Should I invest now or wait until the market sinks more?

Dear Christine,

I am applying as a young man living a very low cost lifestyle in a medium cost housing. I currently invest a large percentage of my income into retirement every paycheck. A large percentage of my net worth is in cash (about 50%) and I currently expect the market to go down based on the CAPE ratio of the financial markets. Should I end the market at mid-dollar now? Or should I wait for the Fed to start changing rates to put large amounts of cash into the market?

Sincerely,

Joel

Dear Joel,

With most of your net worth held in liquid form, I can understand why it would be tempting to wait for the market to fall and then release large amounts of cash into your investments. You mentioned the (CAPE) ratio — one of the ways investors can technically analyze whether a market is over or undervalued — as the way you try to determine the best time to enter the market.

Many investors actually use ratios to determine whether or not to buy a stock, so I don't want to discourage you from using this formula. But you didn't tell me how you became an investor. Would you consider yourself more advanced or closer to novice? You mention that you don't have much time to follow the market and do technical analysis of indices or stocks you are interested in.

And so, given that you're someone with a long-term goal of investing for retirement, I'd say forget about calculating CAPE ratios, make it easy on yourself and . Analyzing the market and determining the best entry points is difficult even for the most skilled traders and there is a higher chance that you are missing out on some opportunities. So just jump in and remember that your time in the market will always be more important. Besides, if you're waiting for the Fed, you'll be waiting long enough: The Fed has already made it clear that it has no plans to stop raising interest rates above its 2% target.

By dollar value averaging, you can take the emotion, effort and risk out of the equation and instead invest regularly over time. This brings you the possibility of lower premiums, but given that markets are down more than 15% from this time last year, you'll likely be happy with your returns. Alternatively, you can take the risk, make a large one-time investment now and average dollar value down the line.

In any case, I wouldn't recommend waiting – you're missing out on your gains with each passing day.

– Christine