Thanks for the comment Umer. Obviously we’re in agreement. Mrs. CC is more risk-averse, so she wanted more cash than I would prefer. Also, a topic for another post: we went ahead and paid off our mortgage. We were in striking distance, and it made sense to eliminate that expense if we were going to enter a phase of no W2 income. FWIW I think your strategy will probably make more money, but there’s something to be said about the amazing feeling of living debt free!

The majority of the comments here seem a bit odd to me. I agree with the overall sentiment of your post and the DCA strategy.

2-3 years of living expenses in cash seems like a lot to have on hand. At current interest rates, its hard to justify paying off your mortgage when you can just plunge more into equities and get stocks on sale.

I made the choice to put half my cash in equities when the market fell as a lump sum. And I’m working my ass off to put more in. This time calls for a more aggressive investing approach.

Rick, to each their own. There are many way to invest. That said, yes, you do have to be lucky twice for market timing to work — and that’s just one bear market! Sure, there’s some margin (i.e. you don’t have to hit the exact market low and market high). However, the farther you are from hitting the high or low, the more you stand to lose or the more your gains are diminished. There’s just a massive, heaping pile of research showing that active, market-timing investors generally underperform the market. And if this is your style, you have to reasonably time every single bear market for decades. As per how markets relate to a virus (and more on why market timing is problematic for the vast majority of investors), I found this article particularly relevant to this discussion: https://www.ifa.com/articles/market-timing_more_evidence_really_doesnt_work/

But tell me, what’s wrong with matching market performance when it’s proven so incredibly difficult to beat it? Have you outperformed the market over 20 or more years with this strategy?

This is were long term investors are wrong. It does not mean you have to be lucky twice. You do not have to sell at the top and buy at the bottom. When it is obvious such as in the case of a pandemic, everyone and their dog knows the market will tank, so what if you miss the first 15% down, you sell some of your investments and start to buy back in at 20/25/30/%%% down and who cares if at the bottom you missed the 10% one day gain at the bottom. You write down the price you sold at and you make sure that you buy back in at a price below that. Now if you sold once it hits 30% down, then yes you are wrong and that is a bad thing. Market timing does not have to be perfect, you just have to make sure you get back in. Also if you miss out on 5-10% gains by sitting on your cash but that allowed you to sleep during a meltdown that is not such a bad thing either, Warren Buffet sits on piles of cash.

Well, this is turning in to its own blog post! I guess I’ll repeat what I said back in November. Market timing, as multiple studies have shown, generally results in underperforming the market as a whole, and I think what you are suggesting is market timing. If you can devise a strategy to pick the top and bottom of each correction or bear market over a multi-decade investing horizon, you will be a very wealthy man! But as I keep pointing out, I’ve yet to come across any reliable strategy that doesn’t in some way miss either big cap gains on the way to the peak or huge buying opportunities at the bottom. Too much luck.

In my years of study (not a scholar on the matter), here is the conclusion I’ve come to regarding what investment strategies work and don’t work well.

1. Lump Sum Investing. Performs best, but is psychologically demanding to invest large sums at once.
2. Dollar-Cost-Averaging. The sweet spot. I actually do a hybrid version by adding more investments when markets are down, buying more shares on discount (already discussed). Otherwise we buy equities once per month, the same dollar amount, every single month. Always. With any cash windfalls, I lump-sum them.
3. Market Timing. Those who participate generally underperform the market as a whole and were better off with either of the passive, conveniently lazy choices outlined above.

If you can show me a study that refutes what is written above, you will have my attention. Otherwise, I guess we have to agree to disagree. Friendly, of course. 😉

If you go back to the email exchange we had in Nov, your questions were already answered in those emails. It’s not purely about luck, but looking at probabilities and analyzing things like fundamentals and technicals. I’m just scratching the surface as I learn more about trading (which is different than investing), but after a while even I started to recognize some of the patterns.

For example, I think that 2180 is an important support level in the S&P. It’s the level that the S&P was trading in 2016 for almost 1.5 years. The S&P just tested this level yesterday, if this level can hold, then we may see a short term bounce in the S&P for a few days, even up to a week. There has been too much selling in the last few weeks, but volume is decreasing and sellers are getting exhausted. Once we see a bounce, some will think this is the bottom and jump in to buy. And then we will see another round of selling that has the potential to push the S&P down to around 1800.

Do I know this for certain? No. But based on what I’ve learned in the last few months, I think this is fairly high probability scenario.

To each their own. I’m certainly not doing anything against the grain when it comes to long-term investing.

But regarding each other’s retirement plans, just remember that market timing requires being lucky twice. It’s very difficult to have a plan on what almost certainly requires that kind of good futune.

Just a question: What criteria will you use to say for certain that we are in a recovery? Bear in mind (sorry for the pun), that when I started investing in 2011 (two YEARS after the bottom!) we were in the midst of a correction and the news was warning that we could dip back into a recession. Also, did you cash out your investments before February 19, recognizing the high before it occurred?

That’s why DCA is a solid choice and that’s why I keep repeating that hindsight is 20/20. Only with passing time can we recognize market highs and lows.

Just presenting a contrarian point of view, that is all. People think market timing is a bad thing, but I don’t think so if done with a set plan and without emotions. You have your plans and you’re sticking to it, props to you. I just wanted to share what I believe will work (as I shared with you in November), but of course ultimately it’s up to you. I’m not a financial advisor either, just a friend who wants to see you do well in your retirement.