S&P 500

On March 1 2017 S&P 500 reached an all time intraday high of 2,400.98. Just 8 years earlier on March 6 2009 S&P 500 was at intraday low of 666.79. That is a gain of 260% from March 6 2009 to March 1 2017. Think about that for a while. 260% in 8 years. Will we ever see S&P 500 at 1,300 level again? That is the question that nobody can answer. However, with such amazing gains, one should be cautious that they tend to translate into large setback sometime in the future. There is no question that S&P will be significantly lower some time in the future, but by how much and when, nobody can answer. It is good to keep that in mind when you invest. So we cannot time the markets, and anybody that says they can, they are charlatans and you should stay away from. But what you can do is the following, this is the closest you can get to timing the markets:

Invest a little bit every month for the next 36 months.

Let's say you enter the market (through a low cost index fund) with for example $1,000 in March 2017 when S&P is at 2,400. So if the market goes down in the next 3 years to 1,300 level, your average would be less than 2,400 and more than 1,300. Maybe somewhere in the middle at 1,750. That is very good. Now wait 10 years. Will the markets be higher 10 years after they reached the low of 1,300 (or whatever the low will be). Yes, with almost 100% certainty I can tell you that they will be. What if they go up again by 260% from the all time low to the new high of 4,700. What if you wait 20 years, or 30 years? When I was born 35 year ago S&P 500 was at 123. Now it is around 2,400. That is annual compounded interest rate of 8.85%. This is without dividends, but also without inflation, so let's say dividends and inflation cancel themselves out. Now tell me, which institution can guarantee you over 35 years an annual return of 8.85% inflation adjusted? Zero! Only one person can guarantee you this and that is yourself, by reinvesting back into the market over a long period of time. The trick is to start when you are young, preferably not older than 35.

This is what should be taught to the 5th graders in schools. Teach your kids to start at the young age. I am teaching my son this now. Put $10 every month now into a low cost index fund and increase that by 10% every year until you are 65 years old, he would have a pension only reserved for those who are at 0,01% of the Western population, and this is something that over 50% of the western population can afford. Obviously your duty as a parent is to invest this on behalf of your kid(s) until they are 18 years old, after that they will get a habit that will be difficult to get rid off. Compounded interest is one of the strongest forces known to a mankind.