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Old 11-06-2013, 07:53 AM   #21
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I-bonds are now paying 0.2% fixed after years of 0% fixed. Of course you can only put $20,000 in there a year as a couple.

I wouldn't try to short the market with something like puts right now. If I wanted to profit from a market decline, I would just go heavy cash. Inflation is so low you can do this for a year or two and not lose much purchasing power.

I am at 10% bonds, 70% stocks, 20% cash right now. Market still has legs...for awhile.
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Old 11-06-2013, 08:46 AM   #22
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I've chosen to put on a rate/inflation hedge via a 30 year fixed rate mortgage.
This...

Current rate is 3.75%, which makes my "house payment" less than the rent on a 1BR apartment. If I can't make that, the poo has really hit the fan...
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Old 11-06-2013, 09:57 AM   #23
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I view the bond market right now as just giving some hope of capital preservation (compared with stocks). Over the next 5 years any real return would be gravy as 5 year TIPS are now about -0.5% which implies maybe 0% for nominal intermediate term bonds. Still will look very good should we get a bloody bear equity market.

FWIW, have 65% equities that might be reduced towards 50% should we run up a lot in the next few months. I'm worried about a repeat like October 1987, a crash coming out of nowhere (seemingly) but not necessarily followed by a business recession. That came 5 years into a bull market and we will be at the 5 year point in March 2014. Could be just a speculative "correction" event. May be just free floating anxiety on my part, but at least I'm not complacent.
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Old 11-06-2013, 05:44 PM   #24
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I'm worried about a repeat like October 1987, a crash coming out of nowhere (seemingly) but not necessarily followed by a business recession. That came 5 years into a bull market and we will be at the 5 year point in March 2014. Could be just a speculative "correction" event. May be just free floating anxiety on my part, but at least I'm not complacent.
I pray for repeat of October 1987. It was followed by wicked Bull market.
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Old 11-06-2013, 05:50 PM   #25
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I pray for repeat of October 1987. It was followed by wicked Bull market.
Did you go through that one? I did and don't want a repeat for our portfolio.

No guarantee of a followup to the 1990's. But it could happen that way too.
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Old 11-06-2013, 05:55 PM   #26
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Did you go through that one? I did and don't want a repeat for our portfolio.

No guarantee of a followup to the 1990's. But it could happen that way too.
I was young kid then in US Army My commanding NCO was in big troubles with his wife day after crash I remember it as if it was yesterday.

It was nothing compared to Financial crisis IMO.
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Old 11-06-2013, 06:00 PM   #27
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I was young kid then in US Army My commanding NCO was in big troubles with his wife day after crash I remember it as if it was yesterday.

It was nothing compared to Financial crisis IMO.
Was the 2009 worse in your opinon because you had more skin in the game?

BTW, in those days bonds were a good ballast. But now with rates really low, a balanced portfolio might take a bigger hit.

I'm not really bearish, just like to entertain myself with these scary scenarios. Also asking myself constantly whether I should lighten up. Greed vs fear ... the eternal conundrum.
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Old 11-06-2013, 06:07 PM   #28
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While I have taken steps to shorten the duration of my bond funds, I'm sticking to my 45/35/20 equity/bond /cash ,short term allocation. The short term may appear a little heavy but I'm planning an ER in the next two years. Dance with the one that brought ya.
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Old 11-06-2013, 06:13 PM   #29
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Was the 2009 worse in your opinon because you had more skin in the game?

BTW, in those days bonds were a good ballast. But now with rates really low, a balanced portfolio might take a bigger hit.

I'm not really bearish, just like to entertain myself with these scary scenarios. Also asking myself constantly whether I should lighten up. Greed vs fear ... the eternal conundrum.
I was very scared in 2009. I told my wife we will have to work till 60. We are always 100% in stocks and 60% decline at its peak was depressing/scary/unbelievable.....

But on long run 100% in equities payed of......
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Old 11-06-2013, 06:32 PM   #30
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I am currently invested aggressively to very aggressively using stock index funds in my TSP and Vanguard accounts. I have done pretty well in this four year bull market but am clueless as to how to allocate some assets to take advantage of/protect my earnings from a bear market. I keep reading that bonds should help with this, but I also read that with the impending rise in interest rates bonds will do poorly. If a bear market hits along with rising interest rates, what would be the best position to be in?
Can't tell you what the best asset allocation for you would be, but based on this question, I would say that your current one is too aggressive for your tolerance. If you care about bull or bear markets, chances are you'll sell when the market is low and buy when it's high. IMO, your best bet is to figure out how much risk you want to take, and act accordingly. Age in bonds is a good place to start, but it's really up to you.

Me? I'm 85-90% stock right now, and frankly hoping for a bear so I can get stocks on the cheap. Then again, my investment timeline is probably longer than many on here.
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Old 11-06-2013, 06:47 PM   #31
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I was very scared in 2009. I told my wife we will have to work till 60. We are always 100% in stocks and 60% decline at its peak was depressing/scary/unbelievable.....

But on long run 100% in equities payed of......
This is not advice, just a friendly thought. Something that I have to struggle to keep in mind as the good times (in equities) keep rolling along.

One has to ask oneself whether one could take a 1930's type crash. In that case the early 2009 scenario kept going negative for much longer and much deeper. About 18 months later (then the 2009 low in time terms) the Dow was at 17% of its peak. In March 2009 the market was around 50% of its peak. So imagine the low is late 2011 and many are truly wiped out. Plus unemployment is far worse then we've seen.

Of course, we hope this never happens in our lifetimes.
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Old 11-06-2013, 07:22 PM   #32
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I've chosen to put on a rate/inflation hedge via a 30 year fixed rate mortgage.

Yes that makes sense. Personally, after waiting for 5 years for inflation to come back, I feel that I am more than adequately protected for inflation between real estate, inflation protected bonds, and dividend stocks with a strong energy component.

The scenario that worried me (different than the OP.) Is a bear market and continued low inflation and low interest, almost a deflationary environment.

I really don't know how to build a portfolio to protect against this scenario.
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Old 11-06-2013, 10:14 PM   #33
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While I have taken steps to shorten the duration of my bond funds, I'm sticking to my 45/35/20 equity/bond /cash ,short term allocation. The short term may appear a little heavy but I'm planning an ER in the next two years. Dance with the one that brought ya.
I'm 55 (to 60)/25/15 (to 20) cash. Hitting close to max beyond 60, so if the market bulls, I'll move some to cash and short-term bonds.
In bonds, I've shifted to primarily intermediate or short-term with floating, corporate, and some emerging market bonds, to limit duration risk. I sold TIPS over the last 12 months when the negative yield got a little too dramatic, but would buy some after the yield goes positive. I-bonds look good, since you can redeem at par (after 5 years, I think).
Your mileage will vary. I don't like long-term bonds short term but might buy some after interest rates go up in late 2014 or 2015 (or 2017). We'll see.
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Old 11-06-2013, 10:18 PM   #34
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Yes that makes sense. Personally, after waiting for 5 years for inflation to come back, I feel that I am more than adequately protected for inflation between real estate, inflation protected bonds, and dividend stocks with a strong energy component.

The scenario that worried me (different than the OP.) Is a bear market and continued low inflation and low interest, almost a deflationary environment.

I really don't know how to build a portfolio to protect against this scenario.
Long bonds and dividend stocks, I think. And MLP's for the risk component.
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Old 11-06-2013, 10:28 PM   #35
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Dividend stocks held up well in the last downturn. If bonds are tanking too, people who want yield will find dividend payers attractive.
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Old 11-06-2013, 11:18 PM   #36
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Me? I'm 85-90% stock right now, and frankly hoping for a bear so I can get stocks on the cheap.
Should you be in cash now if you are hoping for a bear market soon?
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Old 11-07-2013, 06:39 AM   #37
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I am currently about 66% in stocks, with only about 5% in bonds and the rest in cash or cash-like instruments.

If the market crashes, I am going "all in" at the bottom, and make lots of money.

If the market only takes a correction, I am still going "all in" at the bottom and make some extra money.

Still trying to figure out which scenario is going to play out (to determine where the bottom is ).
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Old 11-07-2013, 08:19 AM   #38
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Yes that makes sense. Personally, after waiting for 5 years for inflation to come back, I feel that I am more than adequately protected for inflation between real estate, inflation protected bonds, and dividend stocks with a strong energy component.

The scenario that worried me (different than the OP.) Is a bear market and continued low inflation and low interest, almost a deflationary environment.

I really don't know how to build a portfolio to protect against this scenario.
A big pile of 30 years treasuries would do it. Or maybe getting a job.
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Old 11-07-2013, 09:03 AM   #39
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Should you be in cash now if you are hoping for a bear market soon?
No, because as a periodic investor (2x/month) I'm always buying.
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Old 11-07-2013, 10:37 AM   #40
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Yes that makes sense. Personally, after waiting for 5 years for inflation to come back, I feel that I am more than adequately protected for inflation between real estate, inflation protected bonds, and dividend stocks with a strong energy component.

The scenario that worried me (different than the OP.) Is a bear market and continued low inflation and low interest, almost a deflationary environment.

I really don't know how to build a portfolio to protect against this scenario.
Buy 30yr treasuries, in 1990?
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