Going All Cash in 401k

[ERD50]

Quote:

Originally Posted by samclem Does this count? Pfau, Wade D., Long-Term Investors and Valuation-Based Asset Allocation (November 1, 2011). http://dx.doi.org/10.2139/ssrn.2544636 The abstract:

Quote:

Originally Posted by samclem Does this count? Market timing based on CAPE ratios. A few different flavor are offered (all in/all out, or more moderate shifting of allocations based on equity valuations). Pfau, Wade D., Long-Term Investors and Valuation-Based Asset Allocation (November 1, 2011). https://mpra.ub.uni-muenchen.de/3500...aper_35006.pdf The abstract:

Quote:

Originally Posted by samclem It seems that Kitces likes the Tactical Allocation label better than "market timing." Same thing, IMO. His blog entry discussing the work he and Pfau published.

Thanks for those links. I only had time to skim, but it does seem like he demonstrated an advantage to a value based decision on market timing. Maybe rather slight (but not insignificant) in terms of $, but it also was at a lower volatility, so that sure adds to it.

I think the key there is, when people talk about market timing, I can see where it would be hard to pick a re-entry price lower than the exit point - they can get left behind. But if what I gathered in my quick skim was close, you don't need to be so concerned about getting 'locked out', at some point valuations will return and define a re-entry point. If, on average that point wasn't higher than having the money in bonds, (and sometimes would be lower), then on average I guess you could do well.

It still seems a bit scary to me to assume some method based on past results will work better than B&H going forward, but I will give this a closer look.

-ERD50

[samclem]

Quote:

Originally Posted by ERD50 It still seems a bit scary to me to assume some method based on past results will work better than B&H going forward, but I will give this a closer look.

Well, don't spend too much brainpower on it, I've brought the topic up before (with the same Pfau papers) and we've all taken a swing at it. It seems pretty flexible (e.g. Pfau has looked at several variations of trigger points and in/out allocations). And, as for "why doesn't every fund manager do this," the answer could be that it is often "wrong" for a long time--many, many years. That's a long time for a fund/asset manager to have to keep making excuses to the clients. But, for us regular schlubs, we don't have to be very accurate with the timing to beat buy and hold (on a risk-adjusted basis).

I don't have enough faith in it to go 100%/0% based on timing signals, but I could see being, say, 40% stocks/60% bonds and cash when stocks are at high PEs, and then 60%/40% when they are back down to lower historic price levels. Basically, a 20% "bracket" centered on the asset allocation I'd want to have long term, anyway.

The idea is simple to the point of being simplistic. A more sophisticated model would include the relative valuations/attractiveness of the >other< assets in the mix (maybe stocks are bid up because bonds are even crummier investments at this time, etc). But folks are trying all the time to do this, lots smarter peope than me with lots more resources at their disposal.

[2177V]

OK...looks like there are no haters on Jeffery Gunlach.

Did anybody understood his 2 highest risks in the video in my comment #170? They are (1) the national debt which we already know and (2) 45% of the corporate bonds should be rated "junk" on leverage ratio alone based on a Morgan Stanley study.

When I heard (2), I thought "WTF" ! ! !

If you recall during the credit crisis of 2008..... there were home buyers who did not qualify for a mortgage, got qualified, got the loan and then could not pay it back during a recession.

Now we have companies that should have been rated "junk" (BB or lower) now got rated BBB or higher. Junk bonds provides higher returns in return for higher risk. Now we have companies issuing bonds in BBB or higher who are paying lower returns but are in fact a higher risk.

This is borderline fraud! Where is the FTC? Oh yes, they were asleep during the credit crisis and now they are asleep again! The higher risk is when a junk bond rated company goes bankrupt and can't pay back the principle back to the bond holder. Just like the unqualified home buyer!

I am now reallocating my ST corporate bonds holdings to ST government bonds or money market funds to eliminate this risk. I had always used bonds as my parachute during a bear market. Since my parachute may have holes in it, I am getting a different parachute. My returns will certainly be lousy but that is OK since this is consistent with my capital preservation strategy.

[ncbill]

Given what ST bonds (corporate or government) are paying you might as well stay in MM, at least for now.

I'm selling everything to cash as well...resetting my basis and using up some LT capital losses.

As for inflation re-starting, again, we have hedges that didn't exist back in the 1970s...e.g. TIPS, I-Bonds.

And since most pundits say we're overdue for a recession anyway there's no pressure on central banks to raise rates anytime soon...most expect the economy to 'cool down' all on its own.

[Running_Man]

Quote:

Originally Posted by vchan2177 OK...looks like there are no haters on Jeffery Gunlach. Did anybody understood his 2 highest risks in the video in my comment #170? They are (1) the national debt which we already know and (2) 45% of the corporate bonds should be rated "junk" on leverage ratio alone based on a Morgan Stanley study. When I heard (2), I thought "WTF" ! ! ! If you recall during the credit crisis of 2008..... there were home buyers who did not qualify for a mortgage, got qualified, got the loan and then could not pay it back during a recession. Now we have companies that should have been rated "junk" (BB or lower) now got rated BBB or higher. Junk bonds provides higher returns in return for higher risk. Now we have companies issuing bonds in BBB or higher who are paying lower returns but are in fact a higher risk. This is borderline fraud! Where is the FTC? Oh yes, they were asleep during the credit crisis and now they are asleep again! The higher risk is when a junk bond rated company goes bankrupt and can't pay back the principle back to the bond holder. Just like the unqualified home buyer! I am now reallocating my ST corporate bonds holdings to ST government bonds or money market funds to eliminate this risk. I had always used bonds as my parachute during a bear market. Since my parachute may have holes in it, I am getting a different parachute. My returns will certainly be lousy but that is OK since this is consistent with my capital preservation strategy.

The difference is the government can keep this going as is for quite a long time as they are in Japan.

I thought the most interesting thing that Gundlach offered was that if you subtract the extra deficit government spending from GDP growth you have negative growth. Which I am sure the central banks are aware of anyway.

As far as the debt not being rated junk, this is as well known as the housing process, however until there is an actual crisis nothing will be done on this.

[samclem]

Quote:

Originally Posted by vchan2177 I am now reallocating my ST corporate bonds holdings to ST government bonds or money market funds to eliminate this risk. I had always used bonds as my parachute during a bear market. Since my parachute may have holes in it, I am getting a different parachute. My returns will certainly be lousy but that is OK since this is consistent with my capital preservation strategy.

There's some research indicating that, when stocks are at very high valuations (where they are now), government bonds are better than corporate bonds as a diversifier. The apparent reason is that when stocks are at these price levels they drop quickly and there is fear/a flight to quality that favors government bonds. If people are really worried about significant, deep problems in the economy, corporate bonds also get hurt (repayment worries). That makes some sense to me.


When stocks are at more moderate valuations, corporate bonds have traditionally been the better option than government bonds (due to their higher yields/lower drag on the portfolio returns).

[2177V]

Here is another short video by Jeffrey Gundlach who is called the "bond king". His most famous prediction was identifying "risks" associated with the derivatives and sub-prime market prior to the 2008 bear market.

https://www.youtube.com/watch?v=rbWCNYZVsaQ

Looks like I am on the same page since I am in a capital preservation mode. I am also aware that many overseas stock markets are down 20%.

What is interesting is he also suggested commodities.

When the SHTF, the normal flight to safety is to treasuries. However, when the SHTF really goes nuclear, flight to safety may also involve gold and oil.

He is an interesting guy and a far better predictor than Jim Rogers because he is the CEO of Doubleline Capital LP. This 5 star company provide bonds and financial services to super high net worth clients (i.e. the 1%). Super high net worth people are very demanding people with high expectations. I am not a 1% guy but if he is a good enough advisor for the super rich, and he himself is a multi-Billionaire, then I am all in.

[NW-Bound]

I did not know of Gundlach. But then, it could be because I stopped watching TV, not just CNBC, long ago. If he is called the "Bond King", then it is obvious that Bill Gross had been dethroned. I just found out that Gross has left Janus and retired.

Anyway, the above interview was made late last year, when stocks took a beating. The S&P is now up 20% YTD. What a surprise. Will it collapse again in the 2nd half of 2019, and be a repeat of 2018?

This stuff is much more interesting than any ball game, and there's hugely more at stake than what people put down on the table at Las Vegas.

[USGrant1962]

Quote:

Originally Posted by NW-Bound ... This stuff is much more interesting than any ball game, and there's hugely more at stake than what people put down on the table at Las Vegas.

True about Las Vegas, except that the expected value of anything in Las Vegas is negative and the expected value in both stocks and bonds is positive (as a whole). So there is that...

[Running_Man]

Quote:

Originally Posted by NW-Bound I did not know of Gundlach. But then, it could be because I stopped watching TV, not just CNBC, long ago. If he is called the "Bond King", then it is obvious that Bill Gross had been dethroned. I just found out that Gross has left Janus and retired. Anyway, the above interview was made late last year, when stocks took a beating. The S&P is now up 20% YTD. What a surprise. Will it collapse again in the 2nd half of 2019, and be a repeat of 2018? This stuff is much more interesting than any ball game, and there's hugely more at stake than what people put down on the table at Las Vegas.

Yes the market is up as it should be when the FED reverses course cancels the three rate hikes it anticipated for 2019, begins rolling over the debt as it matures and indicates 2-3 rate cuts, when the economy as a whole has not changed from the point at which it indicated it would raise rates. When you cut the interest rates in 1/2 the present value of future earnings skyrockets. The present value of a string of $100 payments over 30 years is worth 18% more at 2.25% versus the 3.5% expected as of October/December 2018.

The Fed can get another 20% out of the S&P500 by getting rates to 1% from the 2.25%, and that is with earnings not effected by lower interest rates, higher earnings from lower rates would add even more. A cut to zero would add another 16% and a further cut to negative 1% would add another 17% of potential. I expect we will eventually get there as there is no other solution to the issues Gundlach raises.

I think Gundlach has it about right except for his underestimating that the FED can overwhelm any analysis until the day markets no longer trusts Central Banks. The Fed knows the stock market is overvalued, the corporate bond market is a disaster in the making and the dollar is in a precarious situation. Assume for now though the FED views the S&P500 as the single most important lever in the economy, and continue to assume that unless they start to raise rates again, which I view as unlikely -- their late 2018 experiment ended fast with shock to them, and the junk bond market almost collapsed on them. I think the Fed will work to continue to prop this up for as many years as possible.

[24601NoMore]

Gundlach has for a long time been thought of to be similar in many ways (expertise, $$ under management, prestige) as Gross - regardless of which were actually the bond "king" (guess it depends on who you asked, and when..) They are both outstanding FI managers and ran hundreds of billions in FI funds (Doubleline in Gundlach's case, PIMCO and later Janus in Gross's).

I actually still own a Doubleline FI fund that's done reasonably well compared to other funds in it's category over the past 1, 3, 5, 10 etc years..Gundlach no longer manages it, but as far as I know is still CEO of Doubleline.

[2177V]

Quote:

Originally Posted by NW-Bound I did not know of Gundlach. But then, it could be because I stopped watching TV, not just CNBC, long ago. If he is called the "Bond King", then it is obvious that Bill Gross had been dethroned. I just found out that Gross has left Janus and retired. Anyway, the above interview was made late last year, when stocks took a beating. The S&P is now up 20% YTD. What a surprise. Will it collapse again in the 2nd half of 2019, and be a repeat of 2018? This stuff is much more interesting than any ball game, and there's hugely more at stake than what people put down on the table at Las Vegas.

I also do not watch TV. I am a Youtube guy. I go to Youtube, I type in and search whatever I want to watch and it pops up. This also helps me to determine where the market is going. The classical signs that I use are the "Leading Economic Indicators". The video below is dated June 20, 2019 which is much more recent. and is titled "Should I invest now or wait for a crash?"

https://www.youtube.com/watch?v=cR8A2-guDxA

IMO...the "ETF money flow" at the end of this video is important.

The ETF money flows suggest that the "flight to safety" has already begun. You can have your own opinion of the data that was presented. This video will be published every 3 months so I will be interested in seeing the changes in the LEI three months from June 20, 2019.

Bottomline: If more people are now buying more bonds...than equities, then what do you think is happening?

The drama continues. How the economy is evolving is more fun than watching TV.

[Dtail]

Quote:

Originally Posted by vchan2177 Here is another short video by Jeffrey Gundlach who is called the "bond king". His most famous prediction was identifying "risks" associated with the derivatives and sub-prime market prior to the 2008 bear market. https://www.youtube.com/watch?v=rbWCNYZVsaQ Looks like I am on the same page since I am in a capital preservation mode. I am also aware that many overseas stock markets are down 20%. What is interesting is he also suggested commodities. When the SHTF, the normal flight to safety is to treasuries. However, when the SHTF really goes nuclear, flight to safety may also involve gold and oil. He is an interesting guy and a far better predictor than Jim Rogers because he is the CEO of Doubleline Capital LP. This 5 star company provide bonds and financial services to super high net worth clients (i.e. the 1%). Super high net worth people are very demanding people with high expectations. I am not a 1% guy but if he is a good enough advisor for the super rich, and he himself is a multi-Billionaire, then I am all in.

When the 10 year yield was starting to surge early in 2018, didn't Gundlach call for the continued increase in yield to 3.50% and beyond?

[NW-Bound]

Quote:

Originally Posted by USGrant1962 True about Las Vegas, except that the expected value of anything in Las Vegas is negative and the expected value in both stocks and bonds is positive (as a whole). So there is that...

Very true. That's why I never gamble in Las Vegas (and it's boring too), but always have a big stake in the stock market, and a little bit in bonds. That's how I could ER.

[2177V]

Quote:

Originally Posted by NW-Bound Very true. That's why I never gamble in Las Vegas (and it's boring too), but always have a big stake in the stock market, and a little bit in bonds. That's how I could ER.

Yep I also found Las Vegas to be Boring. Macau makes Las Vegas look like Reno.

I am going overseas for 3 months (China, Thailand, & Hawaii to surf) so this is my last post on this thread. It was very entertaining.

Since it will be difficult to reallocate my portfolio while overseas, I decided to reallocate now to 12% stock and 88% in ST treasury bonds and MM.

Thank you for everyone's comments since it was a learning experience for me and especially for "SoReadyToRetire" for raising the issue of going 100% cash.

[Ed_The_Gypsy]

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Originally Posted by NW-Bound I am one who does not hate Rogers. In fact, I kind of like some of the things he says, which often have some truths in it. But the problem is that things in life never unfold exactly as one expects. Rogers apparently is right often enough, because he started from zero and still had a lot of money. But one cannot follow what these guys say verbatim, because they have the knack in trading to get themselves out of trouble. Here's a story told by Taleb (author of the Black Swan book) about Soros. In one encounter with Soros, Taleb and Soros had a disagreement on the movement of a certain market or commodity. Taleb proved to be right on this occasion. Some time later, Taleb asked Soros how the latter did, and Soros said he made good money. Not possible, Taleb said because Soros bet on the wrong side. Soros said that it was true, but he quickly recognized his mistake and took the other side. And Soros is worth $8 billion, so he has to be more often right than wrong. Back to Rogers, he is a really interesting character to have made not one but two continuous multi-year road trips around the world. I read about his exploits in the following books. His observation about different cultures was insightful. It was during his travel through China that he made observation about how hard the Chinese worked, and that made him bet that China would become an economic powerhouse.

I read Investment Biker and later followed his Adventure Capitalist blog. I re- read his comments upon visiting Azerbaijan when I knew I was going to work there. After visiting and meeting the 'President', IIRC he said he wouldn't invest 2¢ in that country. A very astute observation, as I can confirm after 4 years there.

Extremely entertaining, but I follow my own path and an quite capable of losing money myself without any expert help.

[dirtbiker]

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Originally Posted by vchan2177 I agree with your recommendations to convince your kids who have a military connection that they should attempt to get a job with a pension. I had 7 years military service with duty in a combat zone. I returned stateside and I was fortunate to work with federal employees who then offered me a federal civilian job in New Jersey. I turned it down to get a lower paying federal civilian job at Mare Island Naval Shipyard in California. 15 years later, the Shipyard closed so I had to go back to college to update my job skills. I went through some hard times because I was in my 40's going to college with students in their 20's. However, Everything worked out. The main points: Don't let them throw away an opportunity to get a job with a pension. If necessary, get a lower paying job because in the long term they will benefit from a government pension. If they do get a job with a government pension, tell them a government pension is not enough and they should invest part of their salary. If they had combat experience, they will become an aggressive investor because the greatest lesson that I learned as a combat soldier: "Never make decisions based on fear." Now that I am in my late 60's, I realized I made a decision based on fear and re-allocate to 25%/75%...but I will never be 100% cash because that is unreasonable fear. My thought process: A 50% stock market crash translate to a 12.5% loss which is my risk tolerance. Everybody's risk tolerance is different. As long as your kid's thought process is a sound one, then they will be OK. I recommend that they have a "long term strategy". Young people generally do not have a long term strategy...but if they do, positive things will happen. Finally, military provides a pension but civilian federal employment provides a pension too. So does a State employment and a City employment. My 7 years of military services opened a lot doors for me when I transition to a civilian job....with a pension. When I was young, I had a long term strategy and I simply worked to execute that strategy. I hope my story help.

You have to make sure that the pension is worth it. A lot of government/military jobs have a pension plan, but the pay can be so much less that what can be found on the civilian side that it's just not worth it. And this is more and more true the more specialized the training/longer the education that is required for the job.

When I was younger without any education as a young enlisted man, my military pay was great compared to what I could make outside. However, now as a physician, I can't afford to be in the military full time. I'm still in the army national guard, and I've got an overseas deployment coming up for a few months that will result in a 50% pay cut while I'm gone. I had also wanted to work for the VA to take advantage of buying back some of my active years, but the pay cut would be drastic enough and the pension lousy enough (a measly 1.1 multiplier) that I'm much better off taking that extra money and investing it. My wife, on the other hand, works as a college professor. She has a great pension plan and actually makes more teaching than she can in this area working in her field. So, good pension jobs are definitely out there. You just need to be careful not to give up too much salary for the sake of a defined benefit pension.

And speaking of pensions, it's hard to trust that they'll be paid as promised. Look at SS pensions. I'm still a couple decades from retiring, and I'm looking at 25% benefit slashes if I'm lucky. It wouldn't surprise me if by the time I'm ready to collect SS, that the pool has dried up, and I'll be left with nothing. In my retirement planning, I keep the SS estimates listed as retirement income, but plan as if I won't get it at all. If I do, it'll be extra spending money. Who's to say the same thing happening with SS won't happen to government pensions at some point in the future?

As a combat veteran with two combat deployments, I can tell you that my combat experience has helped me 0% in investing. Fear for one's life is far, far different than fear of losing money. It's apples and oranges.

[copyright1997reloaded]

[QUOTE=ncbill;2270553]
I'm selling everything to cash as well...resetting my basis and using up some LT capital losses.

/QUOTE]

Something that frequently gets lost in the funds vs. individual stock and managing your accounts for capital gains analysis.

As part of my trimming, I look for losers which for various reasons didn't pan out. (Note, just being down in a position isn't enough to sell - in fact I might buy more....but reanalyzing the reason you established the position to see if what made you buy it is still true is an important thing to do).

Your post made me run a pivot on my positions. In my non-tax-deferred/non-Roth accounts, I am sitting on close to $700K in capital gains (mostly long term). To bring this back to the "sell everything and go all cash" discussion, this would mean to pay close to $250K in taxes. While taxes (the tail) should not wag the dog (investment allocation), it is a consideration.

[DeborahB]

I never know what to say in these discussions because my investing approach is not analytical at all. I am fully invested with some bonds, a lot of individual stocks, some REITs, a tech index fund... I got burned badly by tech stocks in the past. I do own some Apple stock. I’ve been doing this for 25 years or so, and slowly refined my stock picking. I believe everything I have pays a dividend. I have held onto some stocks whose value is down because they pay very large dividends. I try for 6% on my investments. I am not risk-averse but I’m sensible. More so as I get older. When I get sick of doing this I’m going to put it all in a variety of solid mutual funds that pay dividends. I seem to be doing well on this. Crossing fingers because there are no guarantees in life.

[njhowie]

Quote:

Originally Posted by Dtail When the 10 year yield was starting to surge early in 2018, didn't Gundlach call for the continued increase in yield to 3.50% and beyond?

Indeed he did. Still has his call out there for 6% on the 10-year treasury by 2021.

https://www.bloomberg.com/opinion/ar...rs-anyone-else