Daily General Discussion and spitballin thread - September 18, 2021 Investing |
- Daily General Discussion and spitballin thread - September 18, 2021
- Daily Advice Thread - All basic help or advice questions must be posted here. September 18, 2021
- Is waiting for a dip the best investment strategy? - I analyzed last 3 decades of stock market returns to determine if it makes sense to time the market! Here are the results!
- Would someone please explain what the increase in Reverse Repurchase Agreement means?
- What is the smartest place to put my savings to make sure it at least retains its value over time, but is somewhat accessible within a week of needing it? Also, how do I put it there?
- Question about Failure to Deliver (FTD) violation
- What do the specifics of your retirement (early or late) look like in terms of margin + dividend income?
- How do I start investing as a 16-year-old?
- Risks involed while investing in an Index fund
| Daily General Discussion and spitballin thread - September 18, 2021 Posted: 18 Sep 2021 02:02 AM PDT Have a general question? Want to offer some commentary on markets? Maybe you would just like to throw out a neat fact that doesn't warrant a self post? Feel free to post here! This thread is for:
Keep in mind that this subreddit, and this thread, is not an appropriate venue for questions that should be directed towards your broker's customer support or google. If you would like to ask a question about your personal situation or if you are asking for advice please keep these posts in the daily advice thread as that thread is more well suited for those questions. Any posts that should be comments in this thread will likely be removed. [link] [comments]  | ||||||||||||
| Daily Advice Thread - All basic help or advice questions must be posted here. September 18, 2021 Posted: 18 Sep 2021 02:01 AM PDT If your question is "I have $10,000, what do I do?" or other "advice for my personal situation" questions, you should include relevant information, such as the following:
Please consider consulting our FAQ first - https://www.reddit.com/r/investing/wiki/faq And our side bar also has useful resources. Be aware that these answers are just opinions of Redditors and should be used as a starting point for your research. You should strongly consider seeing a registered financial rep before making any financial decisions! [link] [comments]  | ||||||||||||
| Posted: 17 Sep 2021 06:24 AM PDT We have all heard it! -- "Time in the market beats timing the market" At the same time, we are all to some extent guilty of trying to time the market. The market always seems to break some new all-time high records, so we wait for the inevitable crash/pullback to invest. It's high time we put both strategies to test. Basically, what I wanted to analyze was Whether waiting for a crash to invest is a better investment strategy than staying invested? Analysis For this, let's take someone who started investing approximately 3 decades back (1993 to be exact). I created multiple investment scenarios as follows to understand the difference in returns if you a. Invested at the exact right time when markets were lowest that particular year b. Was extremely unlucky and just invested at the peak every year c. Did not care about timing the market and invested at a random date every year d. Just hoarded his cash and waited for a market crash to invest [1] For analysis simplicity, let's assume that you were on a conservative side and never picked individual stocks, and always made your investments to S&P500 [2]. For investment amount, let consider that you started with investing $10K in 1993 and for every subsequent year increased your investments by 5%. So, you made a total investment of $623K over the last 29 years. Results Investment Returns : S&P 500 (1993-2021)
The analysis did throw up some interesting results. There's a lot to unpack here and let's break it down by each segment. The most important insight is that it's virtually impossible to lose money over the long term in the market [3]. Even if you were the unluckiest person and invested exactly at the very top each year, you will still end up having a 263% return on your invested amount. At the opposite end of the spectrum, if you were somehow the luckiest person and invested only at the lowest point every year, you would have made a cool 100% more than someone who invested only at the top. Given both the hypothetical scenarios are extreme cases, let's consider some more realistic scenarios. If you did not care about timing the market and invested a fixed amount each month/year, you would still make a shade over 300% on your investments. Out of all the above scenarios, you would have made the most amount of money (a whopping 391% return) if you invested only during major crashes. In this type of investing, you would not invest in the stock market and keeps accumulating your cash position waiting for a crash. While this seems like a good idea, in theory, it's extremely difficult to execute properly in real life. The main limitations to investing during a crash strategy are a. The current returns are calculated by investing at the very bottom of the crashes. It's very difficult to identify the bottom of the crash while a crash is happening. You can end up investing midway through the crash and given that you are investing a significant chunk of capital you saved up, it can end up wiping out your portfolio. b. Identifying a crash itself is very hard As we can see from the above chart, the years that we consider were great for the market in hindsight still had significant drops within the same year. So even when the market is down 10%, it becomes extremely difficult to know whether it's going into a deeper crash or whether it's going to bounce back up. Conclusion While the analysis did prove that waiting for the crash is theoretically the best strategy returns-wise, practically it's very difficult to execute it. For e.g., even if you predicted the 2020 Coronavirus crash correctly, where would be your entry point? The market was down 15% by Mar 6th, another 10% by Mar 13th, and then another 10% by March 20th for a total of 35%. If you did not get in at the absolute bottom, you would have lost a considerable sum of your investment without actually getting any benefits from the previous run-up. It is extremely enticing to be the guy who called the crash correctly and even if you are right, only getting in at the absolute bottom would only give you the best returns. Adding to this, in the last 20 years, 70% of the best days in the market happened within 14 days of the worst ones [4]. If you miss just any of those days waiting for an entry point, your returns would be substantially lower than someone who just stayed invested. If you think you are in the select few who have the skills to identify a crash and the temperament to see the crash through to invest at the very bottom, you will make an absolute killing in the market! For the rest of us, continuous investment regardless of the market trends seems to be the better choice. Data used in the analysis: here Footnotes [1] I have considered the following crashes for the analysis: Dotcom crash (2000), Sep 11 (2001), market downturn 2002, Housing market crash (2008), 2011 stock market fall, 2015–16 stock market selloff, 2018 crypto crash, Corona Virus crash (2020) [2] The data for the adjusted close for S&P 500 from 1993 to 2021 was obtained from Yahoo Finance API. The main reason for only going back till 1993 is that Yahoo Finance had only data till 1993. [3] There was an interesting study done by Blackrock that proved the same as shown in the chart below [4] 70% of the best days in the market happened within 14 days of the worst ones (Source: JP Morgan) please note that I am not a financial advisor. Hope you enjoyed this week's analysis! Edit: Since a lot of you are questioning this, the SPY data used in adjusted closing price which accounts for dividends and splits https://www.investopedia.com/terms/a/adjusted_closing_price.asp EDIT 2: Since a lot of you are questioning the math and returns Check this image. its a spy return calculator online (https://dqydj.com/sp-500-periodic-reinvestment-calculator-dividends/) including dividend reinvestment Check the return when you invest following my same logic -- the only difference is it's a monthly calculator (so the returns would be slightly different) 10K per year => 833 per month 5% annual increase => 0.407% growth in investment value every month 1993-2021 return is 394% on the total invested value. Cheers [link] [comments]  | ||||||||||||
| Would someone please explain what the increase in Reverse Repurchase Agreement means? Posted: 17 Sep 2021 03:54 PM PDT Sorry if this has been covered - I used reddit's stellar search functionality didn't find what I was looking for. Having read about the RRP on things like investopedia, I just don't understand why there is so much fanfare around it breaking over $1T, and what RRP's impact is on the stock market and economy at large. I'm wholly uninterested in hearing the ideas being peddled by the meme stock crowd, so I'm asking it here. What does it mean for the market and the economy (more specifically, the US economy) that this number has swelled to $1.2T? What is this an indicator of? Again, not interested in any get rich quick schemes, just curious about RRP and its current state. [link] [comments]  | ||||||||||||
| Posted: 17 Sep 2021 11:58 PM PDT Every time I see a post asking "What do I do with my $xx,xxx?", someone mentions Vanguard Index S&P500 or something, but nobody ever explains how to do this. Can I just do it quickly and easily on the Robinhood app? Where should I invest my money? I just want to not have it sitting in my virtual mattress of a bank (0.10% = "HIGH YIELD") apparently these days. What do I do with my savings and how do I do it? Priorities are rate of return and decent liquidity. [link] [comments]  | ||||||||||||
| Question about Failure to Deliver (FTD) violation Posted: 17 Sep 2021 02:12 PM PDT Yesterday I was trading in my margin account and using a hotkey to sell out of my position. I accidentally clicked the hotkey one more time than I should've, which caused me to open a naked short position. The software allowed this because it hadn't yet registered that I no longer had the shares. Within literally 3 seconds from going naked short, I bought back to cover. Today I got an email stating that my trading is restricted for 90 days because of the aforementioned. What I'm wondering is: How can it already be a violation, when the trade hasn't yet settled? From the SEC website:
If I buy the same amount of shares today that I naked shorted yesterday, (using a different broker) can I use those shares to avoid the violation? Any help is VERY much appreciated, cuz I can't afford to be restricted for 90 days. [link] [comments]  | ||||||||||||
| Posted: 17 Sep 2021 04:52 PM PDT Disclaimer: I'm 99% sure you can't receive dividends while using margin from any broker (they keep them until the loan is paid back), so... this is all just for fun/"what if". I came up with this plan as a joke with a friend talking about how crazy interest rates are these days.
I would love a second set of eyes if anybody thinks this is realistic or a terrible idea. Does anybody have a similar idea? [link] [comments]  | ||||||||||||
| How do I start investing as a 16-year-old? Posted: 17 Sep 2021 10:36 AM PDT I would like to start investing, but all apps/websites I have tried require me to be the age of 18. I have heard that custodial accounts will allow me to invest, but from my understanding, the funds are in my name but my parents will be managing my account. I am dead-set on investing. I would like to invest in some individual stocks using my own money. I will also be getting a job in the next month or so. How do I start investing as a minor? Is it possible to open an account where I manage the funds/stocks instead of my parents? [link] [comments]  | ||||||||||||
| Risks involed while investing in an Index fund Posted: 17 Sep 2021 09:58 AM PDT I have been thinking about investing in Index Funds for quite a while now. However, I'm in bit of a quandary. I wanna know whether investing in Index funds is a wise decision right now, given the strong bull market with stock indices soaring to new highs everyday. So is it wise to buy index funds when the indices are so high? Because I believe that with high indices comes the risk of an inevitable crash pretty soon. [link] [comments]  |
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