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Market Correction Allocation
Old 05-04-2013, 07:33 AM   #1
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Market Correction Allocation

As Dow approaches 15 k and above looking to move out of equities in anticipation of the coming stock market correction.

Question is, what Vanguard or Fidelity funds are closet to cash without going to the money market and to at least be above the 0.7 - 1.0 % management fee. In other words a fund that gets me out of equities that returns at least 1.5-2% to avoid becoming a negative return overall.

The goal is to sell SOON and be on the sideline during the downward correction ( as in the period 2007-2010 ). I recognize the sale would be a taxable event except for those funds in my IRA.
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Old 05-04-2013, 08:11 AM   #2
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Ah, a market timer who knows which way the market is going!

My advice would be to rebalance to the lower end of your AA for equities if you feel you must, but I think it would be foolish to get out entirely (unless you have a crystal ball that I don't have).

With respect to your question, my near cash choices are online savings (FDIC insured paying ~ 1%) or the Vanguard Short-Term Investment-Grade fund which sports an SEC yield of 1.02% and a distribution yield of 1.65% for April 2013.
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Old 05-04-2013, 08:14 AM   #3
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Vanguard funds close to cash are the short-term bond funds. I use VCSH, but there is also VFSTX / VFSUX. Vanguard has more short-term bond funds, but perhaps their yield is too low for you. Management fee is 0.12% or so.

I question the lack of wisdom in trying to time a correction. One should just adjust their equities:fixed_income ratio appropriately so that one can sleep and night and stick with it. (Except when following LOL!'s Market Timing Newsletter which is for small side bets.)
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Old 05-04-2013, 08:35 AM   #4
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Keep in mind that the market indices track corporate profits, not the financial security of the average American, so it could still rise a bit.

That said, to what extent are you planning to "call a top" and bail out? I could see someone going from a 60/40 allocation to 40/60 or something like that, to protect more of the portfolio and give more "dry powder" to invest when the correction hits, but out completely? Not so sure there.
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Old 05-04-2013, 08:45 AM   #5
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I worry when someone is going to market time and has to ask where to put the money from the sale of equities. Maybe someone's been watching too much CNBC. Choose an AA that is in line with your age/risk/goals and stick to it rebalancing as you go. You won't make a financial killing that way, but you also won't be selling and buying at the worst times for your finances.
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Old 05-04-2013, 08:46 AM   #6
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Quote:
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The goal is to sell SOON and be on the sideline during the downward correction ( as in the period 2007-2010 ).
Why don't you use the same fund as you did before?
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Old 05-04-2013, 09:30 AM   #7
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I have parked my accumulated cash in CIT Bank's online savings account paying 1%. This is about as good as you can do with no risk to principal as there would be in any Vanguard fund, no matter how conservative.
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Old 05-04-2013, 10:34 AM   #8
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I'm also a bit worried about someone attempting market timing when they aren't even aware of the period during which the last market correction occurred, like past market corrections, it was hard and fast, specifically late 2007 to early 2009.
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Old 05-04-2013, 10:39 AM   #9
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If you are confident you can time this stuff, then who cares what the rate you earn on a cash type instrument might be? Just park it in a money market or deposit account.

That said, if you are worried enough about this stuff that you are trying to time the market then you should probably revisit your asset allocation. I sleep pretty well with my allocation and don't much worry abouyt the inevitable corrections that occur along the way, but that is because I thought long and hard about how much risk I wanted to take and acted accordingly.
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Old 05-04-2013, 10:49 AM   #10
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If you are confident you can time this stuff, then who cares what the rate you earn on a cash type instrument might be? Just park it in a money market or deposit account.
Exactly.
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Old 05-04-2013, 09:34 PM   #11
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OP seems to be MIA.
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Old 05-04-2013, 10:01 PM   #12
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Originally Posted by nun View Post
I worry when someone is going to market time and has to ask where to put the money from the sale of equities. Maybe someone's been watching too much CNBC. Choose an AA that is in line with your age/risk/goals and stick to it rebalancing as you go. You won't make a financial killing that way, but you also won't be selling and buying at the worst times for your finances.
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Old 05-05-2013, 05:06 AM   #13
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As Dow approaches 15 k and above looking to move out of equities in anticipation of the coming stock market correction.
Corrections are inevitable. And a correction is always possible for some yet unseen reason, but what leads you to believe a correction is imminent? I assume it's not because the Dow is near record highs, that in itself doesn't suggest anything. We can never know the path the market will take in the near term, but we all expect it to set new highs over and over for the long run, or we wouldn't invest in equities to begin with. The Dow peaked at about 200 after WWII, yet we seem to have exceeded that high since.

Like others have said, set an AA that allows you to sleep at night, maybe tweak it a little when the market looks overvalued (the index itself isn't much of an indicator, if I was a timer I might track other indicators). I can't imagine buying in and out of equities wholesale, odds are you'll miss more upside moves than avoid downside moves. Best of luck...
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Old 05-05-2013, 12:28 PM   #14
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My market timing model
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Old 05-05-2013, 01:19 PM   #15
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Market timing is easy. Only buy stocks when the market is going up. If the market did not go up, don't buy stocks.
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Old 05-05-2013, 03:27 PM   #16
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Quote:
Originally Posted by ferco View Post
As Dow approaches 15 k and above looking to move out of equities in anticipation of the coming stock market correction.

Question is, what Vanguard or Fidelity funds are closet to cash without going to the money market and to at least be above the 0.7 - 1.0 % management fee. In other words a fund that gets me out of equities that returns at least 1.5-2% to avoid becoming a negative return overall.

The goal is to sell SOON and be on the sideline during the downward correction ( as in the period 2007-2010 ). I recognize the sale would be a taxable event except for those funds in my IRA.
I don't see that much correction in my crystal ball. I do enjoy market timing with portion of my funds and this year large variation of nearly 1% on many days gave lots of opportunity. I'm 1/3 out of market currently given recent highs which are sell days and wouldn't mind a little drop for buy opportunities, but jobs, housing, corp profits and most of all fed policy make me think the rally extends.

One question is what to do with cash not in equities, bond funds are dead seem to only have downside risk, any opinions?
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