How Low Dow?

[innova]

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I'm interested at what point a passive investor becomes a market timer. It takes nerves of steel to watch the stock market fall and do nothing, even though this is the definition of passivity.

Well, to be honest I'm not not doing anything - I continue to buy to my asset allocation per 'the plan' I've laid out. My IPS contains several references to statements made in trying times, and I'm overwhelmingly convinced that in the long run I need to stick to my AA and not try to outguess the market.

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For 20 years I've been a passive investor in index funds, buying each month through 401k etc and with after tax funds. After the Dow hit 14000 and then fell to 13000 I moved 30% of my investments into fixed and cash, not looking for growth, just preserving capital, I went from 80/20 equity/fixed and cash to 50/50. I've continued buying through the fall, but the first time the Dow hit 12000 I moved another 20% into inflation linked bonds. Not exactly a market timer, just getting out at a previously decided point.

This shows that you had an asset allocation you weren't comfortable with given your age, invested assets, etc. What you've decided now is that 50/50 is your comfortable allocation going forward. It also implies that you are only willing to risk 20-25% loss at most.

Now the question: Will you change your AA when the market turns around? If so, you are market timing and I'd advise you that its hazardous to your wealth, no matter how 'obvious' market events look after the fact. Nobody saw BSC tanking, and nobody will see the next big rally coming either.

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I have plenty of after tax savings so now I'm looking at putting my monthly savings towards my mortgage. This market is just too volatile; 3% daily swings just don't give me any confidence in the foundation it's sitting on.

The best way to reduce the volatility of your portfolio is to stop looking at it every day. Quarterly should suffice. Of course, I don't always follow my own advice in that regard

Dozens of 'severe market events' have happened before. Beware of the 'its different this time' mentality. The sun will rise tomorrow.

[nun]

Quote:

Originally Posted by innova This shows that you had an asset allocation you weren't comfortable with given your age, invested assets, etc. What you've decided now is that 50/50 is your comfortable allocation going forward. It also implies that you are only willing to risk 20-25% loss at most.

I was comfortable with my AA given the expanding economic bubble. I'm 10% down since 14000 and given the markets volatility I feel much happier with a 30/70 mix. I'll get back in when the StDev of the Dow comes down.

[innova]

Quote:

I was comfortable with my AA given the expanding economic bubble. I'm 10% down since 14000 and given the markets volatility I feel much happier with a 30/70 mix. I'll get back in when the StDev of the Dow comes down.

You are ignoring a very important history lesson by acting this way. Just know what you are getting yourself into.

There is no bell that signals when the market is about to turn. Missing just a handful of the best single days in the market will drastically cut into your returns. Despite all you think you know, you or anyone else cannot predict with any reliability the direction or magnitude of market moves any more than you can predict the outcome of a individual flips in a series of coin tosses.

Please do yourself a favor and look at the long term growth charts for various portfolios 'growth of 10,000' which includes dividends. You will see that events like we are in right now, 2000-2002, 1987, etc are but minor blips in a long-term upward trend.

Hate to say it, but you sold low, and you'll probably buy high as a result of your timing. If the nation's largest pension funds cannot improve their returns from market timing, what makes you think you can?

[nun]

Quote:

Originally Posted by innova You are ignoring a very important history lesson by acting this way. Just know what you are getting yourself into. There is no bell that signals when the market is about to turn. Missing just a handful of the best single days in the market will drastically cut into your returns. Despite all you think you know, you or anyone else cannot predict with any reliability the direction or magnitude of market moves any more than you can predict the outcome of a individual flips in a series of coin tosses. Please do yourself a favor and look at the long term growth charts for various portfolios 'growth of 10,000' which includes dividends. You will see that events like we are in right now, 2000-2002, 1987, etc are but minor blips in a long-term upward trend. Hate to say it, but you sold low, and you'll probably buy high as a result of your timing. If the nation's largest pension funds cannot improve their returns from market timing, what makes you think you can?

I know all of this, but fear and a lack of confidence in this market has driven me to the sidelines. I think the Dow will fall, I don't know to where, but its on its way down. This has all taught me that I'm a 50/50 investor not an 80/20.

[SecondCor521]

Still 100% Vanguard index funds, except a small 401k that is in SWPIX that I invest 20% of my paycheck into every two weeks.

My wild side invested a little dry powder in VTSMX yesterday in my efforts to be a dirty market timer. That's why the market went up.

2Cor521

[CuppaJoe]

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Originally Posted by innova Dow will be approaching 13000, and this will go down as the most overrated thing since global warming....

Innova, I, too, see the Dow hovering around 13000 for many months. Good take on how the media will tell the story.

"How Low Dow"? I don't have the heart to call a low but will order Tomato Beef Chow Mein.

[aworkingrachel]

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Originally Posted by lazygood4nothinbum that's not nerves of steel. that's me not knowing what i'm doing.

Yeah, me too!

I chose "oh my god." I have great faith in the ability of investors to make emotional decisions. Luckily, I also believe they'll make emotional decisions when the market turns around, which it inevitably will someday.

I'm just glad I have time to ride it out...

[DblDoc]

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Originally Posted by nun I know all of this, but fear and a lack of confidence in this market has driven me to the sidelines. I think the Dow will fall, I don't know to where, but its on its way down. This has all taught me that I'm a 50/50 investor not an 80/20.

So have you re-invested to 50:50?

DD

[unclemick]

Hmmm - you did say next year.

2009, Saint's head for Superbowl, Dem in the White House, Dow 18,000.

World still in shock after first Alien contact - It's Santa Claus!



heh heh heh - balanced index - carry on. Now that Bret's retired I think my Sister will go back to the Pat's, quit telling people she's independant when she's really a Repubplican and Vanguard's computers will rebalance my Target Retirement whichever way the market goes.

[nun]

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Originally Posted by DblDoc So have you re-invested to 50:50? DD

Not yet. As I'm market timing now I may as well roll the dice and sit on the cash while the Dow tanks

I'll get back in when the market has settled down and its either below 11500 or above 12500. Probably a sucker move, but in for a penny ....etc

[chinaco]

I prefer "High Dow Now" the alternative Asian dish.

[Purron]

Interesting to see this poll from March 2008 considering the DOW went below 11,000 today. Guess for most of us our crystal balls didn't work so good.

[W2R]

I voted for 10,500 on the poll. I hope I wasn't being too optimistic!

[Bestwifeever]

On the other hand the headline is "Dow below 11,000 for the first time in two years"--I remember feeling pretty flush two years ago....

[rs0460a]

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Originally Posted by nun How about putting money into extra mortgage payments rather than a market that looks like it will fall over the next six months.

Can't do that (we don't have a note/mortgage )....

Had to respond, though. Our current (retirement) home had a 30-year note, the house being built in 1994. Through a "radical" LBYM lifestyle, we paid it off in late '99 (5.5 years).

During that period of time, the market was on an upward trend. The pundits said to "beg, borrow, or steal to put funds into the market". Why? - of course, "this time it's different" ...

The result? We "retired" our note/mortgage while the market was "up". In late '99, we took that "monthly payment" and maxed out our 401k's. Needeless to say, over the next few years (2000-02) we "bought cheap" (much like today? ).

Fast forward a decade. We planned on retirement at our normal SS age of 66 (no plans for ER). After "looking at the numbers" as we approached 60, we determined that looking at our projected withdrawl rate vs. what our income actually was, we were working for a couple of cents an hour ... (Disclaimer - this was for our plan, till age 100, with no desire to accrue a large estate. Whatever's remaining is going to charity). That lead to my retirement early last year, at age 59. My wife (same age) was planning on doing the same, but as her birthday approached (her planned retirement date), she felt that she was not "emotionally ready" to retire. No problem; she continues to be employed, which allows me to continue to fund a "spousal Roth IRA" for myself from my retirement income.

Needless to say for us, your "observation" turned out well, when we did the exact opposite!

What should you do? Don't know - don't care. Just thought I would share our story, based upon your comment.

- Ron