May Be a Bloody Wednesday

[NW-Bound]

What? Where? Who? OMG!

I just said we still have a democracy. Do we have a president-for-life now? What changed since the last time I looked?

 

[splitwdw]

I set up some buy orders before I went to work this morning after seeing what was going on in the Asia markets. After seeing the Dow futures, I thought for sure the market would tank...not! Came home to no new acquisitions but a hefty boost to my stock account. Don't you love the markets!

 

[FIREd]

Made a killing in biotech today.

 

[NW-Bound]

Glad to see you still hanging around, Fired.

IBB up 7.7% as I write this. I have another one that's up 28%! Won't tell what it is, lest people call me a shill...

I did not make a killing. Total portfolio not setting a new high or anything, but I take what I can.

My biotech holdings are up from 6.37% (GILD) to 9.09% for IBB, to 18% and 33% (the nameless ones).

That's not surprising. What is more interesting is something else that also goes up.

Energy sector is just so so, but how about industrial metal and mining companies and Caterpillar (8+%)?

Tech stocks are flat or down. Perhaps it's because they have been doing well relative to market, and now suffer from sector rotation.

 

[eytonxav]

Giddy over equities, bonds not so much, but I have to remind myself that bonds are for ballast.

 

[NW-Bound]

On the street, people talk of new infrastructure and defense spending. So, the Fed may have to raise rates sooner than later. I have been light on bonds, and may have to remain so for longer.

And Asian stocks went up overnight, following the US market. Commodity producing countries did well along with their currencies. Australian stock index went up more than 3%.

 

[tmm99]

Wow, DJIA is up 150+ points already this morning... Kind of scary, isn't it? Since nothing has really changed yet? I know, it's all speculations (We were all sure that the market would go down and then it didn't), but it makes me a bit nervous...

 

[audreyh1]

The market is all about speculation. It will surge up and down as every rumor and speech travels through. Expect volatility.

I would love a traditional end of year rally - I always do as that is the time my stock funds "self trim" by paying out distributions, and I always take them in cash and pay myself my annual salary (withdrawal) at the beginning of the year. It's sort of a self-rebalancing mechanism.

I am pretty nervous going forward. I have plenty invested in stocks, but as my invested assets have grown to be much larger than they were just a few years ago, I don't think I can invest more in stocks. I'm getting the feeling of - enough already! I may just take all distributions in cash and not reinvest anymore until my stock allocation drops significantly due to a market correction or selloff.

BTW - I have noticed that bond funds often drop (due to interest rates creeping up) as we approach the end of the year. Then they tend to rally some by mid-year the next year. This is also useful from a rebalancing perspective.

The 10-year treasury ended last year at 2.27%, by July 2016 it had dropped to 1.36%!!! Now it's jumped back up over 2% to 2.12% and I expect it will be back about where it started.

 

[walkinwood]

.... I may just take all distributions in cash and not reinvest anymore until my stock allocation drops significantly due to a market correction or selloff.

I find myself thinking along the same lines sometime.

But isn't that wrong thinking? Why would you wait for an expected market correction and lose money? If you want a lower stock allocation, isn't it better to sell now and harvest the gains?

I am at a tad more than 60% in stocks and am thinking of trimming it below 60%. But that goes against what I had decided in calmer times - my investment policy. That called for 60/40.

On the other hand, I'm not an automaton. If I find this allocation stresses me, I'll lower my equity allocation. We already live on less than what our planned withdrawals (SWR) is, so reducing equity to say, 50/50 isn't going to hurt our lifestyle.

 

[NW-Bound]

Utilities and REITS continue to take a beating, down 10% or more in a couple of days. That hurts.

My EM ETFs do not do well at all, even though many Asian country indices went up. Perhaps many EM ETFs have too much of China stocks.

On the other hand, biotechs and metal/mining sector continue to climb.

 

[GrayHare]

Wow, DJIA is up 150+ points already this morning... Kind of scary, isn't it? Since nothing has really changed yet? I know, it's all speculations (We were all sure that the market would go down and then it didn't), but it makes me a bit nervous...

IMO a bunch of the run up is removal of an uncertainty. There are more uncertainties where that came from of course.

 

[audreyh1]

I find myself thinking along the same lines sometime.

But isn't that wrong thinking? Why would you wait for an expected market correction and lose money? If you want a lower stock allocation, isn't it better to sell now and harvest the gains?

I am at a tad more than 60% in stocks and am thinking of trimming it below 60%. But that goes against what I had decided in calmer times - my investment policy. That called for 60/40.

On the other hand, I'm not an automaton. If I find this allocation stresses me, I'll lower my equity allocation. We already live on less than what our planned withdrawals (SWR) is, so reducing equity to say, 50/50 isn't going to hurt our lifestyle.

First - selling equities means I pay capital gains taxes as 90% of our investments are in taxable accounts. We already have high enough investment income that we pay AMT and some NIIT, which pushes up our tax brackets.

Second - I plan to stay invested for a very long time (decades). So I don't actually care if my equities get hit. They will go up and down. I don't expect any loss to be "permanent" - even though things could stay down for a long time. As long as I have enough in fixed income to live off of for 10+ years, I feel like I'm covered. The only question for me is how to what percentage should I allow my equity position to shrink to this year and next.

Third - I have no confidence that I can sell a large equity position, pay big taxes on the proceeds, and then get back in the market at a better time.

I have much more confidence that I can allow my equity exposure to shrink by not reinvesting distributions.

That I can cleverly tax loss harvest once we do have a big drop - whenever that comes.

And that I will reinvest to bring my equity allocation up to plan. This is very hard - but I have done it before in the face of a severe bear market.

I am always willing to allow my long-term investments to drop in value and use that as a signal to invest more. That's how rebalancing works. The key is that I know such an event is temporary and that I can afford to be patient.

I'm just dealing more with having a 53% equity allocation still after a multi-year run-up and wondering if I really want my allocation target to be that high.

But if I trim severely - then I have to deal with tax consequences. It's a tough choice.

Audrey

 

[W2R]

On the other hand, I'm not an automaton. If I find this allocation stresses me, I'll lower my equity allocation. We already live on less than what our planned withdrawals (SWR) is, so reducing equity to say, 50/50 isn't going to hurt our lifestyle.

I love that the market is up. But realistically, I'm not going to sell anything unless my rebalancing criteria are triggered.

Every year, I rebalance during the first week of January after removing that year's spending money. Except for that, the only reason when my plan says to rebalance is when my equity allocation is below 42.5% or above 47.5% (my AA is 45:55). That almost never happens. Right now it is right on the mark at 44.98%.

So, I'll just look at what I have and smile as we watch the market rollercoaster on the upswing right now.

 

[MichaelB]

On the other hand, I'm not an automaton. If I find this allocation stresses me, I'll lower my equity allocation. We already live on less than what our planned withdrawals (SWR) is, so reducing equity to say, 50/50 isn't going to hurt our lifestyle.

+1@ Audrey

Reassessing or changing one's asset allocation when there are events or stresses in the market is a likely way to lose. You will just confirm your own fears or bias. Asset allocation needs to be done with a clear mind and as noise-free as possible.

 

[audreyh1]

+1@ Audrey

Reassessing or changing one's asset allocation when there are events or stresses in the market is a likely way to lose. You will just confirm your own fears or bias. Asset allocation needs to be done with a clear mind and as noise-free as possible.

That's fine, but I have a serious question about whether I really need to have my equity allocation as high as it is since my net worth has grown a lot. And uncertainty helps bring such a question into focus.

 

[W2R]

That's fine, but I have a serious question about whether I really need to have my equity allocation as high as it is since my net worth has grown a lot. And uncertainty helps bring such a question into focus.

Well, as we get older we are supposed to lower our equity allocation too (although actually I haven't done that yet but I didn't retire as young as you did). If you consider such a move to be a permanent change in AA then I can understand it. Otherwise I completely agree with MichaelB, 150%, when he says

Reassessing or changing one's asset allocation when there are events or stresses in the market is a likely way to lose. You will just confirm your own fears or bias. Asset allocation needs to be done with a clear mind and as noise-free as possible.

In my case, I know that 45:55 got me through 2008-2009 with relatively little angst, so I know for a fact that it is the right AA for me. In a sense, 2008-2009 was a fabulous pre-retirement AA test so that was the silver lining for me.

 

[Fermion]

I can now go to that other thread, about year to date returns, and not be so upset. Biotech has brought me up to 9% YTD total return, which is about inline with everyone else (who did a lot less worrying).

 

[JOHNNIE36]

Just checked my fund (WWIAX) this morning since the market did so well yesterday. Lo and behold my fund is down quite a bit. Had to call Vanguard anyway about my RMD and asked them about this surprise drop in fund value. Representative told me the bond market took a hit. That's something I know nothing about so I just shrugged it off and go about my business. Did see that mortgage rates inched up a bit the last couple days. I just follow the George H. W. Bush saying, "stay the course". Anybody got anything to say about my surprise?

 

[W2R]

Just checked my fund (WWIAX) this morning since the market did so well yesterday. Lo and behold my fund is down quite a bit. Had to call Vanguard anyway about my RMD and asked them about this surprise drop in fund value. Representative told me the bond market took a hit. That's something I know nothing about so I just shrugged it off and go about my business. Did see that mortgage rates inched up a bit the last couple days. I just follow the George H. W. Bush saying, "stay the course". Anybody got anything to say about my surprise?

It happens. I have the same fund and honestly, I wouldn't worry about it. Your Vanguard representative was right about bonds taking a bit of a hit. My Total Bond Market fund (VBTLX) did a lot worse.

Usually we get quite a big yield from VWIAX in December, with dividends and capital gains. So, I think everything will work out.

 

[walkinwood]

That's fine, but I have a serious question about whether I really need to have my equity allocation as high as it is since my net worth has grown a lot. And uncertainty helps bring such a question into focus.

This is the point I was trying to make above - albeit badly. If you wish to change your asset allocation for the future (as in change your investment policy) isn't it better to do it now by selling rather than wait for the stock market to achieve that allocation for you. Yes, distributions will lower your equity positions, but I doubt it will do so by more than a couple of percentage points. Yes, there are tax implications, but that's only a percentage of the gains.

I guess, you're in the same place as I am - still thinking about it.

I have not yet decided to change our allocation, but have been thinking about it for a while now. We started this journey 8+ years ago with a 60/40 allocation. Given that our portfolio has done well, our 4% of annual value SWR is more than enough for our needs, and that we're getting older (but only 56 & 53), should we be getting more conservative? That's what I'm grappling with. DW wants to keep things as they are, but she doesn't spend much time on the topic.

 

[explanade]

There haven't been changes in policies yet.

Where will the market be a year from now? Four years from now?

 

[NW-Bound]

I can now go to that other thread, about year to date returns, and not be so upset. Biotech has brought me up to 9% YTD total return, which is about inline with everyone else (who did a lot less worrying).

but who also has less fun and excitement.

There haven't been changes in policies yet.

Where will the market be a year from now? Four years from now?

Gee. Just enjoy the gain today, for tomorrow it may be taken away.

 

[GrayHare]

Something that can't last forever won't. With world rates near their lowest levels in recorded history, I began shorting bonds a few months ago. The overanticipated increase in rates may finally be upon us, or perhaps it's merely election effects.

 

[Fermion]

Something that can't last forever won't. With world rates near their lowest levels in recorded history, I began shorting bonds a few months ago. The overanticipated increase in rates may finally be upon us, or perhaps it's merely election effects.

How are you shorting bonds? What method?

 

[GrayHare]

How are you shorting bonds? What method?

TBT will do it if you like that format.