A new catch phrase -- "The Great Rotation"

[Lsbcal]

I guess this is going to be seen for awhile. Here is one article: Great Rotation Seen Muted by Pension-Fund Demand: Credit Markets - Bloomberg

Some interesting tidbits:

A shift by household investors from bonds into equities that Bank of America Corp. dubbed the great rotation is being muted as pension funds and insurers boost fixed-income assets to match future obligations.

“If there were this rotation from individuals from bonds into stocks and it created higher yields and stronger stock performance, it would quickly find a match on the other side of the trade from the institutional pension community,” money manager Jeffrey Gundlach

I'm not so sure about this idea if bond real returns are muted for a few years:

“I find it difficult to believe that an aging investor population is going to be ratcheting up their holdings in riskier assets,” said Gundlach, chief executive officer of Los Angeles-based DoubleLine Capital LP.

“There’s a very large portion of the bond market who can’t rotate” out of bonds and into stocks because of their investment guidelines, said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. Some individual investors “have moved out of fixed income and into equities. It has an impact but not enough to move the market by percentage points.”

I'm not planning on buying more equity but that's because I always try to go with my max equity allocation. No dry powder here. If anything I'll be selling equities as risk becomes personally less necessary to support our future spending.

Anyone going to be increasing equities? Regrets?

 

[Free To Canoe]

Nah. I am looking to decrease equities.

 

[NW-Bound]

I am not looking to increase either equities or bonds. Hence, sitting on a pile of stinkin' practically no-yield cash (28% of portfolio).

It is really tempting to put some in high-yield corporate bond ETFs with duration of about 5 years. They pay a bit more than 5.4% now. Is that too good to be true, meaning the risks outweigh that high yield?

 

[haha]

I guess this is going to be seen for awhile. Here is one article: Great Rotation Seen Muted by Pension-Fund Demand: Credit Markets - Bloomberg

Some interesting tidbits:
I'm not so sure about this idea if bond real returns are muted for a few years:
I'm not planning on buying more equity but that's because I always try to go with my max equity allocation. No dry powder here. If anything I'll be selling equities as risk becomes personally less necessary to support our future spending.

Anyone going to be increasing equities? Regrets?

Interesting article, thanks for posting it. I agree with Jeffrey. First of all, pension funds while they do benefit from unusually good performance, I think the people wanting to hold their jobs mainly do not want to miss what they need to do to meet their commitments. And like he says, people are getting older, and especially people with money are getting older. Old folks do not like risk.

Ha

 

[jebmke]

I thought this thread was going to be about tires.

 

[Lsbcal]

Interesting article, thanks for posting it. I agree with Jeffrey. First of all, pension funds while they do benefit from unusually good performance, I think the people wanting to hold their jobs mainly do not want to miss what they need to do to meet their commitments. And like he says, people are getting older, and especially people with money are getting older. Old folks do not like risk.

Ha

One thing the article did not mention is that some pension funds have probably regretted those "alternative investment" asset classes of recent years. I'm wondering if some of that will switch to equities.

Yes I guess old folks do not like risk, but will some be lured in by the likely low bond real returns? After all, 5 yr TIPS are now -0.67% and 10 yr TIPS are only 0.51%. Maybe a lot of older people are more patient then I am. I respect patience as long as one can maintain it in the face of adversity (possible decreasing spending levels).

 

[Apex1]

Anyone going to be increasing equities? Regrets?

I increased my equities to 90% 3 months ago. My only regret was not doing it even sooner as I became a bit "chicken" experiencing the 2008 crash. Although I was fully invested but never sold any equities through the crash, I did gradually ramp up new allocations up to 30% corporate bonds by 2012. Now, I'm back to my old aggressive self and plan on 90% equities at least until I am ER. In fact, being 39, a current 3.7% WR (after subtracting money earmarked for kids private school/ university) and almost all investments in taxable accounts..... I am debating whether or not to stay aggressive in equities throughout RE. Of course, I would only do that if I can get in a more conservative 2-2.5% WR range before age of 45. It would be a far bumpier ride thats for sure but I'd like to think I could handle it.....we'll see

 

[Lsbcal]

Hi Apex1, if your plan would survive the 1929 crash and years after then you have my blessing. I'd run the general numbers through FIRECalc for any high risk set of choices. That assumes you can boil it down to the asset classes FIRECalc allows us i.e. no international equities, limited bond choices, etc.

 

[Apex1]

Hi Apex1, if your plan would survive the 1929 crash and years after then you have my blessing. I'd run the general numbers through FIRECalc for any high risk set of choices. That assumes you can boil it down to the asset classes FIRECalc allows us i.e. no international equities, limited bond choices, etc.

Thanks Lsbcal. Yes, I would only do it if I could survive the 1929 crash..... I may delay ER a few years in order to not give up any free lunches, not sure if that is consistent with the ER philosophy here

 

[W2R]

I will be maintaining the same AA as always. My 45:55 (equities:fixed) AA got me through the market crash of 2008-2009 with minimal angst. The level of yield that I am getting now that the market is thriving, is fine with me, especially since I am 65 years old already (where does time go?) and don't care to take on any more risk.

If/when I reach the age of 80 or 85 , I plan to do a major re-vamp of my financial plan in preparation for my final years and the dependency that can result from the ravages of advanced age. At that time, I will probably buy a small fixed lifetime annuity to supplement my SS income, and over a few years at about that age I plan to cut my percentage of equities approximately in half. If my yield is ridiculously low, well so be it. I will live on what I have rather than take on much risk.

Until I reach such an exalted age, I do not plan to tinker with my AA at all.

 

[haha]

I increased my equities to 90% 3 months ago. My only regret was not doing it even sooner as I became a bit "chicken" experiencing the 2008 crash. Although I was fully invested but never sold any equities through the crash, I did gradually ramp up new allocations up to 30% corporate bonds by 2012. Now, I'm back to my old aggressive self and plan on 90% equities at least until I am ER. In fact, being 39, a current 3.7% WR (after subtracting money earmarked for kids private school/ university) and almost all investments in taxable accounts..... I am debating whether or not to stay aggressive in equities throughout RE. Of course, I would only do that if I can get in a more conservative 2-2.5% WR range before age of 45. It would be a far bumpier ride thats for sure but I'd like to think I could handle it.....we'll see

It feels way different when you are getting that bi-weekly paycheck. There is really no comparison with pension-less retirement. Also, there is no comparison of 39 with 59 or 69. Whole different world, at least for sane people.

Ha

 

[Lsbcal]

I will be maintaining the same AA as always. My 45:55 (equities:fixed) AA got me through the market crash of 2008-2009 with minimal angst. The level of yield that I am getting now that the market is thriving, is fine with me, especially since I am 65 years old already (where does time go?) and don't care to take on any more risk.

If/when I reach the age of 80 or 85 , I plan to do a major re-vamp of my financial plan in preparation for my final years ...

W2R, you are a rock of sanity in a turbulent sea of market blather. I admire your "stick to your knitting" planning.

Many of us guys cannot avoid a bit (or a lot? or a whole lot?) of tinkering. I'm inching towards your way of thinking ... slowly.

 

[NW-Bound]

If and when I get to 80 or 85, if my stash still holds up, I could go for 10%WR and still likely leave money behind. Call me pessimistic about my longevity, but that's the way I am.

Problem is if the stash stays constant at this level, I would not know what to do with 10%WR. Being frugal, I find it difficult to spend 10%WR now, let alone at 80-85.

So, I most likely keep AA constant until I croak. My wife most likely will outlive me, and I would advise her to keep the AA the same too. If it works so well until that point, why change? My children and grandchildren can enjoy the money when we are both gone.

 

[racy]

I'm putting enough in short term bonds & cash to cover necessary expenses over & above Social Security for 35 years. The balance is invested 60% equities & 40% short term bonds for inflation protection, luxuries & legacy.

 

[ETFs_Rule]

"The Great Rotation"

This is dumb investor mentality. They got out in 2009 after the stock market crashed. Then they see the stock market has been going up for 5 years, they feel like it's "safe" and so they buy high.

Sure everyone isn't getting out of bonds and into stocks, but more and more are. There has been a net exiting of bond funds for the last 5 months. The writing is one the wall. People are getting the memo that bonds are at risk of rising interest rates.

 

[Lsbcal]

This is dumb investor mentality. They got out in 2009 after the stock market crashed. Then they see the stock market has been going up for 5 years, they feel like it's "safe" and so they buy high.
...

If you will permit me a significant quibble, people buying now are "buying higher" for sure then recent past years. But that is a simple fact. We don't know if they would be truly buying high until after the fact.

All the arguments for where the market is (high or low) are based on pretty flimsy foundations. It's fun to talk about though and I indulge in this guilty pleasure.

There have been periods of extended market new highs lasting many years. Bottom line, no one knows. Not very satisfying.

 

[ETFs_Rule]

If you will permit me a significant quibble, people buying now are "buying higher" for sure then recent past years. But that is a simple fact. We don't know if they would be truly buying high until after the fact.

All the arguments for where the market is (high or low) are based on pretty flimsy foundations. It's fun to talk about though and I indulge in this guilty pleasure.

There have been periods of extended market new highs lasting many years. Bottom line, no one knows. Not very satisfying.

True. But anyone who got out in 2009 and is only recently getting back in is doing it all wrong. But of course better late than never. There might be decent gains ahead. I think the DOW will be up to 19,000 in 3 years.

 

[haha]

This is dumb investor mentality. They got out in 2009 after the stock market crashed. Then they see the stock market has been going up for 5 years, they feel like it's "safe" and so they buy high.

Sure everyone isn't getting out of bonds and into stocks, but more and more are. There has been a net exiting of bond funds for the last 5 months. The writing is one the wall. People are getting the memo that bonds are at risk of rising interest rates.

But they missed the memo that so are stocks?

 

[HFWR]

I think the S & P will be up to 19,000 in 3 years.

That should be good for a "Whee!"...

 

[ETFs_Rule]

That should be good for a "Whee!"...

Correction: The DOW

 

[growing_older]

I'm selling equities, pretty much like I always do.I try to keep to my asset allocation but whenever I've neglected looking at it for a while, the equities have always crept too high, so I have to sell some. Maybe I never look when they are down.

 

[NW-Bound]

Correction: The DOW

The Dow going from 15,800 today to 19,000 in 3 years is still 6.3% annualized, and that does not even include dividends of 2.21% (currently)

Don't know if that deserves a "Wh***" or not, but I can manage to live on it with a WR of 3.5% if the inflation is not too bad.