Thinking about "playing the market" to cover rent

[travelover]

Quote:

Originally Posted by younginvestor2013 I don't appreciate the smart remarks. I work in finance and am formally educated in finance, so I'm not an illiterate........

Yea, but you are still just a kid. Intelligence combined with experience is called wisdom. Right now you just have intelligence.

Another useful part of wisdom is learning to laugh at yourself.

[MichaelB]

Quote:

Originally Posted by younginvestor2013 I'm just looking for some unbiased advice here, and appreciate your positive input!

In order for this to be successful you need to be able to replicate it. To replicate, you need to translate your feeling that the market will correct into an observable indicator. So, the key here is not the timing moment, it is turning it into something replicable. If you can share that, this might become a useful thread - for you and others.

[pb4uski]

As I'm sure you know, you are doing very well in terms of investments and your savings rate.

I'm less concerned with what you do now but more concerned with the precedent that it makes for you as you continue through life. If this "bet" pays off might it encourage you to do more market timing later on? And if so it is just a matter of time before you find yourself on the loss side of a market timing call.

As seabourne mentions, you also need to assess the tax implications of the move. I'm guessing that the gain would be taxed as ordinary income since it would be a short term capital gain.

If it were me, I would stay the course and not try to time the market. The difficulty with timing is not only when to go to cash, but also when to get back into stocks. Very few people can do the latter.

Unless your future plans to buy a house or whatever suggest you need more cash, I would stand pat. If you have excess cash, you could wait for the correction and then value average it into stock over a year or 18 months.

If there was no tax bite on the gains and you have access to tax-deferred/free savings through work and wanted to take some taxable account gains to help with the rent and increase your tax-deferred/free contributions by an equal amount then I would be less pessimistic about your idea.

[enjoyinglife102]

The responses have nothing to do with conservative investing or frowning upon market timing, they have everything to do with what the overwhelming data says about one's best chances of success. Good luck though, maybe you'll finally be the one who can successfully time the markets.

[RunningBum]

I think a lot of people read "playing the market" in the thread title and came up with their one-liners while barely skimming the post, especially after seeing the OP's age.

All it sounds like he's doing is skimming the profits after a run-up, and looking to get that money back in at a lower price later. Not jumping completely in and out based on market conditions. It's not much more than a rebalancing, really. So many people here advise to average into the market, but when someone wants to pull some out after a good run s/he is a dirty rotten market timer.

The advice that did make a lot of sense is to watch for and avoid short term capital gains, and also to keep money for a probably near term real estate purchase in a safer place.

I would closely track how you do with this strategy vs how you'd have done keeping it in the market. It's easy to overestimate your successes. For example, let's say you pull some out now, and the market rises another 10%, then drops 5%. At this point you jump back in, and the market goes up 5%. Some will pat themselves on the back for this 5% gain by "correctly" timing the market, when in reality you would've had a 10% gain by staying in.

[BigNick]

Quote:

Originally Posted by RunningBum All it sounds like he's doing is skimming the profits after a run-up, and looking to get that money back in at a lower price later. Not jumping completely in and out based on market conditions. It's not much more than a rebalancing, really. So many people here advise to average into the market, but when someone wants to pull some out after a good run s/he is a dirty rotten market timer.

It's not rebalancing unless you decided it in advance. "I'm going to buy the Dow at 13,000 and sell half at 14,000 and the other half at 15,000" is a rebalancing strategy. What you're describing is just trying to guess what will happen when you're already halfway through, and then convince yourself that that's what you were planning to do all along.

[Dawg52]

My only suggestion is to only use a very very small amount of money to try this out on. Some money can be made, but easy to lose.

[Gatordoc50]

Sounds to me that you haven't developed your long term goals and written out a plan. I'm sure that if you put those to paper, you will be able to answer your own question.

[Texas Proud]

Yes, it is a bit of market timing....

If you want to move money to a ROTH, just move it from your taxable account to your ROTH...



But, just to give you some background.... my boss called the last market decline... he sold all of his investments prior to the 2008 crash... the problem is he never got back in.... he has been thinking it will go down the last few years...


Me, I rode it down and back up.... and would do it again...

[younginvestor2013]

Thanks for your serious input, (mostly) everyone! I do agree with all of your comments. In all honesty, I had thought of this “idea” and posted it on this forum literally 5 minutes later. It wasn’t an idea that I had for 2 months and had thought over from every angle. I am aware there are tax implications – as well as others – but like I mentioned, this was an idea that I had and posted immediately on this forum to get some responses like the (serious) ones I have received.

I think the biggest drawback for me would be the short term gains, so I probably won’t do it. I will already be facing a roughly $5,000 tax bill next spring from a 100% rebalancing I just recently did and don’t really want to add to that.

At any rate, I truly believe that my net worth is “weighing” on my mind. Not necessarily in a bad way – but the fact that I know I have so much for my age. Of course it would be fun to go spend it, but my true desire (as evidenced by posting on this forum) is to become financially independent – not to go buy a Mercedes or do something frivolous. In all honesty – I am able to save 20% of my gross income and still live a great lifestyle – going on vacations, living in nice neighborhoods, eating out/going out, etc.

I’m making assumptions here, but most 22 year olds that are signed over $230K+ would not just “leave it alone” like I have. I’ve only spent $4,000 of it on furniture and the rest has went unspent.

It’s mentally challenging to sit and watch your money grow as you add more savings to it (I’m sure you can all relate!). When I think that my $300K can generate $21K (average) in appreciation a year, and I add in $10K of savings on top of that yearly, the NW figure starts to grow quickly.

While I of course want to become FI, I think it is somewhat “unhealthy” (maybe this is my Buddhist inner-self coming out…) to always be thinking in the future about some future lifestyle milestone that will be so big to attain. I know the beauty of Vanguard/investing is (amongst other things) that it is relatively easy and does not/should not eat up much of your time. So I should have plenty of time to not focus/think about my finances/NW, and live more in the moment……..

Can anyone relate to these feelings?

[pb4uski]

Quote:

Originally Posted by younginvestor2013 ....It’s mentally challenging to sit and watch your money grow .....

Yes, so don't!!

Get it in investments that you are comfortable with, have contributions regularly taken out of your pay and just leave it on auto-pilot and go on enjoying your work and your life.

Check in on it once or twice a year to make any changes you want, otherwise get on with life. It will not grow any differently if you constantly watch it (unless you constantly fiddle with it in which case it may not grow as well).

[Gatordoc50]

Quote:

Originally Posted by younginvestor2013 Thanks for your serious input, (mostly) everyone! I do agree with all of your comments. In all honesty, I had thought of this “idea” and posted it on this forum literally 5 minutes later. It wasn’t an idea that I had for 2 months and had thought over from every angle. I am aware there are tax implications – as well as others – but like I mentioned, this was an idea that I had and posted immediately on this forum to get some responses like the (serious) ones I have received. I think the biggest drawback for me would be the short term gains, so I probably won’t do it. I will already be facing a roughly $5,000 tax bill next spring from a 100% rebalancing I just recently did and don’t really want to add to that. At any rate, I truly believe that my net worth is “weighing” on my mind. Not necessarily in a bad way – but the fact that I know I have so much for my age. Of course it would be fun to go spend it, but my true desire (as evidenced by posting on this forum) is to become financially independent – not to go buy a Mercedes or do something frivolous. In all honesty – I am able to save 20% of my gross income and still live a great lifestyle – going on vacations, living in nice neighborhoods, eating out/going out, etc. I’m making assumptions here, but most 22 year olds that are signed over $230K+ would not just “leave it alone” like I have. I’ve only spent $4,000 of it on furniture and the rest has went unspent. It’s mentally challenging to sit and watch your money grow as you add more savings to it (I’m sure you can all relate!). When I think that my $300K can generate $21K (average) in appreciation a year, and I add in $10K of savings on top of that yearly, the NW figure starts to grow quickly. While I of course want to become FI, I think it is somewhat “unhealthy” (maybe this is my Buddhist inner-self coming out…) to always be thinking in the future about some future lifestyle milestone that will be so big to attain. I know the beauty of Vanguard/investing is (amongst other things) that it is relatively easy and does not/should not eat up much of your time. So I should have plenty of time to not focus/think about my finances/NW, and live more in the moment…….. Can anyone relate to these feelings?

Yes. I think that investing in the market is difficult because it has only one purpose. That is to go up in value. I always preferred multipurpose investments. Mainly real estate. Over time it also appreciates and can throw off income, directly or indirectly. You can live in it, run a business thru it, rent it, etc. I'm sitting on the couch about ready to go golfing because I invested in real estate. If I had only invested in securities, I would be at the office right now. I was lucky that my passion for real estate became a hobby. I never worried about its daily worth. I just enjoyed it..

[BigNick]

Quote:

Originally Posted by Gatordoc50 Yes. I think that investing in the market is difficult because it has only one purpose. That is to go up in value. I always preferred multipurpose investments. Mainly real estate. Over time it also appreciates and can throw off income, directly or indirectly. You can live in it, run a business thru it, rent it, etc. I'm sitting on the couch about ready to go golfing because I invested in real estate. If I had only invested in securities, I would be at the office right now. I was lucky that my passion for real estate became a hobby. I never worried about its daily worth. I just enjoyed it..

Over [a long] time, I would back equities to beat real estate, if you just look at the indexes. Thee advantage of real estate is that it is practically possible to beat the market by investing wisely and doing some homework (for example, finding good fixer-uppers, identifying future desirable areas, etc), in ways that are almost impossible with financial markets because so many other people are focusing on so few resources (there are only so many listed companies, but there's an unlimited supply of houses and neighbourhoods).

[pb4uski]

While I know some who have profited from real estate, it is too much work for me. Selecting properties, financing, selecting tenants, maintenance and improvements - a lot more work than my stock/bond portfolio. Besides, I'm not sure I would enjoy dealing with residential tenants - just not my cup of tea.

That said, I manage my Mom's commercial single-tenant building so perhaps there is some hope for me.

[Gatordoc50]

Quote:

Originally Posted by BigNick Over [a long] time, I would back equities to beat real estate, if you just look at the indexes. Thee advantage of real estate is that it is practically possible to beat the market by investing wisely and doing some homework (for example, finding good fixer-uppers, identifying future desirable areas, etc), in ways that are almost impossible with financial markets because so many other people are focusing on so few resources (there are only so many listed companies, but there's an unlimited supply of houses and neighbourhoods).

Agreed. But if the OP wanted to take some profits then using 100k as a down payment on a 200k home would leave him well under a thousand per month payment including taxes and insurance. He could then invest the rest in equities and consider the home his bond allocation. So his real estate provides multiple purposes. Returns that will probably exceed bonds and a nicer place to live. If he is single, then he could also get some rental income by getting a roommate.

[vttlarry]

I can relate. I am a firm believer that while saving for the future is important, so is living in the present. No one has a gaurentee on tomorrow. Sounds to me that you are worlds above most young people, inheritance or not. Good for you. Keep saving, but never forget to have fun.

[target2019]

Quote:

Originally Posted by younginvestor2013 I don't appreciate the smart remarks. I work in finance and am formally educated in finance, so I'm not an illiterate. I am just looking to get some feedback, perhaps to reassure my idea. But I guess posting this idea on a forum where relatively conservative investing/timing the market is frowned upon was a bad idea. So nevermind....

Don't take it personal. It was just one avatar yanking the chain of another.

There are other responses which will help you decide. For instance, one thing I've done frequently is take an idea and scale it back 50%, or divide the decision into two options I can play for a while. And I'm not necessarily talking about investing. It works for in a lot of situations. I don't remember much of my college game theory course, but I believe this is called the "reducing the wager". So the potential payout is reduces, but so is the potential loss.

That is my feedback. Scale back your idea 50%, and create two opitions. I like your idea, and am giving you positive feedback.

I would also not generalize about forum members. It is really a diverse group of people.

[heeyy_joe]

Quote:

Originally Posted by Texas Proud Yes, it is a bit of market timing.... If you want to move money to a ROTH, just move it from your taxable account to your ROTH... But, just to give you some background.... my boss called the last market decline... he sold all of his investments prior to the 2008 crash... the problem is he never got back in.... he has been thinking it will go down the last few years... Me, I rode it down and back up.... and would do it again...

Your boss has lots of company, that 2008 nosedive pushed plenty to the sidelines and many of them are just now deciding it's time to get back in.

[target2019]

Quote:

Originally Posted by younginvestor2013 I think the biggest drawback for me would be the short term gains, so I probably won’t do it. I will already be facing a roughly $5,000 tax bill next spring from a 100% rebalancing I just recently did and don’t really want to add to that. [lots of text was snipped out here] Can anyone relate to these feelings?

Dude (lol),
There's $5,000 in taxes (read lost profit) that maybe you could have avoided. There are other facets to investing that should be explored.

I can relate to all the other feelings. Now that you have my empathy,

Quote:

“…A society, or all mankind, should study the consequences that are likely to result from each decision that is possible at the present time. By making appropriate selections today, society can influence its future, rather than wait for the inevitable to occur. The individual, too, can consider what sort of person he wants to become, and what goals he wants to achieve, before making a choice between various alternatives. He can set out to produce a certain future for himself, instead of feeling that his life is completely determined by forces over which he has little control.” Allen Tough from The Adult’s Learning Projects

I admit that comes across as preachy. But I think it centers the individual before embarking on a decision.

Good fortune.