To Cash?

[Birchwood]

I have about 825K sitting in a variety of Vanguard Stock funds, in a SEP-IRA account. I'm on the verge of retirement. With the stock market
ripe for a pullback(according to a variety of sources), would it be prudent to move the money to a money market account temporarily, and wait for a pullback, and then move them back to stock funds?

I would not need the money right away as I have about 5 years worth of
living expense money in cash and treasury.

I have not told Vanguard about my intention. Instead, I agreed to them
having a phone meeting with one of their CFP as far as asset allocation.
I think this guy will tell me to keep it there! Heck he works for Vanguard.

Opinion pls.

 

[grumpy]

What you are proposing is "market timing". I'm sure a search will locate several threads here which discussed this.

In order for that strategy to be successful, you have to guess (and I do mean guess) right twice... once as to the right time to get out, and again as to the right time to get back in. Good luck with that.

 

[brewer12345]

Don't forget to allocate some of those funds to shotgun shells and MREs.

Seriously, why do you have your assets invested as they currently are? Has that changed?

 

[youbet]

Just be absolutely sure that your timing is correct. When you're looking up the dates of the pullback and subsequent recovery (in the Almanac I presume), be careful not to transpose any numbers. In fact, post the dates here and we'll double check 'em for ya.......

 

[MichaelB]

I have about 825K sitting in a variety of Vanguard Stock funds, in a SEP-IRA account. I'm on the verge of retirement. With the stock market ripe for a pullback(according to a variety of sources), would it be prudent to move the money to a money market account temporarily, and wait for a pullback, and then move them back to stock funds?

I would not need the money right away as I have about 5 years worth of
living expense money in cash and treasury.

I have not told Vanguard about my intention. Instead, I agreed to them
having a phone meeting with one of their CFP as far as asset allocation.
I think this guy will tell me to keep it there! Heck he works for Vanguard.

Opinion pls.

No. Without knowing what percentage of your portfolio is in equities, we can't say. If you do tell us your equity allocation, then we can definitely say no, It would not be prudent. You're trying to time the stock market.

You should have a target allocation for equities in your portfolio. You might want to change it as you enter retirement and rebalance the portfolio.

 

[Donzo]

IMO, if you have 5 years worth of cash on hand, going all cash now is dangerous. The market may pull back or could sail past 14,000... Presidential election years tend to be good for the market, at least in the past. Maybe change your allocation to a "safer" stock/bond/cash mix? I recently sold some stock funds and invested them for immediate - out 5 years use. I am happy with that move. I am also happy to be in stock funds - I don't want to miss out out on a solid run up. I personally will not go below 50/50 stocks vs bonds&cash
Having 5 years cash is pretty safe all by itself!
Investing is so interesting - every one has different methods and ideas on how to "stay solvent" and sleep well at night.
Thats my 2 cents. Good luck

 

[samclem]

As others have said, you need to resist the urge to try to outguess the market. It really is virtually impossible--anyone who could do it reliably could be fabulously wealth in a few year's time by buying options and leveraging. Determine an asset allocation with which you'll be comfortable long-term and stick to it.
And I doubt the Vanguard rep will make a dime that depends on what you decide. He doesn't know what the market will do on a short-term basis, either. But, over the long term, it has gone up.

 

[Birchwood]

I know it is market timing. I am a strictly buy and hold fellow, but during the drop of 2008, the stock funds has drop 20-30%, only to gain a paltry
4% in the end. It really didn't made anything, and we had to suffer the agony of when this will rise again.
Now that the DOW, NAsdaq and S&P are on a record high, and there is a prediction of a 20-30% pull back, why not run into safety of cash, wait for this train to crash, then slowly move back?
Moving out at a relative good time is not that hard. Moving in is tricky. There is always a guess work involved.

BTW, the asset allocation was done many years ago,when I was younger.
Every year, I was contributing the max into this SEP-IRA account. In the belief that equities do well long term, I was putting money in the following:
Vanguard Wellington, Wellesley, Dividend Growth, and Extended market
funds. I think it covers the whole enchilada of stocks with bonds thrown in in Wellington and Wellesley.

Thanks.

 

[samclem]

Now that the DOW, NAsdaq and S&P are on a record high, and there is a prediction of a 20-30% pull back, why not run into safety of cash, wait for this train to crash, then slowly move back?

There will always be a "prediction of a pullback." Do you suppose stocks are riskiest when everyone is "all in" and sure they'll go to the moon, or when people are fearful and money remains on the sidelines?

Anyway, I hope your money moves work out for you. I sincerely wish you very good luck.

 

[sengsational]

Based on the rate that so many individual investors buy high and sell low, I'd say the rally headlines are just sinking in for them. You need to wait for more of those kinds of folks to get in before you bail, hehe.

 

[ducky911]

I am in the mist of simplifing my holdings...so i am opting to do the selling know and buying this summer...

 

[youbet]

Birchwood.....

How will this total sell off impact your taxes? Do you have any significant cap gains you'll have to pay taxes on?

 

[haha]

If there are no real tax costs to going all cash, I would do whatever you want to do and pay no attention to suggestions here or elsewhere. This really would not apply when you plan to do some immediately and obviously dangerous step. But going to cash at a fairly high market level is not immediately and obviously dangerous.

Sometimes a good way to look at this is trying to avoid maximim regret. If you move to cash, and the market takes off (unlikely in my opinion, but I am no trader), will you feel bad or will you think that you didn't like what you saw so you left. If you go to a party and people are doing various things that could get you all arrested, and you leave, and later a friend tells you it turned into a maximum bacchanal- do you feel regret, or do you think that you can only play probabilities as you see them?

Contrariwise, if you stay in and the market does go down hard, are you more upset than condition A above?

On another thread people are discussing how they support their families with trading, in some cases day trading. So it must not be entirely true that no one ever has any idea what decisions should be made in a given environment. I supported my family for years trading, but not rapid trading, more what would be called position trading.

I don't try this much any more, because the markets are largely the outcome of governmental money creation and manipulation. For me anyway, it is too confusing. Without tax consequences, I would be selling stocks right now. But because of how I got the money, it is mostly in taxable accounts, and if half the value of a portfolio is gain, it isn't cheap to sell.

Ha

 

[BigNick]

Based on the rate that so many individual investors buy high and sell low, I'd say the rally headlines are just sinking in for them. You need to wait for more of those kinds of folks to get in before you bail, hehe.

My observation is that both housing and stock market bubbles tend to last about 9-12 months after everyone seems to be saying "this can't go on".

 

[Alan]

I have about 825K sitting in a variety of Vanguard Stock funds, in a SEP-IRA account.

Birchwood.....

How will this total sell off impact your taxes? Do you have any significant cap gains you'll have to pay taxes on?

I guess no tax implication.

I certainly wouldn't go all cash at this moment. You didn't give us your AA but said you only held a few funds, and those included Wellesley and Wellington which regularly re-balance to keep to their target stock/bond/cash allocations. (Plus you have 5 years expenses in cash as well)

 

[Nords]

I am a strictly buy and hold fellow...

Apparently not.

BTW, the asset allocation was done many years ago,when I was younger.

Your question may be indicating that it's time for you to come up with a new asset allocation.

WhiteCoatInvestor (who posts to Bogleheads) has a monster seven-part post on choosing & implementing an asset allocation. If you're concerned about taking capital gains then you might as well call it "rebalancing".

 

[Birchwood]

To haha,

I inquired with Vanguard and with my personal accountant,-- Any asset within a SEP=IRA account or IRA account, you can move your money around within the fund family without any tax consequences. It also applies to a brokerage firm, trading stocks and cash back and forth, as long as it is SEP-IRA or IRA. You get taxed when you actually pull the money out since it is tax deferred account.

I have been looking at the DOW, Nasdaq, and S&P graph for the last ten years. There are two major drop, one in 2008 and one, earlier in the decade. It took another 3-4 years for it to be on the same level. Now we are on the plateau!!!!, and there are prediction of a pullback due to diff. factors.

Your analogy is right, if this DOW push thru 17,000, then I miss the big party, but I still have my cash. If there is a pull back 20-30%, and I
stayed with the roller coaster ride, then I lost 30% of my money, only to get back(i hope) to the same level in 3-4 years. But If exit the equity, and it did went down 30%, then I protected my principal.

Obviously, If I'm caught on an unexpected drop, I will not sell LOW!,
I will just stay in there, for the up swing. I have a 5 yr cash reserve
as I mentioned.

For some reason, moving to cash does not bother me, given the prediction of future volatility of the market. It is staying too long in equity that intrigues me. Is there a better way then just buying and holding this stuff?

 

[audreyh1]

I know it is market timing. I am a strictly buy and hold fellow, but during the drop of 2008, the stock funds has drop 20-30%, only to gain a paltry 4% in the end. It really didn't made anything, and we had to suffer the agony of when this will rise again.

Your stock funds never made it back? Mine did - and many by the end of 2009, all in 2010. It was pretty darn quick! (unlike in 2002 - that took longer).

Why do you think the pundits predicting a pullback are any more correct than the pundits predicting new highs?

I'm always amazed how absolutely certain people feel about an imminent correction. As if it's guaranteed!

Audrey

 

[audreyh1]

Is there a better way then just buying and holding this stuff?

Rebalancing back to your asset allocation whenever the market makes a major move up or down. When it goes down 20%, rebalance. When it goes up 20%, rebalance.

Audrey

 

[Birchwood]

To Audrey,

Maybe the stock MF made it back, but it didnt made that much.
Try and compare the graph of an Index stock fund with an inflation adjusted bond fund in the last 5 years.

I should be better in rebalancing I agree.

 

[brewer12345]

Sometimes a good way to look at this is trying to avoid maximim regret. If you move to cash, and the market takes off (unlikely in my opinion, but I am no trader), will you feel bad or will you think that you didn't like what you saw so you left. If you go to a party and people are doing various things that could get you all arrested, and you leave, and later a friend tells you it turned into a maximum bacchanal- do you feel regret, or do you think that you can only play probabilities as you see them?

Contrariwise, if you stay in and the market does go down hard, are you more upset than condition A above?

(snippage)

Ha

Ha, I assume that you are familiar with the basics of behavioral finance. If so, surely you must recognize that the outcome to what you pose is a foregone conclusion for pretty much everyone. All the research has shown that people feel the pain of loss far more keenly than the pleasure of gains. So I think this is not a great way to frame the dilemma. But then again, I am immediately suspicious of what I am contemplating the moment I recognize one of the classic behavioral finance traps presenting itself.

I think OP may simply be coming to the realization that his AA is no longer suitable for where he is in life and his risk tolerance. Assuming that is true, he should do some navel gazing to figure out what would be more appropriate. Personally, what I struggle with is that investment grade bonds, treasuries, agencies and agency MBS all appear to be vastly overpriced. That being the case, diversification is hard to come by without essentially locking in inflation-adjusted losses at the time of purchase. That probably explains my zeal for merger arbitrage funds and individual junk bonds these days.

 

[LOL!]

If you go to cash, what is your signal or plan to buy back into the market?
Given the following scenarios, what will you do?

DJIA goes to 10,000 in the next year.
DJIA goes to 12,000 in the next year.
DJIA goes to 15,000 in the next year.
DJIA goes to 14,000 in the next year.

Will you just sit and wing it? Or do you have a plan on when to reinvest?

Or do you have an asset allocation plan of say 20% equities and 80% cash? Or is it really 100% cash?

 

[haha]

Your stock funds never made it back? Mine did - and many by the end of 2009, all in 2010. It was pretty darn quick! (unlike in 2002 - that took longer).

Why do you think the pundits predicting a pullback are any more correct than the pundits predicting new highs?

I'm always amazed how absolutely certain people feel about an imminent correction. As if it's guaranteed!

Audrey

I have nothing to be gained from changing anyone's mind, and I know I would have no success anyway. While I agree that much forecasting is just noise, there are people who are uncannily good at producing useful noise. Jeremy Grantham at GMO is one. He is one of the originators of asset allocation instead of stock picking, and an extremely wealthy man. His firm makes hard predicitons, and goes back and reviews their history and outomes regularly. Here is GMO's webpage, and Jeremy's most recent quarterly letter.

http://www.gmo.com/America/MyHome/default

 

[Birchwood]

To LOL

The prediction is 20-30% correction, so I guess, getting in slowly at about 10,000. Obviously if it goes up to 14,000, I'll just wait. It went up.

Is there any study on cashing in completely when the market is at the top, then dollar cost averaging into stocks again, when the market hits the bottom.(I know it is relative).?

Most of the prediction I read calls for market "volatility" in the next decade, suggesting that the old buy and hold may not be feasible.

 

[LOL!]

That's wishful thinking. What if the DJIA does not ever reach 10,000 in the next few years?

Your answer if the market goes up is interesting: You will just wait. Wait for what? What if DJIA goes to 11,000 and then goes to 17,000? What's your plan?

Nobody does "buy and hold"; they do "buy, hold and rebalance". Select a percentage for equities, for fixed income, for cash and just go with the flow and keep rebalancing along the way.