Younger folks (less than 45), what are YOU doing?

[HadEnuff]

Disclaimer: it has been 17 years since I was 45.

to the OP, it all depends upon whether or not you believe you can time the market. If you think you've got that figured out, go for it. If you think you don't, if you truly believe you don't know what's going to happen over the next 18 months, and after that, stick to your AA.

On this board, being 45 doesn't necessarily tell the whole story. When I was 45 I figured I had 15 -20 years to pepper crisp singles into the outfield and I did not need to swing for the fences trying to hit home runs by timing the market. However, some 45s on this board are already retired, some are expecting to do so in a much shorter time than I had when I was 45.

If you are looking at a retiring in your 60s, you have more time to recover if your efforts at timing prove counter-productive.

My guess is that if you want to add an element of timing into your long term strategy by adjusting your AA depending upon recent market performance, but you stay within the 40-60 to 60-40, you won't do any real damage over a couple of decades, and you might sneak an extra % or two. Or not.

Just remember, that if you increase your equities % now, based upon a belief that this correction is over, and it isn't over, you'll be a little worse off when it turns around. Crunch those numbers and see if that is catastrophic for you depending upon your total assets and your time line for the Big R

 

[HadEnuff]

A while back when I was playing around with spreadsheets, I wrote a program to analyze investment strategies at random using real market data. I wish I had kept the results because it was fascinating... probably could write a book about it.

What I did was I took the monthly results of the DOW and S&P, imported them into a data file, then gave a program the ability to invest $1500 a month at different rates, and to even "move to cash" based on signals from the market.

Sort of an AI system that just replays strategies and kind of makes them up on the fly to pinpoint which worked best. Here is what I remember of the results:

In general, doing anything, on average, was worse than doing nothing (nothing being just a consistent investment of $1500 every month without deviating). No surprise there, that's what they tell us to do. Some strategies did seem to beat out this model, at least over almost all rolling 30 year periods for the history I had. One was to invest more or less based on how the market did the trailing 18 months (18 months seemed to be a magic zone for this one... 12, 24 and 36 didn't work as well). That is, it would invest less based on how well the market had currently been doing, and held the rest of cash to invest more when the market was doing worse. This seems to defy what most investors actually do... in reality we all like to put money away when the market has been doing well.

I think a strategy where say you pump investing up to $2500 a month when the market has been down 10% in the last 18 months and move the investing down to $500 a month when the market has been up more than 30% in the trailing 18 months actually beat out the consistent $1500 for the long haul.

All other variants that beat the control($1500 a month consistency) seemed to be seasonally specific. That is, you got lucky. But the one described above seemed to actually carry a bit of logic behind it. Invest more when the market is down, invest less when it is high.

What am I doing? I'm just putting away the max consistently and I'm 100% in equities at all times (my nest egg is 33% in each of these three Index funds: S&P500, International All Caps, Small Cap US). I don't plan to change those ratios for about a decade. I'm only 33, and I don't plan to retire till at least 50-55. I will start to move some to cash/bonds when I hit 40.

that part you write about 18 months maybe being the sweet spot reminds me that in "4 Pillars" Bernstein advises against resetting one's AA too often, and that it seems to work better if you wait (I can't remember if he had a set time or not), simply because these market trends tend to last for a while. They don't turn around immediately, so trying to rebalance immediately gets you buying in before the bottom.