Fear and Greed !

[mtheulen]

Has to get by the Vikings first.

You called that one!

 

[Closet_Gamer]

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!

 

[HadEnuff]

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!

Great post!
It's tempting to wish that you had a larger equities holding in your AA, after a long Bull run, but one problem with having your equities AA higher than your comfort zone is knowing when to sell, much the same way as pulling completely out leaves you with the question "when to get back in".

 

[audreyh1]

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.

Companies were already paying well under the new rate according to this Yardeni blog - well under 20% since the start of the previous decade.

Which 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.

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.

 

[audreyh1]

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.
http://www.multpl.com/shiller-pe/

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.

 

[Lcountz]

Dow futures trade today until 1PM.

They are at 167 right now ( 1-15-18).

Will we cross 26000 TOMORROW Hit 25000 on 1-4-18.

Whew. This is gonna hurt SOOOOOOO BAAAAD when we hit that wall!!!!!

 

[njhowie]

Buy on fear, sell on greed - we are definitely into the greed phase.

Folks in/near retirement need to have a reset in their thinking, because when the music stops playing, those boasting of 70% or more in equities will likely be very sorry.

Many folks, as a result of interest rates being forced down to zero, gradually found their way into equities...they needed to generate income, and if fixed income securities wouldn't do it, then solid dividend paying stocks were an alternative. Now that interest rates are back on the rise, it's time for these folks to remind themselves of their situation, their investment objective and their risk profile. It's time to begin migrating back to fixed income.

The difficulty most of these folks will encounter, and I see it in many comments on this thread and others, is that having been the beneficiaries of moving to equities in receiving the dividends as well as capital appreciation, most will not be able to begin purchasing 5-year CDs yielding 3%. That is unacceptable for most, now that they've had a taste of what equities could do. What has been lost, are the memories of ten years ago - Wall Street depends upon it.

All the while, the happy talk will continue from the market prognosticators, the gurus will tell the masses how everything is wonderful, interest rates are still low, the tax plan will continue to support earnings growth, and so on. Main Street folks, convinced that they will know when to get out or reduce their exposure will continue plowing in to equities.

Ten years ago, a large swath of folks at/near retirement had their plans totally obliterated. Don't be greedy and potentially allow it to happen to you.

 

[Lsbcal]

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.

Maybe we should start a 50/50 club?

 

[Spanky]

Our approach is simple - hold 3 -5 years of expenses in cash and maintain a 55% equity allocation.

 

[Chuckanut]

Our approach is simple - hold 3 -5 years of expenses in cash and maintain a 55% equity allocation.

That makes sense to me.

Just curious.... What % of your total financial assets is that 3-5 years of cash? I ask because I have been thinking of a 60/20/20 allocation with the idea of having about 5 years of withdrawals in cash just in case the market heads down, Down and DOWN.

Having seen the disaster of 1974, I know how quickly the Bear can take a huge hunk out of one's assets. A few swipes of those massive paws and one is done-for, finished, kaput for a very long time. As far as is practical, I want to be able to keep the BEAR from ruining my retirement.

 

[Montecfo]

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.

It is a company by company thing. Domestic companies enjoy the greatest benefit, and those are rallying the most. It is a mixed bag for multinationals, lower rate repatriation but less help on the overall effective rate.

Overall I have heard it is plus 7-8% for S&P. So meaningful.

The big benefit is to make US rates more competitive worldwide, and reduce incentive to re-incorporate overseas.

 

[Montecfo]

Our approach is simple - hold 3 -5 years of expenses in cash and maintain a 55% equity allocation.

Agree. I'm at 5 yrs+ in cash and ST bonds and higher equity allocation.

But the key is not to panic and sell equities on a selloff.

 

[ArkTinkerer]

Anyone considering stop loss on their ETF funds?

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/

 

[mickeyd]

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.

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.

 

[bobandsherry]

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.

 

[mickeyd]

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.

 

[jollystomper]

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.

 

[VanWinkle]

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.

Mine was in the same ballpark 12-13% with a 50/50 allocation. I sleep good at night too!

 

[bobandsherry]

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?

 

[mickeyd]

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?

I do not know the answer to your inquiry. I no longer follow all of the numbers any more. I am pretty sure that I have "won the game "as Dr. Bernstein has described it.

Bonds are nothing but a diversifier to me. If rates go up, my PMMF will also go up and bond income will reinvest in bonds with current rates. Duration matters.

If the S&P500 is up 22%, I figure that about 11% of that is mine. I know that that may be simplistic, but it's pretty accurate for my needs.

 

[KenZ71]

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/

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.

 

[MRG]

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.

The last ones I ever set fired during the flash-crash. They worked well, locked in sure losses.

 

[enginerd]

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.

I think this quote sums up where my mood is at. Just keep in mind that a 50% gain is erased by a 33% decline.

 

[REWahoo]

Just keep in mind that a 50% gain is erased by a 33% decline.

^ See this? This is a textbook example of why numbers is so dang hard!

 

[skipro33]

I'm never going to try and time the market... again. I got my rear handed to me in '08-'09 when I chose to cut my losses and pull out of equities. Other than a few minor allocation adjustments for age and other controllable variables, such as when to take SS, I'll let Fidelity continue to interview me and help me determine my exposure to risk. In the meantime, I've sat back and observed and one thing I've noticed that gives me a little sigh of relief is the cost of energy. As long as oil and other energy sources remain relatively low, I figure business has a pretty good buffer for their profit margin. When the cost to produce goods and deliver them goes up with the price of energy, I will expect a correction because of the tap to their overhead.

So, if the market tanks, I'll take my SS. If they stay fat, I'll keep paying myself.