For the youngsters who have plenty of time to ride out a drop some of the conventional wisdom may be fine. For those of us who have maybe 15 years to enjoy our investments and have more than enough to last until then and beyond regardless of any inflation with plenty left over to give to those that survive us then why not cash in? We already won so why continue to play the game and take the risk?
Cheers!
I think there is wisdom in this view.
Essentially you're saying, "I'm not timing the market, I'm timing myself and I have an unknown but quite finite expiration date."
On a few fronts I've taken the "declare victory and move on" approach when it was financially sub-optimal but lifewise very healthy. Heck, that's the foundation of ER. You could make more money continuing to work but at some point that's just not the driving force anymore. That point, of course, varies for each of us.
The trick now is to not accidentally become a market timer by trying to move back in when the market drops. Set a new, much more conservative, AA and stick to that now.
Congrats on winning the game!
The counterargument is that the tax cuts are already priced in (+20% in 2017) - so the P/E will come down to more normal levels as earnings roll out, but won't move prices very much.
Anyway, I'm just following my AA.
http://blog.yardeni.com/2017/11/corporate-taxes-facts-vs-fiction.htmlWhich brings me to the subject of the US corporate tax rate, which Republicans are aiming to cut. The widespread view, especially among Republicans, is that the corporate tax rate is too high. They aim to pass a tax reform package before the end of the year that will lower the statutory rate from 35% to 20%. I’m all for tax cuts. However, I’m having a problem with the data:
(1) GDP data. Yesterday’s GDP release for Q3 included corporate pretax and after-tax corporate profits. The data show that corporations paid $472.9 billion in taxes over the past four quarters through Q3. This series has been hovering in record-high territory around $500 billion since Q2-2014.
Dividing this tax series by pretax profits of $2281.4 billion over this same period shows that the effective tax rate has been significantly below the statutory rate since the start of the previous decade. During Q3, it was only 20.7%!
(2) Treasury data. But wait … the plot thickens: Actual corporate tax revenues collected by the IRS have been consistently less than the corporate taxes included in the GDP measure of corporate profits since the start of the former data series in 1972. For example, over the past four quarters through Q3, the Treasury reported collecting $297.0 billion in corporate tax revenues, 37% less than the $472.9 billion shown by the GDP measure, on a comparable basis.
The shocking result is that the effective corporate tax rate based on actual tax collections was only 13.0% during Q3, and has been mostly well below 20.0% since the start of the previous decade.
With any luck, CAPE10 will go all the way to 44 (2000 CAPE high) before we get the next big crash. I should get another AA adjustment next January before then.
We were 33.8 last Friday. We’ve already exceeded every other time except for the dot com mania.
Shiller PE Ratio
I’ve already implemented my CAPE10 sensitive AA, and it has me holding at 50/50 until CAPE10 drops below 25. So I still have plenty of equity exposure, just not as much as I would if the stock market were much lower.
I’ll just keep harvesting gains by taking my higher annual withdrawal (higher due to portfolio run up) and rebalancing every year.
Our approach is simple - hold 3 -5 years of expenses in cash and maintain a 55% equity allocation.
Companies were already paying well under the new rate according to this Yardeni blog - well under 20% since the start of the previous decade.
http://blog.yardeni.com/2017/11/corporate-taxes-facts-vs-fiction.html
So it’s not clear to me that there is going to be a massive increase in profits.
Yet a massive increase in profits had already been factored in by the huge market rally of 1997. The reality will come to light over the next few quarters/couple of years. The usual pattern is buy the rumor, sell the news. Expectations are incredibly high.
Agree. I'm at 5 yrs+ in cash and ST bonds and higher equity allocation.Our approach is simple - hold 3 -5 years of expenses in cash and maintain a 55% equity allocation.
Heard some friends in their 60 & 70s with 80% in equites bragging about their returns last years and just thought to myself, oh my, my.
What was your return last year? What was the return based on the 50/50 split?Perhaps the two investors had already "won the game" and have chosen to take risks that their heirs could benefit from.
As for me, at age 73 I think it's nuts to take such risk so I hover around 50/50 these days. I plan on sleeping well no matter what happens.
What was your return last year? What was the return based on the 50/50 split?
Not being critical, just curious.
Don't think you are being critical. I think my return was about 12% or so after a big chunk of RMD being removed from play.
Thanks for sharing. Easy to sleep with that return. If you don't mind, what's the returns for your equities vs your bond/portfolio? Any concern with impact to bonds with increasing rate environment? Or are your bonds adjustable?Don't think you are being critical. I think my return was about 12% or so after a big chunk of RMD being removed from play.
Thanks for sharing. Easy to sleep with that return. If you don't mind, what's the returns for your equities vs your bond/portfolio? Any concern with impact to bonds with increasing rate environment? Or are your bonds adjustable?
Anyone else considering a stop loss on their ETFs? I've begun thinking it might be a good idea in case of a sudden crash but then found this article. Lots of "circuit breakers" that I wasn't aware of...
https://www.kitces.com/blog/etf-ill...-with-managing-risk-through-stop-loss-orders/
The last ones I ever set fired during the flash-crash. They worked well, locked in sure losses.Yes, but the trick is how to set them to trigger at the right time. That is you want to try and sell as the market is heading down but not on a small bump like we had today - 1/16/2017.
I had a few stop loss trades trigger today which I did not expect.
I'm more pragmatic than fearful or greedy. I'm enjoying the good returns, balanced with understanding when they end what the impact will be on me.
For example, a 10% correction in the markets probably puts us back to Sept-October 2017 levels. A 20% correction probably puts us back to late 2016/early 2017 levels. Still way ahead of the 2008-2009 bottom. The impact to my portfolio, given the AA I have chosen for my level of risk, is not going to drive me to wearing barrels for clothing and working for food. I would still sleep very well.
Just keep in mind that a 50% gain is erased by a 33% decline.