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Old 06-22-2014, 01:30 PM   #61
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But that is not the case, so I do own a considerable amount of equity now, although I have sold a considerable amount too.
Ha
Where are you investing the rest?

Struggling with the "there is no alternative to equities", that's why I'm asking
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Old 06-22-2014, 04:06 PM   #62
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Where are you investing the rest?

Struggling with the "there is no alternative to equities", that's why I'm asking
Mostly cash, some short duration bond funds. Right now, piqued by the Barrons article someone posted this morning, I am trying to think through the vulnerabilities of even short duration bond funds. If it is a parking place for money that may be waiting for equity investments rather than permanent allocation to bonds, maybe I don't want to gamble on liquidity?

Ha
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Old 06-22-2014, 04:55 PM   #63
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Mostly cash, some short duration bond funds. Right now, piqued by the Barrons article someone posted this morning, I am trying to think through the vulnerabilities of even short duration bond funds. If it is a parking place for money that may be waiting for equity investments rather than permanent allocation to bonds, maybe I don't want to gamble on liquidity?

Ha
The appeal of short term bond funds eludes me. The yield pickup is rounding error, so why bother?
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Old 06-22-2014, 04:59 PM   #64
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VFSUX, Vanguard Short Term Invest Grade fund has a 1.54% SEC yield. Better then cash unless rates take a big leap. Duration = 2.4 yrs.

I wonder what's in that Barrons article Ha mentioned? Something I should worry about?
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Old 06-22-2014, 05:10 PM   #65
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VFSUX, Vanguard Short Term Invest Grade fund has a 1.54% SEC yield. Better then cash unless rates take a big leap. Duration = 2.4 yrs.

I wonder what's in that Barrons article Ha mentioned? Something I should worry about?
Basically, the rocket scientists at one of my former employers are worried about a blind panic retreat from bond funds in the event that QE-whatever stops. So they are considering/considered forcing a redemption fee on bond fund holders or restricting withdrawals, period. Now you, I and any drunken monkey with 5 minutes experience of the world know that this is exactly the thing that would precipitate a blind, panicky run on bond funds, but that seems not to have occurred to the fools that floated this idea. I suppose that it will probably die a quiet death.

I can get close to 1% in a savings account with no duration or credit risk. Why would I want to take the additional risk with parking space money for a few more basis points?
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Old 06-22-2014, 05:23 PM   #66
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Yep, with a conservative WR%, divs/interest make up a good portion of the withdrawal, so we are talking about maybe selling off maybe 1%-2%. And the fixed side would be expected to take less of a hit than the equities, so even normal re-balancing would have one selling off fixed, not selling equities while they are down.

-ERD50
I think I just had an epiphany! I've always known that I was beyond conservative and likely didn't need the several years cash I have historically held. Currently about half of income comes from pension, other half from portfolio, SS awaits. The portfolio draw is ~2.4%. Based on what ERD50 just wrote I went back and looked at history on FIDO where all accounts are, and interest and dividends is almost equal to that 2.4% draw! So why do I even need a cash stash to draw on?

Well, it's because historically I've ALWAYS rolled div and int back into the fund that generated it; makes it easy to see from day I bought it to what overall it's worth to me in that time span. I still sort of like to think that way, but if I could wean myself off that I'd have a perpetual cash stream that meets my needs. Well, all except that over half our stuff is in tIRA and I can't really take those earnings without paying taxes; the bigger kind. Uncle Sam will love it when we turn 70.5; me not so much.

Anyway, just when my eyes start to glaze over on some of these never ending threads I'll come across an aha thought!
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Old 06-22-2014, 05:31 PM   #67
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...(snip)...
I can get close to 1% in a savings account with no duration or credit risk. Why would I want to take the additional risk with parking space money for a few more basis points?
A lot of our retirement money is at Vanguard. I'm not sure where your 1% savings account is but at VG the Prime MM is at 0.01%. It's an effort to move this money around so I'd rather not unless I was convinced it was safe and worth it.

My credit union allows us about 2% on the first $10k if we use their debit card but after that the rate is 0.16% on amounts greater then $10k.
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Old 06-22-2014, 07:28 PM   #68
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There are a number of internet bank savings accounts with interest getting quite near to 1%, with no tricky rules or limits. One is Symphony Optimizer Plus, formerly GE Retail Bank, I think offering .95% savings accounts.

ha
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Old 06-22-2014, 10:13 PM   #69
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Ally Bank offers 0.85% on MM and 0.87% on a savings account.
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Old 06-23-2014, 05:34 AM   #70
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Mostly cash, some short duration bond funds. Right now, piqued by the Barrons article someone posted this morning, I am trying to think through the vulnerabilities of even short duration bond funds. If it is a parking place for money that may be waiting for equity investments rather than permanent allocation to bonds, maybe I don't want to gamble on liquidity?

Ha
Thanks. Am parking in cash although quite lucky it seems that I have access to savings accounts yielding 1.6% (in EUR though).

Also have some legacy CDs yielding 3.4% or so. All are government insured. Not renewing them though (new CDs at 5 year yield 2.4%).

What I don't understand is the following
  • Equity seem to be high priced
  • Bonds are high priced
  • Houses in most countries were seriously overpriced, now fairly priced
This should imply that some asset somewhere is undervalued by a large margin. Where is it?

Or are we finally experiencing such a capital glut that investing no longer will be highly rewarded in the future? Last one could make sense, debt deleveraging and all.
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Old 06-23-2014, 06:41 AM   #71
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In Oct 1987 we had a 3 year old and DW had pneumonia in the hospital. I remember reading the Wall St. Journal and worrying, while waiting in the hospital on the weekend before that crash. I did sell out on Oct 20th. Exceedingly bad timing but repurchased about 1 year later at higher levels.

My take away, if you are going to sell have a strictly mechanical plan with sell and buy criteria. Do not use "feelings" in a crisis. If the markets sells off before your plan kicks in, then plan to ride it out.

BTW, one should have seen that crash coming. Not the exact timing of it but there was valuation concerns. Bond real rates were exceedingly high and SP500 PE was also high. One can look up "Fed model" in Wikipedia. Of course, I didn't have that perspective years ago. We live in a golden age with lots of available data and tools ... to get one in trouble or maybe not.
It's funny, you look at market history and are convinced that these crashes can be predicted. I look at market history and conclude that they aren't predictable at all - at least not enough to be actionable within a reasonable time frame. It's way too easy to take action too early. Thus I stick to my rebalancing strategy.
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Old 06-23-2014, 07:41 AM   #72
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  • Equity seem to be high priced
  • Bonds are high priced
  • Houses in most countries were seriously overpriced, now fairly priced
This should imply that some asset somewhere is undervalued by a large margin. Where is it?
Gold? Or just plain cash? It's a conundrum.
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Old 06-23-2014, 07:51 AM   #73
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I can get close to 1% in a savings account with no duration or credit risk. Why would I want to take the additional risk with parking space money for a few more basis points?
+1

Pretty much cash/CDs or intermediate term bond funds for me. I don't see the point on bulking up in short term bond funds with the yield curve so steep and offering so little compared to FDIC insured high yield savings accounts. I have a slice of them, but that's a position I have held for a long time.
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Old 06-23-2014, 07:54 AM   #74
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Or are we finally experiencing such a capital glut that investing no longer will be highly rewarded in the future? Last one could make sense, debt deleveraging and all.
Yeah, more or less, that's my expectation, at least over the next decade.

If the economy improves (continues to improve), unemployment drops further, and inflation picks up a bit, the picture changes.
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Old 06-23-2014, 09:48 AM   #75
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It's funny, you look at market history and are convinced that these crashes can be predicted. I look at market history and conclude that they aren't predictable at all - at least not enough to be actionable within a reasonable time frame. It's way too easy to take action too early. Thus I stick to my rebalancing strategy.
Hi Audrey, I did not just take a look at the market history. I ran a lot of simulations and came up with a quantitative strategy. Many would call this datamining but I did take some precautions to avoid the worst of this type of objection.

Taking action too early is certainly an issue. The way I do things will not pick the exact top and is only checked monthly. Anyway I'm not suggesting this to others and not saying it will definitely work the next time we hit a bear market. Just mentioning the broad outlines.

For reference, here is the Fed paper I've mentioned on the yield curve as a predictor:
The Yield Curve as a Leading Indicator: Some Practical Issues - Federal Reserve Bank of New York
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Old 06-23-2014, 10:41 AM   #76
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Thanks. Am parking in cash although quite lucky it seems that I have access to savings accounts yielding 1.6% (in EUR though).

Also have some legacy CDs yielding 3.4% or so. All are government insured. Not renewing them though (new CDs at 5 year yield 2.4%).

What I don't understand is the following
  • Equity seem to be high priced
  • Bonds are high priced
  • Houses in most countries were seriously overpriced, now fairly priced
This should imply that some asset somewhere is undervalued by a large margin. Where is it?

Or are we finally experiencing such a capital glut that investing no longer will be highly rewarded in the future? Last one could make sense, debt deleveraging and all.
I think you identified the issue. Too much available liquidity.

Ha
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Old 06-23-2014, 10:55 AM   #77
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I think you identified the issue. Too much available liquidity.
Are we playing "The Greater Fool" game here? I shudder at the thought.
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Old 06-26-2014, 09:32 AM   #78
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It's funny, you look at market history and are convinced that these crashes can be predicted. I look at market history and conclude that they aren't predictable at all - at least not enough to be actionable within a reasonable time frame. It's way too easy to take action too early. Thus I stick to my rebalancing strategy.
I am going to amend my comment above. There are some market declines that I agree are not predictable because they are not preceded by extreme valuation differences versus bonds and/or the Fed is not in tightening mode. These drops are not part of a business recession roll off.

Here are the ones I'm thinking about (since the 1950's):
1) The 1962 Flash Crash, down -11% in 3 months
2) The 1998 August drop of -15%
3) The 2011 European debt crisis drop of -17% in 5 months
All were followed by sharp rises that erased the declines.

Also there are many sharp down months along the way to good returns.

Audrey, thanks for your comment as I had to go back and rethink things a bit. I do not claim to walk on water but wish I could.

P.S. When I was looking into the 1962 decline during the Kennedy administration, I came across this YouTube clip of a very young Warren Buffet discussing the situation:
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