Market timing?

[bingybear]

Quote:

Originally Posted by UnrealizedPotential I'm holding about 9% cash right now, not because I am trying to time the market , but because I don't like the prices Mr. Market is offering me right now. I prefer to wait . Plus, 9% is not a lot in cash , but it is more than I have ever had. I am used to being fully invested.

That sure sounds like MT, making an investment based on current data. But there is nothing wrong with that... It is not against the law.

There are many FA on the radio over the past several years noting that have noted that the bull is long in the tooth and you should people brace for a correction. They did not thing 2015 or early 2016 counted.

I've seen people who put 3 to 5 years in cash so they know they will not need to withdraw investments during a down market. I have not data on this, but expect they would most likely do better with most of those dollars invested. At present I'm about 4 to 5% cash/short term (include CDs).

OP, shifting your AA in retirement is common. If you change your AA from what you used in firecalc, rerun with the new AA.

[ncbill]

Quote:

Originally Posted by target2019 for reference: Max Equity Allocation Exposure Max loss 20% 5% 30% 10% 40% 15% 50% 20% 60% 25% 70% 30% 80% 35% 90% 40% 100% 50% from The Intelligent Asset Allocator By William J. Bernstein

From his article "The 60/40 Solution" (over a 75 year period):

"Although the 60/40 portfolio was inevitably affected by the high stock
volatility, the 40 percent in bonds helped the balanced portfolio
come through with a more comfortable spread, ranging
from a 40 percent gain to a 9 percent drop."

So I'm strongly considering his 60/40 recommendation as a permanent AA for me.

[Lsbcal]

For me, I look at the potential % decline but then convert that to $’s. Somehow that is more horrifying.

[Happyras]

Quote:

Originally Posted by Lsbcal Write down how your assets will change if we have a 25% slide. Do it in dollars. This sudden change happened in 1962, 1987, 1998, and 2011. Remember that you are spending from assets now, not as much income to cushion falls.

Reality is cash and your suggestion speaks. I went a little further...if you assume you will ride it up another 8% in gain through the Santa Clause rally, and then get a 25% drop in a January correction, you would need to get at least a 23.5% ride up throughout 2018 again to have the same $$$ as you started with today. I have an easier time seeing a small gain in 2018 than another year like 2017. I also have an easier time seeing a correction, than another 12 months of low volatility. So it puts the risk in perspective. I am feeling a little greedy at my current 75/20/5 allocation and will likely take this back to a 65/30/5 once the global Wells admiral funds are off hold. I will use this as an opportunity to re-balance back to where I am more comfortable in risk.

[GravitySucks]

Quote:

Originally Posted by garyt I am planning to retire next May. I'll be 61, my wife will work another year, she's 57. We have about $900K, no pension, no paid HI in retirement. Anyway, every firecalc type program says we'll be fine but I do worry about sequence of returns going bad due to the market's high level at this time. Would you consider taking some money off the table for awhile into more cash? I guess this would be market timing and that's not my thing. I've been 95% invested in stocks my entire life and am now about 75% equities. Would it make sense to drop down to 60% equities for a year or so? I guess then, if the market doesn't correct you're losing possible gains which affect your firecalc numbers, also. Being that my wife will still be working and we can cover all our expenses on her salary, plus I'll have worked 5 months, we'll be fine the first year. She can always continue to work and I can go back if there's a crash. What would you do?

I wouldn't consider a change of AA as market timing in your case. I'd consider it lifestyle timing.
You're moving to a new chapter in your life and what was once appropriate for you may no longer be the case.

[pb4uski]

+1 When you are working and have a steady income your AA can be more aggressive.

[Lsbcal]

Quote:

Originally Posted by Happyras Reality is cash and your suggestion speaks. I went a little further...if you assume you will ride it up another 8% in gain through the Santa Clause rally, and then get a 25% drop in a January correction, you would need to get at least a 23.5% ride up throughout 2018 again to have the same $$$ as you started with today. I have an easier time seeing a small gain in 2018 than another year like 2017. I also have an easier time seeing a correction, than another 12 months of low volatility. So it puts the risk in perspective. I am feeling a little greedy at my current 75/20/5 allocation and will likely take this back to a 65/30/5 once the global Wells admiral funds are off hold. I will use this as an opportunity to re-balance back to where I am more comfortable in risk.

Interesting thought, an 8% gain and then a 25% drop. Could happen. There are so many possible future paths.

My biggest fear is a "temporary" drop keeps growing as other future events lead us into deeper more permanent declines. Bad things can happen and they are not always connected. So, for example, the market declines -25% sharply, it goes up +15% and then a really bad war or recession kicks the hell out of it. But probably this will not happen and we will prosper.

I have a portfolio spreadsheet that calculates roughly how the portfolio would look 2 years out if we have a 25% equity decline and spend at our current spending rate. The overall drawdown for a 60/40 AA was -20%. So a $1M portfolio became $800,000. Bad but we would live nicely through it. This scenario has happened in the past.

[flintnational]

"Would it make sense to drop down to 60% equities for a year or so?"

As others have stated, 60% is a reasonable allocation for a retiree. But I would not do it just for a year or so. I would find an allocation that provides acceptable risk (you define) and stick with it. It needs to be something you can stick with in up and down markets. Periodic scheduled rebalancing allows some adjustment to market values at the margins. IMO, its the only way to safely MT.


FN

[Lsbcal]

I think if one wants to get analytical about this instead of using gut feelings, one should use a tool like VPW. This takes into account your current balances and AA. VPW has become my tool of choice whenever I get nervous.

Look at a decline (the worst modern one) peakish year like that starting in 1966 with 3 following recessions (1969 and 1973-74 and 1980) plus inflation. Do a simulation for your current AA and the one you are thinking about. Look at how you would have done over the years in inflation adjusted terms with spending.

VPW applies it's own withdrawal strategy as a default. One can override this to show a modified sequence like a certain set % withdrawal. You have to be a bit comfortable with running a spreadsheet.