Avoiding that shock is generally (though not completely) resolved by going with a "target retirement"-style fund that shifts your portfolio towards less-risky assets the closer you get to depending on them. Barring this you can also approximate it yourself by weighting further into bonds and fixed-income assets as you age. The FIRE community does something similar with the "bond tent" strategy.
That said, I'm honestly deeply confused as to what you think the alternative is It's impossible to reliably predict crashes or their extent so by selling you're generally just locking in your losses. I personally know multiple people who liquidated during the Great Recession, and... well, not only did they sell at rock bottom prices during the fire sale, but they also failed to get back in to the market during the incredible rally of the last decade.
I know multiple people who got out during the Trump administration, expecting total financial meltdown. Those people are materially worse off than if they'd simply held. I know several who panic sold when the markets took a hit at the beginning of the pandemic. Yet again, they've locked in their losses and missed out on the positive returns that have occurred since then.
So, barring access to a crystal ball, what exactly do you think is the alternative?
i was one of those that was just certain trump was going to tank the economy. my thinking was "he has no clue, and his bumbling around will ruin it".
very wrong, and missed out on a lot of gains. and not too sure of when to start dollar cost averaging back in.
- Never sell. Ever. (Until retirement). [1] The natural extension of this is... always buy. Buy now. Buy.
- Keep a pool of cash on the side (whatever you can afford) to be ready to capitalize on any "fire sale" of stocks. This should be about 10% of your portfolio as a very liquid non-volatile asset (cash).
[1] Obviously life hits you hard sometimes and you HAVE to sell to cover unexpected bills. I am obviously not suggesting in those situations that you hold your stock to the detriment of your healthy, of a family members health, etc.
If you might need the money, how is donating it to Wall Street through day trading on -EV plays somehow better?
If you might need the money, it needs to be somewhere safe like a savings account or a CD. Once you have an emergency fund, you can start saving in higer-risk/higher-reward +EV investments like index funds.
The only correct answer to this is now. Right now. No one knows if this is the top of the market and tomorrow everything will come crashing down, or if this is the very bottom of a 10 year bull market. On average you do better not trying to time the market and just contribute on an automated schedule. Set up monthly contributions and buy regardless of whatever is happening in the market and then try to forget about it for most of the year.
That's not exactly true; market value does not exist in a vacuum, it's the discounted future cash flows of the component companies. You can certainly look at the earnings of the component companies, and see how much growth is being priced in with the current valuations (and whether you think that is reasonable or not over the long term).
Now generally timing the market is not recommended; however, if the market has been going up for 5% a year for the previous 10 years versus going up for 20% a year (assuming same levels of inflation), it paints a very different picture, so at least in broad strokes you should be able to estimate where we are in a market cycle (telling the difference between 1998 and 2000 might be hard, but telling the difference between 1998 and 1994 should be fairly straightforward)
That said, I'm honestly deeply confused as to what you think the alternative is It's impossible to reliably predict crashes or their extent so by selling you're generally just locking in your losses. I personally know multiple people who liquidated during the Great Recession, and... well, not only did they sell at rock bottom prices during the fire sale, but they also failed to get back in to the market during the incredible rally of the last decade.
I know multiple people who got out during the Trump administration, expecting total financial meltdown. Those people are materially worse off than if they'd simply held. I know several who panic sold when the markets took a hit at the beginning of the pandemic. Yet again, they've locked in their losses and missed out on the positive returns that have occurred since then.
So, barring access to a crystal ball, what exactly do you think is the alternative?