There’s been something that’s been eating at me for a couple of months now. The stock market seems too bloated right now and I’m thinking about moving my money out of it.
No, no – I’m not trying to be the guy timing the market. I just think I should move the money in my 401(k) to cash for a little bit and when the market crashes, I’ll be able to buy again at much lower prices. My 401(k) would be worth so much money after that!
Oh, wait… I guess that’s exactly what timing the market is.
Timing the Market
If you’re familiar with that expression, you probably also know that market timing is a gamble that very few people ever win at. Basically, you’re trying to beat the stock market… tough battle. And it would be especially tough for me to beat since I don’t really follow it daily. I also don’t know enough about trends or a lot of the economics that help swing it in different directions.
But could you imagine if I did sell now and I was right?! My 401(k) is a very sizable portion of our net worth. That would put me on the map for retirement that much sooner, which is something I could really use right now!
A buddy of mine and I have this discussion all the time. He keeps suggesting that he wants to do this and I keep saying that it’s not a good idea. The problem is that I actually want to do this too – it just seems like an easy solution… sell high and buy low. Easy enough, right?
However, the big unknown is what gets people who attempt this into trouble. The issue is that you really don’t know if you’re selling high. Maybe the market will continue to grow for another couple of years before it goes down. Think of the compounding growth you would then miss out on during that time.
The Mad Fientist put out a great podcast recently which was a Q&A at Camp Mustache. The guests were Mr. Money Mustache, Paula Pant from Afford Anything, and Doug Nordman from The Military Guide. During the Q&A, someone asked the panel of guests about timing the market. Like I said, this is something that’s been on mind for a while so I really perked up.
There were some good replies, but what I really liked was the response from the Mad Fientist. Here was something he said about the topic that stuck with me…
So, it’s something I’m trying to work on too. But I also want to point out that we could’ve had this conversation in 2012 and been like, “Wow! This boom market is crazy!” And if you had stopped investing then, you would’ve been sorry.
You can never tell when the boom market is going to stop.
He’s right – and I bet there were a lot of people who did sell at that time and have looked back since then realizing they made a pretty big mistake.
And guess what? That’s only half the battle! You would also need to know when the market is at the bottom. Maybe you assume that it can’t go any lower and buy back in and then it continues to tumble even more for another year after that.
It’s a pretty good mind conflict. The smart move is to just let it ride in index funds and forget about it. Keep contributing and don’t let it phase you. But the psychological aspect likes to eat at me anyway.
Is it possible maybe this one time I might be smarter than the stock market?
But it’s still something that drives me bonkers. Coincidentally, in that same podcast, Paula had a thought that could be helpful to people like me…
The way that I’ve dealt with this is instead of thinking about, “I’m going to invest less when I feel like the market is high,” flip your mindset into “When I feel like the market is low, I’m going to invest even more.”
So, whatever amount you’re currently investing monthly, just keep doing that. And then, when you see a dip, be like, “Okay, sweet! What is something I would’ve spent some money on, just something ridiculous, but instead, I’m going to take that and invest that now at the dip.”
I like that idea and I actually already try to do that when I can. Although my 401(k) continues to buy index funds, my Roth IRA doesn’t automatically do that. So I usually just keep adding a little money into it every other week and then when the market dips just a little bit, I buy. It makes me feel like I’m getting a deal… we’ll call that timing the market on the smallest scale!
So, all in all, I’ve decided for the time being to begrudgingly stick to the plan, leave my money in the market, and keep investing… but just know that I hate it! 🙂
Has the idea of timing the market ever jumped into your head? If so, have you acted on it?
Thanks for reading!!