Timing the Market (Roth IRA)

[Terrapin88]

I plan on starting a ROTH IRA for the 2004 tax year and funding the maximum of $3,000. I have to purchase this by April 15, and feel like my timing is horrible as the market is at a 4 year high right now.

I know this money is a long term investment (i'm 28), but I feel like the bad timing is going to cost me some money.

also, would you recommend an annual lump sum payment or monthly or quartly installments to fund a ROTH?

Best.

[TGoldman]

Take a look at a 5 year chart of the S&P 500 index.



Now take a look at the max graph of the S&P.



What do you think? I'm not trying to point out that the market is over-valued or undervalued, just that the current 4 year high isn't saying much taken in perspective of its bigger picture. I mean, look at the graph and tell me when the index was not higher than the four previous years?

I don't know what stocks/funds you're planning to buy, but my general advice would be to just dive in. No one really knows what direction the market is going to head in the immediate future and 20 years from now it's not going to make that much of a difference either way.

[Dan Mezick]

You could consider an inverse ("bear") fund that gets you exposed to profits when the markets fall in value. You can find examples at www.Rydex.com and www.PrudentBear.com.

They both have some that are designed to deliver 200% inverse of various indexes. This amounts to a mutual fund investment that behaves like a leveraged short sale.

[BadBoyBenny]

I would advise against these. If you want to bet against the market, just short it.

In general I wouldn't try and time the market at all, certainly not on some information like "it is at a 4 year high."

[Dan Mezick]

Couple of items.

One, Prudentbear does not have a bunch of funds. But Profunds does. I didn't mention this fund family in the earlier post.

I see the question is about a Roth IRA. You cannot short a stock in an IRA. Shorting a stock requires a margin account -- a type of account IRAs do not allow. That's why you cannot just go out and take a short position in an IRA.

But IRAs allow mutual funds, and these mutual funds allow you to engage in short sales indirectly, through the fund.

It's a way-- perhaps the only way-- to get what you want in an IRA if you want to occasionally place a bet on a decline in the averages. Double-inverse funds also supply a way to apply leverage to such a position, if you are so inclined.

I hope to see Inverse and Double-Inverse funds developed for some of the larger sectors such as Financials, Real Estate, Semis etc. It would be nice to have the ability to bet against a specific sector in your IRA from time to time.

Right now the main Inverse vehicles only address the Dow, S&P and Nasdaq averages.