Pay Dirt is Slate’s financial advice column. Got a question? Share it with Christine and Iris here. (It’s confidential!)
Mr. Paydirt
I really messed up my retirement planning.
Starting my full-time job at 18, I had a solid benefits package, which included the option to invest in a SIMPLE IRA. With a 3% employer match, I was contributing as much as I could—currently around 21% of my paycheck.
I’ve heard time and again that new investors should avoid trying to time the market. But, I thought it best to let the fund manager handle it all, assuming they were making smart choices. Honestly, I just sat back, thinking everything was under control.
Fast forward two decades. This past February, I visited a bank branch about an unrelated issue. The manager looked at my account and, well, his reaction was a shock.
Bank branch manager: “Why is this money just sitting in cash?”
Me: “What are you serious???”
Apparently, my investment approach was so lax that my funds hadn’t been moved into safe index options as I assumed they would be. I realized then I had squandered 20 years of compound interest growth.
Initially, I felt this urge to act immediately, but a friend’s advice suggested it might be wise to wait a few months because of ongoing political instability. The market is trending up, or at least it seems to be—but who really knows how long this will last?
Now, I’ve got $130,000 just waiting to be invested. I think about using the bank’s S&P index fund, but pouring that much in all at once feels risky when the market seems strong. I wonder, is waiting for the right moment worth it? You really don’t want to slip up again.
—IRA indecision
Dear IRA Indecisive,
Your worries are completely understandable. Losing out on two decades’ worth of compounding growth can be paralyzing. Just the thought of investing that $130,000 when the market feels “high” makes it seem like a disaster waiting to happen. But here’s the thing—the hardest mistake is waiting for that perfect time to invest.
You’re trying to predict market movements, just as you were cautioned against as a novice. You hesitated in February due to supposed “political turmoil,” while the market continued to rise. Sitting idle cost you real money. There will always be reasons to hold off—political instability, inflation, global issues, even just a feeling that it’s not right.
The stock market is fundamentally a long-term game. You invest because you’re confident that the future will bring growth. Personally, I’ve never experienced a loss over the past two decades. Index funds, with their diverse stock selections, are popular for a reason—they reflect overall market movements.
True, the market has been robust lately, but that doesn’t guarantee a sudden drop. Yes, a recession will come eventually, but it’s unpredictable when or how long recovery may take. Both lump-sum investing and dollar-cost averaging have their merits, but every day you wait is essentially lost opportunity.
I recognize that anxiety about investing before a downturn is natural. If you can’t put all the money in at once, consider breaking it up—say $32,500 a month over the next four months. Either way, you need to start this month. Don’t chase after the elusive “perfect moment” that will likely never arrive. The true risk lies in waiting and keeping your funds idle in cash.
–Iris
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