Good time to be in cash

[Gone4Good]

Quote:

Originally Posted by TromboneAl People talk as if interest rate changes are easier to predict than stock market changes.* I'm not so sure anymore.

They're not any easier to predict because they are set by liquid, forward looking markets, just like stocks. If you could easily predict interest rates then you could predict bond prices. If that were the case you'd have your very own perpetual money machine. Markets don't work like that, unfortunately.

[wabmester]

Quote:

Originally Posted by TromboneAl People talk as if interest rate changes are easier to predict than stock market changes.* I'm not so sure anymore.

Some economists believe that the yield curve has predictive powers. The stock market takes all information about a stock and incorporates that into a single price. But the bond market gives you a different yield for short-, mid-, and long-term maturities. Sort of a built-in futures market. The yield curve supposedly gives pretty good predictions of future interest rate changes, future inflation, and future economic growth.

[Gearhead Jim]

Right now we have a pretty flat yield curve, which seldom lasts.* But it can un-flatten either by short-medium term rates dropping or by long term rates rising.* The latter seems more likely.* Or perhaps a little of both.

No one really knows...

I'm not sure who this quote is from:

"There are two kinds of people as far as predicting interest rates.

1.) Those who admit they cannot predict interest rates.

2.) Those that don't know that they cannot predict interest rates."

[wabmester]

Regardless of the shape of the yield curve, in theory long-term rates should be a reflection of expected short-term rates over the longer term.* *This is known as the "expectations hypothesis."* *A rational market would give you a long-term yield that is equivalent to the expected series of short-term yields over that term + a risk premium.

Historical data shows that the expectations hypothesis doesn't hold very well.* *There are several theories for why this is so.* For example, it may be that the risk premium changes with time, or more likely that the bond market over-reacts to short-term changes.* *In any case, the yield curve is the best guess of future interest rates that you're going to find.

[retire@40]

It's also interesting how everyone is starting to focus on which BANKS they can get the highest interest rates.

Very few are talking about getting higher returns in the stock market over the long-term.

In fact, I don't think I've heard anyone say they are buying equity funds because they have performed so well in the past 5, 4, 3, 2, or 1 years.

The stock market has become boring for the past 5 years.* A boring market could be more profitable in the long-term than chasing banks with the highest short-term rates.

[renferme]

I'm certainly no expert; there are some on this board though.
But, I have no confidence in the stock market. After the tremendous 90's,
the market has been terrible for the past 6 years. When the bear market hit in 2000, my opinion was that after all the boom years, there was going to be many years of bad times or at least many years of the market going sideways.
Look what's happened since 2000:
Year 2000 : big time down
Year 2001 : big time down
Year 2002 : big time down
Year 2003 : up very nicely
Year 2004 : up a little
Year 2005 : sideways.
Overall 2000 to 2005: DOWN !
Year 2000 Nasdaq hit 5000; Nasdaq today: struggling to stay at 2100.
I'll continue to stay in the market, but only at about 25 to 28 percent, and only invest in dividend stocks.
That's my 2 cents worth; not quite as pessimistic as John Galt, but kind of close!
I still look to pay off the mortgage in about 3 years when SS kicks in and my mortgage balance comes down some more. Don't believe that I can earn much more than the 5.25% mortgage that I have now.

[Gone4Good]

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Originally Posted by retire@40 The stock market has become boring for the past 5 years.* A boring market could be more profitable in the long-term than chasing banks with the highest short-term rates.

Agreed. *I hope the stock market stays boring for the next 5 years and then gets very exiting just after I quit working full time. *

Quote:

Originally Posted by retire@40 It's also interesting how everyone is starting to focus on which BANKS they can get the highest interest rates. Very few are talking about getting higher returns in the stock market over the long-term. In fact, I don't think I've heard anyone say they are buying equity funds because they have performed so well in the past 5, 4, 3, 2, or 1 years ago. The stock market has become boring for the past 5 years.* A boring market could be more profitable in the long-term than chasing banks with the highest short-term rates.

I have a 55/45 stock/fixed portfoilo. Of the fixed portion, some is cash. The cash is always looking for higher yield. Hence the discussion.

I maintain my 55% stock position, and rebalance yearly. I don't need to put any new money in the market, and if I did it would be after re-balancing. I know, I cannot time the market so I don't worry about Market drops or rises.

I can time Cash however. Move it from one institution to the other. Again, hence the discussion!

[Gone4Good]

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Originally Posted by bennevis I'm certainly no expert; there are some on this board though. But, I have no confidence in the stock market.* * After the tremendous 90's, the market has been terrible for the past 6 years.* *When the bear market hit in 2000,* *my opinion was that after all the boom years, there was going to be many years of bad times or at least many years of the market going sideways. Look what's happened since 2000: Year 2000 :* big time down Year 2001 :* big time down Year 2002 :* big time down Year 2003 :* up very nicely Year 2004 :* up a little Year 2005 :* sideways. Overall 2000 to 2005:* DOWN ! Year 2000 Nasdaq hit 5000;* *Nasdaq today:* struggling to stay at 2100. I'll continue to stay in the market, but only at about 25 to 28 percent, and only invest in dividend stocks. That's my 2 cents worth;* not quite as pessimistic as John Galt, but kind of close! I still look to pay off the mortgage in about 3 years when SS kicks in and my mortgage balance comes down some more.* * Don't believe that I can earn much more than the 5.25% mortgage that I have now.

Would you feel better investing in equities today if stocks had posted double digit returns over the past five years? I wouldn't.

I like the idea that the economy is humming along, companies are growing, and all the while I'm paying less for stocks then I did in 2000.

[Craig]

Quote:

Agreed. I hope the stock market stays boring for the next 5 years and then gets very exiting just after I quit working full time.

That's what concerns us a little ... that exiting part.

Just ribbing you, Yrs to Go

[Gone4Good]

Quote:

Originally Posted by Charles That's what concerns us a little ... that exiting part.* Just ribbing you, Yrs to Go

Mangled Chinese proverb: "may you invest in exiting times"

[SteveR]

I was cleaning out some files last night and ran across a 401K statement from 1997. It is hard to believe that it has gone up over 300% from then to now and that is counting a 30% hit in company stock in 2000. I sure gave me pause and made be happy I jumped into diversification and maxed out my contributions over these past years. I also found one from 1988 and it was essential zero back then. Thanks to my first wife. :

I am floating some CDs waiting for another jump in the medium and short range rates to go up a bit. This is my emergency fund and is also my first year of ER income so I am not risking it much; just rolling a 3 month jumbo and a couple of other 6 month CDs....a mini ladder of sorts. We don't touch this for anything. We use our MM account for cash that we think we will need in 3-4 months and the rest goes into another CD. I am looking at Ibonds as a longer term approach but I have not convinced myself that this is what I really want to do yet.

[brewer12345]

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Originally Posted by SteveR I was cleaning out some files last night and ran across a 401K statement from 1997.* It is hard to believe that it has gone up over 300% from then to now and that is counting a 30% hit in company stock in 2000.* I sure gave me pause and made be happy I jumped into diversification and maxed out my contributions over these past years.* I also found one from 1988 and it was essential zero back then. Thanks to my first wife.* :

I have come to realize the same thing. It is interesting to see that the positions I have maintained the longest have the highest % of total unrealized gain. That tells me that despite going through a pretty ugly bear market, I'm not doing too badly. FWIW, I only started investing in 1999.

[renferme]

Quote:

Originally Posted by . . . Yrs to Go Would you feel better investing in equities today if stocks had posted double digit returns over the past five years? I wouldn't. I like the idea that the economy is humming along, companies are growing, and all the while I'm paying less for stocks then I did in 2000.

.

I would definitely feel better if stocks had posted double digit gains the past 5 years. Why? Because I'm in retirement now and not in the aquirement of wealth phase. Right now, I want my investments to grow as I make withdrawals during retirement !
.

[retire@40]

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Originally Posted by bennevis I would definitely feel better if stocks had posted double digit gains the past 5 years.* *Why?* *Because I'm in retirement now and not in the aquirement of wealth phase.* * Right now, I want my investments to grow as I make withdrawals during retirement !

You have it backwards.

You want double digit gains in each of the 5 years AFTER retirement. You don't want huge gains as you are acquiring. In fact, you may want losses in those years. That's what has actually made the past 5 years of sideways action in the market so nice for those who are still in the accumulation phase.

[SteveR]

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Originally Posted by retire@40 You have it backwards.* You want double digit gains in each of the 5 years AFTER retirement.* You don't want huge gains as you are acquiring.* In fact, you may want losses in those years.* That's what has actually made the past 5 years of sideways action in the market so nice for those who are still in the accumulation phase.

Buy low....sell high....Works everytime.

[Gone4Good]

Quote:

Originally Posted by bennevis . I would definitely feel better if stocks had posted double digit gains the past 5 years.* *Why?* *Because I'm in retirement now and not in the aquirement of wealth phase.* * Right now, I want my investments to grow as I make withdrawals during retirement ! .

That is an important caveat. You are absolutely right.

[yakers]

Theres that old timing thing again, which we're not supposed to do. I don't mind working in a down market for capital accumulation and I would like to retire into a rising market. Just need to know when that is so I can pull the plug at the right time.