here's my plan for my IRA

[rovo]

You may want to do some back-testing on your plan. Go back 5 or 10 years and paper trade the "plan" and see if it would have worked. The plan is simple and the back-testing would be very easy to work through.

What ETFs are you looking at using for your purchases?

[soycapital]

"I sold about one third of my IRA."
1) when did you sell?
2) in the future how will you know when to sell?
3) I have my doubts about this system because it leaves me befuddled ?? (as to how it can work)
4) Seems to me that you would have to have markers as to when to sell and when to buy and then backtest to see what performance is.
5) Then of course backtesting is not foward testing so how would you know if it will work in the future?

[phil5185]

I sold about one third of my IRA. I am going to buy back into ETF's later this year. My buy price is 91% of the price at the start of the year.
I know no one can market time, but that being said I am going to try it. I think I can do it.

You are age 25. You could incrementally purchase a broad index for accumulation, never sell, and never market time. That has a long term history of success.

Conversely most of us were certain when we were young that we would be the one who could crack the code to market timing. And most of us thought that we would be 'pickers' who could pick stocks that would beat the market. Most failed.

A broad index carries the risk of the overall market. ETFs carry that risk plus the risk of a market sector failure. And individual stocks carry both of those risks plus the risk of the failure of the individual company. Ironically, all 3 groups get about the same longterm average return. Ie, you would be adding risk w/o gaining a higher longterm return. That is uncompensated risk, the worst kind.

When index funds were invented, Warren Buffet said that "the dumb money became the smart money". Joe Sixpack could buy/accumulate an index and out-perform 85% of the professional fund managers.

At your age, incrementally put $5000/yr into a broad market index that gets a 10% to 12% return - in 35 yrs you should have about $1,900,000. Or if you want $4M, invest $10,000/yr. Becoming wealthy is kinda boring, no corn futures, no 'put' options, no 'call' options - just invest with discipline & wait patiently.

[yclept]

"My buy price is 91% of the price at the start of the year."

Is there something mystical about the prices that existed on Jan 3, 2011? Why not 91% of the prices that existed at the beginning of 2010, or 2009, or some other year? Why not February 29, 2008? After all, that's a situation that only occurs 24 times every century, and thus must have some overall significance in the numerology of time.
I'm all for mechanical investing, but the system should have some logical basis. As several people above pointed out, you state no sell discipline. Every mechanical investing discipline I'm aware of incorporates both buy and sell criteria. Without a sell discipline, you will not be a stock market investor, but rather a stock collector.
I'm not trying to be harsh, but the system you outlined above, while mechanical with respect to buys, makes absolutely no sense to me. I can see no logic behind it. All I'm trying to do is point out what I see to be fallacies in the system as you outlined it so that you won't lose real money and valuable time chasing after rainbows.
Rovo's suggestion of back-testing your scheme might shed light on the situation. You can download a bunch of historical prices for the ticker(s) you intend to use (Yahoo is one source) and see how often the price declined your mystical 9% -- how often it declined more than that -- how often less. Keep in mind that historical events are no guarantee of future results. As Nassim Taleb pointed out in "The Black Swan", seemingly impossible things do happen, and in this ever-expanding economy the shear number of seemingly impossible occurrences makes it ever more likely that some of them will. Over the next many years, your portfolio will have to weather several Black Swan events -- the robustness of your system will determine how well it does so.
For a Black Swan example at the top of the current news, think about the poor people in Japan right now. Or in a more callous vein, think about the insurance companies who covered all those lives and property. How would you like to be the guy right now whose company insured those 6 nuclear plants? Whoa, somebody hand me my tanto, it's clearly time for seppuku!

[rovo]

While there are no guarantees in the market, it is fairly simple to filter out ideas via back-testing. Yes, the sell point would have to be defined prior to doing the test. Sometimes, rather than arguing with someone about a technique, it is just easier to allow the individual to prove to himself, via back-testing, that the idea needs further work.

[rovo]

Here is something for Horatio to think about. Some of us used to post on the old SuperModels message board. It was quite a while ago when we all first met via the board. At that time there must have been 250 posters on the board and many had the ideal system to get rich in the markets.

Fast forward something like 15 years and we have Yclept, Will1(majeasy), wxyz, and rovo who are still posting and who have survived and prospered in some horrendous markets. We each play the game a little differently than the other but the one thing we all have in common is being receptive to ideas about the market but also a great skepticism about the next "get rich quick" market scheme.

[yclept]

Off-topic, but since I mentioned it here, it looks like I was wrong about the extent of insurance company losses regarding the nuclear plants:
www.businessinsurance.com/article/20110320/ISSUE01/303209974

[commentator]

Mar 22, 2011 18:11:29 GMT -5 @horatiolegrand said:

I sold about one third of my IRA. I am going to buy back into ETF's later this year. My buy price is 91% of the price at the start of the year. That means stocks have to fall 9% sometime during the year from the Jan. 1 price or I wont be buying anything.

If that doesnt work out, I am going to do the same thing next year.

My theory is that if I can buy 9% cheaper that is better then buying and the stock going up 9% from a longterm perspective. Twenty years from now those ETFs will be priced according to their inherent value and it wont matter what the price dips and spikes were now, and I will have 9% more stock that had appreciated over 20 years.

I was reading an article about Buffett and in it he said the key to making money is to not lose it. I think there is more of a likelihood of stocks going down the amount I said sometime in the next year.

I will end up with more stocks. I read somewhere that stocks more often then not drop 9% from the first of the year sometime in the year.

What do you think? I might change the 9% to 7%.

I know no one can market time, but that being said I am going to try it. I think I can do it.

When you say, "I sold," what do you mean? Do you mean you directed the custodian to liquidate 1/3 of your IRA's investments and to hold the cash INSIDE the IRA? Or, do you mean you took a cash distribution equal to 1/3 the total value of the IRA?

If the latter, what do you plan to do about your tax liability which likely includes a 10% excise tax (aka penalty) for making an early withdrawal from your IRA?

[commentator]

By the way, a "simpler" tax law would eliminate all tax deferred savings options.