started value averaging back in

[danm]

Quite true. Bonds returned 10-20% the last year in anticipation of a credit crunch and recession. This is why I stepped out of the stock market and into bonds early, to offset the crowd and catch the early gains. I'm looking at averaging back into stocks also.

Something to consider, is if this will be a more or less ordinary downturn. It seems unlikely, it has elements from several other severe downturns, the odds seem favorable for a big downturn with a tepid recovery.

I'm on the other side of the fence probably. Instead of catching it now I'll try to catch the other side by averaging into the upswing. My difficulty is I don't see what will be the driver for big growth after this. Fed stimulus is becoming rather impotent, and consumers are truly tapped out ... like I say it seems more likely for a tepid recovery, not what we saw after 2001.

if you look back in history by the time we were actually in the recession the selling stopped and the gains were underway. you really do need to take advantage of a drop early .forget the fact it may go lower, if you believe in buy and hold and you can take advantage of sweetning the deal just do it..... like those who last year wanted to wait for the rate cuts to start to buy bonds. by the time it started the juciest gains were already long gone.

 

[mathjak107]

thats the point we all see the same exact thing on the horizon, that there is nothing to drive us upward. we are all on the same side of the fence and as we all know, what do markets do? they always throw you that curve that wasnt even on the radar. all of a sudden watch, some event will pop up out of no where , right out of left field kicking off the new bull market. its always like that. both up and down. stuff just materializes out of thin air and sends us up or down.

 

[Ronstar]

I'm think about getting back in as well - I didnt want to invest in equities with a 14000 dow, but a 12000 dow gives a lot more upside potential. I'm thinking of DCA'ing 20% in each of the next 5 months.

 

[Rich_by_the_Bay]

thats the point we all see the same exact thing on the horizon, that there is nothing to drive us upward. we are all on the same side of the fence and as we all know, what do markets do? they always throw you that curve that wasnt even on the radar. all of a sudden watch, some event will pop up out of no where , right out of left field kicking off the new bull market. its always like that. both up and down. stuff just materializes out of thin air and sends us up or down.

The Black Swan.

 

[danm]

Thats true. But it seems like this time it won't be quick turnaround to me. The housing bust is going to drag on for years, and consumers will need to be shoring up their finances. The US has been the growth driver, I never bought the decoupling theory as a simple look at balances of trade shows the rest of the world is unlikely to replace the US consumer.

Anyhow I'm a little cautious that we could have some time of essentially flat returns, like what occurred in the 60's. Depending on your viewpoint we're already there. The markets peaked in 2001, only to retrace back to that point in 2007, only to (it seems) head right back down again. Will we retrace back up 2008-20XX, or will housing et. al. continue to drag, until maybe the mini-boomers step up? Or something completely different?

Blah blah ... interesting discussion.

thats the point we all see the same exact thing on the horizon, that there is nothing to drive us upward. we are all on the same side of the fence and as we all know, what do markets do? they always throw you that curve that wasnt even on the radar. all of a sudden watch, some event will pop up out of no where , right out of left field kicking off the new bull market. its always like that. both up and down. stuff just materializes out of thin air and sends us up or down.

 

[mathjak107]

i really dont know what to expect, like i said things look bad and markets are generally irrational. in fact they can remain irrational alot longer thany any of us can remain solvent. none the less you got sooooo many investors like ourselves chomping at the bit waiting for that golden entry point. i think everyones going to push the buy button about the same time leaving those out of it to miss some spectacular run ups. at least i dream this is how it should play out

 

[FIREd]

started the scarey process of buying back in and adding to my existing funds. they all dropped so nicely it was very easy to decide how much to committ at this point. i just brought each one back to the amounts i started with this year.

I am doing the same thing. Since I know from experience I am not good at picking good entry (or exit) points into (or out of) the market, I am not even trying anymore. I would rather buy on the way down rather than risk missing buying at the bottom. So, I send money to my VG brokerage account twice a month (on the 12th and on the 24th) and invest the money immediately regardless of market conditions. Like you I use value averaging to determine how to invest the money each time. I have created a spreadsheet to help me determine which asset class needs to be beefed up and by how much in order to return to a predetermined asset allocation I can live with.
On the 12th of January, I had to shore up only 3 asset classes: International developed markets, REITs and small caps. Well the money I added then is already "gone" (because those asset classes fell further since the 12th) and it is a bit frustrating. But no matter, I'll keep adding money as necessary.
It looks like the next time I add money, I will have to shore up one additional asset class: emerging markets...

 

[REWahoo]

6-7 years of expenses designated to self-annuitize, with another 6-7 in fixed backing it up 6-7 years down the road is pretty comforting. But this may be all talk compared to how I feel when the rubber meets the road.

Although my "buckets" don't measure up to yours, I definitely take comfort in the fact I can go four years or so before I have to touch any of my "poo pooing" stocks (eloquently stated, Dawg). Still, for me it is different this time (watching the market tank after retiring). The fact that as of yesterday my portfolio dipped below where it was when I retired in June of 05 may have a little to do with it as well. Guess I need a road trip.

On a slightly different subject, I've been thinking about the comments here about rebalancing, etc. and wondering if I shouldn't be considering doing some of that myself. Then I realized since the bulk of my portfolio is in two balanced funds, Wellesley and Dodge & Cox, that's being taken care of without me lifting a finger.

I suppose this is the point where I throw in an Unclemick heh heh heh...

 

[Achiever51]

I've just tightened the seat belt and am holding on for now.

IRA AA is 60/40 equities/bonds and I'm comfortable with my diversification for now [41% bonds; 31% large cap domestic stock/fund; 17% intn'l/emerging mkt; 11% mid/small cap all in VG funds] -- no plans to rebalance right now. Like Maddy said, I'm trying to not look too often at the balances, just hope that I've got the pieces of the plan right.

Having a still working DH, a non-COLA's pension, and about 4 years of cash/CDs/MM set aside (not included in above) helps me sleep at night -- hopefully, I won't have to touch any of the IRA portfolio for at least three years.

Still, I remember the tech boom crash way too vividly -- I lost nearly 40% of my portfolio's paper gains when the bottom fell out and it took me about 3-1/2 years to get back to where I was at the peak, so the current market is making me a bit nervous nonetheless.

 

[Ed_The_Gypsy]

Long ago I moved a rollover from a MMA to a fund in DCA-fashion, a little bit every month. For one thing, it was tedious. Today I would not do the same thing.

Today I would pick an asset allocation (so much % in this, so much % in that) and commit to whole pile all at once. Since becoming comfortable with the long view, downward blips of a year or two don't bother me anymore. In my Vanguard site, the Performance tab shows the overall performance for the past 5 years as a graph. A little perspective helps me.

It all depends on one's time frame. As I get closer to pulling the plug, I keep wondering about being 100% in equities. Lately I have been letting all dividends and capital gains go into a MMF and re-allocating at the end of the year, but a post on a suggestion by Frank Armstrong to have a buckets-of-money-type buffer of a short-term bond fund has got me thinking about just letting it collect until I have about 1 year's 'income' at ~4% in the buffer. One reason I am thinking about deviating from 100% equities and using SS as my bond equivalent is that I hope to quit working before I am eligible for SS and I don't have so much in the pot that I can risk a lot of volatility up front. I am thinking long view-short view for a bridge to preserve capital-then long view again. Now I wonder if this makes any sense.

 

[audreyh1]

I'm hoping that the market will soon go down another 4 to 5% from here, because that should trigger a rebalance of my portfolio, even though I brought it pretty close into balance on Jan 3.

If so, that would be a super record time!

I have this gut feel that rapid sell-offs like the present one portend a shortish bear market (at least on the descent) rather than a long drawn out decline like 2000-2002. If we're going to sell off, I'd rather have it happen quickly than have and endless drip, drip, drip...

Of course, there are still some painful economic times ahead with the housing market in the dumps and the mortgage/CDO mess still blowing up (and it will probably take all of 2009 to unwind the financial mess, housing longer of course). But the sooner the market discounts the worst outcome, the less market pain ahead.

Audrey

 

[mathjak107]

we survived the savings and loan debacle just fine a decade ago. it looked like every major bank was going to fail. bought citi bank i think somewhere around 9 bucks. i think im more nervous about missing getting it all back in they any drop.

about 2 years ago i started to convert to rays bucket system even though we were working and still a few years out until early er. . best thing i ever did. we have 14 years of money which we arent even drawing on yet in buckets 1 and 2 . bucket 3 our equities has a time frame so far out even for us that im not really concerned about the drop.

 

[youbet]

You do have to be aware that if you have a company match, you may be missing out on some of it if you front end load your contribution. It could be costing you some 'free money'. Just an observation.

Based on anecdotal evidence, three plans I'm familar with, this isn't true. A "make-up" match is added so that your total match for the year is the same as if you had held your contributions down so that you were contributing all twelve months.

 

[Mysto]

I finished my cd ladder "bucket" a year ago and I have 10 years of self annuity to go... but I just felt the market was too high last year and have only slowly been DCA-ing into the market. Now I'm starting to look like a genius (see looks are deceiving) I have added to my equity position last week and it was scary but I and plan to continue to do so over the next 5-6 months until I'm all in. Now bonds are another subject altogether - I looks like I'll have to wait a bit before I finish the fixed-income portion of my AA.

 

[Animorph]

I had 20% cash I'd taken from equities in early 2007 waiting for this to (finally!) happen. Also, it's my first partial year of retirement so the cash would cover my withdrawals for the first few years without having to touch the equities.

I just moved 20% of the cash (4% of the portfolio) back into equities, sort of. I chickened out and bought OAKBX in DW's 401k. It's a balanced fund that should still do less bad than most of my other funds so far. I'll add the same cash for each 5% drop until either the market drop is done or I'm out of cash.

I also trimmed my BEARX (for the second time!) back from 12% to the target 10% of the portfolio. I'll add that to the other funds that are lagging in the AA Monday. I've already had to add to the domestic real estate fund to keep it up with the rest. That didn't seem as hard as adding the cash back to equities. At some point I'll sell all of the BEARX and return to a normal portfolio. I won't be adding to it.

Dan

 

[CCdaCE]

... and very little mention of the 'January effect' this year. It's been great.

-CC

 

[smileydog]

I'm a bit heavy on my international per my AA but at this stage I might should just wait it out...

 

[Dude]

as expected my actively managed funds didnt drop as much as my index mix. i run 2 seperate growth portfolios. one active and one etf . i tend to favor the active mix. not onlythru the years has it performed better but in times the markets down the index funds stand no chance of dropping less or making money. at least my active stand a small chance of catching the right sectors. but none the less my latest strategy is to run both.

I also run both. Since 12/31/07, my active port (Fidelity Freedom Fund 2035, composed of 91% actively managed/9% index funds) ROI is -8.98%, my indexed port (Vanguard Target Retirement 2035, 100% index funds) ROI is -8.76%, so indexed port has performed 0.2% better. So much for downside protection of active management, in my case

 

[mathjak107]

tough to compare with target funds as they are bound by certain guide lines and the percentages of asset classes are very different as well as limitations on what they use to fill the equity buckets. as an example at fidelity the freedom funds use other fidelity funds and only those funds . a manager isnt free to weight a certain way

 

[cyclone6]

One thing seemingly overlooked in mathjak107s original post is that he mentioned value averaging back in, not DCA. For those of you not aware (and for those of you who are, sorry for repeating boring old knowledge) VCA is different than DCA and produces better results approximately 95% of the time. Here are a couple of links with just the basics:

Choosing Between Dollar-Cost And Value Averaging

Invest FAQ: Strategy: Dollar Cost and Value Averaging

There are other, much more detailed statistical analyses available via a web search.

I am also planning on starting a VCA program here in the next month or two - to last over 3 years. DCA is just a little bit easier to implement - set it once and forget it - where you need to determine how much to contribute each period for VCA. But the probable extra return from the VCA approach is enough for me to pull out the calculator once a month to see how much to throw in...

 

[Dude]

tough to compare with target funds as they are bound by certain guide lines and the percentages of asset classes are very different as well as limitations on what they use to fill the equity buckets. as an example at fidelity the freedom funds use other fidelity funds and only those funds . a manager isnt free to weight a certain way

I can see your points. However, you would think that the multiple managers of the 22 underlying actively-managed funds that make up Fidelity Freedom 2035 have some freedom to change weightings in their own funds and thus could pare losses (compared to the indicies) in a steep drop, which would roll up to the top. I guess not!

 

[mathjak107]

the underlying funds could change but only within the framework of the goals of the fund. as an example equity income is always the leader in financial stock holdings. growth company is always heavy in technology. the target funds are locked into these funds and their good or bad sectors that they are holding. in my case of my active funds i use the fidelity insight newsletter so we are fine tuning slightly for major trend changes and not just the noise. thats been great for me for 20 years

 

[Dude]

How can I find out more about the Fidelity Insight Newsletter? Is it published by Fidelity? Is it by subscription? Thanks.

 

[mathjak107]

just type in fidelity insight the web site will come up. its an independant newsletter written by eric kobren with a 20 year track record.

 

[Dude]

Thanks, found it.