Going to 100% cash

[lowflyer]

The minute I get out, I have to start losing sleep over when to get back in. Years ago I decided:
- pick asset allocation
- set it
- forget it
- rebalance occasionally
- ignore all financial news and stay the course

I'm either a genius or an idiot. Only time will tell.

I usually spend much more time monitoring the market AFTER I sell out of something than I did when I owned it, because I'm looking for a time to get back in. I like to stay invested if I can. On the other hand, the market has been very odd lately, so I can understand wanting to hold more cash.

 

[dex]

This sleep thing is interesting. Dex reads about a DOW 3,000 by year's end and can't sleep until he moves to cash. I think about the possibility of slow erosion of my life style (through inflation and depletion) and know I would lose sleep in all cash. I guess I would rather take a chance at a sudden disaster than a slow water torture.

I thought I should have put a note in about the #7. The point is that the USA stock market has had such large declines in the past. The Decisionpoint.com comments do not mean it is a target.
Also, my going to 100% cash does not mean I will be in it for a long time; such that it would erode a life style.

It might be easier to understand, if I were to say I'm going to 100% cash and then re-balance after that.

http://www.hussmanfunds.com/html/7374.htm

 

[tryan]

Stocks are only ~20% of the wad for us. I went cash in May. The trigger for me was the belief that the rally we saw was funded mostly by tax payers (stimulus and excess liquidity). And there is no such thing as a "jobless recovery". This was compounded by a 1000 point drop in 20 minutes ... I was out a few days later.

FWIW I've never been completely out of stocks - before May. Rode it all the way up and all the way down .....

 

[73ss454]

Well Dex, you're looking pretty smart this morning anyway.

 

[dex]

Well Dex, you're looking pretty smart this morning anyway.

Maybe smart would have been to sell it all yesterday. I'm at 51% cash with about 50% of mutual funds in stocks and 50% in bonds.

 

[Moemg]

I did not sleep well at all during the last melt down so I now have a portfolio point where I will get out or mostly out . Since half my stash is in taxable that's the only reason I did not cash out before . Dex ,you may be right .It's certaintly the right choice for you .

 

[Carnage]

Could someone explain to me why you wouldn't stick it all in either bonds or CD's in the short-term? I've never quite understood why you concede even the low interest you would get there versus nothing with cash.

 

[easysurfer]

I started selling my remaining mutual funds and will probably be in 100% cash by Thurs. or Fri.

Bottom line - the downside risk out weights the upside potential.

I'll post more after I'm finished selling.

Are you saying that you've had it with mutual funds and won't get back in funds again? Or is it that you don't think the time is right to be in funds?

If you have plenty money to easily last you the rest of your life and don't care about not keeping up with inflation, then 100% in cash would work. Otherwise, IMO, I'd prefer to do the asset allocation thing instead of waiting to the right time to jump in and out.

 

[audreyh1]

I can't speak for others who are staying in the market, but I don't see anything clearly enough to make any moves at all at the moment. But then I've never been able to see the future of the market and stopped trying to time it a couple of decades ago.

I am also one who is neutral in terms of future outcomes - I have no idea what might happen in my own life, or on a global scale, let alone the various asset classes.

The way I see it, is that most of the money in my portfolio I don't need for the next 5 years, a lot I won't need for the next 10, some for the next 20, etc. So I have plenty of time for my the bulk of my portfolio to recover. I prefer to ride out the waves and rebalance when indicated, than to try to time exits and re-entries.

In the meantime, I have plenty of cash equivalents to cover the next several years expenses.

I do think it very likely that we have a strong market selloff over the next few months (it already started as foretold by astrology just after the 8-10 Bradley Turn Date - it seems like everyone read the same script and decided to sell off big on 8-11). We are back below the bearish 50/200dma cross, the dreaded "Hindenburg Omen" has raised it's ugly head (last seen in 2008), it's the 2nd year of a Presidential cycle, which usually have horrible Sept/Oct periods - so all my technical analysis buddies are on bearish red alert.

But - I'll ride it out. That's what I designed my portfolio to do.

I expect more rollercoasters between now and 2017 or thereabouts. But as you can see from the past, we have had some pretty strong bull runs within our current "secular bear market" since 2000, so far rebalancing has been pretty effective (knock on wood) in spite of some brief periods of significantly reduced net worth.

Audrey

 

[dex]

Are you saying that you've had it with mutual funds and won't get back in funds again? Or is it that you don't think the time is right to be in funds?

If you have plenty money to easily last you the rest of your life and don't care about not keeping up with inflation, then 100% in cash would work. Otherwise, IMO, I'd prefer to do the asset allocation thing instead of waiting to the right time to jump in and out.

Also, my going to 100% cash does not mean I will be in it for a long time; such that it would erode a life style.

It might be easier to understand, if I were to say I'm going to 100% cash and then re-balance after that.

....

 

[audreyh1]

Maybe Dex is right. Can the upside potential of increased corporate earnings (the only positive news) be greater than the downside risk of rampant unemployment, dismal real estate market, huge government debt, probable tax increases, and the uncertain outcomes of the new government programs?

Only if you limit your view to the US. If you broaden your view to include the global economy, you'll realize that there are actually quite a few healthier economies that US/multinational companies sell into, and these are and have been contributing significantly to their continued profitability.

Audrey

 

[dex]

Could someone explain to me why you wouldn't stick it all in either bonds or CD's in the short-term? I've never quite understood why you concede even the low interest you would get there versus nothing with cash.

I have used them in the past. I'd rather have the options that cash provides at this time.

 

[dex]

I do think it very likely that we have a strong market selloff over the next few months (it already started as foretold by astrology just after the 8-10 Bradley Turn Date - it seems like everyone read the same script and decided to sell off big on 8-11). We are back below the bearish 50/200dma cross, the dreaded "Hindenburg Omen" has raised it's ugly head (last seen in 2008), it's the 2nd year of a Presidential cycle, which usually have horrible Sept/Oct periods - so all my technical analysis buddies are on bearish red alert.

But - I'll ride it out. That's what I designed my portfolio to do.

I expect more rollercoasters between now and 2017 or thereabouts. But as you can see from the past, we have had some pretty strong bull runs within our current "secular bear market" since 2000, so far rebalancing has been pretty effective (knock on wood) in spite of some brief periods of significantly reduced net worth.

It sounds as if you drank my Cool-aid. I don't follow Bradley or E-waves.
What technical analysis board/site do you read?

 

[DoingHomework]

Is it wrong to hope for a bit of a downturn for a few years while I accumulate?

Seriously though, I'm not beyond a bit of timing when things just start looking silly. But I try to see the silver lining no matter what the market is doing. Being properly diversified just means that downturns in one area present an opportunity to rebalance and take profits in another area.

 

[ziggy29]

I'm down to about 40% invested and that's my comfort level now. Much more than that and I'd be losing sleep over another 2008-09 style crash (and the economic relapse is making that more and more likely though far from a sure thing). Much less than that and I'd lose sleep over missing out on a big rally should it come.

 

[donheff]

Also, my going to 100% cash does not mean I will be in it for a long time; such that it would erode a life style.

It might be easier to understand, if I were to say I'm going to 100% cash and then re-balance after that.

Aha, I assumed you were in cash for the long haul, not just market timing. I would lose even more sleep with that approach. When do you get back in? Lets say the market steadily improves instead of double dipping - in December we are at 11,000, 12,000 next summer. Do you figure things have turned around and jump back in (the typical sell low, buy high scenario of panic sellers) or do you keep waiting for 6,000 again?

 

[REWahoo]

Dex, over your investing history have you frequently made big moves such as this one, or is going to 100% cash something entirely new and different for you?

I'm asking because of the subject matter of two recent threads you've started:
http://www.early-retirement.org/for...ith-posts-news-radio-etc-the-cause-51058.html
http://www.early-retirement.org/forums/f38/my-blue-period-lack-of-sunlight-51409.html

Any possibility your emotions rather than analysis are influencing your decision-making?

I'm not attempting to be snarky with these questions, simply asking if you've considered this in your reasoning....

 

[ziggy29]

Is it wrong to hope for a bit of a downturn for a few years while I accumulate?

Well, there are a lot of moving parts here. In theory, for some who is young and will be accumulating for decades, a long period of low stock prices in the accumulation phase is likely a good thing 20, 30, 40+ years from now.

But in a long period of depressed stock prices and a prolonged economic downturn, that's a moot point if you can't feel secure with your job (and thus your ability to actually buy more cheap shares). And that causes a "loss of sleep" for different reasons. That's not a "will my retirement savings erode" concern; that's a "will I have a job tomorrow" concern.

 

[MichaelB]

It might be easier to understand, if I were to say I'm going to 100% cash and then re-balance after that.

Hussman Funds - Bear Market Insights

Dex, you clearly intend to reinvest at some point. Do some do you have a plan for specific asset classes or funds, and specific prices?

 

[dex]

Aha, I assumed you were in cash for the long haul, not just market timing. I would lose even more sleep with that approach. When do you get back in? Lets say the market steadily improves instead of double dipping - in December we are at 11,000, 12,000 next summer. Do you figure things have turned around and jump back in (the typical sell low, buy high scenario of panic sellers) or do you keep waiting for 6,000 again?

Mentally, I am prepared to be in cash until the end of the year. I'll be watching along the way for an entry point. My weighting would be heavier in High Yield Corp bonds than stocks - if any. This would provide me with a good interest rate and some appreciation if there is a rally. There may be rallies in the future but they will have lower highs and of shorter duration than the recent one.

 

[dex]

Dex, you clearly intend to reinvest at some point. Do some do you have a plan for specific asset classes or funds, and specific prices?

See above post and I would look at PEMDX.
I sometimes use foreign currencies. If there is a downturn the US$ could strengthen. Again, you have to see what happens.

There will be another secular bull market. And when there is blood in the streets and people are swearing off the stock market that might indicate the bottom of the secular bear market.

 

[ziggy29]

Mentally, I am prepared to be in cash until the end of the year. I'll be watching along the way for an entry point. My weighting would be heavier in High Yield Corp bonds than stocks - if any. This would provide me with a good interest rate and some appreciation if there is a rally. There may be rallies in the future but they will have lower highs and of shorter duration than the recent one.

But if the economy clearly double dips (I think it's started) and stocks crumble, wouldn't that also tank junk bonds?

Or is it your theory that the desperate quest for yield will prop them up long enough to give you an out without losing your shirt?

 

[DoingHomework]

Well, there are a lot of moving parts here. In theory, for some who is young and will be accumulating for decades, a long period of low stock prices in the accumulation phase is likely a good thing 20, 30, 40+ years from now.

But in a long period of depressed stock prices and a prolonged economic downturn, that's a moot point if you can't feel secure with your job (and thus your ability to actually buy more cheap shares). And that causes a "loss of sleep" for different reasons. That's not a "will my retirement savings erode" concern; that's a "will I have a job tomorrow" concern.

I was being a bit facetious. But in all seriousness, with (very early) retirement 7 years away for me, and the doomsayers predicting 8-10 years of depressed prices followed by a major boom, I'm (selfishly) having a hard time getting too depressed about that happening. Of course, I'll take 20% a year for the next 7 years too.

 

[dex]

But if the economy clearly double dips (I think it's started) and stocks crumble, wouldn't that also tank junk bonds?

Or is it your theory that the desperate quest for yield will prop them up long enough to give you an out without losing your shirt?

HYB MF prices track with the stock market. Recent yield spreads do indicate that people desperate for yields do increase their price. I like HYB MF because their prices move slower than stock prices - giving you more time to get out plus their higher interest rates soften any losses you might have in the purchase price.

Janus, FAGIX and Vang.

 

[audreyh1]

It sounds as if you drank my Cool-aid. I don't follow Bradley or E-waves.
What technical analysis board/site do you read?

Well, I didn't drink your cool-aid, I have been aware of all this stuff for years. Mostly I read the Morningstar Fidelity Forum and there are quite a few T/A investor posters who trade in and out of the market very rapidly.

But didn't you notice that my actions are exactly the opposite of yours? That I'm hanging in there with my planned asset allocation and riding out the rollercoasters, rebalancing as needed.

Audrey