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Are You Hoping for The Stock Market to Fall?

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Are you hoping for the stock market to fall?Is anyone else hoping for the stock market to fall? The S&P 500 index dropped over 10% earlier this year, but it has been on the upswing for the last two weeks. I’m hoping the stock market would fall even more because I haven’t finished contributing to my solo 401k for 2015 yet.

I contributed $1,500 every month last year and I maxed out the employee salary deferral portion of my i401k. The maximum contribution for 2015 was $18,000 for those under the age of 50. I also contributed $2,000 extra as the “employer contribution” to bring my total up to $20,000. The solo 401k enables you to contribute 25% of your income as employer contribution if you’re self employed. The problem is I don’t know exactly how much I can sock away in my 401k until I finish doing tax. Anyway, I’m almost done with tax and the result is I can contribute $24,500 to my solo 401k for 2015. That’s why I want the stock market to drop in the next 30 days or so. I need to contribute $4,500 to my solo 401k before April 15th and it would be nice if the market is down when I do so.

Market Timing doesn’t work

Theoretically, I shouldn’t even worry about it and just pull the trigger right now. Market timing doesn’t work for individual investors for variety of reasons. Let’s take a look at some of them.

  • Dollar cost averaging is easier for most people. Most regular people get paid on schedule and it’s best to invest right away via automatic deduction. If you wait, then you’re more likely to spend the money.
  • Time in the market. The stock market is set up to grow. In the long run, we will see more good days than bad ones. If you have a lump sum to invest, the odds are better to invest it as soon as you can. That way, you will be in the stock market longer and benefit from more growth.
  • Market timing requires 2 correct decisions. You need to know when to sell and when to buy. If you’re wrong on either one, then you’ll lose.
  • Even professionals can’t do it. Less than 1% of mutual fund managers beat the stock market index consistently (after taking expense into account.)
  • Market timing cost money. You need to pay transaction fee whenever you make a transaction. If you do it frequently enough, the fee will nibble away at your portfolio. You also will need to pay tax on any gain. You will need to significantly outperform the index to beat it. Actually, this one doesn’t matter in a 401k because tax is deferred and you usually don’t pay transaction fee in your 401k.

It won’t matter much in the long run

Lastly, it won’t matter much in the long run. $4,500 isn’t that much money. If the stock market falls 10% the day after I invest $4,500, that’s a decrease of just $450. That’s less than .5% of my solo 401k balance. Of course, it would be nice to get in at a low point, but it won’t make much difference in the long run. As long as you keep adding to your 401k, your portfolio should look like this graph below. This is why I max out my 401k every year.

solo 401k

I love this graph and I hope to keep adding to my solo 401k for as long as I can. I use Personal Capital to keep track of my portfolio and it’s easy to check on any of my accounts. You can also check how much fee you are paying in your retirement fund with their 401k fee Analyzer. I’m paying just 0.17% on my solo 401k, that’s pretty darn good. Sign up for a free account with Personal Capital if you don’t already have one.

Disclosure: I may receive a referral fee if you sign up with Personal Capital through the link above.

Are you in the same position as I am and hoping for the stock market to fall so you can pick up some shares at a bargain?

Image credit: by decade_null

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{ 40 comments… add one }

  • Erik @ Hippies de Land Rover March 9, 2016, 3:44 am

    YES! we’re in the same page. Taking these last weeks rally as an opportunity to cash-out and put $ aside for the real bear. We believe as well that a new window was open to enter into some inverse ETFs (DUG) and (MIDZ) are our favorites !
    Let’s see what the future holds for us. 😀

    Cheers! Erik

    • retirebyforty March 9, 2016, 10:53 am

      I read that this is a “sell the peak” market. I don’t like selling so I haven’t done it yet. I’m just trying to time the new money going into the retirement account. It’s tough to predict the market. The economic indicators seem pretty good.

      • Casey W March 9, 2016, 2:14 pm

        I agree with your Strategy Joe! I hate timing selling. I love trying to time the buying. My vague plan is buy when stocks are on sale and hold them for as long as I can! If I am buying an index fund during the panics, you can hold them forever. I do love to do a bit of actively picking stocks with a portion of my net-worth by picking out distressed companies (Warren Buffett style)–these stocks I will hold as long as I can. I just want to buy at a discount, not so much sell at a premium (because I’m not selling!).

  • Hubbard March 9, 2016, 3:47 am

    I’m not hoping for a fall because I don’t hope for wealth destruction. But bear markets come, so I’ll take the advice of a wise writer:

    1. Keep calm and ignore the financial news.
    2. Stick to your asset allocation and rebalance once or twice per year.
    3. Keep investing.
    4. Invest even more if you can.
    5. Learn to love the bear markets because they will make you rich.

    • retirebyforty March 9, 2016, 10:54 am

      🙂 Thanks for the link. The market will fall at some point. It’s really better to just keep investing and not worry about trying to time the market.

    • Casey W March 9, 2016, 2:06 pm

      Agreed. That wealth destruction really gets me sad about people nearing retirement. While I would benefit GREATLY from a long bear market since I am young, I would be pretty sad about my dad having to work a bit longer before retirement. Me getting a little better returns from investing in a bear market is not worth the wealth destruction for older folks. Imagine trying to retire this decade… Dot com crash, 2008 Crisis, then another big drop in 2016? Ouch!

      So no, I hope we have either a stagnant market or a rising one. But if it drops, I am definitely taking advantage of it!

  • Stockbeard March 9, 2016, 3:54 am

    Hey Joe, totally agree that timing the market never works. I’m not so keen on seeing the market drop again. I’m close to what I consider to be my “number” and a drop puts me further away from my goal, no matter how I look at it. Nowadays my contributions barely compensate for a big drop so … yeah…

    • retirebyforty March 9, 2016, 10:56 am

      Thanks for sharing. My $4,500 contribution is just a drop in the bucket so it doesn’t really matter that much. It’s still fun to try to optimize, though. Good luck with your number. It might be a tough year to retire. I think we’re in for a turbulent ride.

  • Money Beagle March 9, 2016, 5:12 am

    Not really, only because I hate to see the after effects of a downturn in the market. It seems like a big market decline could actually cause or help tip us to a recession. The tail definitely wags the dog these days, and I just don’t have any desire to see that happening just so I can get a few more shares.

    • retirebyforty March 9, 2016, 10:57 am

      I didn’t think a big market decline would cause a recession. I will have to research more. The economy still look good and I don’t think a drop would cause much problem.

  • Mike Drak March 9, 2016, 5:47 am

    I’m always trying to shop for yield on dividend paying stocks so yes I get excited when the markets weaken and good quality stocks go on sale.

    • retirebyforty March 9, 2016, 10:59 am

      I picked up a few shares of KMI last month. I’d like to buy some JNJ, but we’ll be a bit low on cash after I contribute to my i401k. It’s nice to pick up some shares on sale.

  • Kris March 9, 2016, 6:04 am

    Hello,
    I know you are a big proponent of the PersonalCapital platform for tracking all your different accounts in one place. I have spent a lot of time and energy lately trying to find a solution that works for us – we have many different accounts between different banks, investments, credit cards, etc. I am trying to make the Mint web site/app work as a solution, but am not sure if it’s the best. The transaction tracking itself is great, but I will need to finagle an existing Google Docs spreadsheet extension that hooks up to Mint in order to get better monthly projections. How is Personal Capital in this regard? Can you easily tell that you made/lost x amount each month and project that out for the rest of the year? Has anyone tried both Mint and Personal Capital?

    • retirebyforty March 9, 2016, 11:09 am

      I like Personal Capital better because it’s more investor centric than Mint.
      I’m not sure if it can do what you’re asking for, though.
      In each account, you can see the graph for dividend income. Unfortunately, I don’t see a way to display dividend income in the aggregate view.
      In the cash flow section, you can see past income and expenses. I don’t think there isn’t a way to project out.
      You probably should try it and see if it will work for you. Although, it sounds like good old Excel spreadsheet might be your best bet.

  • Susan March 9, 2016, 6:33 am

    If you file an extension for your taxes, you have until Oct 15, 2016 to make your 2015 contribution.

    • retirebyforty March 9, 2016, 11:09 am

      Good to know. Thanks!

  • Dave in Sunny FL March 9, 2016, 7:26 am

    This is a tangential issue to your main subject, but you referenced a couple of principles that bear on how to make a lump sum investment in the stock market. Breaking a lump sum into several smaller amounts increases your transaction costs. It also does not constitute true dollar cost averaging. Instead, it replaces the risk that the stock will go down over the limited period of your investments, with the risk that it will go up, instead. As we say, it is time in the market, not timing the market. Lump sum; lump purchase, amiright? Thanks!

    • retirebyforty March 9, 2016, 11:11 am

      Yeap, if you have a lump sum, it’s best to get it invested right away.

  • Dividend Growth Investor March 9, 2016, 7:53 am

    As long as the businesses I own are able to earn more over time, and continue increasing their dividends to shareholders, I am indifferent to what the stock market does. I agree that “timing the market” is an extremely difficult business to be in. The only people who avoid bear markets are either liars or those who always stay in cash, and therefore they never took advantage of the low prices anyways. Many claim that they hope for lower prices, but when they do arrive, these same investors get scared and start waiting for even lower prices – so they end up missing on the rally.

    For most people, their best bet at saving for retirement is through automatic payroll deductions into their 401k plans. In my case, the dividend payments help to remind me that I have ownership of real businesses, and not some lottery tickets.

    Since dividend payments are always positive, they are more stable and reliable than capital gains, I have found it easy to stick to dividend investing and ignore stock prices.

    • retirebyforty March 9, 2016, 11:14 am

      The problem with hoping for lower prices is that usually I don’t have extra money to invest. I don’t like holding cash and I’d rather have it in the stock market longer.I love dividend stocks as well. I didn’t sell anything last year. That made tax simpler and dividend is still rolling in.

  • ER2019 March 9, 2016, 7:56 am

    Overall, I want to see S&P to go up but usually pour a sum of cash into the market by buying dividend stocks when market corrections happen. Market corrections are always opportunities to make quick and easy profits (realized & unrealized). If I can get dividend stocks at a lower price (and a higher yield), I can buy more shares with the same amount of money and collect more dividend payments. For my 401k account, I just contributed $6000 in January and February during the corrections and will ride on the market after February.

    For long-term, dollar-averaging cost (DCA) works. DCA averages the overall cost. I also buy dividend stocks using DCA every month.

    • retirebyforty March 9, 2016, 11:28 am

      Nice job with your 401k! We don’t make as much income now so it’s tough to buy a lot. Most of our extra money go into our retirement account. There is a little left for dividend stocks, but not much else. DCA works well for us in this case.

  • Mr. Tako @ Mr. Tako Escapes March 9, 2016, 8:36 am

    Hi Joe. I’m hoping the markets drop. Mostly because when I look at the S&P500 and see a PE ratio of 21, I think that it’s over valued.

    A PE ratio of 21 is an earnings yield of 4.7%. Subtract inflation for 2% and you’re left with 2.7%. Remove 4% for living expenses (the 4% rule) and it’s -1.3%.

    With US GDP growth around 2%, anyone who’s interested in early retirement should take a very close look at these numbers.

    I need to go write a blog post about why I think the 4% rule might not be such a good rule in today’s market environments.

    • retirebyforty March 9, 2016, 11:29 am

      Yes, I think the S&P500 is a little overvalue as well. We are overdue for a bear market. It’s good for everyone to have a bear market sooner than later.

  • freebird March 9, 2016, 8:44 am

    Volatility provides a benefit if you accumulate shares by dollar cost averaging, but a long-term decline in share prices is not going to work to your advantage. And once you start drawing down for expenses, volatility can be inconvenient if your asset allocation hasn’t tilted away from equity over time. So I would say that stock market fluctuations, even large ones, don’t bother me as long as the long term trend is higher.

    The small cap trader side of me likes wide swings in share prices. It’ll be interesting to see how the current crop of 2015 biotech and oil crashers does over the next few years. My prediction is that most go bust but a few survivors will more than make up for the losers. We’ll see.

  • Jason Fieber March 9, 2016, 10:12 am

    Joe,

    Count me in as one who would love to see lower prices. I’m buying stocks every month, so it’s just like the groceries I buy all the time — if I’m going to buy, I want to save. Cheaper prices, all else equal, means higher yields. And higher yields means I’m that much closer to living off of the dividend income my portfolio generates.

    However, it is somewhat of a moot point. I ran the math a while back. An investor who bought right before the ’87 crash was in a similar spot to the one who bought right after, when looking back on it in 2015. Time and compounding are far more important forces than worrying about getting in on a stock at $20 or $19 or whatever. Cheaper is always better, of course, but it’s just not much of a difference over the long run.

    Cheers!

  • amber tree March 9, 2016, 11:51 am

    As I am in the accumulation phase of my nest egg, a good opportunity to buy is always welcome. I missed out on the February dip by 20 cents on my buy order. I have the cash available, so, I would say: lets go for it! Not everybody might appreciate the drop, but for people in my case, it is a no brainer.
    I am not sure how I will feel when my net worth takes a big nose dive. I missed the 2008 dip due as we bought our house and were saving cash for some renovations.
    Interesting times…

    • retirebyforty March 10, 2016, 9:55 am

      Ugh! I hate it when that happens. That’s why I usually just order at market price. 20 cents wouldn’t make any difference in the long run. Good luck on the next drop.

  • Kevin Truessel March 9, 2016, 1:11 pm

    Hi:) i am following an strategy that is near to yours:) i also hope the stock market goes down. I want to buy some cheap shares of the positions in my portfolio:) by the way, awesome blog. I will be back soon to get more infos:) watch out my blog, maybe we can learn from each other. Mail me or follow me i would like to stay in contact with u

  • nicoleandmaggie March 9, 2016, 1:32 pm

    I mostly ignore the market!

    • retirebyforty March 10, 2016, 9:56 am

      Best advice for most individual investors (including me..)

  • Petra March 10, 2016, 1:59 am

    Put in $2000 now, and the rest before the deadline?

    • retirebyforty March 10, 2016, 10:00 am

      I put in $1,000 right after I finished this post. I’ll keep adding this month. 🙂

  • Daniel March 10, 2016, 3:17 am

    It seems counterintuitive, but investors should welcome market drops. You can get some “once in a lifetime” bargains if you can put your money to work in the depths of a bear market. I just hope there are a few more corrections in my lifetime!

  • PhysicianOnFIRE March 10, 2016, 4:53 pm

    I am hoping we see a steady 6% to 10% increase year after year after year. Of course, that’s not going to happen. Historically, we’ve gotten negative returns about 3 out of every 10 years.

    The great recession happened early in my career and it did help me out. Now that I’ve built up the nest egg, I’d be happy never to see another downswing like that again.

    The January drop worked out pretty well too, since about 1/3rd of my annual investments are made in the first 6 weeks of the year. I was also able to tax loss harvest $40k in my taxable account, and that move will pay for years to come.

    Now that those occurrences have occurred, I’d like to see things move onward and upward!

  • Financial Slacker March 10, 2016, 6:06 pm

    It’s pretty tough for me to hope for a market fall even when the market is over valued.

    I think you can still find value buys in a strong market – it just takes more work.

    I know folks like to tweak their allocation based on their expectation of the market, but I stay away from making such adjustments. Instead, keep a substantial portion of your money in a diversified portfolio of index funds and buy selective securities individually to achieve a little market outperformance.

  • Brian - Rental Mindset March 10, 2016, 6:19 pm

    I don’t care about the stock market, just don’t want to get out of this recession too fast. I want to have plenty of rental properties before inflation and higher interest rates. Luckily the current thinking is it could take 10+ years!

  • Preston @TheDrunkMillionaire March 10, 2016, 7:20 pm

    Hi Joe,

    As a recent college graduate I wasn’t able to take advantage of the huge gains following the ’08 crash.. I can get pretty short-sighted, so thanks for “refreshing” my long-term investing view!

    • retirebyforty March 11, 2016, 10:33 am

      Score! Now, you just need to keep investing through a bear market. The key is to not stop investing. Good job so far.

  • Tristan @ Dividendsdownunder March 15, 2016, 4:26 am

    Hey Joe,

    Nice article. To answer your question, I hope for all shares to become permanently better value/cheaper/higher yielding forever. I’d only like it if they went up again if I stopped buying, but I plan on buying until I’m 100..so they can be permanently low as far as I’m concerned.

    As long as the company’s earnings and dividends are going up (and all the other performance metrics are on track), I don’t mind at all what the share price is doing.

    We all aim to buy at lower prices than higher prices, but it’s impossible to identify a market low. We (my wife and I, after we’ve paid for our IVF baby) will aim to have a decent amount of cash sitting in reserve, but as long as we’ve got that then we’ll be constantly buying through the lows and probable-highs.

    Tristan

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