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Re: Best place to park cash for 1-?? months
Old 12-27-2003, 05:16 AM   #21
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Re: Best place to park cash for 1-?? months

I'm still looking thru the family photo albums for a cute relative/friend who looks like a 13 yr old from Missoula - sure not going to post my real picture.

Today's market looks high based on p/b and p/e and low div. - even value stocks. The value premium has persisted over long periods of time. Fama and French's study brought them fame and Berstein tackles it on his website - Efficient frontier. Dodge and Cox - balanced and/or stock funds( since the 1930's or so) come to mind.

In short - I haven't a clue. So I'm beefing up cash to add to my balanced index funds or possibly look at the target retirement series next year - nothing big - a 10% total portfolio shift at most.
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Re: Best place to park cash for 1-?? months
Old 12-27-2003, 05:30 AM   #22
 
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Re: Best place to park cash for 1-?? months

For TH. The correct answer (re. DJIA and S&P trends):

No. One. "It's hooey and means nothing."

For cut-throat:

Nice fish!

John Galt
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Re: Best place to park cash for 1-?? months
Old 12-27-2003, 07:06 AM   #23
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Re: Best place to park cash for 1-?? months

Adressing TH's comments:

First, if there is some underlying meaning in the historical data, you need to plot it on a log plot. The linear plot will always exagerate the high values. It is percent changes that you are looking for.

Having said that, you will still see the current market slightly above the trend line from past history on a log plot too. (I think I recall that the trend line is about a 2.5% growth trend). So the next question becomes, is there an underlying cause for this nearly linear rise in value over the years? I don't know how to answer this. It seems like everything that might be an underlying cause has changed. The companies that make up the indexes have changed. We have gone through unbelievable evolution of businesses, business strategies, advertising, distribution of products. The telephone, the airplane etc. have all come into existence. The typical consumer is surely different. . .

But let's imagine that there is a single underlying cause for the observed trend. If we don't know what that cause is, how do we know if it still applies and whether we should expect it to continue? Maybe something has changed fundamentally about business that will put us on a higher trend line and we are simply seeing a downturn from that higher growth line which represents growing pains from the new trend. (I've heard the computer in the workplace discussed as a possible fundamental change that will move us to greater growth). Or maybe we have been growing on borrowed money and the future is going to be far bleaker than the 2.5% trend line as we force future generations to pay our bills.

Let's imagine that the trend line won't change over the long run and that we are currently above it. That still doesn't mean we have to see a decline in the market to get back on the line. We could move steadily upward at a rate of less than 2.5% for several years till we merge with the original trend line.

So, in short, the answer is #1.
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Re: Best place to park cash for 1-?? months
Old 12-27-2003, 07:51 AM   #24
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Re: Best place to park cash for 1-?? months

Although Salaryguru may actually be on welfare, and not a guru at all, I pretty much agree with his conclusions regarding historical trends in stock market values.

My favorite reference in that respect is the graph of the real return on large company stocks that is presented in the annual "Stocks, Bonds, Bills and Inflation Yearbook" published by Ibbotoson Associates (available in the reference section of larger libraries, for those who still use such facilities).

This is a semi log graph that plots an index of real wealth from stock investment (assuming no taxes and reinvestment of dividends). As I look at it, there is a long term real growth of 6.8% per year from 1925 to the present. Periods when the market was below this trend were 1930 to 1945, and 1973 to 1984. Periods when the market was above were 1955 to 1973, and 1997 to 2002. Now, the market appears to be back to itws long term trend. Of course, this isn't precise, and the market could arguably be undervalued or overvalued by 10% or 15% by this criteria. Also, I think that the real rate of growth will slow in the future unless another "revolutionary" technological breakthrough occurs. Nevertheless, anyone who is staying out of stocks on the presumption that the market will fall from where it is, is betting against the odds and is eventually almost sure to miss significant (if not spectacular) gains.

A "real time" indicator that the stock market is fairly valued (or even a little under valued) relative to bonds is the forward (projected) earnings yield on the S&P 500 relative to the yiled on 10 year Treasury notes. The projected earnings yield (the inverse of the P/E ratio) is now about 5.2%, as compared to a yield of about 4.3% on the 10 year Treasury. Over time, these tend to be about equal, for the logical reason that they are substitutes for each other. Of course, they could converge as the result of long term interest rates rising, as well as of stock prices rising.
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Re: Best place to park cash for 1-?? months
Old 12-27-2003, 09:04 AM   #25
 
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Re: Best place to park cash for 1-?? months

Hi Ted! Good stuff!

I am familiar with the Ibbotoson Assoc. graph. Very
interesting. I also agree with your thinking re. long term
"bets" on gains in the stock market. Why then, you may ask, do I not participate? The key is in your post.
You say that it may be concluded that one might
"eventually" miss "spectacular" gains. I am not
interested in "eventually" any more. This is an area
where my wife and I are perfectly matched. We
live in the moment. Any planning ((financial or otherwise) is short term, although we might use
long term investments to produce current income.
In brief, we want what we want and we want it right now. It's a philosophy similar to not buying any green bananas. Patience is way overrated IMHO.

John Galt
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Re: Best place to park cash for 1-?? months
Old 12-27-2003, 09:36 AM   #26
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Re: Best place to park cash for 1-?? months

Quote:
Although Salaryguru may actually be on welfare, and not a guru at all, . . .
Oh no. My secret is out.
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Re: Best place to park cash for 1-?? months
Old 12-27-2003, 10:14 AM   #27
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Re: Best place to park cash for 1-?? months

Quote:
Patience is way overrated IMHO.
I have plenty of patience, I just hate to wait.

A terrific dialog. I have a couple of other web sites of information to digest that were referred to. My theory of market trending is thoroughly perforated, partially bandaged, and apparently raises as many questions and doubts as it may have answered.

My plan is to wait until after the end of the year as I dont feel like buying any dividends this year, then shift about 10% into vanguards tips fund, choose one or two others to park 30-40% more of it, and the rest into the vanguard corporate short term fund. I'm definitely not into 'timing'...once i'm in, i'm in. It just looks like the good news and upsides are dialed in, and short of one of our marines finding bin laden and perforating him with a kitchen utensil, more good news may be hard to find. I just have a gut feeling that we're going to see a 10-15% downdraft sometime in the next few months. For the non-US large cap equities like reits and whatnot, I'll buy those now where prudent.

For the fishermen, I'll spare you the photo of my "catch of the day" from cabo san lucas: a 1/2" minnow I 'caught' in the webbing of my swim suit...
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Re: Best place to park cash for 1-?? months
Old 12-27-2003, 04:11 PM   #28
 
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Re: Best place to park cash for 1-?? months

Doug, John Galt

That was a 115lb. fish, the next day I got one that the guide was estimating at 165 lbs. - He said we were not bringing that one on board!


GDER,

That's not a diaper grin, it's what we call a **** eating Grin! - The same Grin that I had on my last day in the Navy when I knew that I wouldn't have to look at any Fat Lifers any more
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Re: Best place to park cash for 1-?? months
Old 12-28-2003, 04:43 AM   #29
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Re: Best place to park cash for 1-?? months

Hey Cut-throat, I haven't fly fished since I was a wee lad back on the beaverkill, still have my Fenwick though! Seeing your pic and signature graphic is giving me the itch again. The nice thing about ER is that there are so many interests one can pursue and you have the time to do it .

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Re: Best place to park cash for 1-?? months
Old 12-29-2003, 04:19 AM   #30
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Re: Best place to park cash for 1-?? months

Quote:
*I am not
interested in "eventually" any more. *This is an area
where my wife and I are perfectly matched. *We
live in the moment. *Any planning ((financial or otherwise) is short term, although we might use
long term investments to produce current income.
In brief, we want what we want and we want it right now. *It's a philosophy similar to not buying any green bananas. *Patience is way overrated IMHO.
Everyone's time horizon is certainly their own business, but people who expect to either catch big fish, or sustain the spending in retirement necessary to go where they can be caught, had best have some patience and a long term financial plan that includes stocks.

I do a fair amount of fishing myself, mostly on streams with an ultralight spinning outfit. I usually catch about 5 fish per each one caught by buddies with fly rods, though I agree that fly rods are a lot of fun when you're not having to retrieve the fly from branches behind you.

I think that the motivation for fishing is the same as the motivation for gambling. The gratification of winning is heightened by the hours of anticipation. It probably relates to the prehistoric hunting instinct, which is why men are more attracted to hunting, fishing, and gambling than women are.

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Re: Best place to park cash for 1-?? months
Old 12-29-2003, 04:56 AM   #31
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Re: Best place to park cash for 1-?? months

My mental time horizon is forever - hence my fondness for div. stocks - even view SEC yield of our balanced index funds as the 'floor' with 4% SWR as the ceiling.

Liking both chicken and beef - if either goes on sale - plan to buy some - to eat or as stocks - provided they pay dividends.
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Re: Best place to park cash for 1-?? months
Old 12-29-2003, 07:05 AM   #32
 
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Re: Best place to park cash for 1-?? months

HI Ted! Excellent post, re "time horizons, fishing"etc.

About time horizons, I try to live as if today was my last day, but provide for the possibility that I might live to be 100. You know my position re. stocks. BTW, I too do
a lot of fishing. Flyfishing can be fun, but certainly is not the most efficient if you are interested in "catching" as
opposed to just fishing. I will allow there are exceptions to this.

John Galt
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Re: Best place to park cash for 1-?? months
Old 12-29-2003, 07:42 AM   #33
 
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Re: Best place to park cash for 1-?? months

Ted,

Back on the topic of parking cash. I am in a similar situation and specifically are you recommending the Vanguard VBISX - for this?
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Re: Best place to park cash for 1-?? months
Old 12-29-2003, 08:39 AM   #34
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Re: Best place to park cash for 1-?? months

Cut-Throat,

I took a look awhile back at the performance of Vanguard's Short Term Corporate fund vs. their Prime Money Market Fund on a year by year basis. Over the past 20 years, the ST Corp fund beat the MM fund 15 times, often substantially. On the 5 years it lagged, it made up the difference (plus additional) the following year, every year except one. It would appear the downside is limited. Here are the numbers:

ST CORP MM

2002... 5.22% .......1.65%
2001... 8.14% .......4.17%
2000... 8.17% .......6.29%
1999... 3.30% .......5.01%... -1.71%, next yr. +1.88%
1998... 6.57% .......5.38%
1997... 6.95% .......5.44%
1996... 4.79% .......5.29%... -0.5%, next yr. +1.51%
1995... 12.74% ......5.82%
1994.. -0.08% .......4.08%... -4.16%, next yr. +6.92%
1993... 7.07% .......3.01%
1992... 7.20%........3.74%
1991... 13.08% ......6.14%
1990... 9.23% .......8.27%
1989... 11.45% .....9.39%
1988.... 6.95% ......7.59%... -0.64%, next yr. +2.09%
1987.... 4.46% ......6.65%... -2.19%, and next yr. -0.64%%
1986... 11.42% .....6.61%
1985... 14.90% ....8.08%
1984... 14.22% ....10.57%
1983.... 9.11% .......8.94%
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Re: Best place to park cash for 1-?? months
Old 12-29-2003, 08:58 AM   #35
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Re: Best place to park cash for 1-?? months

Quote:
Over the past 20 years, the ST Corp fund beat the MM fund 15 times, often substantially.
We've been in a declining interest rate environment for the past 20 years. If I were a betting man, I'd bet that the next 20 years will look a lot more like 1964-1984 than 1984-2004, and you won't see any cap gains from bond funds for a while.
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Re: Best place to park cash for 1-?? months
Old 12-29-2003, 10:16 AM   #36
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Re: Best place to park cash for 1-?? months

Quote:
We've been in a declining interest rate environment for the past 20 years. *If I were a betting man, I'd bet that the next 20 years will look a lot more like 1964-1984 than 1984-2004, and you won't see any cap gains from bond funds for a while.
Actually, the capital return for that fund was negative in seven years out of 20, even in the declining rate environment you describe. A fund with a duration of only 1.8 years has a limited downside, whether you're in a rising or a declining rate environment. It probably isn't a good idea to put a large portion of one's assets into such a fund if it will be needed in only a few months. But over time I think one comes out ahead by avoiding cash and using short term bond funds instead, for that portion of their assets that might otherwise be in cash.
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Re: Best place to park cash for 1-?? months
Old 12-29-2003, 10:30 AM   #37
 
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Re: Best place to park cash for 1-?? months

I've never really been a stock investor. I dabbled back in the 60s when I had no money to speak of. Then, later on I was in a couple of employer sponsored
retirement plans which had money in stocks. Very late
in my career I had stock options from my employer,
which I exercised.

Since I ERed in 1993, I've owned one preferred stock
which paid a nice dividend. That's about it.
However, even if I had been more active in common
stocks in the past, I still would be out now. Once I
saw that I could make it until the end, even if I had to
settle for a low dividend/interest rate, that was it for me.

So, I have no argument with those who forsee higher
inflation, rising interest rates, or maybe a roaring bull
market. Could all happen. Probably will. But I have
plenty of cash, plenty of real estate (for inflation
protection) and a steady predictable cash flow.
Plus, I will be 62 in a couple of years and some day
I might even come into an inheritance. Why take a
chance at this point?

John Galt
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Re: Best place to park cash for 1-?? months
Old 12-29-2003, 01:04 PM   #38
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Re: Best place to park cash for 1-?? months

Park and un-parking is an interesting bet with the duration of vg short term bond funds in the 2 yr range. So - keep some in MM for real short and venture the rest? I'm still leaning to

ward VBSIX ( corp. around 2 yr duration ) with the gamble that interest rate fluctuation will not overwhelm yield and make me 'feel locked in'.
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Re: Best place to park cash for 1-?? months
Old 12-29-2003, 01:20 PM   #39
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Re: Best place to park cash for 1-?? months

BTY - I lost the bet in 94 - ie had some vg short term corp and was 'locked in mentally' until 95 rebound - just looked it up.

Thnaks Bob_Smith, you jogged the old memory cells - the few I have left.
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Re: Best place to park cash for 1-?? months
Old 12-30-2003, 06:07 AM   #40
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Re: Best place to park cash for 1-?? months

Quote:
Ted,

Back on the topic of parking cash. I am in a similar situation and specifically are you recommending the Vanguard VBISX - for this?
The data on the performance of Vanguard's short term bond fund presented by Bob Smith says it all. Note also that there was only one year when this fund had a negative return, which was very small. Thus, I feel very comfortable using it for "cash" beyond my immediate spending needs, which I take care of with a checking account.
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