Let’s talk in 10 years and see if your cash will beat my S&P allocation.

Yup. I "called" the recession in 2017 and spent 2016 building cash reserves instead of investing.

I was wrong.

Well if this was Nov 1999 (one year before the crash), S&P 500 was at $1.4k, so it would've taken you 14 years for your position to be in the green again

Now do this experiment with reinvesting dividends instead of just looking at the chart.

27% return over 14 years with dividends reinvested (1.86% annualized)[1]. Although when we calculate it with inflation its -7% and -0.5% annualized.

Not exactly a compelling argument since you could've made a risk-free return via savings accounts (Wealthfront currently has 2.3%, which I'm sure has been higher in the past).

[1] Nov 1999 one year prior to crash, to Nov 2012 https://dqydj.com/sp-500-return-calculator/

Additionally you should not spend all your money buying stocks at once. Spreading it across those 14 years would have been quite profitable.

It’s about diversification and timing the market not simply holding cash for 10 years. I also just sold some stock, but I am still 75% in stocks.

"and timing the market"

Hmm. Isn't that known to be impossible?

not impossible, but very unlikely for a layman. it's like trying to win a 1v1 against an NBA player.

Depends on what you mean by timing the market.

Several strategies like keeping a fixed ratio of stocks to bond are effectively timing the market. You pull money out of stocks when they go up, and put money into them when they go down.

Personally, I am less interested in absolutely maximizing my returns as I am maximizing the likelihood of reaching a return threshold.

A fixed ratio like rebalancing? That’s not really timing the market as you typically rebalance after a set period regardless of how the market has moved.

But you still money money the opposite of how the market moved.

Rebalancing is really taking money out of whatever the better investment was and putting it into what was the worse investment. Consider what would happen if you rebalance an asset like a stock that’s slowly going to 0. Over time your portfolio also hits ~zero even if everything else was going well.

Sure, for a sufficiently diversified investment like the S&P 500 it’s unlikely to hit zero. But the question stands why take money out of the better investment for 50+ years? You could be moving from 10% returns to 2% returns. The theory is about timing the market, you get better returns investing after ups than downs.

PS: Though better may in fact relate to stability more than absolute percentages.

Timing the market is exactly what you said about saving cash. Changing your asset allocations based on age or other milestones is not timing the market in any way. It’s reducing risk if you are about to retire.

Changing your asset allocation yearly or quarterly based on news is foolish. I’d call that timing too.

As I said a fixed asset ratio is timing the market. The expected returns for socks are higher than bonds, it’s rebalancing that makes fixed ratios a good idea.

As to changing asset ratios, it likely reduces maximum returns. But, wealth has diminishing marginal utility. I can save a little more to make up for a small loss in returns for a few years, it’s much harder to make up for a 50% market dip.

For the layman? I’d argue any investment professional who correctly timed the market (as a whole) simply got lucky.

As a person who isn't in any way confident in my ability to time the market, I think I'll stick to the old adage of time in the market not timing the market.

Warren Buffet made the same bet, S&P 500 vs some hedge funds. From 2007 to 2017 S&P gained 7.1% vs 2.2% for the hedge funds. The hedge funds arguably know more than you.

The hedge fund must have been doing a different strategy as I did much better than 7.1% from 2007 to 2017. Left at 1500 got back in at 930 and then ignored the market for 10 years.

The bet was for returns AFTER fees, though. S&P was its return minus 0.05%/yr (or whatever it is for vanguard). The hedge funds was their returns (which did suck compared to the S&P500 IIRC) minus 2%/yr plus 20% of final profits.

For the individual investor Buffetts advice was still right. Unless you have millions or billions to manage.

I just sold half of my holdings to have cash for the inevitable dip thats coming

There’s nothing wrong with trying to buy a dip... so long as you know that you’ve left off investing and started gambling instead.