Investing in this market

[Freedom56]

It is amazing to me that GME is only down 50% from its 52 week highs. Crypotos are down 65-100% depending on which. A lot of the casino stocks are down 80-95%, though, but I agree more pain is likely in the works. I'm still contributing max amount to 401k every week but have yet to start adding some beyond that. Another 15-20% drop and I will.

I don't buy equities but since I buy corporate debt, I look at corporate balance sheets as reported in the 10-Q, their income, free cash flow, and interest rate coverage. I also avoid sectors that are known for defaults such as energy, retail, airlines, and industrials and just focus on the top 500 corporations in technology, telecom, financials, pharma, and healthcare. This is far more than what an average fund manger does and I know many of them. It won't end well for those who bought meme stocks and the crypto scam. People are free to choose how they want to invest. For me it's all about generating income and preserving capital. I also time my purchases and build up substantial cash reserves from coupon payments and maturities for moments like these instead of being 100% invested.

 

[baseman250]

Hi Freedom56, I'm guessing corporate "notes" aren't available through Vanguard? I can buy corporate bonds, but I don't see the ability to bid, unless this is something I'd need to place a call to do.

I'm buying short term corporate notes. I did the same in March 2020 and made a lot of money. Many of the notes that I bought then have matured and the cash was sitting in a money market savings account. I just initiated another large transfer of cash to my brokerage account. You have to take the emotion out of investing and buy when fund managers are in a forced selling mode. I'm putting in low ball limit orders on short term notes maturing in 2023 and 2024 at bids prices yielding 8% waiting for funds to sell as they are forced to. If they fill great, if they don't tomorrow is another day. This time the Fed is helping this type of trade.

 

[jollystomper]

To the OP, just to relate my experience, take it or leave it . In 2008 I was 50, watching the market go into the great recession. I had not yet made any solid retirement plans as I had a job I liked and a good salary. There was a risk of a Megacorp layoff, especially as I would be eligible for retirement benefits in 2009, and more than a few co-workers were laid off less than a year before their retirement eligibility and missing those benefits. We just gritted our keep and kept DCA-ing through 2008 and 2009. In April 2009 I received a much larger than expected bonus, we decided why not just put into our Vanguard S&P 500 fund. All of this was money for "some time in the future". Past performance does not indicate future results, but I am so glad - though it felt tough at the time - that we did not change anything. When I retired in 2018 our behavior in 2008 made a big difference - and is also why the current downturn, while not happy about it, is not fazing us.

 

[Magus]

I don't buy equities but since I buy corporate debt, I look at corporate balance sheets as reported in the 10-Q, their income, free cash flow, and interest rate coverage. I also avoid sectors that are known for defaults such as energy, retail, airlines, and industrials and just focus on the top 500 corporations in technology, telecom, financials, pharma, and healthcare. This is far more than what an average fund manger does and I know many of them. It won't end well for those who bought meme stocks and the crypto scam. People are free to choose how they want to invest. For me it's all about generating income and preserving capital. I also time my purchases and build up substantial cash reserves from coupon payments and maturities for moments like these instead of being 100% invested.

Seems like a fairly good strategy, although when spreads on some of the other sectors get wide enough I think I makes sense buy the leaders in the other sector's bonds as well.

Bond fund managers are usually pretty thoughtful. My company I joined last Nov doesn't have any bonds, just Term Loan A debt, but my last company we had over $2B in bonds so I talked to them quite a bit, especially in March 2020-Dec 2020!

 

[Koolau]

To the OP, just to relate my experience, take it or leave it . In 2008 I was 50, watching the market go into the great recession. I had not yet made any solid retirement plans as I had a job I liked and a good salary. There was a risk of a Megacorp layoff, especially as I would be eligible for retirement benefits in 2009, and more than a few co-workers were laid off less than a year before their retirement eligibility and missing those benefits. We just gritted our keep and kept DCA-ing through 2008 and 2009. In April 2009 I received a much larger than expected bonus, we decided why not just put into our Vanguard S&P 500 fund. All of this was money for "some time in the future". Past performance does not indicate future results, but I am so glad - though it felt tough at the time - that we did not change anything. When I retired in 2018 our behavior in 2008 made a big difference - and is also why the current downturn, while not happy about it, is not fazing us.

I would say it's almost never bad to save - especially a "wind fall." I too can look back on decisions in my life that could have gone either way. For the most part, I took the conservative financial approach and I've never regretted it.

 

[TheWizard]

I'm in my tenth year of retirement and don't have a big cash lump to deal with but I do have a few thousand dollars of excess income most months that I toss into my taxable settlement fund after all bills are paid.

I've been targeting a 95% stock fund allocation in that account but a couple of low-ball limit orders executed on Monday so I'm 98% stock funds presently.

This is great fun. I never had a taxable account back in my working days since tax-deferred and Roth contributions were all I could do...

 

[daylatedollarshort]

I'm going to start buying more TIPS. If the real yields hit 3%, that is a 5% safe withdrawal rate over 30 years. Once rates peak, and there is a likely recession, then there will be deflation fears and TIPS real yields will go up because they aren't a good deflation hedge. But 5% is still pretty good for our plan. I will start to DCA stocks if the market drops 40% or more.

 

[Freedom56]

Hi Freedom56, I'm guessing corporate "notes" aren't available through Vanguard? I can buy corporate bonds, but I don't see the ability to bid, unless this is something I'd need to place a call to do.

I don't have an account at Vanguard and never plan to open one. You can buy bonds and notes at Fidelity, TD Ameritrade, or Schwab. Fidelity allows you to enter limit orders online. The other firms want you to call their bond desk to place limit orders.

 

[corn18]

I'm going to start buying more TIPS. If the real yields hit 3%, that is a 5% safe withdrawal rate over 30 years. Once rates peak, and there is a likely recession, then there will be deflation fears and TIPS real yields will go up because they aren't a good deflation hedge. But 5% is still pretty good for our plan. I will start to DCA stocks if the market drops 40% or more.

My model assumes 2.73% real return for the next 40 years. That's for a 60/40 portfolio. I use that because that is the worst 30 year average real return in history for a 60/40 portfolio.

If I could get 5% real with TIPS, I would put a large chunk of my savings into that and build my own annuity.

Any good reading for how to buy TIPS?

 

[madatrub]

I don't have an account at Vanguard and never plan to open one. You can buy bonds and notes at Fidelity, TD Ameritrade, or Schwab. Fidelity allows you to enter limit orders online. The other firms want you to call their bond desk to place limit orders.

Can you give a Fidelity CUSIP as an example of what you are looking at?

 

[daylatedollarshort]

My model assumes 2.73% real return for the next 40 years. That's for a 60/40 portfolio. I use that because that is the worst 30 year average real return in history for a 60/40 portfolio.

If I could get 5% real with TIPS, I would put a large chunk of my savings into that and build my own annuity.

Any good reading for how to buy TIPS?

It is actually a 3% real yield gives a 5% SWR, 1.3% real = 4% SWR and 0% real yield = 3.33%. This is for individual bonds only, not funds. Current real yields are here: United States Rates & Bonds - Bloomberg, .45% to .83% today and on an upward trend all this year.

You can buy TIPS at Fidelity within a brokerage or retirement account. You just go to the trade fixed income screen. The simplest way is to wait for the auctions. The schedule is on the Treasury Direct site, or you can sign up for the Fidelity newsletter on bond offerings and the TIPS auctions are included.

I'll probably do some nominal bonds, too, as those are a better deflation hedge. And stocks if the prices get low enough. But for the money we need for retirement expenses, that is all covered by SS, pensions and a TIPS ladder.

 

[Phroig]

OK, I'll say it, I'd put it in the market now. You're getting a 20% discount from where it was.

Psychologically I'd have more regret tricking it in and missing out on a recovery (if it happens) than seeing it drop more after investing, mostly because on average, being in the market comes out better than market timing or DCAing.

If you don't feel that way, then DCA in. It's your money.

+1. Markets will probably go lower, but prices are finally looking attractive, especially for someone with your horizon. If you prefer to DCA, I'd do it in big chunks over the next six months or so.

 

[Freedom56]

Can you give a Fidelity CUSIP as an example of what you are looking at?

My order for this one was filled on Monday at a YTM just below 7%.

Seagate Technology June 2023 4.75% Notes

CUSIP 81180WAH4

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C614829&symbol=STX4152326

Here is the trace data for the note that illustrates why you should use limit orders for bond buys even more so than stock buys. It makes all the difference in the world. Today some were buying at a yield of 3.6% and some at 6.2% This note has about 11.5 months of duration left and is a much better alternative to a one year CD or treasury note.

https://finra-markets.morningstar.c...14829&startdate=06/16/2021&enddate=06/16/2022

I'm also looking at these two notes from Dell/EMC. The mature in 2025 and 2026. They are secure notes (i.e. backed by assets).

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C981030&symbol=DELL5210653

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?t
icker=C981031&symbol=DELL5208605

Dell made a recent tender (December 2021) for the 2026 note at about 11% over par. That offer has expired. I would buy either of the two notes below par. The market for cloud storage continues to grow.

 

[purplesky]

I am wondering what people are doing right now if they have spare cash to invest. If I was 10 years younger I'd maybe be less hesitant -I'm 47 and would like to retire at 60. Due to some aggressive savings over the last few years and an inheritance I have about $275 k to invest. Ideally, I'd average that out and take advantage of dollar-cost averaging over a longer period but given my time horizon I'm not sure how to strategize (also complicating this is inflation and the current market). Additionally, I am likely going to sell an investment property in the next while which will put another sizable bit of cash in hand (not sure how much we'll get but my guess is about 150k after all expenses/ taxes).

We are in okay shape as we head for retirement. We have no mortgage, we have a few rental properties which will be paid off in the next few years (income generating with expenses more than paid for by tenants so no need to pay those down), maxed out RRSPs, TSFAs (with some room - which creates a tax-free investment for some of the cash mentioned above). I can get a moderate pension at 60 from work. What I'm hoping to do with this additional money is to create additional wealth for a more comfortable retirement. Likely we could wait to draw down on most of this until 65 if we needed to.

In any case, I know that no one can time the market or know what is going to happen but curious about how others are investing in these times and what others might do if you had cash sitting idle ready to invest.

Thats not spare cash. That is serious money. 275k plus maybe 150k? Dang!

Put that money to work now in VTI or VTSAX or other Total stock market options.

Just buy the whole market today while its on sale.

Lump sum investing is fine.

 

[Koolau]

Thats not spare cash. That is serious money. 275k plus maybe 150k? Dang!

Put that money to work now in VTI or VTSAX or other Total stock market options.

Just buy the whole market today while its on sale.

Lump sum investing is fine.

Pocket change!



Yeah, at 47, you need to get that money working for you. Good recommendations so far IMHO. Maybe DCA, though.

 

[NW-Bound]

Pocket change!

Yeah, at 47, you need to get that money working for you. Good recommendations so far IMHO. Maybe DCA, though.

Not pocket change!

I lost that much in the past 3 weeks, and I do not like it. Definitely not pocket change.

 

[lawman]

My order for this one was filled on Monday at a YTM just below 7%.

Seagate Technology June 2023 4.75% Notes

CUSIP 81180WAH4

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C614829&symbol=STX4152326

Here is the trace data for the note that illustrates why you should use limit orders for bond buys even more so than stock buys. It makes all the difference in the world. Today some were buying at a yield of 3.6% and some at 6.2% This note has about 11.5 months of duration left and is a much better alternative to a one year CD or treasury note.

https://finra-markets.morningstar.c...14829&startdate=06/16/2021&enddate=06/16/2022

I'm also looking at these two notes from Dell/EMC. The mature in 2025 and 2026. They are secure notes (i.e. backed by assets).

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C981030&symbol=DELL5210653

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?t
icker=C981031&symbol=DELL5208605

Dell made a recent tender (December 2021) for the 2026 note at about 11% over par. That offer has expired. I would buy either of the two notes below par. The market for cloud storage continues to grow.

I don't get it. I went to my Schwab account and pulled up the Seagate CUSIP 81180WAH4. The best YTM offered was 3.658%

 

[Koolau]

Not pocket change!

I lost that much in the past 3 weeks

Who didn't? I lost that just by inflation so far this year.

 

[NW-Bound]

Who didn't? I lost that just by inflation so far this year.

Hmmm... I was talking nominal values, and did not add inflation which at 8.58% annual would be 4.29% for YTD.

Out of curiosity, a portfolio that gets depreciated by $425K YTD just from inflation ....

That's $9.9M, more than what I have.

 

[Koolau]

Hmmm... I was talking nominal values, and did not add inflation which at 8.58% annual would be 4.29% for YTD.

Out of curiosity, a portfolio that gets depreciated by $425K YTD just from inflation ....

That's $9.9M, more than what I have.

I might have figured that wrong. I just took my total stash and multiplied by 9%. Still not $425K Now, add in my equity/bond losses and I'm not far off. YMMV

 

[NW-Bound]

You brought up a good point about depreciation by inflation. Add that in, and it hurts that much more.

Are we done yet? Wanna add in real estate values? Home prices will crash soon, with mortgage rate more than doubling from 3% to 7.1% now.

Home values are not liquid assets, so I never bother to count them. So, that is a don't care for me.

 

[Koolau]

You brought up a good point about depreciation by inflation. Add that in, and it hurts that much more.

Are we done yet? Wanna add in real estate values? Home prices will crash soon, with mortgage rate more than doubling from 3% to 7.1% now.

Home values are not liquid assets, so I never bother to count them. So, that is a don't care for me.

I care, but don't count residence.

 

[NW-Bound]

I am fortunate that my investable assets have way outgrown the values of my 2 homes.

And with the investable assets being so liquid at a mouse click, there are a lot more options on what to do with them and I spend time to think about the right thing to do with them.

Homes are not something you flip easily, and their values do not affect my WR. Hence, the only time I think about my homes is when they need maintenance and repair. Arghhh!

 

[baseman250]

Nice.

I think it makes sense to move my E*trade stuff (a few individual stocks and MM) to a Fidelity Brokerage acct. E*trade is where my EPP company stock certificates were held, but they are long gone now.

I already opened the Fidelity brokerage (not funded yet) but was able to look at the fixed market interface. It looks way more refined than Vanguard.

My order for this one was filled on Monday at a YTM just below 7%.

Seagate Technology June 2023 4.75% Notes

CUSIP 81180WAH4

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C614829&symbol=STX4152326

Here is the trace data for the note that illustrates why you should use limit orders for bond buys even more so than stock buys. It makes all the difference in the world. Today some were buying at a yield of 3.6% and some at 6.2% This note has about 11.5 months of duration left and is a much better alternative to a one year CD or treasury note.

https://finra-markets.morningstar.c...14829&startdate=06/16/2021&enddate=06/16/2022

I'm also looking at these two notes from Dell/EMC. The mature in 2025 and 2026. They are secure notes (i.e. backed by assets).

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C981030&symbol=DELL5210653

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?t
icker=C981031&symbol=DELL5208605

Dell made a recent tender (December 2021) for the 2026 note at about 11% over par. That offer has expired. I would buy either of the two notes below par. The market for cloud storage continues to grow.

 

[target2019]

See, that's my problem with the DCA choice. Why treat money differently when you inherit invested money vs. cash? If DCA was the right choice, shouldn't you sell the inherited investments and start over with the DCA?

But people don't. It's an emotional decision. They fear an active decision backfiring, but not a passive decision. I don't think financial decisions should be made emotionally. But again, that's me, others can do what they want. I wasn't even going to make this point but this captured my view on the lump sum vs. DCA decision perfectly.

Our situation was different than OP, as they have a pile of uninvested cash. Ours was various funds, stocks and annuities, already in the market.

I don't understand your question entirely, but the decisions as to staying put, or transferring money to other index funds, hi-yield, etc. was made over a 1-2 year period.

1) Managed taxable account: Liquidated the index funds on day one. Some money to high-yield MMF, some to the wedding kitty.
2) Two managed inherited IRA's: Eventually Schwab picked these up. Smaller accounts with RMDs.
3) Three annutities at 3%. That was nice up until recently. So these count towards our income side of AA. Need to cash out within 5 years, so almost there.
4) Taxable brokerage. Consolidated at Schwab with a joint account.

How these inherited accounts have been incorporated over time is to smooth tax hits each year. The result dove-tailed with both of us reducing work schedules, and eventually retiring.

So, each situation is different. For OP, the DCA choice allows a path which is 100% CASH, and then there is an orderly movement to some other AA (which we don't know). And you are correct that the investor doing this may get cold feet and not carry out the plan. However, there may be upcoming large expenses that can tap into the remaining cash.

YMMV.