Dirty market timing and cash

[photoguy]

Yeah, I didn't think it would be all that popular. I guess my point was to get people thinking about what would hapoen to a portfolio during draw down if these broad market index funds stayed flat for 20 years and bond funds did the same.

I think most people try to avoid this by diversifying and having multiple equity slices. E.g., international vs domestic, reit, value, small-caps, commodities, etc. Generally something will be up. I don't think there was ever a year in the callan periodic table of returns when everything was down.

If despite diversification, the portfolio is being spent down too fast (because overall return is too low) there's not much one can do beside either cut expenses or get more income (outside of the investment portfolio).

 

[clifp]

TMF: Navigating for the next decade / Berkshire Hathaway

This is from the Motley Fool Berkshire board. The consensus on the board seems to be that the overall market is very overvalued, so if you hold a broad market mutual fund you may want to do some market timing, selling the overall market and increase cash, then buying back in when the market is more reasonably valued.

I understand that most folks who own index funds don't want to try to time the market, but it might be worth doing this time to mitigate the risk 10-20 years of flat overall market returns.

The Berkshire board is the only Motley Fool board I still follow. It has lots of smart guys. But they are value investors. One distinct characteristic of value investor, and I include myself in the category, is we buy too early when stocks are going down (for example I ran out of cash in Dec 08, Jan 09, well before the bottom was hit in March 09) and sell too early when they are going up.

 

[samclem]

If despite diversification, the portfolio is being spent down too fast (because overall return is too low) there's not much one can do beside either cut expenses or get more income (outside of the investment portfolio).

Steady there, big guy. You're getting pretty close to sacrilege!