Ask HN: Is now a good time to invest in ETFs?

https://news.ycombinator.com/item?id=22723957

by r0f1 • 6 years ago

22 32 6 years ago

news.ycombinator.com

There was a huge drop in all major indices. Is now a good time to invest in exchange traded funds?

ardit33• 6 years ago

Nope, SP 500 is back to what it was in end or 2017 beginning of 2018

1. Do you really think the economy is as good as it is in 2018?

2. Do you think we are in the beginning, middle, or end of this outbreak?

3. Will the virus come back after this summer? This is the big question, and depending on this we either have just a deep but short recession, or an almost depression

Answer those questions and you will know. My take:

1. I believe we are at the start of a deep recession. The market have been slow to respond/adjust (they haven't yet fully capitulated)

2. I think NYC is in the middle of the outbreak, while the rest of the country is in the beginning of the outbreak and they are just lagging by 2 weeks and things will get worse

3. This is unknown, but most scientist believe it will return as soon as the social distancing rules are eased. Best scenario is that when it returns, it is in low enough numbers that it could be contained in a way Taiwan/South Korea did (without shutting down the economy). The worst scenario is that it returns back full force, but mutated and more deadly....

chrischen• 6 years ago

I guess for #3, the hope is that once we've slowed it we can at least have prepared hospitals and PPE enough, and also that people will take it seriously and practice going outside and socializing safely.

01100011• 6 years ago

I think it would be much more interesting to have a HN discussion thread on where the economy may be heading. Sure, it depends on the virus, but we can probably come up with a few scenarios covering likely outcomes.

Personally, I think the fundamentals are not looking good, as you mention. I'm guessing we're going to finally see the inflation everyone has been expecting since QE#1/2008. We just pumped the monetary supply yet half the country seems to be stagnant. Goods aren't being made, warehouses are being depleted. I think we're in store for shortages and price hikes on labor intensive goods. The strength of the dollar will likely depend on how we fare relative to other countries.

Now, assuming inflation, I would expect some hikes in asset prices(not adjusted for inflation of course), but I don't know what the timing of that would be. Maybe it takes a few quarters for higher prices to translate to higher stock prices? Also, I would think that having unemployment in the 10-40% range would severely reduce retirement contributions and equity purchases by individuals, although I don't know if that is enough to matter relative to the big players like hedge funds and pension plans(and the fed, who might start buying equities for some reason).

arriu• 6 years ago

If things keep going at the rate they are right now, the market will need to acknowledge that there is a massive pile of bodies by May 1st*

There are two more questions to ask, is this already priced into the current market? And, will our social distancing be enough to change our current trajectory?

*Source: https://i.imgur.com/YznALHZ.png

alexpetralia• 6 years ago

This looks fairly dire, but I do wonder to what extent it may be overfitting? After all the model was created yesterday.

Fnoord• 6 years ago

What is the formula/model used?

throw0101a3• 6 years ago

1. Do you really think the economy is as good as it is in 2018?

By trying to miss the worst days one generally also misses the best days:

* https://theirrelevantinvestor.com/2019/02/08/miss-the-worst-...

* https://www.cnbc.com/2020/03/07/when-you-sell-during-a-panic...

* https://seekingalpha.com/article/4297557

Buy a little every month, rebalance once your asset allocation is more than 5% out-of-whack, and increase bond holdings as you approach your target date.

wycy• 6 years ago

This is exactly my take as well. I'm shocked the market hasn't tanked much more. I would think that anyone should prefer the economy of 2018, 2017, 2016, 2015, 2014...as compared to projections of unemployment as high as 30% and the economy in total gridlock. Yet the Dow/S&P don't reflect that yet.

hanoz• 6 years ago

But don't forget that the unit of measurement for the Dow and S&P is not what it was in 2014 either.

kojeovo2• 6 years ago

Better than the past ~6mo. I invest a % of my pay no matter the price.

No real answer to this though. You can get ETFs that go against major indices, you can get ones that track it, or many other types.

bluedevil2k• 6 years ago

No one can tell you the right answer to this question and anyone who claims they can is just guessing. The market is supposed to reflect the expected future values of the companies, so in theory all the news you know and some you probably don’t is reflected in the price. Whether it has overshot or undershot that news is unknown.

robjan2• 6 years ago

If you use Dollar Cost Averaging[1] there is no such thing as a good or bad time to buy ETFs. As long as the market goes up on average, which is has done throughout history, then you will win over a sufficiently long horizon. A popular phrase is "It's not about timing the market, but time in the market".

Make sure you research your ETFs and what they are tracking e.g most of the Vanguard ETFs (e.g. VOO, VTI, BND) are quite reliable but if you are investing (and not day trading) avoid leveraged and inverse/short ETFs such as SPXU and TQQQ. They may seem attractive now but they are based on derivative products so their pricing is subject to a number of factors.

[1] https://en.wikipedia.org/wiki/Dollar_cost_averaging

techthumb• 6 years ago

+1 for dollar cost averaging if your funds are also coming in on a schedule (per paycheck).

However, if one had a million dollars sitting in the bank, it may not be prudent to dollar cost average. Portfolio management and a time horizon are necessary to achieve the desired mix

xnx• 6 years ago

Dollar cost averaging seems to be more of a psychological strategy than a financial one: https://en.wikipedia.org/wiki/Dollar_cost_averaging#Criticis...

throw0101a3• 6 years ago

Putting away a little every month generally gives the best results as the main alternative is 'buying the dip', and good luck with that:

* https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...

robjan2• 6 years ago

It is, but DCA helps people who think "now everything is on discount, let's buy more" when the market could easily continue to fall.

kojeovo2• 6 years ago

Well it's also a good low effort strategy. I'm at work most of the time markets are open and I don't have to stay that up to date.

yellow_postit• 6 years ago

Which ETF? There are more ETFs than individual stocks [1]. Rather than time the market you are better off, in most cases for most people, just regularly buying broad indexes and periodically rebalancing, see [2]

[1] https://ssrn.com/abstract=3465888 [2] https://www.bogleheads.org/wiki/Bogleheads®_investment_philo...

freetime2• 6 years ago

I would say if you're interested in getting into passive investing it also makes sense to get into dollar cost averaging, or in other words invest a fixed amount of money into the stock market at regular intervals.

Passive ETF investing is like saying "I don't have an opinion as to which company will perform the best, so I am going to invest in all of them and be content with getting the average return of some index". Dollar cost averaging is like saying "I don't know if the market is overvalued or undervalued right now, so I am going to spread my investments out over time and be content with getting the average returns of the market over the next X number of years (where X would ideally be something like 20 to 30 years)."

astura• 6 years ago

Whenever you have the money to invest is the best time to invest in ETFs. (assuming passive index funds with a long term horizon and you understand your risk tolerance)

Timing the market for the "best price" is almost impossible.

bumpkinjunkie• 6 years ago

I am careful about giving financial advice to someone asking about timing the market. Things that might be helpful to ask first.

1. What is it about ETFs that makes you ask the question? Do you know what an ETF is, what it does, and what other financial products are out there that do similar things and how much they cost (fees)?

2. There are so many resources on the internet. I would say it's good to understand concepts like: Dollar-cost averaging, portfolio diversification, investment horizon, risk aversion. Most introductory investing resources would cover these things.

3. Think about what your short, medium, and long term cash and liquidity needs are to help determine how much you need/want/can invest. Remember, you can probably sell and get some money back, but it could be at a loss.

In summary, one could argue that it's always a "good" time to invest. The questions I would ask are "in what", "how much", and "how long".

omgJustTest• 6 years ago

I agree with the above. Additionally: know what you are buying and know the rules.

For example, a less sophisticated instrument is a stock. Why does a stock have value? What do you get in exchange for money? Why are companies incentivized to care about stock prices? Why are stable companies often devalued if they have less growth potential?

These seem like basic questions, but if you think about any one of these they are not easy to answer.

etrautmann• 6 years ago

This is a perfectly written response, as opposed to an "it's impossible to time the market" canned reply.

agilebyte• 6 years ago

And then what? When you invest money, you have to have a purpose. "Making money" is not specific enough. When do you need the money by? For example, if you'd like to invest for retirement, and this assumes you'd make periodic deposits to your account, then it does not matter if you invest today or in a month since you wouldn't sell for (presumably) decades.

ericmcer• 6 years ago

Dollar cost averaging is the right answer.

If you want to attempt to be smart (it rarely pays to try and time the market) I would wait a couple more weeks, end of April is probably when the market will most likely reflect the reality of what our economic outlook is. Trump & the Fed have been doing a good job propping the market up with confident words and cash injections for the last weeks. Again trying to time the market is usually a fools mission.

m0llusk• 6 years ago

No! Are you kidding? What is even in there? Also no.

anonu• 6 years ago

In the US there are over 2300 ETFs covering major market countries, asset classes, equity exposures, fixed income exposures, factors, thematics like ESG, gaming, MAGA. There are also options-embedded strategies and 2x, 3x and -1x, -2x, and -3x leveraged funds on almost every US sector and major index.

If you have money to invest in for the long run - now is as good a time as any to start building your nest egg.

If you are trying to "time" the markets, it turns out nobody has a crystal ball and nobody can tell you with any degree of certainty that the markets are going to go up or down tomorrow or next month.

If you are considering "betting on America" I would be all in favor. A 130+ year graph of the Dow Jones is generally trending from the bottom-left to the top-right of the chart.

Another thought on timing: many people believed the markets were way-overvalued before this drop. Makes sense... we've been in one of the longest bull runs ever. Now we have a pandemic on our hands - which many people liken to an event like a war where there is complete uncertainty about the future. Jobless claims jumped within a 2 week period to 3+ million - many people thought that would take 4 weeks or more. We're heading to 20 or 30% unemployment in America. We also have one of the largest stimulus packages ($2tr+) about to rain down on us in the form of never before seen monetary stimulus AND helicopter money. We just dont know whats going to happen here. Cheap rates for the last decade has fueled over $7tr in corporate debt. Now companies cash flows have ground to a halt. If we start seeing a growing domino effect of bankruptcies, you can expect this market to drop another 30%. Its a bit of a doomsday scenario - but then again, nobody thought we would be HERE 4 weeks ago - and we are.

Yes, stocks do look cheap - but dont catch a falling knife.

throw0101a3• 6 years ago

Every month is a good time to invest in index funds:

* https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...

Generally if you try to get out to miss the worst days, you generally end up missing the best days as well:

* https://theirrelevantinvestor.com/2019/02/08/miss-the-worst-...

Even if ended up investing at the top of the market, i.e. just before a major crash, you generally still end up in an okay position as long as you do not panic and liquidate your position:

* https://awealthofcommonsense.com/2014/02/worlds-worst-market...

So: each month put in whatever you can afford ($100, $1000, whatever) into an index fund (Russell 3000) and bonds depending on your risk tolerance and forget about it. If you have access to a 'target date fund' that'd be good too.

The above three weblogs are good if you're into personal investing.

Also: for equities, probably best to go with a total market things that track something like the Russell 3000:

* https://www.pwlcapital.com/should-you-invest-in-the-sp-500-i...

* https://www.marketwatch.com/story/vanguard-thinks-its-own-em...

Also, assuming you're American, having some international exposure to avoid home country bias wouldn't be a bad thing:

* https://www.etf.com/sections/index-investor-corner/swedroe-h...

* https://www.vanguard.com/pdf/ISGGEB.pdf

xwdv• 6 years ago

Here’s the straight answer, from someone who has made real money investing for the past 15 years: Yes.

treyfitty• 6 years ago

Note: I don’t agree to what I’m about to say, I’m just providing an alternative view.

There’s a hypothesis that there’s a “passive investment” bubble. By some estimates, about 20% of the market is fueled by passive investment strategies and at a certain point, it divorces asset pricing to true fundamentals. I don’t know the transmission of this, but it makes sense- just like investors flock to the wrong ZOOM stock to inflate the price of a wrong stock, too many people passively buying ETFs has the downstream effect of people buying too many shares of something that isn’t valued properly.

https://fortune.com/2019/09/14/passive-investing-stock-marke...

raincom• 6 years ago

To keep the market going up, the market needs more buyers than sellers in terms of aggregate dollars. Bogleheads and DCA 'evangelicals' are not going to liquidate their equities; so, they are happy to preach truisms like "you can't time the bottom", "time in the market is better than timing the market", etc.

Market is driven by 30% fundamentals, 70% herd psychology(technicals try to capture some of this). Keep that in mind when you evaluate answers here.

Longs want you to join the market to make their assets safer. Shorts and those who are on the sidelines, want to time the market by half a standard deviation; so, they want you on their side in order to break the price support of any ETFs/indices, etc.

blendo• 6 years ago

ETFs often have relatively low management fees. If your current fees are high, by all means reallocate!

Ask HN: Is now a good time to invest in ETFs?

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