basically as the market continues to rise over the next 30 years (which it will) he will always be sitting in cash as this procession of his continues, and it all started on some crazy market-timing notion in 2011 based on nothing but a hunch.
So to answer your question, no I do not think it is wise. Will he end up being right and the market dips this time? Yeah, it's possible. But if he continues with this mindset until he retires, there is no doubt in my mind that he will leave money on the table and screw himself.
And he creates a whole seperate problem for himself, when say the Dow rises to 14,000 for example. He's been in cash the whole time, and will be tempted to stay in cash rather than move in at 14k because in his mind, if he thinks the market is inflated now he's certainly going to think it's inflated at 14k... so basically as the market continues to rise over the next 30 years (which it will) he will always be sitting in cash as this procession of his continues, and it all started on some crazy market-timing notion in 2011 based on nothing but a hunch.
So to answer your question, no I do not think it is wise. Will he end up being right and the market dips this time? Yeah, it's possible. But if he continues with this mindset until he retires, there is no doubt in my mind that he will leave money on the table and screw himself.
This post was edited on 4/8/11 at 2:21 pm
Posted on 4/8/11 at 2:34 pm to JPLSU1981
Sell in May and go away? I don't think this was designed for 401(k) plans.
Posted on 4/8/11 at 2:56 pm to JPLSU1981
quote:
so basically as the market continues to rise over the next 30 years (which it will)
How do you know?
Posted on 4/8/11 at 3:09 pm to OohPooPahDoo
The market will be higher in 30 years than it is today.
Posted on 4/8/11 at 3:13 pm to JPLSU1981
quote:
The market will be higher in 30 years than it is today.
How do you know?
Posted on 4/8/11 at 3:15 pm to OohPooPahDoo
quote:
How do you know?
Economic History
Population Growth
GDP Growth
Technology
Globalization
All of these things give the market a near 100% chance of being higher in 30 years than it is today, barring some end-of-the-world scenario that would make the market a moot point anyway.
This post was edited on 4/8/11 at 3:17 pm
Posted on 4/8/11 at 3:19 pm to JPLSU1981
quote:
Economic History
How does knowing the past performance of the stock market enable one to predict the future?
quote:
Population Growth
You're certain that won't end any time in the next 30 years?
quote:
GDP Growth
How do you know that's going to happen?
quote:
Technology
Globalization
How do those two words enable you to predict the market 30 years in advance?
quote:
All of these things give the market a near 100% chance of being higher in 30 years than it is today, barring some end-of-the-world scenario that would make the market a moot point anyway.
So I should borrow as much money as I can and invest it all in the stock market then...
Posted on 4/8/11 at 3:26 pm to OohPooPahDoo
quote:
So I should borrow as much money as I can and invest it all in the stock market then...
Not necessarily. Only if your rate of return would be higher than your interest rate, and that's much harder to predict (what the exact return of the market will be).
And yes, despite the ole investing cliche, you can use past economic growth to predict future economic growth.
Posted on 4/8/11 at 3:26 pm to OohPooPahDoo
Lots of faith and baloney. Can you back it up?
Posted on 4/8/11 at 3:30 pm to JPLSU1981
thanks for the response. i agree and am sticking with the market long term. the advice you gave is identical to that given to me years ago by my aunt, a financial advisor. and no, she isnt making money off of me for those who were wondering...
Posted on 4/8/11 at 4:15 pm to JPLSU1981
quote:
Not necessarily. Only if your rate of return would be higher than your interest rate, and that's much harder to predict (what the exact return of the market will be).
You said the market would be higher in 30 years. I assumed you meant after taking into account the time value.
quote:
And yes, despite the ole investing cliche, you can use past economic growth to predict future economic growth.
I'm curious as to how this is even possible. It seems a paradox. If I could use past economic data to predict that S&P index would rise by X percent over the next year, it would seem that would mean others could perform the same computation, and hence come to the same conclusion, and hence bid up or down the price of the stock (depending on if X is positive or negative) - completely eliminating the predicted gain (or loss) before the vast majority of investors could take advantage of it.
This post was edited on 4/8/11 at 4:16 pm
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