Wall of text ahead:
When faced with a downturn (which is what you seem to be expecting), the most important point, in my opinion, is psychological preparation. We don’t need to time it, neither its start nor the time when the market starts going up again. At any point, the market reflects the composite of the bets taken by all the actors in it. Those bets are made with all the information available, and change as new information becomes available. If that new information was known beforehand, it would be included in the bets already taking place in the market. Knowing where the market is going to go is a lost venture.
Right now, there is quite a bit of uncertainty going on : Evergrande in China, supply chains disruptions, inflation in the US, the ECB tapering without naming it that way, the Fed planning to start tapering later this year, Coronavirus shenanigans, potential regulation/ban of cryptos (hello China again),…
This is business as usual. At any given point, there are a bunch of uncertainties going on in the background. When we say that investing in equities bears risks, that’s part of the picture one has to take into consideration. Few are the times when throwing money in the market doesn’t stink. Either stocks prices are too high and due for a correction, or too low and bound to drop lower. Investors have to deal with that.
So, what can we do about it ? We don’t need to sell, or buy, or change our asset allocation, or keep cash on the sidelines, what we need is to be psychologically ready so that we can welcome drawdowns and moonshots with equanimity. If you are investing for the long run, as stated by @nabalzbhf , those starting 20k CHF are only a drop in the picture. It is an important drop, the first drop that will get you started on your journey. Having it fall right after being invested could mark your whole investing career by making you more risk averse than you would have been otherwise. Having it skyrocket right away may make you more reckless than would be advisable. It is a precious drop that you are meant to enjoy, but a drop nonetheless. If you can welcome and use it with equanimity, it won’t make or break your success, you have way more margin for error than that.
If you choose to invest it as a lump sum, you should be ready to see its price go down by 50 % in a few days, because it could, that is the nature of the stock market. Be ready, don’t fret, keep investing your additional 500.- per month at bargain prices. At the start of your career, regular contributions account for a lot, they will carry you when stocks prices will start rising again.
Here’s a rough modeling of what would have happened if you had invested your 20’000 CHF at the height of the dotcom bubble and kept investing 500.- per month after that : Backtest Portfolio Asset Class Allocation
Your portfolio would actually have grown through 2000-2003, when stocks prices lost 43 % of their value. This is how strong a position you are in right now : on the short term, the market returns count for very little, instead, your savings rate and regular contributions do. On the longer run, the compounding effect of the market on those contributions will build your wealth, but you need to have done these contributions first for that to happen.
If you choose to DCA, be ready to keep doing it come Hell or high waters. Using DCA is like tipping our toes in the ocean to test the waters. It works for some but if the waters are freezing cold, it’s also easy to step back and renounce getting in. What’s important is to be deliberate with our actions : take the time to choose how we want to apprehend a situation, then follow the plan and stick to it.
On the long run, starting your investing career with a lump sum or DCA won’t make or break it either. What will make it or not is your ability to stick to your plan once you have set your mind on it. Choose a path, follow it, don’t look back.
On a more playful note (this is a joke, please, don’t take it seriously), our local market timing compass, @Cortana, is all out of dry powder until February next year. We have a good 4 months of market highs ahead of us before a huge correction happens right after he invests his next lump sum. xD
will help you…
