Good or bad time to invest in S&P 500 for Roth IRA? (2024)

newinvestor345 wrote: ↑Mon Mar 04, 2024 3:41 ambut now stocks seem to be hot

seem to be?

are they or aren't they?

or were they?

Just because they were hot doesn't mean they are hot.

Last year the market went up 25%...after going down 20% the year before. The net effect of an investment that falls 20% one year and rises 25% the next year is actually just getting back to even over the two year period). Do the math to see for yourself what happens to $100 that loses 20% then gains 25% thereafter.

newinvestor345 wrote: ↑Mon Mar 04, 2024 3:41 amShould I rather invest in something else and wait to move the money into these funds when the markets are low? If so, which fund might be good to invest in instead?

it's time in the market not timing the market that matters.

you're asking if you should stay in cash and wait for a market decline to invest at a lower point. But here's the thing:

1. have you actually thought about how much you need the market to fall before investing? I mean do you have an actual number that would trigger the buy signal for you? Does the market need to fall 10%? 20%? 25%? 30%? More? If you don't have a number in mind, how will you know when the right time is to invest the money?

And how often has the market actually fallen by the amount you're waiting for? Some people say, "I'm gonna wait til the market falls 40% before I buy!" Have you actually looked to see how many times that's actually happened throughout history? And might you be waiting a very long time for that to happen? And what might be the effect of waiting for that to happen, while the market goes up over time but you're not in it to win it?

2. What if (and this really happened/happens) you say, "Well, I won't invest until the market falls 20%" and then the market falls 19% and then goes on a tear (to the upside)? Whoops! Missed that opportunity didn't you?

3. What if the market falls much farther than you thought? Would you be scared and not invest because it seems like the world is coming to an end and "how can I invest now when the market "seems to not be so hot"? Will you wait til the dust settles (meaning stocks go up again) because you're too afraid of throwing good money after bad?

4. What if you invest after the market declines and it does go further down. Will you regret having invested the money rather than staying on the sidelines?

5. Finally, and this often happens, what if you are waiting for the market to fall and it rises before it falls. Have you seen there have been times when you'd have had a better return if you'd have just invested rather than waiting because if the market rises and then falls, you could still be buying in at a higher price later than if you just invested now.

Case in point: Alan Greenspan talked about an "irrational exuberance" in Dec 1996. Had you taken that as a signal the markets were too hot and you'd wait until the market declined here's what would have happened. The market did fall from 2000-2002 significantly. Think the worst drawdown was 50% but stocks fell I think 40% over those three years. Anyway, a good buy signal right? And certainly better than investing at some high point in 1997, right? Wrong.

Had you invested $10,000 in 1997 in total stock market index fund (though the market was and had been hot) because the market continued to go up 100% (doubling your money) between 1997-1999, you'd now have $110,991 between 1997 and now.

But had you invested the same $10,000 in 2003 AFTER the market dropped 40% (you waited to buy stocks on sale), you'd only now have $88,221 because you missed the runup in stocks before the decline and missing that runup cost you money. It was an opportunity cost of being out of the market waiting for a great decline to come along, which it did (2000-2002), but so what? You missed out on making money prior to that which would have led to the better outcome.

Do you really want to agonize this way for the rest of your days or would it make more sense to pick an asset allocation (mix of riskier assets and less risky assets) and just get the money invested according to that allocation? Otherwise if you're going to cash and at times inveting in stocks you're ping-ponging around between things. That's not a good recipe for success in my mind. For starters, if you're not in the market, you can't get the return of the market because you're not in it to win it. As others have said, In order to get the return of the market, you really do have to take the risk.

what do you think?