Investing in 2008

[SingleMomDreamer]

I hit a couple of financial goals for my retirement accounts on Halloween. Hopefully, it's not a "trick or treat" kind of thing, although the Nov. 1 market suggests it may be a "trick." I've been able to hit these goals partly through contributions and partly through aggressive investing--averaging 17% annual rate of return for last 5 years. Now I'm looking toward 2008, amidst commentators (and historical trends) suggesting the end of the bull market. I am looking toward redistributing my funds from risky stocks (e.g., emerging markets) to more conservative funds, at least for a few years. Any suggestions on what types of funds might make a positive return in the next few years while cutting down on risk? My retirement accounts are primarily in American Funds and Oppenheimer (company-sponsored plans).

Thanks for any and all advice!

 

[Moemg]

Congratulations !

 

[samclem]

Like most people, I've done poorly when I've tried to guess the next market turn. I've had much better results since I picked an allocation and put things on automatic. Sorry, I can't offer any tips on what 2008 might bring, except that the correct move will be very clear--in retrospect.

 

[ERD50]

Well, I'd agree with samclem that timing the market can be risky, but...

You've done very well with your aggressive position - congrats! 17% for 5 years is about a 120% return. Past 5 years has been a nice ride, with the S&P up roughly 70% and the Naz up over 100%.

Yahoo! Finance Charts

I think it is good for you to be questioning things now. So, it might not really be 'market timing', but taking your portfolio down to a less aggressive position overall after a five year bull run could be considered the prudent thing to do.

Maybe some one else will have some specific fund reccs. I just tend to do the overall market (SPY equiv or total market fund) and balance my bond/equity ratio until I sleep well.

I think that your approach is sound. You made some good money, now make sure you keep it!

-ERD50

 

[Texas Proud]

You did not say how you are invested right now....

I made about 16% the last 5 years... but I do not think I am very aggressive... I am at 90% stock which is probably the aggressive part, but I am 15% to 18% international which is not aggressive...

And I remember some people who said the same thing back in 2005 and 2006 that wished they had kept to what they were doing...

Like others have said, determine your AA and just stick with it... market timing only works if you are lucky or very smart (but then you would be a multi millionaire since you would know when to time and make more than 17%)...

 

[Spanky]

Any suggestions on what types of funds might make a positive return in the next few years while cutting down on risk?

Money market funds, stable value funds, short-term bond funds.

 

[Helen]

And I remember some people who said the same thing back in 2005 and 2006 that wished they had kept to what they were doing...

Yup, I'm one of those people. I lost a lot of money by not being in stocks.

I think we may be in for some tough times ahead, but I keep reminding myself that I don't know what's going to happen.

I figure if I can stay in the market while I'm working, I'll have an even harder time when the paycheck stops arriving.

 

[Darryl]

Find an AA you're comfortable with and stick with it. If you have that and are moving some money from classes that have done well to classes that have not grown as well you would be rebalancing which is a great way to manage risk. If you don't have a target AA in mind and are selling classes that have done well to something that feels better now. You are increasing your risk and are relying on luck to fund your retirement.

 

[Texas Proud]

Yup, I'm one of those people. I lost a lot of money by not being in stocks.

I think we may be in for some tough times ahead, but I keep reminding myself that I don't know what's going to happen.

I figure if I can stay in the market while I'm working, I'll have an even harder time when the paycheck stops arriving.

Yes.... I do think that we will have a tough time very soon.. and I would say there is a better than 50% chance for a recession next year... but I am not smart enough to know when to get out nor when to get back in... so I will ride it down and hopefully ride it back up on when (and of course if) it does go back up.. and keep buying both directions since I am still at w### (that bad 4 letter word...)...

But, I am going to start changing my allocation as I am getting closer to FIRE and am to much into stocks.. but that is an age thing, not a market thing...

 

[chinaco]

IMHO - stick with a diversified portfolio and rebalance like normal.

 

[FinanceDude]

Stick with the American Funds equity income offerings, like Capital Income Builder and Capital World Growth and Income. They invest in blue chip domestic and global companies that pay healthy dividends..........

 

[RetireeRobert]

Now I'm looking toward 2008, amidst commentators (and historical trends) suggesting the end of the bull market. I am looking toward redistributing my funds from risky stocks (e.g., emerging markets) to more conservative funds, at least for a few years.

Like others here I would be leary of trying to "market time". That said, however, I would advise having a longterm asset allocation model. An asset allocation model should be appropriate for your stage in life. It may change over time, with perhaps a more aggressive model for ages 20-40, a different model for age 40-60, and maybe a third less aggressive model for ages 60-?. Of course, it is up to an individual considering their total circumstances to decide what asset allocation model is appropraite for them regardless of age.

So, as others advise, pick an appropriate for you asset allocation model for your current stage in life and stick to it.

Now, this means every so often you must "rebalance" your portfolio as the markets change, to get you assets back in line with your desired allocation percentages. You may do this once a year, maybe twice a year, maybe once every two years depending on your preferences.

In effect then, by "rebalancing" occasionally, you take advantage of market swings. You sell of those assets which have "run up" and you buy more of those assets which have underperformed relatively speaking---get them at relative bargain prices. So, you are in this way "market timing".

You have doubled your money over the last five years. Very good. An asset allocation model with occasional rebalancing would have you now selling off some of your big gainers (taking profits) and putting that money back to work in some of the now "bargain" areas.

There is anothe thread starting on "Asset Allocation Tutorial" if you are interested.