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When to fire your dry powder
Old 10-10-2014, 08:36 AM   #1
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When to fire your dry powder

I reserved some "dry powder", about 10%, a month ago and my rough target to plug it back in was a 10% reduction in the S&P which was right around 2000. I really don't think this one will get there.

Does anybody have a trigger point for this "correction" where they would spend their dry powder?
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Old 10-10-2014, 09:21 AM   #2
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The trick with dry powder is sometimes it takes years to have the right moment. I feel your anxiety. You can find some individual stocks are down that far. But it is 1/2 way there
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Old 10-10-2014, 10:38 AM   #3
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I have about 40% dry powder laying around currently. Enough to fund a small army of musketeers.

My current approach is to not use a %-trigger, but a time trigger. Once every six months I can decide to re-allocate.

That way I only need to make two decisions a year, and don't have to worry about getting the bottom or the top right. I won't be able to do that anyway unless I get lucky.

Doesn't stop me from thinking about it in the mean time of course, and hoping there will be a fast and deep drop.
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Old 10-10-2014, 01:28 PM   #4
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Originally Posted by Gazingus View Post
I reserved some "dry powder", about 10%, a month ago and my rough target to plug it back in was a 10% reduction in the S&P which was right around 2000. I really don't think this one will get there.

Does anybody have a trigger point for this "correction" where they would spend their dry powder?
I was seriously thinking about taking some cash off the table a month or two ago.

Look at your average portfolio yield and what you would buy with that 10% powder. I would seriously look at buying that back in.

Taking 10% of your portfolio and buying with a 10% price reduction, with an average portfolio yield of, say, 2.5%, would mean your overall average portfolio yield now is .25% higher! Assuming you'll live on a 3.75% WR, that's like getting a raise to a 4.00% WR at no extra cost!

Sure, the market could drop more, but if I had dry powder set aside to reinvest at a lower price, I would go ahead and take the "guaranteed" portfolio yield boost at a 10% lower price/10% higher yield.
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Old 10-10-2014, 05:31 PM   #5
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I'm willing to reinvest some of my cash if the market is down 20% or more from the peak, if I have any cash to reinvest. I only raise my cash level if my portfolio has done better than my retirement plan projections. Plenty of cash ready at this time.
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Old 10-10-2014, 06:23 PM   #6
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Patience grasshopper. And keep your asset allocation up to date.
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Old 10-10-2014, 07:09 PM   #7
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I don't accumulate dry powder. When I get it, I invest it. For me - and only me - it's not timin' the market, it's time in the market.

This philosophy has me winning the friendly wealth accumulation game I play with friends and family. My advantage is that I started investing in retirement accounts in 1987, max'd out, never paused or made a withdrawal.

I don't hold anyone else to my standard and I won't compromise the position for anyone, either.

-Jon
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Old 10-10-2014, 07:30 PM   #8
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Originally Posted by MooreBonds View Post
I was seriously thinking about taking some cash off the table a month or two ago.

Look at your average portfolio yield and what you would buy with that 10% powder. I would seriously look at buying that back in.

Taking 10% of your portfolio and buying with a 10% price reduction, with an average portfolio yield of, say, 2.5%, would mean your overall average portfolio yield now is .25% higher! Assuming you'll live on a 3.75% WR, that's like getting a raise to a 4.00% WR at no extra cost!

Sure, the market could drop more, but if I had dry powder set aside to reinvest at a lower price, I would go ahead and take the "guaranteed" portfolio yield boost at a 10% lower price/10% higher yield.
Some pretty serious math issues here.

First of all, it's not down 10% from when he put money aside at 2000, it's only down about 3.5%.

Second, even if it was a 10% reduction, on 10% of the portfolio, that's a 1% boost, which makes the assumed yield .025% higher, not .25%, right? On a 3.5% reduction, that's less than .01% higher yield.

Put another way, since I like to deal with total return and not yield, if he had $1M total, 10% held out would be 100K. Buying back in after a 3.5% reduction would get you $3500 more. At a 4% withdrawal rate, that's $140 extra per year. It's something, but not game changing.
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Old 10-10-2014, 08:21 PM   #9
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Actually there is a national powder shortage. There just is no smokeless powder to be had, and when it shows up at retail there is just about a scrum to grab it.
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Old 10-10-2014, 09:26 PM   #10
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I don't accumulate dry powder. When I get it, I invest it. For me - and only me - it's not timin' the market, it's time in the market.



This philosophy has me winning the friendly wealth accumulation game I play with friends and family. My advantage is that I started investing in retirement accounts in 1987, max'd out, never paused or made a withdrawal.



I don't hold anyone else to my standard and I won't compromise the position for anyone, either.



-Jon

Same here. I'd rather be all in, reinvesting those dividends, then placing bets i can time it.


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Old 10-10-2014, 10:17 PM   #11
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Actually there is a national powder shortage. There just is no smokeless powder to be had, and when it shows up at retail there is just about a scrum to grab it.
ding ding.

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Old 10-11-2014, 03:56 AM   #12
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when to fire the dry powder is a question that usually never ends as well as one thinks .

in order to have dry powder it means you either didn't commit money to a raging bull market or you took money off the table during the bull market,.

usually the only folks who can get themselves to do that and potentially leave more gains on the table are the nervous nellie types.

but to buy as things are plunging in to the depths of market hell requires a seasoned investor with nerves of steel.

the two are opposite and so one of the two traits usually wins out and things never go as planned once the combat starts.

as tyson said ,everyone has a plan until they get punched in the face.
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Old 10-11-2014, 06:37 AM   #13
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Oil stocks and oil drillers are down about 50%. I think Seadrill's dividend is now 18% or something absurd.

Not sure how much more correction can be had in that sector but who knows?
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Old 10-11-2014, 07:47 AM   #14
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Not yet. My 45% equity allocation is now just a shade under 42%. At 39% I'll rebalance but not all the way to 45%. With only 1 1/2 years to ER my dry powder is also my first few years of W/D's.
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Old 10-11-2014, 01:12 PM   #15
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I definitely took my eye off the ball, letting too much cash accumulate over the last couple of years, missing the bull market with that cash. But, I have been putting that cash to work...slowly, of late.

I took sizable positions in VEA and GTU earlier this year which I recently sold to lock in the short term loss. I took it on the chin with both of these; but, I am in the 33% marginal bracket now; so, I get to share those losses. (I will almost certainly buy both of these back soon after the 30 day wash sale period passes.)

This week I redeployed the funds from those sales as well as some of my remaining dry powder to the following: DBO, VIG, VEU, DBC and GDX.

My thinking: If I am close to the bottom, great! If not, I will tax loss harvest again near the end of the year and redeploy again. In the mean time, I do still have additional dry powder which I need to deploy.

Note: My current allocation is still skewed entirely too far to cash and cash equivalents; but, this may not be such a bad thing if I can avoid succumbing to yet another OMY.
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Old 10-12-2014, 11:18 PM   #16
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I retired about a yrs ago. Have not been interested in investing a large chunk until recently. Some will say market timer, But I just wanted to relax the 1st yr. Anyway am getting interested again. I don't follow every move, but do check the 200 day of the DOW, S&P and NAS for reference. Looks like tomorrow the S&P could join the other two. So, I plan to average back in over a fair amount of time. To be honest, I found sitting on a keg of "dry powder" quite relaxing. As I have never felt bad about missing a run. And knew exactly what I had. Plan to average into vanguard funds over time. Not a bad feeling at all. Would probably drive some folks nuts, but it didn't bother me a bit. 1st time In 30 years I have not really been in the market. Kind of nice. LOL LOL Some folks like dry powder, others do not.
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Old 10-13-2014, 07:36 AM   #17
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I mention in early thread that I recently switched from 75/10/15 (cash) to 60/10/30.

I still start buying back at SP 1750 and will be back to 75% equities at SP 1600, on the upside if the S&P goes over 2050 I'll admit I was wrong and get back in.

On the fixed income side if 10 years go up 1% all add 10% to my bond portfolio and another 10-15% if 10 T-year bills get above 4%
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Old 10-13-2014, 01:56 PM   #18
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never paused or made a withdrawal.

<>and I won't compromise the position for anyone, either.

-Jon
No worries Jon. It's full freedom here.

Ha
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Old 10-13-2014, 07:02 PM   #19
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I still start buying back at SP 1750 and will be back to 75% equities at SP 1600, on the upside if the S&P goes over 2050 I'll admit I was wrong and get back in.
Yeah, I'm thinking of putting more money to work once we hit around 1750 also, but if things get real ugly with this market over the next week or two, I may wait for an even lower entry point. Sure, it's market timing, and I may be all wrong with the timing, but I'm okay with that. I'd rather play defense right now than offense.
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Old 10-13-2014, 09:11 PM   #20
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I just got a pretty strong buy signal: had to talk dad off the (metaphorical) ledge today.
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