I'm getting spooked about the markets

[joeea]

I was much heavier invested then, and like everyone else, I lost a ton.

Not everyone else.

Some of us had an Asset Allocation strategy that we were comfortable with. Some of us didn't lose a ton. Some of us didn't lost any sleep.

 

[hesperus]

I'm getting spooked about the markets

markets go up, markets go down. Pick your allocation and sleep easy. I do

 

[slowsaver]

Hmm. Have you calculated the rate of return you got on the rest of your portfolio for the past 5 years? And thus you know the cost of sleeping well?

Believe me, I *know* it was stupid to have cash the last 5 years. I guess the sarcasm in my last post was not that obvious.

Thankfully, it's just 5% of my portfolio. And at least I get some interest.

 

[Totoro]

Did you mean to use the Schiller P/E in the first paragraph and the P/E in the second? Of course, they are different things. S&P 500 P/E right now is 23.74, about the same as one year ago. And I’m seeing a yield of 1.82% on the S&P 500 presently.

No, Shiller P/E both times. Just like with individual companies I don't trust the single year P/E as much, too much noise in the signal. Also, I'm referring to the earnings yield, not the dividend yield. The former is basically inverted P/E.

Earnings come out either as dividends, or are invested in (hopefully) future growth or buybacks, so they are a useful proxy when comparing to bonds.

 

[NYEXPAT]

Not in my neighborhood. No one has sold a house around here since JFK was in office. The next generation of the family just moves in when the previous one dies.

Sounds nice, reminds me of this place:

 

[target2019]

If you're getting nervous, review page 13 and page 17, please.
https://advisor.mp.morningstar.com/...Forms&id=3f9dff3c-f085-47a1-98ba-0bc008df9f25

 

[copyright1997reloaded]

Yet another one of these threads. A bullish indicator.

Now, if it were another "I'm making a killing in the market and want to borrow on credit cards to invest" thread, it would be a bearish indicator.

ALL bull markets end badly. Repeat that to yourself: ALL bull markets end badly.

So, the question isn't whether the bull market will come to an end. It will. The question is when and at WHAT LEVEL relative to RIGHT NOW.

If your equity allocation is large enough that losing 10%, 20%, 30%, 50%, maybe even more of it would make you distraught or ruin your life, then sell enough to eliminate that consideration. But don't fool yourself - you are giving up (if you live long enough) additional buying power and more importantly protection against a rising cost of living.

 

[Oz investor]

Hmm. Have you calculated the rate of return you got on the rest of your portfolio for the past 5 years? And thus you know the cost of sleeping well?

after about a decade of being a workaholic ( in highly active employment ) i know the cost of NOT sleeping well ,

but when i started my plan in 2010 i DID need to grow the portfolio value (
by more than 3 times in 10 years ) and in mid 2016 .
had i still have had that cash sitting in the bank i might have had some even larger health care costs for at least six months and that cash pile might have been halved of even worse )

so one size doesn't fit all in my opinion ( another example of me having a good result using all the wrong logic ).

 

[Oz investor]

Believe me, I *know* it was stupid to have cash the last 5 years. I guess the sarcasm in my last post was not that obvious.

Thankfully, it's just 5% of my portfolio. And at least I get some interest.

stupid ?? i disagree maybe you needed the sleep more than i needed accelerated growth ( without resorting to penny dreadfuls all the time )

investing comfort must be about risk tolerance and your personal goals

to my mind my asset base was too small and i had just 10 years to make it all financially sound ( if possible )

had i actually been retired in 2010 maybe my plans and needs might have been very different ( for better or worse )

 

[HI Bill]

I wish that crash would hurry-up and happen, because I've had $100k in cash I've been wanting to invest since 2013! At least I've been sleeping well the last 5 years.

Glad you're sleeping well! I sure wish I was. In the past 5 years, I've averaged a 11.5% rate of return on my investments.

Your purchasing power, according to the CPI, has dropped by 7% over the same period. With inflation, being 'safe', means losing money.

 

[pb4uski]

Hmm. Have you calculated the rate of return you got on the rest of your portfolio for the past 5 years? And thus you know the cost of sleeping well?

I was curious about this since I went from having no cash when I was working (60/40/0) to 5% cash while retired (60/35/5). Portfolio Visualizer suggests that the cost of sleeping well is ~0.08% (I retired at the end of 2011 so I measured from 2012 to now).

https://www.portfoliovisualizer.com...symbol4=CASHX&allocation4_1=0&allocation4_2=5

 

[Oz investor]

Glad you're sleeping well! I sure wish I was. In the past 5 years, I've averaged a 11.5% rate of return on my investments.

Your purchasing power, according to the CPI, has dropped by 7% over the same period. With inflation, being 'safe', means losing money.

i haven't bothered tracking my gains ( my plan is all about creating a livable income source ) but have spent plenty of time reading the fine print on potential investments , and there is no guarantee the market will dip by less than 50% ( even though a 20% or more drop is almost a certainty in the mid-term , say the next 5 years )

my 'purchasing power ' has been helped by enhanced frugality , luckily our government is tax addicted but desperate to stay in power so prefer to tax 'luxury goods ' , like alcohol , petrol and tobacco , so i normally miss the sharp end of the CPI .

my participation in the markets is driven more by the time factor to achieve ( or miss ) the desired goal

 

[97guns]

With an average of 18% ROI through my RE investments, some getting 20%+ I have no need for the stock market now

 

[GR111]

I always love stocks but have recently increased my cash position by quite a bit. Don’t believe in market timing but this bull can’t run forever.

 

[Oz investor]

Perhaps instead of playing individual stocks/ETFS and trying to time the market, move it all into a nice balanced fund.

That way you can rest easy that you will automatically be buying low (when the market goes down) and selling high (when the market increases). You will be under no obligation to "react" to market behavior because it will be automatically happening for you.

This is the change that I made to my investing strategy when I ERd.

Now that I have FIRED and changed to my balanced fund strategy I have much more financial peace in my life.

-gauss

between 2011 and 2015 i held a ( for me ) large amount of debt instruments but most of the best ones redeemed or matured and i could not find suitable replacements when quality was considered ( most started offering unsecured debt at inferior rates relying on corporate reputation to lure the suckers in and the ETF folks ) ,

sorry corporate directors have a obsolesce date today's super achiever could be replaced by a high profile chair warmer ( like former central bank governors and politicians ) i LIKE my security , thanks ( i don't even do unsecured loans to my family )

i would like to reduce my share/ETF exposure but NOT at the expense of higher risk lower returns .

so sadly my fund is much less balanced than i would like it to be and have resorted to 'bond proxies ' ( mainly REITs for a reasonably reliable income component )

Tier 1 debt in Australia translates to the first paper thrown in the rubbish bin and they do NOT pay 10% plus for that risk factor ( many are not even convertible into ordinary shares )

nice that you can achieved happiness in your portfolio balance , but mine is a mish-mash of opportunistic compromises

cheers

 

[DrRoy]

OP, are you permanently changing your asset allocation?

Or, are you planning to get back in the market when you believe values are lower?

"Yes" to the first question can represent an appropriate strategy depending on your current situation and your goals*. "Yes" to the second question represents market timing and MT has a poor record and leads to the losses you mentioned in your post.

*A zero stock allocation has lower survival rates over the long term compared to allocations with stock. Make sure your planned new AA will survive. You might want to run your new AA through Firecalc.

+1. I recommend that you read "Your Money and Your Brain" by Jason Zweig. It will help you sort out the emotions around investing.

 

[GR111]

True story.... last night I dreamed the market crashed and I was able to scoop up MSFT, JNJ, WMT, and XOM at rock bottom prices. Why those particular stocks who knows but I woke up happy - good dream. Staying diversified here but with higher cash position ready to go to work.

 

[Oz investor]

maybe those four stocks are the ones you desire the most

may your dreams come true

 

[OldShooter]

+1. I recommend that you read "Your Money and Your Brain" by Jason Zweig. It will help you sort out the emotions around investing.

Zweig (of the WSJ) is pretty much the only writer I see on the internet that has any credibility with me.

Another good book is "Thinking Fast and Slow" by Nobel prize winner Daniel Kahneman. And, after that, "Misbehaving" by Nobel prize winner Richard Thaler.

Key concepts from the books: "Endowment Effect" wherein we value what we possess more highly than we would value it if we didn't have it. This sometimes keeps me in investment positions that should be liquidated. Also, our asymmetric view of risk: Humans are much more averse to a risk of loss than we are attracted to a similar chance to gain. This also tends to make us hold on to positions that ought to be sold. Finally, and maybe most important, our brain's habit of giving us a dopamine shot when we win on a trade or at a slot machine. This encourages us to seek the same pleasure again = risky behaviors like day trading and trying to predict the markets.

 

[sengsational]

I changed my allocation to that of a person 30 years my senior back when the CAPE ratio hit the rock breaks scissors trigger. So I have missed out on a few years of gains. Sigh. But I'm not changing my allocation until it hits the bottom trigger. Hopefully I won't need to wait 30 years! WAIT a minute! I just wished for a huge drop in equity pricing. I'm not sure I really want THAT!

 

[Dtail]

I changed my allocation to that of a person 30 years my senior back when the CAPE ratio hit the rock breaks scissors trigger. So I have missed out on a few years of gains. Sigh. But I'm not changing my allocation until it hits the bottom trigger. Hopefully I won't need to wait 30 years! WAIT a minute! I just wished for a huge drop in equity pricing. I'm not sure I really want THAT!

No you don't - think of all your comrades with higher equity allocations.

 

[youbet]

I have always had this in my plan. + a heloc, + multiple high line credit cards. So, pulling back discretionary in a recession would extend that even more. That allows me to comfortably ride highs and brace for lows.

I don't understand how "pulling back discretionary" and "allows me to comfortably ride highs and brace for lows" go together. If you cut back discretionary, isn't that making yourself less comfortable?

I suppose it depends on your age and how much you value your time, but if DW and I had to cut out travel, dining out, hobbies and other typical discretionary expenditures during a market downturn, we'd consider that to be much less "comfortable."

We kept all planned discretionary spending at full throttle during the 2008 - 09 debacle and never regretted it. It was a risk we took because we valued our time (we were 60ish back then) and doing age appropriate things while we could.

Perhaps it's just semantics.

 

[audreyh1]

I don't understand how "pulling back discretionary" and "allows me to comfortably ride highs and brace for lows" go together. If you cut back discretionary, isn't that making yourself less comfortable?

I suppose it depends on your age and how much you value your time, but if DW and I had to cut out travel, dining out, hobbies and other typical discretionary expenditures during a market downturn, we'd consider that to be much less "comfortable."

We kept all planned discretionary spending at full throttle during the 2008 - 09 debacle and never regretted it. It was a risk we took because we valued our time (we were 60ish back then) and doing age appropriate things while we could.

Perhaps it's just semantics.

Same here. That's the main reason we have always maintained the extra year or two of cash equivalents since retiring. It let us go all out in 2000-2002 without skipping a beat (back then we called it our travel fund), and in 2008 I didn't worry about cutting back our spending at all. Definitely didn't want to cut back while we were younger.

We have a lot of discretionary spending. We could cut back. But we won't until we absolutely have to.

 

[NW-Bound]

According to Quicken, gift/donation is my 3rd highest spending category, in the last 6 years since I retired. If things get tough, I may have to be less generous.

I would also delay home improvement projects. I may not be in the mood to travel, and just stay home to eat steak, Dungeness crab, and drink Cognac. I don't eat nor drink that much for these indulgences to add up to much at all, so it would not help to cut back there.

 

[OldShooter]

... if you cut back ... if DW and I had to cut out travel, dining out, hobbies and other typical discretionary expenditures during a market downturn, we'd consider that to be much less "comfortable." ...

Sorry, logical leaps not allowed. "Cut back" is not equal to "cut out."

If we were "cutting back" we might dine out at less expensive places, plan less expensive trips, etc. For example, we've been to Africa a half-dozen times but probably only taken three or four road trips in the US. So we might plan a (very rare) year where we didn't use our passports but took our usual two trips. That could easily cut back our travel costs by $10-20K.