From a practical perspective, these are a few things you should know:
- If your investment advisor is under age 29, they've never worked in a bear market.
- If you 're an aspiring early retiree, you have more than seven years of bull wind sales at your back.
- The market could crash any day.
- On the other hand, the bull market could run on for years. One bull market lasted for 13 years.
Above all, investors today need to remember the maxim, "Trust in time, not in timing."
Except for me. I'm the exception to the rule. Let me explain.
Trust in time not in timing
So what are we supposed to do?
Repeat this mantra: "Trust in time, not in timing."
Over time, the stock market goes up. If you think that statement is wrong, then I suggest that you invest in guns, ammo and alcohol (for trading). It does not make sense to invest in a market if you don't think it will go up over time.
But, if you believe the market will march upwards over time, one of the most important things you can do is to stay invested. Trust in time, not in timing.
That means, you aren't selling in anticipation of bear markets or panic selling after a crash, or buying near the top of the bubble. Instead you're slowly but surely investing in the market. Keeping a cool head despite frenzied media heads claiming the top or bottom of bubble.
Whether you're buying in at the top of the bubble or the bottom doesn't matter. As long as you're investing regularly, you'll eventually see robust gains.
This rule is actually more important than the off regurgitated "Low Cost, No Load Index Funds from Vanguard" drivel you'll hear. (Drivel because there are lower cost funds, and because portfolio construction matters).
And I'm a big proponent of following rules... usually. But not this time.
Why I'm the exception to the rule
And now, we've cashed out of our positions in our after tax brokerage account.
Is it because I think I've outfoxed the markets? Well, yes. But only because I made money on a mistake.
Having $30K in an after tax brokerage account was a mistake for me and Rob. We had extra funds, and we thought we might like to make a decent return on the money. Upon further reflection, we realized that the $30K is our "opportunity fund." This is money that we don't want to have at risk.
If an opportunity for an investment presents itself, we need the money. If our investments fall in value, then we may lose our opportunity. By putting money in the stock market, we've committed that our money is a stock market investment.
In reality, the stock market is not our greatest investment opportunity. We like rental real estate investing, and we plan to continue collecting paid off real estate over the next few decades. We might also choose to invest in our own small business venture.
I believe that we can find a better ROI outside of the stock market than in it. That's why we decided to forgo our trust in time to rely on timing.
If you've got money in the stock market that should not be in the stock market, I would urge you to consider cashing out now. Of course, withdrawing money from a retirement account brings penalties, so don't cash that out (or at least understand the penalties first).
And as you move forward in your wealth building journey, consider whether you want to trust in time or in timing.