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/biz/ - Business & Finance

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575461 No.575461 [Reply] [Original]

Is it a good idea to put $40,000USD in Vanguard 500 Index Fund?

How about Vanguard Health Care Fund?

>> No.575463

Assuming I let it compound for ~5 years.

>> No.575467

Bump.

>> No.575468

I'm not qualified to answer but market is at an all time high. How much higher can it go before you eat a correction? Wouldn't it be better to wait for a crash and invest in different things for the time being?

>> No.575469

Generally, yes.

Long answer, do the research. Vanguard is a great company and funds are safer than individual stocks but you still need to pick a good one.

>> No.575471

>>575468
Don't time the market. When funds lose money they get several years of writeoffs and it is better to hold them through a correction.

>> No.575473

>>575468
Okay, I can wait for the crash.

I want to grow that money for my future studies.

Till then I don't really have to invest in different things.

So I should be safe to invest after this upcoming "correction" ?

Approximately how long before this happens?

>> No.575475

>>575473
Anywhere from 1 to 5 years, statistically speaking.

>> No.575476

>>575471
Let's assume I'll be invested for ~5 years.

In that case is it still wise to hold them through a correction?

>> No.575478

Generally yes, but not all at once. Spend 8k now, spend another 8k 3-6 months from now, or if the funds goes down 2-4% during a correction.

Rinse and repeat

>> No.575480

>>575475
Well.. hope it happens sooner then.

>>575478

I see, thank you.

>> No.575482

Generally, how much will the fund go down during a correction?

>> No.575491

>>575482

Depends on what the composition of the fund is and how much those components go down

>> No.575516

>>575478
>Still doing dollar cost averaging

>> No.575523

>>575461
It will do well over the long-run.

How the market behaves in the short run doesn't have much effect on long-run returns, just how long it will take for those returns to reailize.

With that said, I bought a bunch of shares of the VDE Energy ETF cause I figured oil couldn't get much worse than it is now.

I submitted a limit at 111.00 when it was at 111.70, then sat around taking a shit and worked myself up into buying it at 111.45. Now it's at 110.75,

Fuck me. Whatever, though. Not looking to day trade this. I'm gunna hold it for a while.

>> No.575544

>>575523
I see, when you say long run, is it around 5 years?

>> No.575551

>>575544
No. If no statistical calamity occurs within the next boom/bust cycle time horizon, 5 years is probably around when the market will stop its bullish trend and begin to decline.

But since the inception of the S&P 500 its returned something like 9.8% annualized returns, which is better than the average fixed income return which is somewhere around 4.5% over the same time period.

Over the past 4 years, the S&P 500 annualized return has been 20-30%, and will probably slow on growth but continue at 10-20% for the next 3-4 years, I'd guess.

>> No.575552

>>575516
What's wrong with dollar-cost averaging?

>> No.575555

>>575551
ahh... sucks that it will have to slow on growth but i guess that still good enough.

>> No.575556

>>575544
1-5: short term
6-15: medium term
16-40: long term

>>575552
>What's wrong with dollar-cost averaging?
Its statistically inferior to lump-sum investing.

>> No.575561

>>575556
So lump-sum investing is superior?

>> No.575566

>>575561
>So lump-sum investing is superior?
According to the research, yes 66% of the time.

https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf

>> No.575570

>>575566
Thanks for this.

>nice dubs sir

>> No.575575

>>575468
You idiot, the market is always going to be at an 'all time high.'

The U.S. economy is predicated on a theory of infinite growth. Growth = new all-time high in the stock markets. It's also likely that the correction already happened over the summer.

>>575473
Don't bother waiting for the crash. If you are planning on holding the stocks long-term (> 10 years), all that will even out to about 6% post inflation gains.

If your investment horizon is 5 years, you're better off looking for high interest CDs. It only marginally beats inflation, but you don't expose yourself to nearly as much risk.

>> No.575578

>>575566
Unfortunately, the report fails to detail the conditions that lead to the other 1/3.

It's not like a 33% chance of doing worse is a negligible chance. It's fairly significant, actually, and without knowing why some conditions did better with LSI vs. DCA, one is being very stupid to LSI $40k because some report says that it did better 2/3 the time.

>> No.575615

bump

>> No.575635

>>575578
Huh? Its fairly obvious from the report that the reason DCA underperforms is that its a form of market timing (a benign form, but market timing nonetheless). The problems of market timing are well known and heavily studied.

The only thing surprising here is that DCA outperformed 1/3 of the time. But I guess that goes to show that mechanical market timing is fundamentally better than the conventional market timing attempted by active investors.

>> No.575653

>>575578
I just skimmed the executive summary, but LSA outperforming 66% of the time isn't wild or even unexpected.

DCA isn't typically a tool one looks at for investing. It's a byproduct of overtime investing where in one is investing money as it becomes available from another source.

The linked PDF spells the whole thing out in a very binary fashion. The results are not unexpected. DCA is assuming less risk at the cost of lower returns. The fact that it underperforms only 66% of the time is actually very striking given the returns of DCA are still very close to LSI.

It's fairly typical stuff for /biz/, people forgetting the relation of risk to return and focusing only on return.

>> No.575661

>>575635
Market Timing is a somewhat nebulous term in this scenario. It isn't inherently a bad thing. It's best avoided because most people don't know what they're doing, but it's not a defining characteristic.

>> No.575694

>>575653
The study compares two hypothetical strategies (A) LSI and hold for 10 years, and (B) DCA over one year and hold for 9 years. I defy you to demonstrate that (A) is appreciably riskier than (B).

It's fairly typical stuff for /biz/, people failing to read things and posting nonsense replies just to see their own words in digital print.

>> No.575704

>>575476
Assume 5% per year on average for your investment. Rule of 72 says you will double your money in 14.4 years.

In 5 years, on average, you will have something like 55k (compounding income gives back more in later years). What actually happens is based on market conditions.

If you expected more return, you need to take on more risk and possibly lose your money. If you don't like waiting for market conditions, you can take a lower percentage rate and buy bonds.

>> No.575735

>>575694
>>575694
It's only appreciably different in risk for that first year, and then the difference in 10 year returns is based on compounding after that first year. It really depends on how fucked you are if you're in that 33% where your windfall came at a bad time to LSI.

>> No.575744

>>575735
Or how much you benefited in the 67% of time where year 1 performance boosted your overall return.

At the end of the day it comes down to exactly what I said before: DCA under-performs because time-in-market is statistically better than rolling the dice on market timing (even mechanical market timing). But either way, over the long run, the differences aren't huge, because ... wait for it ... time-in-market is statistically better than rolling the dice on market timing.

>> No.575798

>>575744
And again, all you're looking at is returns without assessing risk. Are you really trying say of two people, one who drops everything in to the market, and one who drops 20% of the same amount while keeping the other 80% in cash, that they're both assuming the same amount of risk?