Answer to a frequent question that invokes market timing

Jim: Should we stop contributing to our retirement accounts for a couple of years since the market is so high and save for a car instead?

This is a version of a question we frequently receive intimating the writer thinks the market is about ready to take a big dump and they want to miss it.  Notice they didn't say sell everything and go to cash but it's close to the same question.

My answer:

One' person's too high is another person's opportunity.  It's all supply and demand.  If people want to own more companies the market prices go up. If people want to own less companies the market prices go down.  No one, and I repeat no one, including Warren Buffet can time the market.  WB has done the best of any widely known person in America and he says "be fearful when others are greedy and be greedy when others are fearful". 

My former boss Ken Fisher, said the market climbs a wall of worry.  Seems to me we're in a time period like he describes.  Who would have thought the market would go up with the government shutdown and fiscal cliff happening at the same time? Not me. I did change my asset allocation a few weeks ago as I get nearer to retirement and announced that in last month's tweet summary going from 90/10 to 60/40 in my pension plan to reflect that change. Anna Sergunina, my partner,  remains at 90/10. Anna is 30 years old.

As for your specific question, unless you are changing your time for retirement, you'll most likely have to save more after the car diversion is over. Then again, you might find a great deal at 0% financing like others, and regret saving into cash for a couple of years making nothing.  If the market goes down like it did  in late 2008-early 2009, you can say I told you so. Only congress could drive us there. OMG, it could be bad in January and February!

Frankly, I have no idea what the market will do in the next two years, but moving some of your savings from Bucket 3 (long term) to  Bucket 1 (short term)  for a car purchase in less than two years, and continuing to dollar cost average into your retirement savings, will help you in a market turn down to recover quicker.  Otherwise, you'll just have to wait a longer time period for your long term savings to recover. That's what retired people have to do because they've stopped dollar cost averaging.

Hopefully, you've read the book we recommend, "Winning the Loser's Game" by Charles Ellis, 6th edition and follow Rick Ferri on his blog, along with The White Coat Investor.  Those resources will reinforce my comments today.

That's my position and I'm sticking to it.  Comments?