ER skeptics were right on Debt Ceiling

[arcyallen]

In 2019, When COVID hit and the market tumbling, and I saw all the people dying across the planet and everything shutting down, I made what I thought was a thoughtful decision to pull cash to the side for my "2022" fund..which was essentially my eldest's college $ (which he would be starting in 2022) .
...
Well, the market decided after about 3 months, it could care less that people were dying or that goods weren't moving and it roared back...leaving me on the sideline.

I eventually moved the $ back in, but lost a substantial recovery gain in the process.

Any time I think I can time the market, I remind myself of this historical scenario. If you played it out in real time, it felt like the end of the world. Even if you looked at it in hindsight, it made little sense for the market to rebound so quickly. But it did. And I don't know a single person that expected it to. Not experts, not amateurs, no one.

 

[Dash man]

Honestly, in addition to the media I also see topics/comments here too that spread the fear and/or suggest people should reduce equities…. Kinda like the “golden era for fixed assets” thread - among many others.

My retirement portfolio (100% equities) is up just a little over 20% YTD. I get that some/most people in retirement can’t handle a 100% stock portfolio given the market swings but we have over a century worth of historical data and research that has shown an all stock portfolio has outperformed all other asset allocations over long time horizons (e.g. 30+ years).

But many of us don’t expect to be around in 30 years. So I keep 25% in fixed income just in case.

 

[ERD50]

Interesting that the "Similar threads" section below shows 4 posts from 2011, two started by donheff.

Most pertinent:

"How will a fight over the debt ceiling affect the market?"

-ERD50

 

[ERD50]

Mea culpa, mea culpa... I went to a lot of trouble getting into cash in anticipation of a major short term drop dues to a debt ceiling impasse. I thought the divisions and intransigent nature of many would lead to an impasse worse than 2011 this time so I executed a rare market timing strategy. Most of the board yawned and said this time will be like the other times. You were right.

I am blown away. Without any political point awards, I think it is safe to say McCarthy and Biden both came out winners. McCarthy is claiming a humongous spending cut and showed he could contain his squabbling minions, and Biden's crew (the man himself is quiet so far) claim they got more than they could have hoped for and lost nothing that wouldn't have gone under regular budget negotiations/impasses later this year.

And we got a win - a pause in political monetary brinksmanship until the next administration. I put in a buy order pre-opening today and got the opening prices getting back to close to where I want to be long term. I'm holding back some funds and may go a bit more to bonds until equities get more real. All in all it was a wash - i.e., a waste of effort. It could have gone better or worse.

I'm surprised you can claim a wash if you are getting back in with yesterday open of SPY @ 418? Looks like your first post on this was 5/1, not sure when you sold, but the SPY daily HIGH (unlikely to hit that) was below 414 from 5/2 to 5/15.


-ERD50

 

[Toocold]

Hope I don't get dinged on this, but I'm just glad there was some compromise and they didn't cave in to the two extremes.

Still nice to have a tiny bump in the stock market today.

 

[38Chevy454]

One thing I have to remind myself is the old rule: The market is not the economy.

It's tough to remove current economic conditions, like debt ceiling and inflation, affecting investment decisions. Sure the market tends to knee jerk reaction to news, but within short time it reverts.

 

[Koolau]

But many of us don’t expect to be around in 30 years. So I keep 25% in fixed income just in case.

Heh, heh, I KNOW I won't be around in 30 years (at least, I sure hope not!) So I'm only about 35% to 40% in equities. Fixed income - easily cashed in - is near 50%.

 

[jazz4cash]

Yeah, gotta admit it, me too. I live a few blocks from these nuts and feel immersed in it. I thought they would give s a scary ride this time and give us shot at easy pickings. I hope I have learned my market timing lesson.

I actually think your instincts were correct and it could’ve easily turned out differently, but just temporarily until a recovery which could be weeks, months, or years. Sitting tight seems to always work if your AA is matched to your risk tolerance. I can’t really ignore these events but I’m comfortable not reacting.

 

[Dean56]

I actually think your instincts were correct and it could’ve easily turned out differently, but just temporarily until a recovery which could be weeks, months, or years.
Sitting tight seems to always work if your AA is matched to your risk tolerance. I can’t really ignore these events but I’m comfortable not reacting.

Well said. That is exactly how I feel. Storms will always pass, you just have to be patient and wait it out.

 

[FREE866]

Honestly, in addition to the media I also see topics/comments here too that spread the fear and/or suggest people should reduce equities…. Kinda like the “golden era for fixed assets” thread - among many others.

My retirement portfolio (100% equities) is up just a little over 20% YTD. I get that some/most people in retirement can’t handle a 100% stock portfolio given the market swings but we have over a century worth of historical data and research that has shown an all stock portfolio has outperformed all other asset allocations over long time horizons (e.g. 30+ years).

I'm following in your footsteps. FIRED at 50. 56 now. All stock.



The volatility is the "price" we pay for outstanding long term returns. I'm not up 20% though this year. I'm in double digits, but exposure to IWM ( small caps) has dragged total return down. You must have leaning towards large cap growth/QQQ, etc
Emerging markets , although a small % for me, havent helped either.

 

[Closet_Gamer]

In 2019, When COVID hit and the market tumbling, and I saw all the people dying across the planet and everything shutting down, I made what I thought was a thoughtful decision to pull cash to the side for my "2022" fund..which was essentially my eldest's college $ (which he would be starting in 2022) .

The reasoning was that we would be in this mess for awhile (and we were!) and we needed the funds in the very near term (we did !)..so lets secure to cash before we cant pay for 4 years of college. Secure the short term college costs. Seemed reasonable. I think its still sound reasoning.

Well, the market decided after about 3 months, it could care less that people were dying or that goods weren't moving and it roared back...leaving me on the sideline.

I eventually moved the $ back in, but lost a substantial recovery gain in the process.

College is still covered, so we weren't materially affected in that way, but i learned my lesson. I'm alot more pessimistic than the market

I think what you did was very smart. I subscribe to the maxim that if you need money in the next three years, that money should not be in the stock market.

My wife and I were also very happy over the last few years that we had our kids college money in a state 529 designed to keep pace with college inflation. Both our kids are currently in college and we are in the peak period of the college account draw down. Having the money invested in a guaranteed value structure took all that stress away. Those numbers on the balance sheet were stable and doing exactly what they were supposed to even as we've endured Mr. Toad's Wild Ride in equities and bonds.

 

[Markola]

Once again, it pays to be a Boglehead and don’t do something, just sit there.

 

[OldShooter]

... I subscribe to the maxim that if you need money in the next three years, that money should not be in the stock market. ...

Me, too. This kind of decision is not about market timing. It is about risk reduction.

In 2012 we decided to build a new lake home. I immediately sold enough from our equity tranche to cover the estimated cost of the house. We're in the third year of outflow now and finishing up using that cash, which has been in ultra-short bond funds. Cash equivalent IMO.

As it turned out, selling early really wasn't necessary. The market action in the subsequent months probably netted out to our average sell price. But the point is that we haven't had to worry about having the cash available.

 

[m3bs]

When the members of congress sell off their personal stock holdings during the next "Debt Crisis" it will be time to bail.

Wouldn't it be nice if they could all play nice and get the budget under control so we don't have another crisis in two years? Fantasy, perhaps, but this game of political brinksmanship is getting old, and risky IMO.

 

[Koolau]

Once again, it pays to be a Boglehead and don’t do something, just sit there.

Hear, hear!

Words to live by. Ignore the market reports and relax in the knowledge that you've put together a balanced, diversified plan that will survive the ups and downs. YMMV as always.

 

[cyber888]

Much ado about nothing. They'll keep raising the debt ceiling, and US debts will be paid and honored.

 

[Montecfo]

Best plan is stop overspending.

 

[MichaelB]

Best plan is stop overspending.

That’s not realistic, no matter how many times it’s repeated. I’m not sure there is an approach that is viable, but the one that’s most effective is to no longer allow foreign central banks to deposit their surplus savings in US asset markets. That would be globally disruptive and probably inflationary for the US, but would lead the US economy to generate the economic growth and surpluses needed to slow the acquisition of new debt and pay down the current debt stock without rising unemployment.

The other thing that would help would be to lower taxes on employment income and increase taxes on capital and investment returns. Right now we have a great surplus of capital yet are still giving capital preferential tax treatment, and that’s just plain dumb.

 

[Koolau]

Much ado about nothing. They'll keep raising the debt ceiling, and US debts will be paid and honored.

Like the saying goes. They'll keep honoring US debt - until they don't. Let's hope that day is a long way off.

 

[Major Tom]

As far as personal investment strategies go, it's an awful lot easier to do nothing than something.

 

[Koolau]

As far as investment strategies go, it's an awful lot easier to do nothing than something.

Like Bachman Turner said: "I love to w*rk at nothing all day." Works for me and my portfolio.

 

[Montecfo]

That’s not realistic, no matter how many times it’s repeated. I’m not sure there is an approach that is viable, but the one that’s most effective is to no longer allow foreign central banks to deposit their surplus savings in US asset markets. That would be globally disruptive and probably inflationary for the US, but would lead the US economy to generate the economic growth and surpluses needed to slow the acquisition of new debt and pay down the current debt stock without rising unemployment.



The other thing that would help would be to lower taxes on employment income and increase taxes on capital and investment returns. Right now we have a great surplus of capital yet are still giving capital preferential tax treatment, and that’s just plain dumb.

To stop overspending may not be realistic, but it is essential.

Spending $1.30 for every $1.00 you take in is not sustainable for any enterprise . But it was sufficient to cause the government to pat itself on the back for cutting the deficit to just $1.4T.

 

[Koolau]

To stop overspending may not be realistic, but it is essential.

Spending $1.30 for every $1.00 you take in is not sustainable for any enterprise . But it was sufficient to cause the government to pat itself on the back for cutting the deficit to just $1.4T.

Heh, heh, and we'll believe it when we see it!

 

[pjigar]

Just wait until they fix Social Security!

Or, dare I say it, Healthcare.

Fun fact: We spend about 33% spending on healthcare (24% medicare+9% other) compared to 27% on SS.
https://www.crfb.org/blogs/81-perce...come-health-care-social-security-and-interest

PS: I miss-quoted the article. The percentages in this blog are for the "growth" in spending. The spending on health care is "only" 25% of total and SS spending is 21% of total.
https://www.cbpp.org/research/federal-budget/where-do-our-federal-tax-dollars-go

 

[Koolau]

Or, dare I say it, Healthcare.

Fun fact: We spend about 33% spending on healthcare (24% medicare+9% other) compared to 27% on SS.
https://www.crfb.org/blogs/81-perce...come-health-care-social-security-and-interest

Doesn't seem to bode well for the budget but YMMV.