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Timing the Market - Just Don't

There's a quote floating around in the investment community: Time in the market trumps timing the market. I tend to agree. There's a reason people who begin investing young end up having more in retirement than people who begin later, even if the late bloomer gets lucky and happens to sell at every market high and buy at every market low. Check out this great post on Reddit.

I once attended a talk by a financial planner who said he uses his grandchildren's timeline to decide how risky to allocate his investments, since he's investing for them at that point in his life, as opposed to for himself. He's on a longer time horizon because he intends for them to inherit his money, so it should be invested according to their retirement target dates instead of his own.

The Financial Independence/Retire Early (FIRE) community also suggests strategies for increasing time in the market, such as front-loading 401ks if you can. This means putting as much of your paycheck as possible into your 401k at the beginning of the year, until you reach the annual maximum contribution. Depending on your 401k, you might need to allow room for a continuous minimum contribution through the end of the year so you can get your company match. Sometimes HR departments set it up so it's a percentage of each paycheck, not a percentage of your annual total contribution. We've experienced both types of set ups.

When frontloading, sometimes you can only contribute 80% or so of your paycheck because the rest have to go to taxes, insurance, and the like. And if you're hourly like I am, the amount in each paycheck may vary enough that you need to allow a cushion for all that. We tried it out, but it was a bit of a headache to have to pay attention to all the varying percentage contributions and track how many paychecks are left in the year and when the percentage contribution change would take place, since that would mess up the calculation if we were off by a paycheck and put the wrong percentage in for riding out the rest of the year.

I have friends who talk about wanting to invest "when the market is low." But when I ask them how they'll know when it's low, they shrug. Then when the market is tanking, I ask if now's the time to invest. They say they are waiting for things to stabilize. When it looks stable, they still aren't sure it's time. I say admit it to yourself that you're procrastinating on investing due to fear or perfectionism. Do not attempt to time the market. It is the wrong thing to think. Instead, think: how can I get more money into the market that I can afford to risk?

When I made my first investment, it was easy: my company had an Employee Stock Purchase Program (ESPP). I set aside 15% of my paycheck to buy into it. Every 3 months I think, they purchased shares with however much money had accumulated. The price would be the cheaper of the price of the shares at the beginning or end of the quarter, discounted another 15%. A common strategy my colleagues used was to buy the stocks through the ESPP and then immediately sell to gain the minimum 15%. I wanted to avoid the short term gains tax, so I held them until they were long term gains.

Once they were long term gains, I sold them to diversify my holdings. At that point I had a bunch of cash I needed to invest again. I used all kinds of "ideas" at the time for where and how to invest the money. For example, my dad espouses SDY and SPY. SPY is the S&P 500 in an Exchange Traded Fund (ETF) format, where a share is really made up of fractional shares of all the companies in the S&P 500. SDY is the S&P 500 Dividend Yielding stocks, where they kicked the non-dividend stocks out of the ETF. Since I like dividends, I would often buy SDY. I learned that Verizon gave dividends... so I purchased it. I learned about the dividend yielding NOBLE stocks... so I bought those. I knew about Real Estate Investment Trusts (REITs) which are a collection of real estate represented in an ETF format. When buying a share of a REIT, you are buying a fraction of a group of buildings and the dividends are basically the rent on those buildings... it's a stock market product that allows you to be a landlord with diversification of risk across multiple buildings. So I bought shares of a REIT. I'd read a book called Plutocrats where they talked about the disappearing middle class, suggesting that super high-end and low-end brands would do well as the middle class was forced up or down, ending up patronizing those brands. So I bought Louis Vuitton (LV) and Dollar Tree stocks. My husband had me watch a documentary about the rise of Elon Musk and it talked about Tesla. So I bought Tesla because I believed in the vision cast for the future. Plus my husband wanted to own a Tesla one day, and I liked the idea of "owning Tesla" before he did.

In the end, I had a weird mixture of single stocks and ETFs. Later, as the various investments did well, my husband would convince me to sell them and go more conservative in my investments. Or I would sell them off to pay for some major life event like a large vacation, wedding, or our house down payment. There's the flip side of "time in market" on when to sell the investments. You sell when it's time to pay for a major life event that requires the money. After all, the money isn't for growing indefinitely forever. It's for funding life, dreams, and the future. When the future is now, sell the assets. It doesn't matter that much if the market is up or down if you've been doing the right things the whole time and it's time to pay for a thing in life.

So that's what I did and continue to do... invest early and continuously. When it's time to pay for something big in my life, I sell the assets to pay for them. The balance continues to grow because I continue to do the right things, and it doesn't matter if the market brings it up and down because until I need to sell it, the ups and downs don't affect my life. By the time I do sell it, even if the market is down, all the time the money's spent in the market more than makes up for the market downturn. The time horizon is a long one built on life long habits. Start them today and you too will not worry tomorrow.

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