Stocks — Part XVIII: Investing in a raging bull


As I sit here typing this afternoon the S&P 500 is trading at 1670, up 14% since the beginning of the year. 27% over the last 12 months. The very definition of a raging Bull Market. Add to this the fact that it has more than doubled since the Spring of 2009.

Whether you are considering investing a new chunk of cash that has come your way or whether to sell and sit on the sidelines for a while, it is times like these that test your core investing principles and beliefs.

Here are some of mine:

  • It is impossible to time the market, regardless of all the heavily credentialed gurus on CNBC and the like who claim they can.
  • The market is the most powerful wealth-building tool of all time.
  • The market always goes up, but it is always a wild and rocky ride on the way.
  • Since we can’t predict these swings, we need to toughen up mentally and ride them out.
  • I want my money working as hard as possible, as soon as possible.

But for novice investors, it is impossible not to look at the past market swings and think, “If only!”

jlcollinsnh reader Wendy was kind enough to write and ask precisely these questions and express precisely these concerns. Since my guess is that lots of readers are wrestling with the same, for today’s post let’s look at her note and explore it together.

Hi James,

I’ve recently inherited a chunk of money from my dad and knew it was important to start investing. I’m very new to this as I haven’t invested in stocks, bonds, or anything before. I have been researching about investing and stumbled upon Mr. Money Mustache and in turn you.

I’ve learned a lot about what to do before a stock market crash if you’re ALREADY investing, but my big question is…

If I’m am going to start investing for the very first time, is NOW a good time, right before a possible stock market crash?

I have read about us being in a boom and a lot of people seem to think a stock market crash is just around the corner. I know there’s always going to be ups and downs in the market, but I’d like to get off to a good start by growing $60k and contributing about $1000+ per month.

What I fear is that I’m entering at the wrong time. That I’m investing right before a stock market crash and my $60k won’t earn much over a short period. Then, suddenly a crash will happen and I’ll be down to $20k, and then growing from there. I’d rather grow from $60k, than $20k.

My fear had held me off for months, but I feel because I’m holding off I’m losing out. I just want to get off to a good start, not a bad one.

After reading Mr. Money Mustache’s last posting, I thought I should be investing, just more bonds less stocks. So I decided I want to go for a 70/30 portfolio being I’m 30 and with Vanguard as you and MMM have recommended. So last night I opened a VBTLX and put $42k into it and was just going to hold off on stocks and put the stock money into my 1% high-yield savings til after the crash. This morning though I’m having doubts that I jumped in too early and should have waited til after the crash because I still may lose a chunk of money.

If I am doing things right in getting started, should I also be putting that 30% into stocks now too or just hold off til after a crash so I can make the most of that money?

I’m just so fearful since I’m so new to this. Any advice on what steps I should take or change would be greatly appreciated. Thank you in advance for taking the time to look into my situation.



PS:  I’m not wanting to retire at 60. I don’t really have a deadline, I’d just like to retire as soon as I can, but with enough money to enjoy traveling and just work for fun here and there where it’s optional. I’m not sure with my income and savings if that will even be possible, but I’d like to try. So that’s why I want to be smart about how I get started.

Hi Wendy…

Welcome and thanks for the great and timely questions!

We’ll start with your comment, “I’ve learned a lot about what to do before a stock market crash if you’re ALREADY investing…”

It doesn’t matter if you have 60k in cash waiting to invest or if you already have the 60k invested, your concerns and fears regarding a market crash will be the same. So, step one will be to learn to deal with your fear.

Fear is the major theme of your note. Don’t feel bad. It is one of the two major emotions that drive investors, the other being Greed.

Fear is perfectly understandable. Nobody wants to lose money. But, until you master it, fear will be deadly to your wealth. Once you are invested it will cause you to flee in panic for the exits every time the market drops. And drop, repeatedly on it’s relentless march up, it will. The curse of fear is it will drive you to sell in panic when you should be holding. Here’s how you deal with it:

The market is volatile. Crashes, pull backs and corrections are all absolutely normal. None are the end of the world. None are even the end of the market’s relentless rise. They are all, each and every one, expected parts of the process.

As that post says, there is a major market crash coming, and another after that. Over the decades you’ll be investing, countless smaller corrections and pull-backs as well. Learning to live with this reality is critical to successful investing over the long-term. And successful investing is by definition, long-term. Anything short-term is by definition savings or speculation.

So, if as that post claims we know a crash is coming, why not wait to invest or if currently invested sell, wait till the fall and then go back in? Simply because we don’t know when. Nobody does.

In your note you say, “I have read about us being in a boom and a lot of people seem to think a stock market crash is just around the corner.”

That’s certainly true, but there are also lots of people who say we are just at the beginning of this boom and we will never see the S&P as low as 1670 again. Every day heavily credentialed experts are predicting a market crash. At the same time, equally credentialed experts are predicting a boom. Who’s right? Beats me. Both are predicting the future and nobody can do that reliably.

So why all the predictions? Simply because booms and busts are exciting! Get it right and your reputation is made! Predicting them equals ratings. Especially if the predictions are extreme. Predict the Dow soaring to 25,000 or crashing to 5,000 and people perk up. There is big money to be made doing this, for the gurus and cable TV shows anyway.

But for serious investors, it is all useless and distracting noise. Unless you pay attention. Then it is positively dangerous to your wealth. And sanity.

dow 1900 -2013

History can help, but only on the broadest of scales. You see it in that chart above. The stock market always goes up. There are powerful reasons why. Click on that link you’ll find my post that discusses them and why I can say, with almost absolute certainty, that 20 years out the market will be higher than today. Why with a very high degree of confidence I’d say that 10 years out it will also be higher. Why even 5 years out my bet would be the same.

But this says nothing as to what the next few days, weeks, months or even years will bring.

Here’s the problem. There is simply no way to know where in time we are.

Look again at that chart. Could we be at a moment similar to January 2000 when the market peaked and went on to lose almost half it’s value? Or July 2007 when it did the same? Sure, it is easy to see that pattern.

Or could that pattern have run its course, and now is more like the time the market passed 1000 or 2000 or 3000 or 4000 or 5000? Each level left in the dust not to be seen again. Times when people were every bit as convinced that it was too high and ready for a crash.

Beats me.

But let’s as a mental experiment assume we do know that right now, at 1670, the market is at a top and about to crash.


Maybe a magic genie has told us so.

Clearly we’ll sell (or not buy). But now what? We want the gains only the market can deliver. So we want back in at some point. But when? Is this a 10% pull back? If so, we’ll want to buy at 1500 or so.

But what if it’s a 20% decline, the official definition of a bear market? Then we don’t want to buy until around 1330.

But what if we do that and it turns out this is a Crash!! Damn! Should have waited until 835 or so. Where’s that pesky genie when we really need him?!

The point is, to play this market timing game well even once, you need to be right twice: First you gotta call the high. Then you gotta call the low. The world is filled with sad investors who got the first right and then sat on the sidelines while the market recovered and marched right on past it’s old high.

Market timing is an un-winable game over time. How can I be so sure?


The person who could do this would be far richer than Warren Buffett

and twice as lionized.

Nothing, and I mean nothing, would be more profitable than this ability. That’s what makes it so seductive. That’s why gurus constantly claim they can do it, even if only a tiny bit. Nobody can. Not really. Not in any consistently useful way. Believing in Santa Claus is more profitable.


Breeding unicorns is more likely.

But I don’t care. Here’s what I’d care about.

You mention that you are 30 years old. You have some 60 or 70 investing years ahead. I’d look at that chart and note that 60 years ago, around 1953, the Dow was trading at 250. Today it is 15,424. That’s thru 60 years of financial disasters, just like the ones sure to come during the next 60 years.

Or just consider the last 20 years and the S&P 500 index. In April 1993 it was around 450. Today, 1670. And that includes 2000-2009, one of the all time worst stretches in market history and a crash second only to the Great Depression.

It is in this the magic lies. The stock market’s wealth building power over time is nothing short of breathtaking.

But so is the ride along the way. Whether you invest today and it happens tomorrow, or sometime in the future, I can also guarantee you that your wealth will be cut in half more than once over those 60 years. You’ll suffer many more smaller setbacks as well. It is never fun but it is the process, and the price you and everybody else must pay to enjoy the benefits.

So really, the question you are asking is not “Should I invest in stocks now?” Rather it is, should you invest in stocks at all?

Until you can come to terms with the harsh facts above, the answer is no. Until you can be absolutely certain you can watch your wealth get cut in half and still stay the course, the answer is no. Until you read this complete stock series and understand and are comfortable with the risks that come with the rewards you seek, the answer is no.

In the end, only you can decide.

But, fortunately, investing doesn’t have to be an all or nothing proposition. If you are willing to give up some performance, there are ways to smooth out the ride a bit. It is done with asset allocation.

I describe mine here and again here. In keeping with the premise of this blog, it is the soul of simplicity. Just two funds and some cash on hand:

75% Stocks.  VTSAX (Vanguard Total Stock Market Index Fund)  Our core holding for all the reasons we’ve discussed.

Stocks are the Ying to our Bonds’ Yang.

20%  Bonds.  VBTLX (Vanguard Total Bond Market Index Fund) Bonds provide income, tend to smooth out the rough ride of stocks and are a deflation hedge.  But during times of inflation and/or rising interest rates they get hammered.

5%  Cash.   Cash is always good to have in hand. Cash is also king during times of deflation.  The more prices drop, the more your cash can buy.  But idle cash doesn’t have much earning potential and when prices rise (inflation) its value steadily erodes.

Now, since you indicated you plan to hold a large percent in bonds, let’s talk a bit more about those.

Typically, the “safer” you want your portfolio to be the greater the percentage of bonds you would hold. My guess is this is why you are thinking of having 70% of yours in them.

But bonds are not without risk. In fact, of the investments I hold the one that I view as most risky right now is the bond fund. To fully understand why, you need to understand bonds a bit. Reading Part VII will help.

But basically the reason is that bond yields are at record lows. Getting there has given them a great run. But from here it is far more likely rates will rise than fall. When that happens, bond prices will drop. Rate increases could happen fast and hard. If it does, bond prices will fall fast and hard too.

Holding you bonds in VBTLX will help. The fund holds multiple bonds across multiple maturities. That will cushion the blow and it is why this is the bond fund I recommend. But make no mistake, it will still take a hit.

So knowing that, why do I still hold them? For the same reason I hold stocks knowing that a crash will come again — I can’t know the “when,” but meanwhile they provide the benefits described above.

If you want to hold 70% bonds, as you indicated, be aware of the risks that entails.

If by now you are tearing at your hair and screaming, “Fine, I’ll just put the cash in my mattress!” (Or bank account paying virtually nothing in interest), more bad news. Doing so will, short of a deflationary depression, almost assuredly guarantee a loss. (Cash is great to have in depressions) In 20 years inflation will have seriously eroded the buying power of your 60k even if the face amount remains the same.

Mmm. Remember the 20 years spanning 1993 until today? The one with all the disasters, crashes and wars? The one that took the market from 450 to 1670?

The point is: There is no such thing as a risk free investment. Having money means having risk. You only get to choose what kind.

What kind should you choose? Well now, that depends on your time horizon and goals. Let’s look at yours:

“I’d just like to retire as soon as I can, but with enough money to enjoy traveling and just work for fun here and there where it’s optional. I’m not sure with my income and savings if that will even be possible, but I’d like to try.”

That’s a wonderful goal and in fact closely mirrors my own when I first started. If you are serious and are willing to pay the price in nail-biting sleepless nights along the way, here (finally!) is my specific advice:

  • Read the Stock Series on this blog.
  • Read it again.
  • Once you are absolutely clear on the wild ride stock investing entails, decide if you have the stomach for it.
  • If, and only if, you are absolutely certain you can master your fear and will ride out the plunges and not panic….
  • Put your 60k into VTSAX.
  • Or into VBIAX. This holds 60% stocks and 40% bonds for a less gut wrenching ride. But you’ll still have to hang on and not sell in a panic.
  • Add to this every month the $1000+ you indicated you are able to. More if you can.
  • Completely forget about the market’s ups and downs.
  • Or celebrate the downs as the buying opportunities they are for your monthly investments.
  • When this grows to 25-times your annual expenses, you have reached Financial Independence. (This is the same as being able to live off 4% of your total stash)
  • At this point, shift some of your assets to Bonds (unless of course you already have them in VBIAX). This will smooth the ride even as it lowers your performance. A trade you now want to make.
  • Start living on this 4%.
  • Now you can consider whether you want to continue working.
  • If you keep working, while living on your 4% pour 100% of your pay into your investments. This will help dramatically expand your net worth.
  • Along with it, the dollar amount 4% represents will also grow.
  • With this dollar expansion of your 4%, feel free to expand your life style.

Oh, and keep us posted on your progress!



Addendum I:

OK. Having read this post you know market timing is a fool’s errand and short-term market predictions are pure silliness. Right?

That doesn’t mean they are not fun. With the full understanding that any accuracy on my part (or anybody else’s) is pure luck, here’s my call for 2013 and those of a few others in the comments.

And here’s a review of how my 2013 predictions turned out and those for 2014.

And here’s how those 2014 predictions turned out and my new ones for 2015.

Addendum II:

You can also take solace in the fact you can be the worst market timer ever and still make money. (Thanks to Elephant Eater who in this comment provided this link)

Addendum III:

In referencing the market’s performance in this post, you may have noticed I jump between using the Dow and the S&P as the indexes. I prefer the S&P because it is broader and therefore a bit more precise. But the Dow goes back further in history and is more useful (and what is available) for the long view. If you overlay their charts over time, they track together with remarkable consistency, making them for our purposes, indistinguishable.

Addendum IV:

Can market valuations predict the next crash? In short, no.

Addendum V:

It is now 2018. Wondering if it is time for me to update this post? No need. The Wealthy Accountant already has:

Where to invest your money when the stock market is overpriced

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  1. Scott says

    One option if you’re scared: Put in 1/12 of it each month over the next 12 months. (Or 1/52 in every Monday for the next year.)

    There have been plenty of studies that show that, on average, that’s a worse idea than just putting all of it in right now (because of all the things jlcollinsnh says above), but it’s a classic way of reducing downside risk at the cost of upside opportunity.

    It means that, even if not mathematically optimal, it lets you tell yourself “I’m in now, so I get to enjoy the up, but not all in, so if it does crash I can still buy nice and low”.

    (Value averaging instead of just 1/12 each month is slightly better, but isn’t fire-and-forget, so you’re less likely to stick with it.)

    • jlcollinsnh says

      Hi Scott…


      While the idea you describe would work as you describe, my concern remains.

      The core issue is dealing with the fear, and the illusion market moves are predictable. Tip-toeing in, solves the “what if now is a peak” concern. But whether it is or isn’t is the small issue.

      Over decades crashes, pull-backs and corrections will occur on a regular basis. Without understanding this and being able to resist the fear it will inflict, an investor is doomed to panic and sell.

      Better to understand, prepare and toughen up mentally so that when the bad time(s) come, regardless of when, she can stay the course.

      • Scott says

        I think it depends on amount of money.

        If you have $10k and plan to add $1k every month, just do it right now, because even after a Black Monday you can always tell yourself “it’s ok, I’ll get that back in 2 months and more than make it up with what I put in over the next year”.

        If, on the other hand, you get a $500k inheritance and are putting in $1k per month, putting it in right before Black Monday means you end up thinking “Well crap, there goes more than 9 years worth”, which could well result in you developing that fear that you didn’t have before, because of “once bitten twice shy” issues.

        As you say, fearing the market will lose you a ton over the years, so possibly losing a few percent now may well be worth it to gain confidence in the market instead. (Expected cost of dollar-cost averaging in over a year instead of lump sum is about 4-5% — about half the long-term annualized return for the market.)

        Or, from another perspective, it’s a way of avoiding changing asset allocation too drastically. The same way you don’t want to say, “oh, I just hit F-you money” and that instant sell 1/2 of your VTSAX that day to switch to your VBTLX & VGSLX. Better to slowly change the allocation over time so that if you do get hit by the real estate crash, you either don’t have that much in it or got to enjoy some of the bubble first.

        To use one of my favourite analogies, it’s like why it’s better to play the same numbers in a lottery every time: not because it increases your odds, but because it keeps you from kicking yourself when the winning numbers are the ones you had last week. (Of course, buying lottery tickets at all is a terrible idea, but I like the behavioural economics aspects.)

      • Wendy says

        Hi James,

        Thank you so much for your input on my concerns. After reading your Stock Series again, this post, and everyone’s responses so far, my fear is practically gone.

        So I decided I’m going to invest 100% in VTSAX to begin with. You’re right, I’ve got plenty of time to ride the waves and I understand the stock market will always go up.

        However, I do like the idea of tip-toeing in, but not because of fear of losing money. More of just that I have a feeling this may be a peak. If there’s a possible opportunity for me to buy when things are low, then I want to try to shoot for it. If by the time I invest it all and the opportunity still hasn’t arrived, oh well! I tried. Like you said, that’s what the monthly investments are for anyways.

        I am also thinking about putting $5k into eachVBMFX and VGSIX. Then, just letting that ride, only adding to it once I hit financial freedom to smooth out the ride. Do you think that’s a good idea for deflation/inflation or is that something I don’t need to worry about, instead put that $10k into the VTSAX and forget about it?

        Also, thank you for super simple specific game plan. That REALLY helps and just what I needed.

        I wanted to say thanks to everyone else on their input too! I really appreciate it.


        • jlcollinsnh says

          My pleasure Wendy…

          …and thanks again for your questions!

          Already you are adapting my reponse, and the info here, to you own needs. Well done!

          Your idea of putting $5k into eachVBMFX and VGSIX (bonds & REITS) is just fine. Combined with VTSAX, these are really the only tools you need to adjust your portfolio for your own age, situation, risk tolerance and comfort level.

          The important thing is that you are exploring, learning and asking. When you make your decision it will in fact be your decision, not just what you read here or anywhere else.

          You will understand the logic and reasoning involved. You’ll have a strategy. When the tough times come, and they will, that strategy will guide you, not fear.


        • WanderingWhitehursts says

          Congrats on your “lucky” market timing. By trusting in the markets mostly upward trend, looks like you’ve turned your $60,000 into over (or close to) $100,000 now. I’m glad you took the wise advice you found here. It’s great to see the fear of investing overcome by knowledge, and wealth to be the result.

    • Danny says


      I find your comment very interesting. Could you point me to a study, to which you are referring?
      You also mentioned that the “expected cost of dollar-cost averaging in over a year instead of lump sum is about 4-5%”. I would like to learn more about this.
      Thank you.

  2. Sergey says

    Great article!
    I had the very same concerns when I started investing in November 2012. I thought that market is already high, so may be I should just wait for it to go down. I’m glad I didn’t. Somebody on MMM forum mentioned your articles, and after reading hem, I immediately opened a Vanguard account. I only had a few thousand dollars back then, but I invest about 60 to 70% of my income. The market is already 21% up since then and I finally saved enough to survive for two years if I were to lose my job.

    By the way, 100% of my portfolio is stocks. I don’t really care if I were to lose half of it in a crash. Being just 24 leaves me enough years to be able to earn whatever I can 🙂

    • jlcollinsnh says

      Thanks Sergey!

      Your timing certainly caught a nice bull run.

      But if I were 24 and saving 60-70% of my income (and bravo for that!!), I’d be rooting for another crash and cheaper shares. 🙂

  3. Kenneth says

    Jim, this is sage advice. Great advice. I only wish I had read you and MMM 30 or 40 years ago (I’m 63 and still working). But you guys, and the internet, we’re not available back then. Well there is no looking back. I’m going to allocate 60/40 and recalculate my monthly draw annually based on ending balance. Less if we’ve had a bad year, more if we’ve had a good year. This in about 2 years when I finally retire. I do have some major fears that you have not discussed. It centers around the government deficit spending over a trillion a year, the Fed buying assets at over a trillion a year and the unsustainable 100s of trillions of future commitments for Medicare/Medicaid, Social Security and the by far highest level of military spending in the world. I’m counting on our promised social security checks as a big part of our monthly retirement money, and medicare for our health care. I fear that these may eventually receive large cuts, or if we continue on this trajectory, that the US dollar will suffer from hyperinflation.

    • jlcollinsnh says

      Thank you, Kenneth!

      I, too, wish somebody had told me this stuff 40 years ago. 🙂
      It’s why I write the blog today.

      Here’s my take on SS:

      In short, geezers like us will collect every dime. We vote and AARP is the most powerful lobby in history.

      As for the deficit it is tragic and of great concern for our country. But not so much for the trans-nationals we invest in thru the likes of VTSAX.

      One of the most interesting and potentially positive out comes of the tech revolution is the weakening of the bonds political states hold over the investor class. A subject that perhaps deserves it’s own post one day….

    • Dtree says

      P.s. deficit is down to its lowest levels in 5 years. Under $700 billion, and CBO projects it will go down further.

  4. Prob8 says

    What a timely post! I bet most investors are struggling with this concept in these uncertain times. I’m no exception. I keep telling myself to invest my money in accordance with my desired allocation. Easy to say . . . tough to do. I’m a little different than Wendy in that I struggle with bonds at the moment. My desired allocation calls for far more money in bonds but I haven’t been able to fully commit with interest rates sure to climb. I suppose I need to just rip the damn band aid off and start diverting new funds away from VTSAX.

    • jlcollinsnh says

      I’m with you on bonds. My allocation in them is right where I planned, but it is so, so tempting to cut them back. But that would defeat the strategy.

      When the house sold I also had to follow my head and not my heart in deploying that money into VGSLX. Reits have been on an even stronger tear than stocks of late.

      This is where having a strategy works best. It helps strip away the unproductive emotions.

    • Mad Fientist says

      I’m glad Prob8 also admits to struggling with this because I do as well. The part of my personality that tries to get a good deal on everything is so strong that even though I know I should invest my money as soon as it’s available to invest, I always find myself waiting for a pullback first, in order to get a better “deal”. As Jim so eloquently described in the article, however, this is definitely not an optimal strategy.

      I especially hate it when I get hung up on an arbitrary number. For example, I had a small lump sum to invest last year and the Dow was just over 12000. For some reason, I figured I’d just wait until it the Dow pulled back under 12000 to invest it (absolutely no reason why, other than because 11xxx looked better than 12xxx). What happened? It hasn’t been under 12000 since then. When it then went above 13000, I said I’d just go ahead and invest that money when it pulled back under 13000. What happened again? I missed the brief dip under 13000 and then it kept going up. I can’t remember when I eventually invested that money but I definitely missed out on some gains and dividends for absolutely no logical reason at all. So embarrassing.

      To fix this problem, I decided that rather than fight this strong yet very illogical part of my brain, I’ll instead take it out of the equation completely by setting up an automated investment plan. That way, I’m investing every month, as the money becomes available, and I won’t even look at the stupid numbers anymore.

      Great post, Jim!

  5. Dtree says

    Hi Jim.

    Another great article! I completely understand your concepts (having read your stock series a few times) about investing sooner rather than later. Is it correct to assume then that the same applies to any other investment such as a Roth IRA? I currently contribute monthly to my Roth to max it by the end of the year. Should I just go ahead and fund it for the whole year right now if I have the cash? And going forward, is it best to fund it each year on Jan 2nd for the full amount if its available?

    Thanks for continuing these great stock series! Don’t stop!


    • jlcollinsnh says

      Thanks Dtree…

      and absolutely on the IRA funding. Remember IRAs are just “buckets” that hold some of our investments. The principles we discuss regarding investments apply equally to those we hold in and out of IRAs.

      • Wing says

        Hi James,

        On Roths, I currently maxed out my Roth for this year and plan to set aside money now so I can max out next year’s Roth in one go on the first day. What do you think of doing this, rather than putting that cash into my VTSMX and funding the Roth slowly over the course of next year? Thanks!

        • Scott says

          Why not do both?

          You can put the money into VTSMX right away, and then fully fund the Roth IRA the first day by converting from post-tax VTSMX to roth-IRA VTSMX.

          (For tax reasons, you’ll probably want to be sure you’re set to SpecID, and convert lots with losses, or if you have none of those, the long-term ones with the smallest gains. And beware of wash sale rules and Vanguard frequent trading restrictions.)

        • jlcollinsnh says

          Hi Wing…

          First, I applaud you for getting your Roths funded as early as possible each year.

          Assuming your Roth is also in VTSMX, sure you can fund your taxable account and then just transfer the balance to your Roth for 2014. Bassically you are just seeing both as part of your stock allocation, and that’s a good way to look at it.

          The worst that might happen is you’ll pay a capital gain tax on your gains when you sell. But better to have gains to be taxed than to just have held the money in a near 0% savings account.

          Of course you might also have a loss. If so you can use up to $3000 to offset other taxable income and carry-forward anything more than that to use in future years.

          Good luck!

          • Wing says

            Hi James, thanks for the reply! Actually, I’m holding a vanguard retiremt fund in the Roth. Does that change any of the advice you gave? Sorry for the barrage of questions; I’m still a beginner and I appreciate all the help you’ve given!

          • jlcollinsnh says

            No worries on the questions, Wing. Ask away!

            As for this one, if you are going to hold a TRF, the Roth is the best place. This is because the bonds will be paying interest which would otherwise be taxed. Dividends from the stocks, too.

            An index stock fund is considered to be “tax efficient” because:

            1. Total Stock Market Index funds don’t frequently trade stocks like actively managed funds tend to do, and trades are taxable.
            2. While they do pay dividends, it is a relatively small amount as they hold the entire stock market. Some pay dividends, but many of those companies find other non-taxable uses for their cash.

            Therefore it is better to hold these in a taxable account.

          • jlcollinsnh says

            Not much.

            Just keep in mind that your Target Retirement Fund holds bonds as well as stocks. The percentage depending on the specific TRF you’ve chosen.

            This makes it a more conservative holding than VTSMX, which is all stocks.

            So anytime you move money from one to the other you are changing your allocation.

            Good questions, Wing!

          • Wing says

            Thank you so much James! Your advice is really helping me to understand all of this confusing mess! Just a little more of your time if you don’t mind:

            I currently have about $7000 in a taxable funding a VTSMX. By the end of the year, I expect this fund to be about $12,000 from my contributions only (cost basis?). I plan to follow your advice and rollover $5,500 of this into my Roth (which is holding a retirement fund) on January 1, 2014.

            When I rollover the $5,500 into the Roth, will I have to pay taxes on the sale of the VTSMX fund? I intend to only sell my original contribution (if that is even possible!), so no divident or market gains.

            Thanks for your continued help and guidance!!

          • jlcollinsnh says

            Your taxable fund, like all stock funds will be taxed in three ways:

            1. The dividends that are paid out thru the year will be reported to the IRS and are taxable.
            2. At the end of the year the fund might pay out a “capital gains distribution.” This too is taxable and reported to the IRS. But Index funds typically have small or no CGDs because they do so little trading inside the fund. This is what makes them “tax efficient.”
            3. If you sell, as you plan to do, any shares during the year this too is a taxable event. You might have a taxable profit or a deductible loss.

            You can specify to Vanguard exactly which shares you wish to sell, but over time tracking this can become a bit of a nightmare. Personally, I have never bothered.

          • Frank says

            Hi JL, your blog is really informative and I appreciate how many times you must repeat the same advice, so here I go probably asking the same question you’ve heard before! This is in regards to the capital gains issue.
            I have a non-retirement taxable account at Vanguard which I raided last year to get downpayment for my first house. I knew I would get hit with capital gains taxes and at tax time I found out it was much worse than I thought. So my accountant said that if I maximize my 403b contribution (and I am this year) I can get my taxable income down to a level where I wouldn’t be hit with capital gains if I kept taking money out of this taxable account. I can add the mortgage interest and property taxes in to be at this taxable level. So I am withdrawing a monthly amount from the nr taxable investment account to pay my bills partially and then I am pushing the money into the 403b by payroll deduction. I also have a Trad IRA and a Roth IRA which I could take money from, but don’t. I can’t figure out if I am making a good move by taking it out of the non-retirement account or I should take it out of the Roths which hasn’t seen the same growth that the non-retirement account has. This nr account has the VBLTX, VIMAX admiral and VSIAX admiral. My 403b is all in a target fund. They have NO Vanguard available. So, does this seem to make sense- essentially moving money out of the nr investment account and then maximizing my 403b contribution? I have about 10-15 years to retirement. Thanks again for your time and attention to all of our questions!

          • jlcollinsnh says

            Hi Frank…

            Your questions really belong in the Ask jlcollinsnh section. Can you repost this there?


  6. Jake Erickson says

    What an awesome article with great advice. I’m only 24 and just about debt free which means I’ll begin investing within the next year. I’ve had the same exact questions your emailer had, so hearing your opinion on it was really helpful. I know that the stock market always goes up in the long run, but that doesn’t make the downfalls less heartbreaking. I like your suggestion that if you’re not okay with losing half of your investment to not invest in stocks because that’s always a possibility. Thanks for the advice!

    • jlcollinsnh says

      Thanks Jake…

      The drops are tough to endure, but I find this frame of reference helps:

      1. Remembering this is long ball.
      2. Even with price declines, we still own the same pieces of dynamic, striving and active companies as we did before the drop.
      3. The losses are always, as long as you hold firm, temporary.
      4. Periodic drops in the market are natural and to be expected.

    • Stephanie Pinto says

      Hi Jake,

      I am turning 23 this year (as we are now in the year 2020). I am so curious as to your experiences with saving/investing over the last few years since you were so young when you wrote this reply. I was curious to see how the last few years have impacted your finances and your investment choices. If you would be willing, can you please reply to my comment and share your experiences so far?

      I appreciate it in advance!


  7. Alice says

    Since we baby boomers are the big lump in the population what advice do you have for those of us in our 50’s to 70’s? Does the shorter timeframe change your strategy? How do we spend down the principal so the last nickel’s spent just before we go?

    • jlcollinsnh says

      Hi Alice….

      Since I am right in the middle of that age range, you need only look at my portfolio to see what I’d do. 🙂

      That said, I’d also suggest that age is only one of the parameters to consider in selecting allocations. For instance, my allocation is more what it is because I’m retired than my age. Were I 35 and retired I’d be doing the same. Likewise, if I were working and planned to for another decade, I’d be more in stocks.

      As it is, my portfolio in most quarters would be considered very aggressive. That’s because I believe we should look longer term than most recommend. I could easily live another 20 years, my wife another 40. As pointed out in the post, that’s long-term enough to be richly rewarded by stocks. Add to that the fact that even when we die, the money will be passed on and continue working. So I’ll never really not be looking long-term.

      As to planning so the last nickel’s spent when you die, that’s an interesting concept. I remember reading a book about how to do exactly that some years ago. Unfortunately, I don’t even recall the title, much less the strategy. Since I do want to pass on at least some legacy, I never much cared. Plus, since we can’t ever know how long we’ll live, it seems a very risky approach.

      If you really don’t care about anything being left, you could go with an annuity. The right kind will pay you more than you could safely withdraw from investments right up until you die. Of course, then the insurance company keeps what’s left, so basically you’ve made them your heir. Plus these things are ladened with very high fees. There’s two reasons I hate them.

      But now I’m curious. Is this really your goal?

      • Alice says

        Thanks for the thoughtful reply and yes, I see no point in leaving money to heirs. If they need it, I prefer to give it to them while I’m living. Reaching out from beyond the grave makes no sense to me as its either a control issue or a misguided belief you’ll be appreciated after you’re dead IMHO; who cares? The same with charities. I’ve been involved in the dispersion of a couple of trusts (not as a beneficiary) and was dismayed at the length of time it took to resolve and the amount that ended up with the trust company. I’ve also witnessed the arguments and squabbles of heirs after someone dies. Ugh.

  8. Wrightius Maximus says

    I don’t want you to publish this but sincerely from my heart thank you.

    I grew up poor. No education. No father. I started working at 14 in a dead end job. I pleased to say I actually have made a nice life for myself and have a wonderful family.

    Deep down I always felt unhappy and very insecure and I never knew why. I now know that it was all about money and security. I had no plan. I had no grounding, experience or education in finances.

    My mother taught me to be poor basically. I was a hopeless consumer. I thought stuff was the answer. I earn well but I spent it trying to keep up because I just thought that was what we did.

    I love reading and I love blogs and I found MMM and he changed my life. After reading all his stuff I felt empowered and it definitely gave me a deeper understanding of myself.

    Then I found your good self and that is like the icing on the cake. Your writing is great fun to read and I read your articles over and over again. I prefer your site to MMM.

    So thank you for all your help and for making me feel like I can look after myself and my family better from now on. I feel more secure and I’m not scared anymore. Even when the market crashes. Keep up the great work. Thank you.

    • jlcollinsnh says

      Thanks WM..

      …for your permission in our private email exchange to leave your comment up. As I explained, once a commentator is “approved” as you are, comments they leave are published automatically. Although I can, and would, take them down on request.

      My guess is that your story will resonate with others. Few of us receive financial education unless and until we specifically go looking for it.

      I’m glad you found some here.

      It is not where we start that matters, but the paths we choose on our journey. All the best on yours!

  9. Pat says

    James, while I agree with a lot of your investment advices, your arguments tend to be hand-wavy. Nothing wrong with this – this is just a blog… which is precisely my point :). My advice to people like Wendy would be to form their decisions after reading some books/articles with more rigorous and quantitative studies of investment strategies. Or do their own analysis; it is actually quite easy for the question in this post.

    BTW, your observation that the market in several decades is likely to be many time higher than today can be equally well used as an argument in favor of a gradual (e.g. value average) allocation over a 1-2 year period.

    • Wendy says

      Hi Pat!

      You know, this was one of the things that made me so hesitant. I was reading articles like this,
      Contrarian Alert: Is This “Investing Jinx” Signaling a Stock Market Crash? Plus, the whole “Sell in May, buy in October” thing. Reading the history of the trends in the stock market graph to predict when a crash is about to happen.

      They really do throw me for a loop! Maybe I wasn’t reading the right articles, but after reading them, “throwing all your eggs in one basket and forget about it” just makes life seem so stress free, which is what I like it to be.

      It’s like that commercial where the girl says “if it’s on the internet, it must be true”. We never know what is really true, even in a book. So I always go by what my previous teacher said, “We all make decisions to the best of our knowledge at that time.”

      James’ way of thinking makes sense and follows more of my care-free lifestyle. It just feels right, right now. I’m sure I’ll learn more as I go and may adjust things to my liking and to future changes. I always say, “If I can’t do anything about it now, why worry about it.” So since I can’t predict the future, I decided I won’t worry about it.

      Although I am curious from someone who goes off of investment strategies and quantitative studies, what would your specific investing game plan be if you were in my shoes?

      I’m glad you hit on this point, Pat. I’m definitely interested in what others have to say on this topic too.

      Thanks for your input!

  10. The Keichi One says

    Well said! Your ability to so succinctly but into simple English difficult concepts is highly enviable. Or perhaps we’ve just made simple concepts too complex (not to take away from the compliment however). Your advice has had an impact on me since I started investing over a year ago. Although I often let my heart get in the way I always come back to the simple jcollins world of investing and that helps me sleep at night. And really, isn’t that what this is all about? A good nights rest.

    • jlcollinsnh says

      Thanks Keichi-san!

      One of the key goals here is to demystify this stuff.

      You are exactly right, these are simple concepts made too complex by a financial industry that profits from that complexity.

  11. PeterC says

    My first time commenting here and I love the blog. But I read many blogs and articles about how you cannot time the market and in the long run it always goes up. I agree with that. But one thing not explained is the long run can be longer than an investor can take. There are examples where you could have put your money in at a peak and it would take well more than 10 years to recover your investment. In a case like that even with paltry returns on fixed investments (GICs here in Canada) you would be better of staying out of the market.

    The problem for investors right now is with returns on fixed investments so low and bonds with nowhere to go but down when rates eventually start to rise you don’t have any options but stocks to at least outpace inflation.

    I guess my point here is that our investments should be treated as pension funds and one of the primary rules in running a pension fund is preservation of capital. It is more important to protect against large losses that will do the biggest damage to your long term returns. So with that said when you invest a large sum certainly will have a big impact like it or not.

    • jlcollinsnh says

      Thanks Peter and welcome!

      If you haven’t already you might want to read this post:

      It discusses precisely your concerns.

      The truth is you would have to go back to the Great Depression to find a time where it took ten years to recover:

      “It would have taken an investor of exceptionally bad luck to have borne the full weight of the the crash. You would have had to buy precisely at the 1929 peak.

      Suppose instead you had invested in 1926-27. Looking at our chart this is about halfway up on the climb to the peak. Many, many people were entering the market in these years. Certainly they were destined to lose all their gains, and yet 10 years later, had they held on, they’d be back in positive territory. Although another rough stretch was coming.

      Suppose you’d bought at the earlier peak in 1920. You would have taken an immediate hit and recovered five years later. From the collapse in ’29 you’d be back even by 1936. Seven years.

      The point is that any given start would have likely been different and yielded an outcome not as severe as the widely quoted 90% loss, peak to bottom.”

      I’m afraid I disagree with your last paragraph, for the same reasons I disagreed with Dr. Lo here:

      and as I explained to Wendy in this post.

  12. Rob G. says

    Many thanks for answering this question, James! I imagine there are quite a few of us late-ish starters in our 30s who want to make that FU money ASAP and wonder whether going “all in” is still a good move.

    Wendy, thanks for asking this question!

    • jlcollinsnh says

      My pleasure, Rob.

      I am honored and lucky to get some great questions from the readers here.

      Thanks, again Wendy!

  13. Giddings Plaza FI says

    Love the unicorns–super funny! As for advising your reader to invest in VTSAX, you are right on! That’s one of my retirement funds, and a great one! I have zero talent in picking stocks, so I only do mutual funds. I’ll blog on that one day soon, after I sift through the numbers.

    • jlcollinsnh says

      Your wisdom, GP, is in knowing you can’t pick stocks.

      I can’t either. No one can, short of a handful of names like Warren Buffett, Peter Lynch and Michael Price. That’s why they are famous.

      And even for them, there is a fair amount of research that indicates they are the lucky statistical outliers and nothing more.

  14. Mitch H. says

    Great timing! I posted several months ago (young, recently married and wife was uninterested about finances, saving, etc.). Well now she puts together a spending sheet for our refrigerator and reads your blog! Even more fortunate I started a new job and doubled my salary. This is why your article is great timing- we are now in a position to save more and after crunching numbers we now have $4K month to put in the market. I fund Roth with VFIFX and I have my VTSAX account (started Dec. ’12).

    Our cash been building in our savings account as I am hesitant to put in VTSAX as the price is almost $10 over where I initially bought. I’m in an investing club of young guys (ages 24-32) and all of them trade and have been trying to get me to. However, your message has convinced me to DCA into the account. Thanks for your commitment to providing info that is useful appreciated!

    Mitch, Minneapolis MN

    • jlcollinsnh says

      Hi Mitch…

      welcome back!

      Congratulations on the great progress!

      Regarding your reluctance on deploying the cash, check out the comment above from the Mad Fientist.

      Please tell you wife I’m delighted she’s now a reader!

  15. SavvyFinancialLatina says

    I was lucky to have a strong financial mentor when I was 16. He helped me open my bank account, get a driver’s license, and start investing in mutual funds through USA.

    He retired at 55 after a strong career in the army as a Colonel and Chief of Staff. He invested his retirement in mutual funds. Is now 78 and is still retired. Has been doing what he loves since 55.
    Of course, he has social security and a very nice military pension.

    He thought the concept of dollar cost averaging, and that market will always go up and down. You keep buying and keep your investments.

    My husband and I dream of Financial Independence where we can do whatever we want. We are working towards this goal.

    • jlcollinsnh says

      Always nice to see you here, SFL.

      Your mentor sounds like a great guy you are lucky to have in your life, and somebody I’d like to have a coffee with. I’d even buy. 🙂 You, too.

      Meanwhile, please give him my regards and buy one for him in my stead.

      Two things I’d bet money on:
      The market will be higher in ten years than it is today.
      You and your husband will have reached your goal.

  16. Shilpan says

    Brilliant. I am surprised that these so-called experts are still in business because blogosphere is full of brilliant minds who selflessly share their wisdom. You definitely are an asset for personal finance blog community.

    Personal finance is a boring subject for most, so having an articulate and engaging writer like yourself can help millions who are in same predicament as Wendy is.

  17. Vi says

    Hi Jim,

    I got to your website through MMM which I only started reading a few months ago. I”m enjoying your Stocks series very much. As a Canadian 27 year old starting at the beginning with a few thousand to invest, I am finding your simple instructions (I particularly love your post for your daughter and instructions for how to build wealth) not so simple! I don’t think I can buy VTSAX unless you buy it with American money? Even then I’m not so sure. Like I said, I’m starting from the beginning. Any advice for your young neighbours up north?

  18. Sai says

    Hey Jim,

    Thanx for sharing ur knowledge. I opened a vanguard account aftr reading through ur stock series. I am 30 & jus started investing. Now its around 20K in index fund, adding 1000K monthly to it. I think I have a long way to go b4 the investment looks decent enough.
    Ok here is my question. U keep mentioning that
    ” The stock market always goes up. There are powerful reasons why.”
    But my colleague argued that if u consider japan stock market, the story is different. Its has given negative returns in long run. So who ever invested in that index fund there lost money in long run. How can you be sure that its not gonna happen here in US?
    Thanx in advance & keep up the good work.

    • jlcollinsnh says

      Welcome Sai.

      Well, if you have that quote I’m going to assume that you’ve read the post where I lay out the case for saying it.

      Of course, I can’t be “sure” it won’t happen here. As they say, nothing is sure but death and taxes.

      In fact we had our own version of this in 1929 with the Great Depression. Then, just as in Japan 1989, the government followed a market crash with one bad decision after another. But even then, unless you were extraordinarily unlucky, you didn’t see the touted 90% decline:

      Of course, for those using leverage and forced out, or those who simply panicked and sold it was very ugly.

      These things are very rare, but they do happen. That’s why I own bonds (deflation protection) even though I hate them and REITS for inflation protection..

      But if like you I was 30, earning and investing on the way, I’d not only not worry I’d welcome a nice long bear during which I’d be accumulating shares at low prices.

      Let’s suppose 2013, unlikely though this is, is our Japan 1989. So maybe you are 50 or 55 when the USA gets its act back together, like Japan appears to be now. Pretty sweet timing if you’ve been building you holdings all those years.

      But, more importantly, you have to ask yourself are you smarter to:

      1. hold back in fear on the off chance that something as rare as Japan 1989 or USA 1929 is about to happen or

      2. invest with the expectation that the market will behave the way it has all the rest of the time.

      Not only is #2 the far more likely bet, it is the only one that offers a path to wealth.

      • Sai says

        Thanx a lot Jim….I agree with u & appreciate all ur work…#2 is not easy to follow, but as u said, who does accumulates wealth…keep it up…looking forward for the future posts…

  19. CashRebel says

    Jim, I can’t tell you how much I enjoy brewing some coffee and reading your blog on Sunday mornings. It also makes me immensely happy that I knew exactly what you were going to say once I read Wendy’s email, and I agree with in 100%. As recently as 6 months ago, I was holding a little bit of extra cash in reserve because I was confident a market plunge was inevitable thanks to the fiscal cliff. I’ve now fully come to terms with the fact that no one can predict the short term fluctuations of the market, even a little bit. I’m supremely happy that I’me beating most investors by invest $1,000/mo in index funds totally non-dependent on the index’s price. It’s a great feeling! Have a great Memorial Day!

    • jlcollinsnh says

      Hi CR…

      Well this is fitting. I’m enjoying your comment sipping my own morning coffee, and your line about knowing exactly what I was going to say to Wendy brought a smile to my face.

      Just about the only time I hold cash is when I have plans for it in the immediate future. Any investable money gets put to work right away. Sometimes the market blesses that, sometimes not. It evens out over time.

  20. brighteye says

    And again another post that describes exactly what I need, because I also have a lump sum to invest and am (or rather: was) contemplating what to do. Let me say that you are the financial mentor I was hoping to find. Your daughter is a lucky woman to have such a father! Love your blog!

    • jlcollinsnh says

      Thanks Brighteye….

      you are kind to say so and I’m delighted to play that role for you.

      The origins of this blog actually lie in a few letters I had written to her about financial stuff she wasn’t ready to hear just yet.

      Please stop by anytime.

  21. Jeremy says

    Back in 2008 I went through a similar line of thought. I had a large amount of cash and had a portfolio plan that meant I needed to sell a lot of individual stocks and reallocate, but what to do? Go all in or DCA? I decided to go all in and shortly thereafter, BOOM! I “lost” 40+%. What I had feared actually happened

    Funny thing though, everything about life was exactly the same as it was before. I still went to work, I still had great friends and family, and I was still happy. Sure, the paper value of the portfolio was lower, but realizing that life was the same regardless was priceless. The fear was gone

    Years later, the portfolio has more than recovered, the dividends have grown, and life is still good

    • jlcollinsnh says

      This is what I’m talking about!

      Staying the course, rolling with the punches and not panicking when all around you are.

      Well played! Well rewarded.

  22. Le Code Civil says

    Thank you for this article. It’s just the kick in the pants I needed right now. I’m also about to become a first-time investor, and needed the reminder about trying to time my entry into the market. It is an anxious time, but this article has convinced me to leap in. Thanks again!

  23. ml12 says

    Thank you for the stock investing series. I wanted to echo “Le Code Civil” sentiment above. I’ve been mostly a saver for more than 15 years. Every time I try to go against my conservative nature and invest in the stock market, I’ve ended up losing spectacularly. So I’ve stayed out of investing for the last 3 years and needless to say, completely missed out on one of the best runs ever. Recently, I’ve begun to think about getting back in. Reading your articles kind of eases my concerns about another crash around the corner and has me sold on index funds.

    On the other hand, I was just introduced to Rule #1 by Phil Town and thought that it could be a sound investing method. What is your opinion on Rule #1 ? Could it be blended with your investing philosophy somehow ? Thanks!

    • jlcollinsnh says

      Hi ml12….

      and welcome to both you and Le Code Civil above. Glad to have you both here.

      I confess I am unfamiliar with Phil Town’s book Rule #1 and had to google it.

      Having not read it, I did the next best thing and read my pal JD Roth’s review here:

      The title is drawn from Warren Buffett’s famous quote:
      “There are only two rules of investing: Rule #1: Don’t lose money […] and Rule #2: Don’t forget Rule #1.”

      JD says: The book explores a philosophy ascribed to Columbia University’s Benjamin Graham (author of The Intelligent Investor).

      That being the case and based on JD’s review, Rule #1 is a book about how to pick individual stocks. You don’t have to read very far in this blog, and especially my stock series to know that I side with the vast majority of the research done that says successful stock picking is a fantasy. It is why I recommend investing in broad based total stock market index funds.

      So this is the very opposite of my approach.

      Now if you are still interested in stock picking, rather than Rule #1, I’d suggest you read Graham’s The Intelligent Investor. This is the classic and very likely the best written on the subject. Buffett credits it with shaping his approach.

      Speaking of Buffett, despite his great success with the market, he also recommends Index Funds to most investors. He recognizes how vanishingly small the odds are in stock picking. Graham would, too.

      It is worth noting Buffett started his career and Graham wrote his book, long before Jack Bogle created the first Index Fund in 1976. So we now have this wonderful new tool that was simply not available “back in the day.”

      Finally, back to that “don’t lose money” quote. It doesn’t mean, nor did Buffett intend it to, that he never loses money in the market. It was his short hand for “Don’t be stupid.”

      Back in the crash of 2008 the media was filled with reports of the billions lost in the 45% drop of BRK-A ( and it’s underlying companies. Just like damn near everything else. He “lost” billions.

      The difference is, Buffett doesn’t panic. He knows (just like the readers of this blog) the market always goes up and that, if anything, such times are opportunities.

      Now, of course, he is richer than ever.

      Here’s Buffett talking about this:

      My favorite line:

      “The Dow started the last century at 66 and ended at 11,400. How could you lose money during a period like that? A lot of people did because they tried to dance in and out.”

      • ml12 says

        Thank you for your insights.

        I guess what I have in mind when asking you about Rule #1 is a 90/10 split portfolio between index funds/bonds/cash and a handful of “valued” sector leader individual stocks. I am just not sure if the buy and hold approach could work for individual stocks though.

  24. enceladus says


    Your blog has been a Godsend. Like with some of your other readers, your simple and straightforward advice gave me the confidence to invest my money, which had been sitting in a MMA @ .03 APY for years. I’m only 26, but it hurts to think about how much further along I could be right now….but as you say, better late than never.

    Have you ever thought about creating a Twitter account? I actually discovered your site through a tweet from MMM….It’s a great way to increase traffic to your blog, and even a little fun. I’m sure your daughter can show you how to use it!

    • jlcollinsnh says

      Welcome Enceladus (moon or giant?)…

      Comments like yours always make my day! Thanks.

      You did read the parts about the crashes you’ll be enduring along the way too, right? 🙂

      At 26 you are off to a very early and great start. Don’t sweat the MMA years. You were wise to spend the time reading and learning before you took the investing step. I wish I had been.

      I’ve thought about Twitter, but I don’t much care for technology and seem to have my hands full without coming up with tweets. Although, for those of you who care, I did have eggs scrambled with ham, cheese, tomatoes and onions along with coffee for b’fast. 🙂

      I should probably make more of an effort to increase traffic here, but it seems to be growing organically as people like yourself pass it along.

  25. Jay says

    Hi Jim,

    Great article and thoughts; thanks for your continued wisdom.

    Yet, one concern keeps tearing away at me, specifically, PE Ratio. If one takes a look at the historical S&P 500 PE Ratio (, or more importantly the Shiller PE Ratio (, the historical mean is 16.50.

    What are your thoughts on those of us who are weary when the PE Ratio is above the mean and have a large cash position on hand to invest, and view the market as overvalued whenever it is above the 16.50 mean? Do you concern yourself with the S&P 500 PE Ratio at all?


    • jlcollinsnh says

      Thanks Jay…

      ..and welcome!

      You don’t have to read very far in this blog to know, I believe trying to time the market is a losers game. From this very post:

      “Market timing is an un-winable game over time. How can I be so sure?


      The person who could do this would be far richer than Warren Buffett

      and twice as lionized.

      Nothing, and I mean nothing, would be more profitable than this ability. That’s what makes it so seductive. That’s why gurus constantly claim they can do it, even if only a tiny bit. Nobody can. Not really. Not in any consistently useful way. Believing in Santa Claus is more profitable.”

      Speaking of Buffett:
      Here’s what he says about this: You can’t successfully dance in and out of the Market. My favorite line:

      “The Dow started the last century at 66 and ended at 11,400. How could you lose money during a period like that? A lot of people did because they tried to dance in and out.”

      Those of your who are wary of the S&P mean and concluding it is telling you something useful about the future of stock prices are hoping to do exactly that: Dance in and out.

      Now, given the points I’ve made above, you gotta ask yourself:

      If predicting the stock market with something as simple as S&P ratios (or any of the endless variations) worked, wouldn’t everybody have already jumped on this?

      So no. I concern myself with it not at all.

      • Jay says

        Ok, thank you for thoughts and providing clarification regarding the PE Ratio, and all the other types of ratios. It has confirmed some of the very thoughts I had reservations about, but as always, you have brought further clarity. Enjoy your Sunday!


  26. cv says

    Dear Jim

    I read your whole stock series (from the beginning to the end, including all the reader comments) at least once a month as part of my own continual education. How i wish I have copies of these as a book to give to co-workers, younger cousins, friends, families (about 99% of them don’t know their L arm from their R when it comes to finance and investing).

    I engaged the discussion with my dad about stocks the other day, he retired this past december, but true to his own bullish personality, he found contract job pronto, not that he needed the money. He was asking me, why is that you recommend putting in the money you make into investment and live on the 4% of the investment?

    The other question I have is, why do you recommend investing 1000+ a month into the VTSAX? I personally do much more than that, but for someone who only can save a few hundred because they are working on paying other debts; was wondering if you can delve into the above questions a bit more for newbies like me.

    Thank you so much for your time!!!

    • jlcollinsnh says

      Only once a month?? 😉

      Thanks, cv, for your very kind words.

      As it happens, I have begun work on the book. At the moment I am at my in-laws’ beach house, a beautiful and perfect place to begin.

      I’m rapidly learning that it is a much harder project than simply running the posts together. At least to do it with the level of quality I hope to achieve. The plan was to have it ready for Christmas, but that is looking unlikely. Especially as I’ll be disappearing back to South America for August and September. Work on it and this blog will grind to a halt as I goof off. As with every summer. 🙂

      If I understand your 4% question correctly, the answer is simply to get used to living off your investments once you can while using the earnings if you choose to keep working to accelerate the growth of your stash.

      As for the 1000+ into VTSAX, I guess is you picked that up from a specific respond to a reader question. But I don’t mean to suggest that as a limit for everybody. If you can afford to do more, great! You’ll get there that much sooner.

      Hope that makes sense, and it’s good to know SOMEBODY will buy my book once I get it done! 🙂

      • cv says

        Yes, actually from now on I plan to ONLY give your book as gifts to people. I was interviewed as an alumni at my alma mater this weekend and I suggested that they design a practical course in this topic for their undergraduate- I would think A LOT of people would want to take it, considering how many of them will graduate with negative (monetary) worth; but I don’t know how that suggestion went with the university marketing department… please keep us posted on the progress of the book and I would like to post links to it once it’s available.

        • jlcollinsnh says

          You’ve really made my day, cv! 🙂 Very motivating to get this done.

          But you’ll have to find other presents for at least the next six months or so. 😉

          I think that course idea is a great one. You can recommend my book as the text!

          Have you considered joining us at the Chautauqua?

          You sound like someone who’d have a great time with us and who would add a lot to the group. Due to an illness we recently had a couple drop out so there are two open slots. Let Cheryl know if you can come.

          • cv says

            would have loved to!!! except I am still in the “putting in the VTSAX pot” phase so exotic travel are out for now. But I will be watching with a hawk eye for your updates on that journey and on the book!

          • jlcollinsnh says

            you’ve made the right call, as much as we’d like to have you there.

            the closer you get to FI the more options you’ll have, and there will always be cool things to do!

  27. Andrew says

    Hi Jim –

    Happy New Year to you!

    In this post you said that VBTLX (Vanguard Total Bond Market Index Fund) will get hammered when the fed starts raising rates. I’m curious to know what your definition of “hammered” is?

    Is a 5% drop in share price “hammered”, or are you talking more like -25%? Can you help me understand your understanding of how changes in the fed rate affects bond fund prices… e.g. the fed increases rates by .25%, .50%, or 1% and the share price of VBTLX declines by x%, y%, or z%.

    I’m also curious to know the same for LT bonds – VBLTX (Vanguard Long-Term Bond Index Fund). I know you’ve said elsewhere that this fund in particular will especially get hammered when the fed raises rates.

    Thanks as always for your insight.

    • jlcollinsnh says

      Hi Andrew…

      Happy New Year to you as well!

      Yeah, “hammered” is pretty vague. 😉

      Basically, I was refering to the idea that when interest rates rise, the price of bonds drops. As to how much in terms of rates v. declines, you can probably do a google search and find a calculator for that. I can’t think of one at the moment and responding from the road as I am makes the search difficult for me. If you
      find one, please let us know and I’ll add it to the “Calculators” page above.

      Meanwhile, this post might help:

      • Andrew says

        I didn’t find a calculator because I stopped looking as soon as I found some info on Vanguard’s website. First you need to know the “average duration” of the bond fund, for VBTLX it is 5.7 years.
        And then, in Vanguard’s words:
        “Duration – A measure of the sensitivity of bond—and bond mutual fund—prices to interest rate movements. For example, if a bond has a duration of two years, its price would fall about 2% when interest rates rose one percentage point. On the other hand, the bond’s price would rise by about 2% when interest rates fell by one percentage point.”

        So if rates go up 1%, the price of VBTLX would fall about 5.7%. Easy enough.

  28. Greg says


    First of all, thank you for all the great information. Between these articles and the Mad Fientist, I’m learning so much. My question has to do with Tax Loss and Tax Gain Harvesting. I’m just starting into the wealth building stage so I will be investing money into my Vanguard taxable brokerage account. I know to avoid taxes on long term capital gains, that I must hold the funds for at least one year. My question is, if I am building wealth by investing monthly, how would I take advantage of tax loss/gain harvesting? For example, if I open the account this month with $3000 and I plan to add $1000 per month for the next year, would I then only “harvest” gains or losses from original $3000 since that is the only amount that I’ve held for an entire year? I think I understand the idea of tax loss/gain harvesting if the money is simply sitting in the account, but during the wealth building years while I am contributing, I’m a bit confused. I noticed that you don’t have an article on harvesting, is this something I should avoid due to tax complications? Thanks in advance!

    • jlcollinsnh says

      Hi Greg….

      Just noticed I never responded to your question. Looking at the date, it came in while I was traveling and in working thru the backlog it must have fallen thru the cracks.

      You’re right, I’ve not written about tax loss harvesting specifically. I am unconvinced that the benefits out weight the efforts. Plus, to do it you need to own a mix of stocks and bonds to shift back and forth from. In my Wealth Building Portfolio I suggest a 100% allocation in stocks with VTSAX.

      Once you add bonds, you get a bit of potential TLH when you do the annual rebalancing as I discuss here:

      But if I really wanted to pursue TLH, I’d use Betterment and let them do it automatically:

      If you are still around, hope this helps!

  29. Mark says

    I have the same problem. My fear has kept me from making the right decisions. I have about 380K I need to do something with. The market has come down, but I read many thought it would go much further due to the rate increase, China etc. Now we are at 17,233 and I missed a lot of the buying opportunity. It sounds like from reading the stock series I should just dive in and lose my fear as I don’t need the money for at least 10 years.

  30. Kyle says

    Hi Jim,

    I love your blog it is one of my favorites and I have read hundreds. Sorry I’m late to the discussion but I figure articles like this are timeless anyway.
    I have a few questions for you if you don’t mind:

    1. What are your thoughts on dual momentum investing? Appears to be very simple and time tested with higher returns and decreased volatility. What do you foresee as the problem?

    2. History has shown small cap and value to have a strong edge. Why not invest more in these? The total market index only has around 3% small cap value for example, why not even out the allocation?

    3. Robert Kiyosaki has predicted a currency crisis coming soon. What are your thoughts and what would this look like? He stares it could be the biggest crash ever much worse than 2008 and who knows how long it will last. Scary stuff, what do you think?

    Thanks Jim!!

  31. Bryan says

    Hi Jim,

    I’ve said it before, but thanks for everything you do.

    You mentioned that you would/do keep withdrawing your 4% in retirement, and anything earned goes straight into investments. Have you or anyone else found any math to support that versus living off the earned income and reducing your withdrawals? I suppose your cost basis would be better with the fresh investments if it’s in taxable. Or do you just keep the withdrawals the same because it’s, in fact, a simpler path?

    Thank you!

    • jlcollinsnh says

      Hi Brian…

      I never tire of hearing it. 🙂

      That was meant more as a mental exercise; a way to think about it.

      In practical application, even after FI being able to fully support us, we always just spent any earned income first and just let the investments ride, drawing only what is needed to fill the gap.

      Make sense?

  32. Ismail says

    Hi James,

    I discovered your website just today through an answer at Quora.

    I have read several posts and am enlightened immensely on why one must trade the index fund. The reason being so obvious and logical that we tend to overlook it.

    I’d like to thank you for your sincere efforts in serving others.

    Cheers from Malaysia.

    • jlcollinsnh says

      Welcome Ismail…

      Glad you found your way here.

      We’ll be in South East Asia early next year and hope to add Malaysia to our stops. Never been there, but would love to see it!

      • Ismail says

        Thanks for the welcome James.

        You will love it here James. People, sites and food are all great. Most speak English too. So you can always stop to ask anyone. If you want to taste local lifestyles, search for Malaysia homestays.

        If you need any assistance, don’t hesitate to email me.

      • Frankie says

        If you are in Kuala Lumpur, please drop me an e mail because I would like to buy you a drink. Thank you for your sharing!

  33. Tim says

    I’m in the middle of a rollover from a previous employer’s 401k to a Vanguard IRA. That means I’ve sold about $40k worth of stocks and that money will be hitting my Vanguard account in a few days. Looking at a 5-yr chart of the S&P, it’s REALLY tempting to withhold putting that money in VTSAX until “after the crash” that’s SURELY about to happen…right?…it’s gonna crash, right?!?

    Re-reading this article again was very reassuring, thank you. Obviously 1670 was NOT the top back in May of 2013. Is ~2436 the top now (June 2017)…WHO KNOWS!?!…not me.

    Putting my money right back where it belongs…VTSAX. At least if the market crashes, I know it’s jlcollinsnh that’s to blame for my losses, not me! 😉

  34. Matthew says

    Wow, it’s crazy reading this in 2018. You’re dead on, no one could have known if a crash was just around the corner or if the Bull was just getting started. It turns out the Bull was just getting started. Now people are saying the same thing. The bear is right around the corner. Maybe. Maybe not. The bear is *somewhere* but know one knows where. At some point it will hit and my stomach will turn if I’m foolish enough to pay attention, but I’m just going to keep on investing as much as I can as soon as I can.

    It’s crazy that you used 25000 as the hypothetical example of an outrageously optimistic prediction from a forecaster. It’s been almost exactly 5 years since this article was written and the DJIA is at 24294

  35. James says

    This is a wonderful series, until reading your series I was a stock picker from 2012 until now. Just last month I decided to use VUN (vanguard total US market) and VOO (S&P 500) as benchmarks and figured I have trailed the market since 2012 but have a higher overall yield. I sold off some of my positions in April and am slowing building up my positions in VUN to make it my largest holding. Stock picking is too hard. From now on, any new cash will go to VUN. I am tired of looking for the next Apple or Amazon.

    • Aaron says


      I’m right with you. Me and my father have been stock picking since we began. We’ve had some great picks, and some terrible ones. Doing a ton of research for all of them. After I started this series, I am in the process of cleaning out everything and investing it all into Vanguard index funds, and it feels so good!

  36. alexandros says

    So, I get it -its not possible to time the market, we just never can say for sure.
    That said, is it fair to say that the market is entirely memoryless ? As if we were flipping a coin and regardless of whether we got heads 10 times in a row, the 11th time still has *equal* chance of givings us heads ? Thank you for generously sharing your experience through this blog, it really opens new horizons.

  37. Lou Gordon Green says

    What if you think that America has reached its peak and is on a decline compared to other economies (China and other countries in Asia?)

  38. Victor Emanuel Vulpescu says


    Do you think the market always goes up for US/developed countries, or the same thesis applies to emerging markets as well? With a CAPE ratio of 16 for EM and 30for S&P (with a median of 17), I’m more willing to make my first investment in stocks in a EM ETF. What do you think? Is it more risky on the long run or the volatility does only affect my short term gains?

    • jlcollinsnh says

      Hi Victor,

      Thanks for your comment!

      Mr. Collins is currently traveling and unable to respond just now.

      We find for most questions, he has already covered the topic. Using the Search button might very well provide your answer. If not, please post your question again after October 15, 2019.

  39. TJ Stevens says

    Hi Jim,
    Is there any (understandable) reason to the way that index fund dividends are decided on a quarterly basis? I ask because I notice that dividends were recently paid for VTSAX, and they were significantly lower than the last two payouts. In fact, I’ve been investing regularly and was expecting the dividend total to be much higher than it was, but even with extra money added, the total was quite a bit lower. I know that dividends fluctuate, but is there any rhyme or reason why, say, VTSAX pays 26 cents per share in June, 2019 when it paid 33 cents a share in December? Wouldn’t it make sense that dividends would increase alongside capital gains? Thanks so much for any insight you can give! You’re the best.

    • jlcollinsnh says

      Hi TJ

      Thanks for your comment!

      Mr. Collins is currently traveling and unable to respond just now.

      We find for most questions, he has already covered the topic. Using the Search button might very well provide your answer. If not, please post your question again after October 15, 2019.

  40. Andy Z says

    Wild that the SP500 has doubled since this was written with no significant downturns. To not invest then would have indeed been foolish, especially since even if there is an exact repeat of 2008 and the market loses 50% of its value, you would still be ahead had you invested!

  41. Sarah says

    I’ve just completed the entire stock series and I wanted to say thank you. I’m brand new to investing (though a natural saver, and my husband opened retirement accounts for both of us) and this is life changing. I feel like I’ve stumbled on a secret, which is a sad display of how little most people are taught about finances, but I am grateful to be catching up now in my early 30’s. The not-so-coincidental timing of finding this (through Choose FI) comes as we have reached a very solid emergency fund and are one year (or less?) away from paying off the last of my student loans, which left me with the question… “what do we do with all this money we’re saving?” And now I know.

    I thought you’d appreciate a new perspective you’ve given me. To the annoyance of my investing friends, I’ve always shrugged at their excitement or concern of market highs and lows, just saying, “it isn’t real until you sell it.” While I knew NOTHING about the market and had no skin in the game, I realize now that this “whatever” instinct will be a huge asset for me as I finally invest myself. I’ll (hopefully) maintain my indifference but have the confidence to invest and make my money actually work for me knowing that the market always goes up. Additionally, my husband invested as a young man fresh out of college and literally didn’t look at his accounts for a few years around 2008 (he wasn’t avoiding it – he was just in a steady job and not paying attention to his money). We are both amused now to see the huge dips on the graph in his accounts and then the steady climb again that he completely missed at the time. I think we are, at minimum, mentally set up for success, though I’m sure living through it personally is difficult.

    We’re bound by FINRA employee regulations so we have a few hurdles to get through that makes it a “Slightly More Complicated Path to Wealth” but I’m just so excited to dive in. Thank you for presenting this in such an accessible way. Now I just have to go tell all of my friends!

    • jlcollinsnh says

      Shhh, Sarah…

      …this is all a secret! 😉

      More seriously, I enjoyed your perspective. It should serve you well.

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