Is it time to revert to cash?

[education]

It seems that the market has been in a train wreck for some time now. I'm watching the market--and my portfolio--dwindle away. Is this deja vu of the 2000+ markets all over again?

Is anyone pulling out of the market and taking a conservative cash position? Or am I being too much of a pessimist and this is just a minor coreection?

Professor

 

[REWahoo]

Is anyone pulling out of the market and taking a conservative cash position? Or am I being too much of a pessimist and this is just a minor coreection?

The answer to both your questions is yes and no, or no and yes. But not no and no, or yes and yes.

At least, that's how I see it.

 

[d]

this is just a minor coreection?

who knows?  but if you've been sticking to an asset allocation, you would have been selling on the way up.  the time to sell was before the "correction" ...

 

[brewer12345]

This is the time to be buying, not selling. Don't follow the herd.

 

[Cut-Throat]

It seems that the market has been in a train wreck for some time now. I'm watching the market--and my portfolio--dwindle away.
Professor

Quit Watching! 8)

 

[wabmester]

This is the time to be buying, not selling.  Don't follow the herd.

But what if the herd is buying on dips?

 

[Cut-Throat]

But what if the herd is buying on dips?

Then there wouldn't be a dip.

 

[d]

Quit Watching!

sound advice!

 

[brewer12345]

But what if the herd is buying on dips? 

The market action tells you what the herd is doing. If half wanted to buy and half wanted to sell, prices wuld be nice and level.

 

[wabmester]

The market action tells you what the herd is doing.  If half wanted to buy and half wanted to sell, prices wuld be nice and level. 

So, you want to run against the herd? That sounds like a prescription for getting run over. Some people try to front-run the herd, but that herd is too fickle for me to figure out. Just wait for herd to exhaust themselves from all that running around, and then eat their lunch.

 

[brewer12345]

Nope. Sometimes the herd is actually running from a real threat. But smetimes it is just panicking. I am suggesting that investors ignore the herd and allow their investment decisions to rest on the results of their own, rational, unemotional analysis of the world. Either that, or chuck it into a balanced/lifestyle fund and forget about it.

 

[Dawg52]

I don't plan to go all cash but it is a pisser to watch your portfolio go down. I am down about 3.1% from my high just a couple of weeks ago but that is better than a 7.3% drop the dow has seen. Diversifing does help. It may go lower before it goes higher, but I plan to stay the course. Gonna quit checking my daily balances. 

 

[d]

I am down about 3.1% from my high just a couple of weeks ago

compare to 1 yr ago, or 3 or 5 ... it's much prettier

 

[audreyh1]

I happened to rebalance my portfolio in April - added to bonds mid April and trimmed equities at end of April.

My portfolio has already swung around to where I need to rebalance the other way even with my 5% "hysteresis" - sell bonds, buy stocks!

I have never had it change so fast!

But, I don't rebalance that quickly, so I'll be waiting...

Audrey

 

[d]

I don't rebalance that quickly

i'm more comfortable with more frequent, and smaller, rebalancing ...given the current trajectory, i pitty anyone who was waiting for mid/end June.

 

[Alex]

I say relax and let things go their natural course. the market will bottom out at some point and then you can start buying again. I am quietly accumulating cash in my Vanguard Prime Money market. I am not yet FIRED, so my situation may be different than yours. If I were FIRED I would stop watching!!!

 

[audreyh1]

i'm more comfortable with more frequent, and smaller, rebalancing ...given the current trajectory, i pitty anyone who was waiting for mid/end June.

I don't wait for a specific calendar date. I use deviations from my original allocation to trigger when I rebalance. That way I can react/take advantage of major market dislocations.

But I still don't like to rebalance often. I think frequent small rebalancing reduces the benefit. You need to allow some time for asset classes to get out of whack to gain the benefits of selling winners/buying losers.

Audrey

 

[Rich_by_the_Bay]

But I still don't like to rebalance often. I think frequent small rebalancing reduces the benefit. You need to allow some time for asset classes to get out of whack to gain the benefits of selling winners/buying losers.

Bernstein would agree with you, Audrey. Apparently, all the basics being comparable, this year's winners are generally next year's losers overall, but not right away. Winners have some momentum and will keep winning for a year or two more or less. Similar observations re: this year's losers.

So if you rebalance too frequently, you don't allow that leveling off to benefit you fully. Either waiting one or two years or just using an "out of balance target" in the 10% range or more is a somewhat better plan, he says. I have no idea how much difference this makes in real dollars, but that's his recommendation.

BTW - that's something I wonder about in the various balanced mutual funds. If they rebalance too often in order to keep their allocations just right, could they be missing out on a bit more yield?

 

[katfish]

Reason I'm building an income portflio and keeping an equity as well. The income
side ( closed end funds) drop a little but the dividends keep comming. Takes the
edge off market madness.

 

[d]

But I still don't like to rebalance often.  I think frequent small rebalancing reduces the benefit.

this is true. if one rebalances continuously (daily) the $ benefit approaches zero.  but if one rebalances too infrequently, the opportunities may well be missed. any thoughts on what is optimal?

 

[Eagle43]

Well, I started with 40/60 equities to bonds. Now I know why! I'm just bending in the breeze.

 

[Cut-Throat]

this is true. if one rebalances continuously (daily) the $ benefit approaches zero. but if one rebalances too infrequently, the opportunities may well be missed. any thoughts on what is optimal?

There were some studies on this. Cases were made for 1-2 year period. I do it yearly in January. Begining of the year.

 

[kaudrey]

I've stopped watching. I invest consistently over time, so now I get to buy on the dips!

Karen
15 years until FIRE

 

[audreyh1]

Bernstein would agree with you, Audrey. Apparently, all the basics being comparable, this year's winners are generally next year's losers overall, but not right away. Winners have some momentum and will keep winning for a year or two more or less. Similar observations re: this year's losers.

Oh - I didn't mean to imply that was my original idea! The MPT experts lay this out quite clearly. As do studies that show things like 18 month time frames are optimal for taxable accounts. Maybe it was 12 months for non-taxable (don't quite remember).

I use the "deviation from plan" method - evaluate the situation quarterly, and only rebalance if I am a certain percent out of whack. This last time it took 15 months to get into that state. Since I rebalanced in April, I'm going to wait at least two quarters before rebalancing again, even though my portfolio is already close to out of balance again. That is just an indication of how sharp and fast this recent correction has been!

Audrey

 

[audreyh1]

this is true. if one rebalances continuously (daily) the $ benefit approaches zero.  but if one rebalances too infrequently, the opportunities may well be missed. any thoughts on what is optimal?

I believe it's 18 months for taxable accounts (there is some tax penalty for rebalancing).
And 12 months for non-taxable accounts.

Audrey