Market Timing when to ditch equities

[audreyh1]

I saw that excerpt earlier. Note the caveat:

When the interest rate is no longer 2 or 3% but 4 or 5%, then the P/E of 25 will no longer be sensible. Stocks will be repriced accordingly.

I don't know if interest rate will rise that high, but it shows why one cannot ignore things going on in the market.

Yep - that too!

 

[Lsbcal]

Yes. Buffett has to run BRK as an everlasting company, not as a retiree's portfolio in the drawdown phase. And that's how he justifies saying that stocks are actually less risky than bonds in the long run. Retirees may not have that much time left to talk about a long run.

He has been making no bones about bonds. He called bonds "reward-free risk" a few years ago. I don't know if he only took that stance after the Great Recession and interest rate dropped super-low, or if he has always said that. He'd rather hold a lot of cash or short-term instruments. I also have the same uneasiness about bonds.

In the 1970's VPW showed that stocks and bonds did about the same for the portfolio (for AA like 50/50 or 60/40). In the 1930's bonds were winners but real rates were higher then now and there was deflation which was good for bonds.

I really don't know how to structure the non-stock part of the portfolio now. So I've got 50/50 in short term bonds and intermediate bonds.

My problem is definitely not like Buffet's as he's an extremely wealthy old guy. Ditto for some of those other luminaries like Bogle, Swedroe, etc. They probably have serious multiples of my net worth. Yet people are always wondering what they are doing with their assets.

Let's face it, we are in the drivers seat and best understand our individual needs.

 

[Dtail]

In the 1970's VPW showed that stocks and bonds did about the same for the portfolio (for AA like 50/50 or 60/40). In the 1930's bonds were winners but real rates were higher then now and there was deflation which was good for bonds.

I really don't know how to structure the non-stock part of the portfolio now. So I've got 50/50 in short term bonds and intermediate bonds.

My problem is definitely not like Buffet's as he's an extremely wealthy old guy. Ditto for some of those other luminaries like Bogle, Swedroe, etc. They probably have serious multiples of my net worth. Yet people are always wondering what they are doing with their assets.

Let's face it, we are in the drivers seat and best understand our individual needs.

also wondering a lot on what should compose the bond portion of my 50/50.
Luckily have 40% in Stable Value @3.45% yield. The rest is in Intermediate Bonds, but thinking of switching a portion to short term bonds to perhaps somewhat counter a rising rate scenario. Munis are out for me, as monies in a T IRA.

 

[Lsbcal]

also wondering a lot on what should compose the bond portion of my 50/50.
Luckily have 40% in Stable Value @3.45% yield. The rest is in Intermediate Bonds, but thinking of switching a portion to short term bonds to perhaps somewhat counter a rising rate scenario. Munis are out for me, as monies in a T IRA.

I don't want to go too far off topic here. What helps is to look at rolling returns for various periods. Some of the rate rise has already taken place hence the intermediate bond 1 year returns are not as robust as in the past.

I could go into more detail on this and show some nice M* charts but just will mention this here. One should look at rolling return comparisons for short and intermediate bonds. Gives a nice perspective. Of course, for intermediate a rolling return period of 5 years is probably best.

We only know that the rates have risen quite a bit in recent months. This is unlikely to go on for several years as 3 Fed hikes a year will get us to reasonable rates in a few years. So after the pain comes the gain in bonds. In other words, like some more relaxed souls on this site have said one should stick to their choices and be patient.

 

[DrRoy]

"The purpose of economic forecasting is to make astrology look good."

I am sure that will be the chuckle of the day.

 

[Free bird]

The big "if" in the Buffet quote says it all.

 

[1-31-18]

I like the article. It shows how the inverted yield curve usually preceded a recession. This is not original with this article.

I recall in 2007 people talked about it, but some people dismissed it. I will not be dismissing it the next time it happens.

+1

If you read Big ERN’s entire series (I have), you will see that he is far from a market timer during the accumulation stage. Invest early and stay invested, he advises. But it’s different when you enter the red zone of retirement. Very painful to absorb a body blow then. Sequence risk. Hence the attention to leading indicators, especially inversion of the yield curve (which explains so much market history).