So Why Is It Not A Loss If I Sell Everything? SELL THE DIP

[24601NoMore]

+1. It’s YOUR Goals/resources that matter. Especially like what I’ve heard called “The Lifeboat Drill” - how’d you feel if -50% & 5 years to recover, and what would you do?

24601-but sitting in cash is surrendering to inflationary erosion of wealth. So where do you sit?

I came into 22 roughly 25% equities, 13% bond funds and the rest cash.

I truly don't care if the cash erodes in purchasing power, as long as it generates enough dividends to pay our bills, which coupled with some minimal fund withdrawals (< 2% SWR) it does.

Then again, I'm not investing for legacy, kids, etc - I invested to get US through life. Others (coldly) are "on their own", just as we were.

 

[aja8888]

I came into 22 roughly 25% equities, 13% bond funds and the rest cash.

I truly don't care if the cash erodes in purchasing power, as long as it generates enough dividends to pay our bills, which coupled with some minimal fund withdrawals (< 2% SWR) it does.

Then again, I'm not investing for legacy, kids, etc - I invested to get US through life. Others (coldly) are "on their own", just as we were.

This is about where we are equity wise with only some I bonds . I sold the large muni bond fund I had in early Feb to lock in long term gain. If interest rates go up, I'll go back in after a bit. I still have a lot of cash.

Hey, we are in our late 70s and DW had a very bad illness. Not thinking long term here at all.

I sure hope interest rate go way up as I would definitely lock in some long CDs or treasuries.

 

[daylatedollarshort]

24601-but sitting in cash is surrendering to inflationary erosion of wealth. So where do you sit?

I'm not 24601, but 2% TIPS (bonds held to maturity, not funds) with a 7.5% inflation factor are returning 9.5% these days.

 

[24601NoMore]

This is about where we are equity wise with only some I bonds . I sold the large muni bond fund I had in early Feb to lock in long term gain. If interest rates go up, I'll go back in after a bit. I still have a lot of cash.

Hey, we are in our late 70s and DW had a very bad illness. Not thinking long term here at all.

I sure hope interest rate go way up as I would definitely lock in some long CDs or treasuries.

Have you looked at MYGA's? There's a 3-year on BluePrintIncome for 2.65% currently. And some other good options from even bigger insurers for 2.35 - 2.5..

I'm not 24601, but 2% TIPS (bonds held to maturity, not funds) with a 7.5% inflation factor are returning 9.5% these days.

Interesting..can you tell us more about that?

 

[aja8888]

I'm not 24601, but 2% TIPS (bonds held to maturity, not funds) with a 7.5% inflation factor are returning 9.5% these days.

What maturity are you quoting here? When you say "returning", do you really mean "potential yield" if inflation is 7.5% AT MATURITY?

 

[24601NoMore]

I have been very tempted to sell. Sell, sell, sell...

OTM put options that is.

And I would have done it, if I did not already have options out that could cause me to buy more stocks worth a 6-figure sum.

Stock AA is currently at 73.6%.

Wow..you must have a pretty strong stomach. I can't imagine what the drop you've experience YTD must equal in dollar terms.

 

[daylatedollarshort]

What maturity are you quoting here? When you say "returning", do you really mean "potential yield" if inflation is 7.5% AT MATURITY?

TIPS principal adjusts based on CPI. At maturity they return par or the cumulative CPI adjusted value, which ever is greater. Interest is paid twice a year. If you have a 1,000 bond and CPI inflation for 2022 is 7.5%, the value of the bond will increase by 7.5%, regardless of the maturity date.

The market value of TIPS bonds will go up and down as rates rise and fall, which is why the TIPS funds are having the same issues as nominal bond funds now and showing negative returns YTD. But if you have a ladder and hold to maturity the market value isn't an issue.

 

[Rainbowdash]

I’m about 95% stocks, lost a bit already, but Not tempted to sell at all, let it drop, no worries, it will eventually come back like every single time in history. I am a buy and hold forever strategy.

 

[aja8888]

TIPS principal adjusts based on CPI. At maturity they return par or the cumulative CPI adjusted value, which ever is greater. Interest is paid twice a year. If you have a 1,000 bond and CPI inflation for 2022 is 7.5%, the value of the bond will increase by 7.5%, regardless of the maturity date.

The market value of TIPS bonds will go up and down as rates rise and fall, which is why the TIPS funds are having the same issues as nominal bond funds now and showing negative returns YTD. But if you have a ladder and hold to maturity the market value isn't an issue.

This is from today's WSJ:

TIP

2026 Jan 15 2.000 114.32 115.03 unch. -1.763

Current yield on 2026 Jan 15 Tip based on roughly $114.xx is -1.763% if you buy the Tip bond today.

I'm not in the market for anything like this.

 

[daylatedollarshort]

This is from today's WSJ:

TIP

2026 Jan 15 2.000 114.32 115.03 unch. -1.763

Current yield on 2026 Jan 15 Tip based on roughly $114.xx is -1.763% if you buy the Tip bond today.

I'm not in the market for anything like this.

That is the current price. People are worried about inflation now so the price went up and yields went negative. You can't buy 2% yields now, just like it is kind of late to buy oil stocks after the war broke out. You have to wait to buy until rates go up or inflation fears subside, and buy on the dips, just like with stocks. Or we dollar cost average over the years, but have not been buying too much at negative yields.

Though if high inflation continues, they may still be a good deal - "For example, a five-year TIPS offers a yield of roughly negative 1.6% today, compared with a 1.2% yield for a traditional five-year Treasury. That difference is 2.8% (note that the TIPS yield is negative). If the CPI were to average more than 2.8% per year for the next five years, then that TIPS would provide a higher total return than the traditional Treasury. If inflation averaged less than 2.8%, then the traditional Treasury would outperform the TIPS." - https://www.schwabassetmanagement.c...nflation-protected-securities-faqs-about-tips

 

[NW-Bound]

Wow..you must have a pretty strong stomach. I can't imagine what the drop you've experience YTD must equal in dollar terms.

After about 25 years of active investing and following the market daily (I keep a running diary), I have learned to look at gain/loss as percentages and not as dollar amounts.

And here are some numbers from my diary, measured from previous highs.

Meltdown after 2000 dotcom implosion followed by 9/11 attack:
My stash: -46%, Dow: -34%, Nasdaq: -78%, S&P: -49%

Meltdown after subprime fiasco:
My stash: -43%, Dow: -49%, Nasdaq: -56%, S&P: -50%

Current downdraft:
My stash: -7.6%, Dow: -10.3%, Nasdaq: -20%, S&P: -12.4%

 

[Montecfo]

I have looked at TIPS before and never found their historical performance to be compelling.

 

[OldShooter]

... One thing you'll find here (and on Bogleheads) is an overwhelming preference to just "buy and hold" no matter what. That's great for some people, but I'm a big believer that prudent risk management is far more beneficial in preserving profits and meeting one's goals. Markets have had many periods of lengthy and painful downside in the past, and those periods tend to get glossed over as "no big deal". They can in fact be a VERY big deal depending on your timeframe and ability to psychologically live through them, particularly when you have no W-2 paychecks or other source of consistent income coming in. My general advice is - think LONG AND HARD about how you'd feel if the market were down 50+% and it took 5+ years to get back to even (which it did starting Feb 2001). If you can live through that - great! I can't, so I manage risk accordingly. ...

Well, buy and hold with a thoughtfully established AA is IMO "managing risk." Going beyond this starts to sound like market timing, which is something we would all like to be able to do. So --- how do you manage risk since you apparently think B&H is not an adequate approach?

I have looked at TIPS before and never found their historical performance to be compelling.

The historical performance of our house insurance premium has been pretty poor, too. In 50 years it has returned virtually nothing but I am happy to pay it. As I have said here before, DW and I see the "performance" difference between conventional govvies and TIPS to be an inflation insurance premium. That is looking more and more like a good decision, though when we bought we didn't expect that we'd be able to predict future inflation any more than we could predict whether our house would burn down or not.

 

[Chuckanut]

So --- how do you manage risk since you apparently think B&H is not an adequate approach?

.

A good question above.

I would also like to know from people who manage risk by getting in and out, what specific criteria they use.

As OldShooter says, your AA should be set so that you don't have to sell low if the market goes down and stays down.

How long you may need to survive on an emergency fund depends on what, if any, other sources of income one has.

 

[daylatedollarshort]

I have looked at TIPS before and never found their historical performance to be compelling.

It depends on your goals. We weren't looking to make huge portfolio gains with stocks in retirement - just to live well on what we had. At our ages now a safe withdrawal rate on TIPS with even a 0% real return is 5% (100 / 20 remaining retirement years = 5%), with the safety of Treasury bonds and not really any stock market, inflation or bond fund angst. Our ladder has real returns averaging 0 - 3% now, making the SWR is even higher. Pensions and SS cover most of our annual expenses, so a high allocation to TIPS works for us.

 

[OldShooter]

... a high allocation to TIPS works for us.

Us, too. I kind of cock my head when someone talks about a 5% allocation to TIPS. That's meaningless for inflation protection. IMO several years of spending needs is probably closer to the right number.

We'll see here now, as the inflation bear has apparently been awakened by the central banks and is becoming highly annoyed by the war.

 

[RunningBum]

I have looked at TIPS before and never found their historical performance to be compelling.

They did great last year compared to most bonds. Do you think interest rates and inflation will continue to rise, or do you at least want some insurance for that?

 

[NW-Bound]

I have 8.4% of my stash in I bonds and Stable Value. They have been giving me a bit above inflation.

I have another 18.5% in low-yield T-bills and cash. I use this portion to back the OTM put options I write to generate income. I typically use only 1/3-1/2 of this pot for writing puts, yet the yield from option premium exceeds 10% when divided over this whole portion of asset.

 

[OldShooter]

They did great last year compared to most bonds. Do you think interest rates and inflation will continue to rise, or do you at least want some insurance for that?

You made me look.

We bought a slug of the 2s of 2026 during the winter of 2006/2007. On average we paid about $0.97. They are now worth around $1.60. That's a little over 3% compounded price appreciation. In addition, we have collected 2% interest on the current (inflation-adjusted) face value every year since then. So, wild guess, that's probably another 2.5% or more. Did we expect this in 2007? Of course not, but it's been a pleasant and comfortable ride.

So is that "compelling" performance? I dunno. As I said, our high beams were shining on protection from a burst of 1979/1980 type inflation. We did not ever evaluate the TIPS solely as an investment.

I did predict back then, though, that if inflation got hot, the prices of the TIPS would be bid up by people urgently seeking inflation protection. That seems to be happening as YTM numbers slide farther and farther into negative territory.

 

[daylatedollarshort]

I have 8.4% of my stash in I bonds and Stable Value. They have been giving me a bit above inflation.

Your stable value is above inflation? The last time I checked our best stable value was 2.5% and at least not losing money YTD like most bond funds have been.

 

[Phroig]

Your stable value is above inflation? The last time I checked our best stable value was 2.5% and at least not losing money YTD like most bond funds have been.

TIAA Traditional, in most retirement plans (not IRAs), offers a minimum 3%. That’s historically been a positive real return, although not so at the moment.

 

[NW-Bound]

Your stable value is above inflation? The last time I checked our best stable value was 2.5% and at least not losing money YTD like most bond funds have been.

TIAA Traditional, in most retirement plans (not IRAs), offers a minimum 3%. That’s historically been a positive real return, although not so at the moment.

Oops. The recent 7% inflation is exceptional, and I forgot about that. So allow me to correct myself.

The trailing 12-month return of my wife's Stable Value Fund is 5.55%.

The trailing 12-month return of our I bonds is 4.6%. This is because the I-Bond interests run 6 months behind the posted CPI. They will catch up eventually.

 

[GaryInCO]

Assuming the markets keep working like they have for 100+ years (this is a key assumption):

It's damn difficult to call tops and bottoms. Unless you have some proven and demonstrated way to do that, you are better off to just stay in the market. The drops are scary but historically the market comes back. And you might not, if you don't get back in at the right time.

I've been an active trader for almost 25 years. I ran a very successful commodity fund in 2000-2001, trading $10M of client money, returning 35-40% to our clients after all fees. And in spite of that experience, I can't call the market for beans. Instead I build models that call the buy/sell signals for me, and I mindlessly do what it tells me to do. That works very well, FOR ME. If you have a model like that, and if you have PROVEN that it works, then follow it. If you DON'T have a model like that, then you DON'T have any proof of your ability to beat the market. Which means you almost certainly can't. Don't try. Sit tight, buy the dip if you have spare $$.

Now if you DON'T think the markets will continue to work like they have for a century, you might make a different decision. Japan's market topped out in 1990. It lost 75% in the next 15 years (that would put a dent in your lifestyle!), and 30+ years later it's still 25% below the 1990 high. If you think our markets are going to do that, then yeah, "sit tight" might not be the best advice.

I expected a Japan-style crunch in the 80's. The Dow had gone sideways for over 25 years at that point, and everybody expected it to stay in that channel. That's what I thought too, and when it broke out in the 80's I rode it up a bit, then got totally out to wait for it to return to the channel. Which of course it never did. In the next 15 years I missed ***800%*** growth in the Dow, 13% a year, waiting for that pullback. Finally I said "This is insane, I'm missing so much growth!" so I jumped back in. In late 1999. Guess how that worked.

Unless you have PROVEN your ability to call the market highs and lows, don't try. There's a very high chance that the market will continue its incredible performance. 90% of professional money managers can't match the S&P500, and you probably can't either. There will be dips, there will be long sideways periods, but chances are you'll lose more by trying to beat it.

 

[Dtail]

TIAA Traditional, in most retirement plans (not IRAs), offers a minimum 3%. That’s historically been a positive real return, although not so at the moment.

My Mass Mutual Stable Value typically provides a real return above inflation but not currently. Still net at 2.97%.