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Old 03-18-2012, 10:03 AM   #41
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I suggest that Birchwood goes over to Bogleheads.org an reads the wiki on investing. He/she is showing signs of investing schizophrenia; professing to have a "buy and hold" approach while advocating market timing.

IMHO, so close to retirement that's a dangerous game. The approach should be to reassess asset allocation to emphasize income production and adjust the portfolio's risk. I'd actually reduce the cash position as 2 or 3 years should be an ample buffer against market fluctuations. By rebalancing to your desired AA you'll capture some of the market gains in a known way, rather than gambling on something you can only guess at.
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Old 03-18-2012, 10:09 AM   #42
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One other option aside from going totally to cash is a modified rebalancing/timing approach. Lets say that equities appear to be over valued based on a PE metric and you currently have a 60/40 allocation, switch to a 40/60 split, and then back to 60/40 when stocks seem under valued.

I saw this approach espoused by some pundit fairly recently, but can't find the article. He had some metrics based around PE10 for making the switch.
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Old 03-18-2012, 10:21 AM   #43
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I am a target AA and rebalancer like most here, market timing is way to iffy for me. I rode out 87, 00 and 08 and retired 3 years ahead of schedule. I don't believe any of us can outguess the pros on Wall St et al with any consistency, but good luck...
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Whether market timing is ever a viable investment strategy is controversial. Some may consider market timing to be a form of gambling based on pure chance because they do not believe in undervalued or overvalued markets. The efficient-market hypothesis claims that financial prices always exhibit random walk behavior and thus cannot be predicted with consistency.

Some consider market timing to be sensible in certain situations, such as an apparent bubble. However, because the economy is a complex system that contains many factors, even at times of significant market optimism or pessimism, it remains difficult, if not impossible, to pre-determine the local maximum or minimum of future prices with any precision; a so-called bubble can last for many years before prices collapse. Likewise, a crash can persist for extended periods; stocks that appear to be "cheap" at a glance can often become much cheaper afterwards before either rebounding at some time in the future or heading toward bankruptcy.

Proponents of market timing counter that market timing is just another name for trading. They argue that "attempting to predict future market price movements" is what all traders do, regardless of whether they trade individual stocks or collections of stocks, aka, mutual funds. Thus if market timing is not a viable investment strategy, the proponents say, then neither is any of the trading on the various stock exchanges. Those who disagree with this view usually advocate a buy-and-hold strategy with periodic "rebalancing".
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Old 03-18-2012, 12:03 PM   #44
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The OP said that the stock market is ripe for a pullback(according to a variety of sources). Does anyone know who/what these sources are that state that the stock market is ripe for a pullback? Thanks.
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Old 03-18-2012, 12:09 PM   #45
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There are a number of "wall of worry" articles out there. Here is one: Stocks' correction coming? Not that again - Yahoo! Finance

I like the wall-of-worry. I like people going to cash. It drives the market higher.
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Old 03-18-2012, 12:13 PM   #46
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Thanks a lot for all your comments. I'll add some comments of my own.
1. The said 825K is only a small% of my entire asset. I also have other stock positions, mainly dividend paying stocks that I intend to hang on.
2. As far as AA, I think I am heavy on cash that can last many years, so my existence will not be affected by this so called big move. Well I do understand that it's not making much to even correct for the 2% inflation.
3. When some says "rebalancing", aren't they also in a way, "timing" it when their AA is not behaving as they prefer?
4. I gather that all of us are actually guessing, as nobody can infact predict what's going to happen!
5. I'm also heavily invested in US treasury direct, to buffer or stabilize or reduce volatility, but that's another story.
6. Some predicts market volatility for the future. Maybe it's old news, but,
markets go into cycles, thus it does not go up forever! correct?
7. If markets go in "cycles", would it be a good idea to slowly buy when you perceives it's on the down side? although we're not going to be right all the time?
8. When you need the money to live on now, who cares about future earning potential! or lost of earning potential.
9. When you don't need the money now, well, you can play the market and be real sophisticated about AA , inflation correction, but since we are all guessing anyway, the most important point is how much we have, the AA secondary.
10. If a real "stagflation" occurs, we are all in trouble. correct?
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Old 03-18-2012, 12:28 PM   #47
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I have nothing to be gained from changing anyone's mind, and I know I would have no success anyway. While I agree that much forecasting is just noise, there are people who are uncannily good at producing useful noise. Jeremy Grantham at GMO is one. He is one of the originators of asset allocation instead of stock picking, and an extremely wealthy man. His firm makes hard predictions, and goes back and reviews their history and outomes regularly. Here is GMO's webpage, and Jeremy's most recent quarterly letter.

http://www.gmo.com/America/MyHome/default
Ah - what Jeremy Grantham provides is a 7 year forecast, which he updates monthly. This is very different, IMO, from a prediction that says that "stocks will correct 20% in the next 6 months" (therefore get out and wait 6 months). It's much easier to provide successful long-range forecasts that count on long-term trends (including "return to mean") and essentially can filter out short-term volatility. And, yes, his track record is very good, and I consider his forecasts very useful.

Currently he's predicting that US bonds will lose 1.1% on average in real terms over the next 7 years, cash will also have a negative return, and most equity asset classes will be positive in real terms, but lower than the average historical US stocks real return of 6.5%. https://www.gmo.com/America/CMSAttac...2bOzguWtO6I%3d a.k.a. GRANTHAM’S MARKET FORECAST: Stocks Meh, Bonds Horrible, Trees Good | Embargo Zone

But we don't know how that annual bond 1.1% real loss will play out - it could happen all at once, it could be gradual, there could be flat and rally followed by a big drop, or otherwise. It certainly doesn't tell you when to get out and when to get back into US bonds. It just tells us (and folks looking for future "safety" should take heed) that bonds will likely well underperform other asset classes on average over the next seven years.

Fortunately his forecasts are revised frequently so that they are current with current asset class value.

Also note that he is currently using 2.5% average annual inflation in his models.

Audrey
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Old 03-18-2012, 12:40 PM   #48
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3. When some says "rebalancing", aren't they also in a way, "timing" it when their AA is not behaving as they prefer?
No. This is often misunderstood. But when someone rebalances it is because their portfolio has changed enough that it is no longer at the original AA. They are not changing their AA. In rebalancing they are simply returning to their original AA which they chose based on their risk vs. return comfort zone. This is all about past performance of the portfolio and keeping a disciplined investment approach and is not predicting the future.

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Originally Posted by Birchwood View Post
6. Some predicts market volatility for the future. Maybe it's old news, but,
markets go into cycles, thus it does not go up forever! correct?
7. If markets go in "cycles", would it be a good idea to slowly buy when you perceives it's on the down side? although we're not going to be right all the time?
It's just impossible to predict the duration or swings of these cycles. At most we might say that the US stock market does seem to go in 16 to 18 year bull/bear cycles. But are you willing to wait in cash for 16-18 years to wait out a bear cycle? Assuming you even got out at the top of a bull cycle? In reality, either bull or bear long multi-year cycle has lots of up and down markets within them, so it just doesn't work to try to wait things out long term.

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Old 03-18-2012, 12:59 PM   #49
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I think we can see economic problems still to come in Europe easily enough. Greece is just the start. The U.S. will have to trim deficit spending which will impact the GDP, and lower demand from Europe will impact us to some degree. Given those problems, I think the current markets are wearing blinders.

But I have no idea how the equity markets are going to respond, or even how soon or how severe the economic dips might be. So I use sort of a super-rebalancing approach that leaves most of my portfolio in equities, but raises cash when things are good and reinvests it when equities are cheap.
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Old 03-19-2012, 11:07 PM   #50
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Time for the Rally to really pick up! S&P 1600 HERE WE COME!
I went 80% cash today. 401K & Roth.
Took my 8% ytd to the cooler for a while.
I guess that's a buy signal for the masses. LOL LOL

Either way is fine. It just felt good taking a profit after being in this game since 1986
not to mention the past 12 years..................
At this time, I would feel worse loosing the 8% than missing the next 8%.
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Old 03-20-2012, 09:11 AM   #51
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At this time, I would feel worse loosing the 8% than missing the next 8%.
Behavioral finance 101, in a nutshell.
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Old 03-20-2012, 10:34 AM   #52
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I know a guy who has been buying puts on Apple (for people who dont know options, thats a bet that the stock will drop) for weeks. Week after week he makes another bearish bet because "it has to drop sharply from here". He may be right eventually....if he has any money left when it happens.
I had to laugh reading this post.

For months/years, "big oil" had most of our investment dollars (using the M* X-Ray stock intersection tool, looking at our fund holdings), but in the last few days it has shown Apple as our top holding.

I know little (I'll admit it ), but it seems that at this time, Apple is a force to be considered in many investment portfolios...
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Old 03-20-2012, 11:21 AM   #53
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This may have been discussed already in the thread (stating the obvious) - For those wary of rebalancing, Wellesly, Wellington or a target date fund are good vehicles to stay within an AA that you are comfortable with. I have my next 10 - 15 years money in cash, Lifestyle and Wellesly. I don't have to think about AA with those funds. My long term money is in 401Ks and IRAs in stock indexes and bond indexes. I do the AA changes there with growth and decline of the market. This is money I should not have to tap for 15 + years, so there is less emotion attached to cloud decisions. This works for me. We all need to find our sleep well and stay solvent solutions.
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Old 03-20-2012, 11:27 AM   #54
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This may have been discussed already in the thread (stating the obvious) - For those wary of rebalancing, Wellesly, Wellington or a target date fund are good vehicles to stay within an AA that you are comfortable with. I have my next 10 - 15 years money in cash, Lifestyle and Wellesly. I don't have to think about AA with those funds. My long term money is in 401Ks and IRAs in stock indexes and bond indexes. I do the AA changes there with growth and decline of the market. This is money I should not have to tap for 15 + years, so there is less emotion attached to cloud decisions. This works for me. We all need to find our sleep well and stay solvent solutions.
I do much the same in my current contribution 401k. It also serves as a benchmark against which my more active (and soemtimes risky) efforts can be conveniently measured.
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Old 03-20-2012, 11:49 AM   #55
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I'm currently reading a Random Walk Down Wallstreet and this thread has arguments and counter-arguments almost verbatim. It is really quite amazing.
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Old 03-20-2012, 02:17 PM   #56
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Originally Posted by Birchwood View Post
Thanks a lot for all your comments. I'll add some comments of my own.
1. The said 825K is only a small% of my entire asset. I also have other stock positions, mainly dividend paying stocks that I intend to hang on.
2. As far as AA, I think I am heavy on cash that can last many years, so my existence will not be affected by this so called big move. Well I do understand that it's not making much to even correct for the 2% inflation.
3. When some says "rebalancing", aren't they also in a way, "timing" it when their AA is not behaving as they prefer?
4. I gather that all of us are actually guessing, as nobody can infact predict what's going to happen!
5. I'm also heavily invested in US treasury direct, to buffer or stabilize or reduce volatility, but that's another story.
6. Some predicts market volatility for the future. Maybe it's old news, but,
markets go into cycles, thus it does not go up forever! correct?
7. If markets go in "cycles", would it be a good idea to slowly buy when you perceives it's on the down side? although we're not going to be right all the time?
8. When you need the money to live on now, who cares about future earning potential! or lost of earning potential.
9. When you don't need the money now, well, you can play the market and be real sophisticated about AA , inflation correction, but since we are all guessing anyway, the most important point is how much we have, the AA secondary.
10. If a real "stagflation" occurs, we are all in trouble. correct?
Read the Boglehead wiki, it will answer your questions. You can't predict the market, but you can react to it's changes in a way that is in line with your financial goals.
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Old 03-20-2012, 06:40 PM   #57
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Behavioral finance 101, in a nutshell.

Agree. Or is it selling on the way down thats 101?

I just needed a breather.
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Old 03-20-2012, 06:56 PM   #58
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Maybe we could get Dex to comment on this thread.
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Old 03-20-2012, 07:21 PM   #59
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Dex hasn't posted in ages. He must have left.
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Old 03-20-2012, 11:36 PM   #60
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I'm currently reading a Random Walk Down Wallstreet and this thread has arguments and counter-arguments almost verbatim. It is really quite amazing.
No, it's actually quite predictable since almost everyone on this forum has read that book and many have used it to help define their investment philosophy.
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