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Strategy for Entering the Stock Market
Old 11-22-2008, 03:32 AM   #1
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Strategy for Entering the Stock Market

I know many people sold their stocks... or their portfolio of stocks/fixed are out of balance.


I am intending to rebalance my portfolio to my 60/40 target. But I am trying to figure out when and how. This volatility has me a little freaked out.

I am still buying stock through my 401k (DCA). But I am trying to figure out when to reblance to may portfolio target.


Are you guys going to move (long-term) money into the stock market through rebalancing?


  • How do you intend to determine when you should make the move
  • Any thoughts on when (this year, next year) you are intending to invest in the stock market (if at all)
  • How will you proceed with the rebalance (DCA or lump-sum)
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Old 11-22-2008, 04:31 AM   #2
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Originally Posted by chinaco View Post
I am intending to rebalance my portfolio to my 60/40 target. But I am trying to figure out when and how. This volatility has me a little freaked out.
Are you guys going to move (long-term) money into the stock market through rebalancing?
  • How do you intend to determine when you should make the move
  • Any thoughts on when (this year, next year) you are intending to invest in the stock market (if at all)
  • How will you proceed with the rebalance (DCA or lump-sum)
Chinaco, dude, whatever time zone you're posting from (it's nearly midnight Hawaii time!) I hope the sun is shining. Or at least that you're coming home real late after a mind-blowing party...

I guess the first rebalancing decision is how tight you want to control that 60/40. Would you let it swing from 70/30 to 50/50? Or even down to 45/55?

For an ER in the distribution phase the "rebalancing" might occur by just taking the year's spending cash from the asset that's most out of allocation. A Dreamer would put their monthly savings against the asset most out of allocation or do some other variant of value-cost averaging.

A rational timing assessment would say that, based on historic recessions, this one would bottom out in 6-12 months. I suspect that rational investors are not running the market right now (and maybe never are), so I expect a rally the week before/after the inauguration followed by another slump when the honeymoon ends on day #101.

I think DCA is a great tool for self-discipline and autopilot. However, with today's low expenses & commissions, I don't think DCA has any big advantage over lump-sum. Over the long term, when the market rises 6-7 years every decade, January lump-sum probably has a slim advantage over monthly DCA. Over the short term, not so much. However for most investors it's more of an emotional/convenience decision than mathematical. So do whichever is most convenient for you-- or whichever makes you feel better.

As for "if at all" in the stock market, I'm only aware of one asset that's managed to beat long-term inflation over the next century. I don't know how to accurately predict what asset's going to beat inflation over the next century, but I'm betting that this recession is just a blip in the big data picture.
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Old 11-22-2008, 06:28 AM   #3
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Quote:
Originally Posted by chinaco View Post
Are you guys going to move (long-term) money into the stock market through rebalancing?
  • How do you intend to determine when you should make the move
  • Any thoughts on when (this year, next year) you are intending to invest in the stock market (if at all)
  • How will you proceed with the rebalance (DCA or lump-sum)
I completely rebalanced in October (little by little, on October 10th, 14th, and 20th) by buying more VTSAX (Total Stock Market Index) and VFWIX (All World Ex-US Index) to bring their percentages up to where my plan said they should be. I used money that I had sitting in money market funds at the time. This was money I had planned to eventually invest in bonds, but had left in money market while I studied bond investing a little more first.

The only reason why I did not rebalance all at once is that I was too scared. It was lots easier to do it in three steps, and probably made little or no difference.

October's rebalancing brought my AA back to the 45:55 (equities:fixed) allocation that my plan dictates. (It had been 38:62! ). By now, it has gone down a little once again. I intend to determine if/when I should make the move again, based on percentage of equities vs fixed. About 5% drop in equity allocation, give or take a percent or two, seems to be my threshold.

Probably I will also rebalance at the end of the year so that I can start the new year with my planned asset allocation.
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Old 11-22-2008, 08:09 AM   #4
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Quote:
Originally Posted by chinaco View Post
Are you guys going to move (long-term) money into the stock market through rebalancing?
Yes.

Quote:
Originally Posted by chinaco View Post







How do you intend to determine when you should make the move
  • Any thoughts on when (this year, next year) you are intending to invest in the stock market (if at all)
  • How will you proceed with the rebalance (DCA or lump-sum)
I'm still working out the plan, but it's going to go something like this.

There are many factors but it starts with a trip to Wall Street on December 21 (winter solstice). I'll look for the first ray of light to strike Trinity Church (where one of my ancestors was ordained) & measure the height from the street. I'll record this number and then figure out the average of the daily times of high-tide on Lake Michigan (I was born in MI) during 1929. I'll add these two numbers and call it call it the "planetary" number.

Next I'll go down to the local tarot reader, and have her pick a number between 1 and 100. This is a G number. Next I'll get a bunch of old chicken bones and throw them up in the air so they land in a circle that is (3.14 x 10) cm wide in diameter. Of the bones that fall in the circle, the amount of bones that are pointing to "true north" is my next number called "The bones number".

The final formula is:

(The DOW at it's 2008 high) / (The S&P at it's 2008 low) - (planetary number * (bones number/G number) = Percentage of portfolio to allocate to equities in 2009.

Its rather complicated but I expect it to be REALLY accurate.
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Old 11-22-2008, 08:29 AM   #5
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I try not to think about timing a re-balance too much.

My 401(k) re-balances automatically every 6 months (April and October I think). In January and June I look to see if I am out by 3% or more and rebalance by selling/buying lump sump in our IRA's. In March I get an annual bonus which I invest as a lump sum, in a proportion according to how out of balance I am.

From July onwards I have maxed out 401(k) and FICA so I have to choose where to put extra cash and again buy in taxable accounts in proportion to how out of balance I am.
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Old 11-22-2008, 08:45 AM   #6
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Originally Posted by Texarkandy View Post
Yes.



I'm still working out the plan, but it's going to go something like this.

There are many factors but it starts with a trip to Wall Street on December 21 (winter solstice). I'll look for the first ray of light to strike Trinity Church (where one of my ancestors was ordained) & measure the height from the street. I'll record this number and then figure out the average of the daily times of high-tide on Lake Michigan (I was born in MI) during 1929. I'll add these two numbers and call it call it the "planetary" number.

Next I'll go down to the local tarot reader, and have her pick a number between 1 and 100. This is a G number. Next I'll get a bunch of old chicken bones and throw them up in the air so they land in a circle that is (3.14 x 10) cm wide in diameter. Of the bones that fall in the circle, the amount of bones that are pointing to "true north" is my next number called "The bones number".

The final formula is:

(The DOW at it's 2008 high) / (The S&P at it's 2008 low) - (planetary number * (bones number/G number) = Percentage of portfolio to allocate to equities in 2009.

Its rather complicated but I expect it to be REALLY accurate.
ROTF! Probably as good a plan as any!

I'm planning to rebalance using W2R's incremental strategy. Just gotta decide the when :confused:
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Old 11-22-2008, 09:04 AM   #7
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Seriously though - I'm one year from my planned modest semi-ER from a 25 year career, so I've become quite conservative. Everybody is in a different stage/situation of their plan.

For me, I think I'd like to be 25 percent back in equities, but there is no-way! until I feel things have settled down some, there is too much uncertainty.

I'm thinking to start DCA'ing in at about 3% per month when I feel the uncertainty has subsided. When will that be? I don't know, sometime after the inauguration maybe, I don't think before. I'd like to see how badly or not the xmas season shakes out. I'm not fearing the market is going to "zoom" back up to previous highs in a week anyway & I'll miss the jump - I think it's going to take a loooong time. I guess it will be a "gut feeling" call as to when the uncertainty is subsiding. I'm not feeling it yet.

(So, with that all said, mabye my strategy really is akin to throwing chicken bones )
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Old 11-22-2008, 09:17 AM   #8
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Originally Posted by chinaco View Post
I know many people sold their stocks...

But I am trying to figure out when to reblance to may portfolio target.

Are you guys going to move (long-term) money into the stock market through rebalancing?

  • How do you intend to determine when you should make the move
  • Any thoughts on when (this year, next year) you are intending to invest in the stock market (if at all)
  • How will you proceed with the rebalance (DCA or lump-sum)
Yes, I started re-balancing back in in June '08. This question has been asked so many times in so may ways, I've put my plan in my signature line.
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Old 11-22-2008, 11:34 AM   #9
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I'm not into the re balancing thing right now. I would suggest you have a percentage for stocks/bonds/cash - the cash to be your expense budget for 4 years or so.
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Old 11-22-2008, 12:09 PM   #10
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Good question. I'm 100% bonds now, about 50% 30 year Treasuries. I'm a buy/hold, except at the big turning points like now. But one of these days it's time to diversify again and buy stocks.

I don't think things will turn around anytime soon, but since I'm not good at picking the exact timing I should just start DCA'ing back in I suppose ...
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Old 11-22-2008, 01:39 PM   #11
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Originally Posted by Texarkandy View Post
Yes.



I'm still working out the plan, but it's going to go something like this.

There are many factors but it starts with a trip to Wall Street on December 21 (winter solstice). I'll look for the first ray of light to strike Trinity Church (where one of my ancestors was ordained) & measure the height from the street. I'll record this number and then figure out the average of the daily times of high-tide on Lake Michigan (I was born in MI) during 1929. I'll add these two numbers and call it call it the "planetary" number.

Next I'll go down to the local tarot reader, and have her pick a number between 1 and 100. This is a G number. Next I'll get a bunch of old chicken bones and throw them up in the air so they land in a circle that is (3.14 x 10) cm wide in diameter. Of the bones that fall in the circle, the amount of bones that are pointing to "true north" is my next number called "The bones number".

The final formula is:

(The DOW at it's 2008 high) / (The S&P at it's 2008 low) - (planetary number * (bones number/G number) = Percentage of portfolio to allocate to equities in 2009.

Its rather complicated but I expect it to be REALLY accurate.
Love it, Love it, Love it, Finally an accurate formula I can use
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Old 11-22-2008, 02:44 PM   #12
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Good question. I'm 100% bonds now, about 50% 30 year Treasuries. I'm a buy/hold, except at the big turning points like now. But one of these days it's time to diversify again and buy stocks.

I don't think things will turn around anytime soon, but since I'm not good at picking the exact timing I should just start DCA'ing back in I suppose ...
Now if we could get enough people to think like you, and act on it. the markets would improve!
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Old 11-22-2008, 06:34 PM   #13
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I'll rebalance on Jan 2, and do it in a lump sum.

It's funny, I chose Jan 2 to take advantage of the common Santa Claus rally that often comes at the end of they year. That shows that I never considered that I'd be moving money from bonds into stocks on that date.

I vowed to rebalance only on that date, so as to avoid giving in to emotional market timing decisions. That saved me this year, because I probably would have moved money to the stock market in September.

Here's an advantage of choosing your asset allocation and rebalancing schedule ahead of time and vowing to stick to it: Fewer regrets. That is, you don't think "Oh, I wish I'd followed my impulse to sell last October." or "If only I'd put more into the stock funds last month."
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Old 11-22-2008, 08:23 PM   #14
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The balance of my portfolio doesn't determine my investment strategy. I keep 5-10 years in cash and have little regard for diversification or a balanced portfolio. I do write down a loose investment strategy and try to follow it to avoid making emotional decisions. Currently 20% bonds and 80% cash. Last Friday I was 40/20/40(equities/bonds/cash).


Flexibility works for me. If I had kept a balanced portfolio, I wouldn't be up a measly 2.8% this year. Below are last 2 investment strategies. Only five days separate the two, but the market is crazy!


Investment Strategy Nov. 22, 2008
  • Stay in cash until the S&P falls below 760 and at this point invest 100k in SPY or Value ETF.
  • If the market drops to 720, add another 50k to initial investment. Also add 50k to FXI (ETF) if it has also dropped an equal percentage.
  • If the market falls below 680 invest another 50K in Japanese ETF or a few individual stocks with low price to Earnings and strong balance sheets.
  • If it hits 640 add another 100k to SPY
  • If it hits 600 invest another 50k in stock market. This would put me at 400k invested. Hold until market recovers or commit harakiri.




Investment Strategy Nov. 17, 2008

  • Stay in cash until the S&P falls below 840 and at this point invest 100k in SPY or Value ETF.
  • If the market drops to 770, add another 50k to initial investment. Also add 50k to FXI if it has also dropped an equal percentage.
  • If the market falls below 720 invest another 50K in Japanese ETF or a few individual stocks with low price to Earnings and strong balance sheets.
  • If it hits 660 add another 100k to SPY
  • If it hits 600 invest another 100k in stock market

Sold all stocks 11/21 after my portfolio was up 10% for the day
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Old 11-22-2008, 08:27 PM   #15
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Daytrading - a contact sport.
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Old 11-22-2008, 08:48 PM   #16
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Daytrading - a contact sport.

That was very popular in the late 1990 's and early 2000's . Remember when all the bars had the stock market streaming and everybody thought they were a trading genius . I miss those days , They were fun .
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Old 11-22-2008, 11:08 PM   #17
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I have sold a portion of my portfolio and intend on rebalancing sometime. I've nibbled a little back into the market and have gotten my teeth bashed in each time. I don't have a specific time when I will get back into the market and will wait until things are looking better. Maybe when the DOW nudges up to 9500 or there is less doom and gloom in the news. With a little deflation, a 3.5% CD doesn't seem too horrible right now.
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Old 11-23-2008, 01:35 AM   #18
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Daytrading - a contact sport.

Sure has worked for me this year. I was lucky enough to get out of stocks in early 2008 and reenter at a much lower price. 97% of my realized gains this year are long term gains. Most of the stocks I sold earlier this year were held for over 2 years.

Yep, I am a day trader until I get caught in a huge downside rally. Then I'm in for the long haul. Not a bad position to be in and why not take advantage?

What would you do if you were all cash?
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Old 11-23-2008, 02:04 AM   #19
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That was very popular in the late 1990 's and early 2000's . Remember when all the bars had the stock market streaming and everybody thought they were a trading genius . I miss those days , They were fun .

Had acquaintances in the late 90s that talked non-stop about day trading and how much money they were making. None are doing it now and they didn't stop because they were making too much money.


I'm in lending industry and in late 2007, sensed it wasn't going to end well. I would have got out of stocks then, but wanted to postpone paying the tax man. Not getting out to save on taxes was a mistake, but at least I avoided most the pain.


Day trading long term seems to be a losing proposition. The costs are too high. Gains are taxed at your highest personal tax rate which wipes away 20% of my gains compared to long term gains ( 15% vs 35% ).


I've been lucky the last few months and realize I will get got eventually when stocks drop beyond the point I can keep adding to my position. When this happens, I'll hold the stocks for the long term. For now, I will continue to take advantage of my good fortune to be in cash and buy at big drops.
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