To Cash?

[brewer12345]

At this time, I would feel worse loosing the 8% than missing the next 8%.

Behavioral finance 101, in a nutshell.

 

[rescueme]

I know a guy who has been buying puts on Apple (for people who dont know options, thats a bet that the stock will drop) for weeks. Week after week he makes another bearish bet because "it has to drop sharply from here". He may be right eventually....if he has any money left when it happens.

I had to laugh reading this post.

For months/years, "big oil" had most of our investment dollars (using the M* X-Ray stock intersection tool, looking at our fund holdings), but in the last few days it has shown Apple as our top holding.

I know little (I'll admit it ), but it seems that at this time, Apple is a force to be considered in many investment portfolios...

 

[Donzo]

This may have been discussed already in the thread (stating the obvious) - For those wary of rebalancing, Wellesly, Wellington or a target date fund are good vehicles to stay within an AA that you are comfortable with. I have my next 10 - 15 years money in cash, Lifestyle and Wellesly. I don't have to think about AA with those funds. My long term money is in 401Ks and IRAs in stock indexes and bond indexes. I do the AA changes there with growth and decline of the market. This is money I should not have to tap for 15 + years, so there is less emotion attached to cloud decisions. This works for me. We all need to find our sleep well and stay solvent solutions.

 

[brewer12345]

This may have been discussed already in the thread (stating the obvious) - For those wary of rebalancing, Wellesly, Wellington or a target date fund are good vehicles to stay within an AA that you are comfortable with. I have my next 10 - 15 years money in cash, Lifestyle and Wellesly. I don't have to think about AA with those funds. My long term money is in 401Ks and IRAs in stock indexes and bond indexes. I do the AA changes there with growth and decline of the market. This is money I should not have to tap for 15 + years, so there is less emotion attached to cloud decisions. This works for me. We all need to find our sleep well and stay solvent solutions.

I do much the same in my current contribution 401k. It also serves as a benchmark against which my more active (and soemtimes risky) efforts can be conveniently measured.

 

[ronocnikral]

I'm currently reading a Random Walk Down Wallstreet and this thread has arguments and counter-arguments almost verbatim. It is really quite amazing.

 

[nun]

Thanks a lot for all your comments. I'll add some comments of my own.
1. The said 825K is only a small% of my entire asset. I also have other stock positions, mainly dividend paying stocks that I intend to hang on.
2. As far as AA, I think I am heavy on cash that can last many years, so my existence will not be affected by this so called big move. Well I do understand that it's not making much to even correct for the 2% inflation.
3. When some says "rebalancing", aren't they also in a way, "timing" it when their AA is not behaving as they prefer?
4. I gather that all of us are actually guessing, as nobody can infact predict what's going to happen!
5. I'm also heavily invested in US treasury direct, to buffer or stabilize or reduce volatility, but that's another story.
6. Some predicts market volatility for the future. Maybe it's old news, but,
markets go into cycles, thus it does not go up forever! correct?
7. If markets go in "cycles", would it be a good idea to slowly buy when you perceives it's on the down side? although we're not going to be right all the time?
8. When you need the money to live on now, who cares about future earning potential! or lost of earning potential.
9. When you don't need the money now, well, you can play the market and be real sophisticated about AA , inflation correction, but since we are all guessing anyway, the most important point is how much we have, the AA secondary.
10. If a real "stagflation" occurs, we are all in trouble. correct?

Read the Boglehead wiki, it will answer your questions. You can't predict the market, but you can react to it's changes in a way that is in line with your financial goals.

 

[almost there]

Behavioral finance 101, in a nutshell.

Agree. Or is it selling on the way down thats 101?

I just needed a breather.

 

[Bikerdude]

Maybe we could get Dex to comment on this thread.

 

[donheff]

Dex hasn't posted in ages. He must have left.

 

[mb]

I'm currently reading a Random Walk Down Wallstreet and this thread has arguments and counter-arguments almost verbatim. It is really quite amazing.

No, it's actually quite predictable since almost everyone on this forum has read that book and many have used it to help define their investment philosophy.

 

[clifp]

Thanks a lot for all your comments. I'll add some comments of my own.
1. The said 825K is only a small% of my entire asset. I also have other stock positions, mainly dividend paying stocks that I intend to hang on.
2. As far as AA, I think I am heavy on cash that can last many years, so my existence will not be affected by this so called big move. Well I do understand that it's not making much to even correct for the 2% inflation.
3. When some says "rebalancing", aren't they also in a way, "timing" it when their AA is not behaving as they prefer?
4. I gather that all of us are actually guessing, as nobody can infact predict what's going to happen!
5. I'm also heavily invested in US treasury direct, to buffer or stabilize or reduce volatility, but that's another story.
6. Some predicts market volatility for the future. Maybe it's old news, but,
markets go into cycles, thus it does not go up forever! correct?
7. If markets go in "cycles", would it be a good idea to slowly buy when you perceives it's on the down side? although we're not going to be right all the time?
8. When you need the money to live on now, who cares about future earning potential! or lost of earning potential.
9. When you don't need the money now, well, you can play the market and be real sophisticated about AA , inflation correction, but since we are all guessing anyway, the most important point is how much we have, the AA secondary.
10. If a real "stagflation" occurs, we are all in trouble. correct?

Let me suggest a different approach. Figure out what you need for retirement make sure that you factor inflation rate of say between 2-4% (or more if your pessimistic/conservative). Use FIRECalc. Then figure out how important the 825K in your overall retirement picture. If you can afford to have the $825K earning 0% nominal and (-2 to -3% after inflation) for many years then it doesn't matter what you do with it.

If you keep the money on the sidelines one of three things is likely to happen.
1. The market continues up (and yes at first approximation the market does go up forever, due to inflation, population growth, and productivity gains). In 5 year (including reinvesting dividends) the Dow will be at 20K, with the traditional 9% a year gains. Is that too optimistic possibly? but far from out of the question.
2. The market goes down 10,000 and you buy, and then turns around and heads up. You own 30% more share than you would have than buying now congratulations on your timing.
3. The market goes down to 10,000 and you are concerned because the economy, market looks scary and you stay on the sidelines. The market goes back and your money stays in cash earning at best the rate of inflation.


It seems to me simplistically you have 1 chance in 3 of doing the right thing.

 

[Birchwood]

Decision.

After reading about the issue and reading all the comments here,
here is how I decide to divide the 825K all stock portfolio, with due
consideration of my age(62 yrs) and other assets I have.

I decided to stay with Wellington and Wellesley funds since this two will roughly have a balanced 50-50 stock -bond % between them.

I decided to move money from the Dividend growth and Extended market to Intermediate High grade Bond fund.

This will create a 60% Bond and 40% stock portfolio to rebalance later.

 

[clifp]

FWIW

I just moved a good chunk of my mom's money currently Vanguard GNMA into Wellington and Wellesley, eventhough this increase her equity to slight over 60%. I figure there is a least chance the W&W managers can navigate the tricky situation with bonds.

 

[GrayHare]

Well, I've recently moved more from bonds to cash, but that's not exactly what the OP was talking about.

I've been DCAing into stocks since Feb '09. The recent drop in bond prices has me thinking the 30-year bond bubble is nearing a pop.

 

[haha]

Well, I've recently moved more from bonds to cash, but that's not exactly what the OP was talking about.

I've been DCAing into stocks since Feb '09. The recent drop in bond prices has me thinking the 30-year bond bubble is nearing a pop.

This has certainly not been a 30 year bond bubble, unless "bubble" means any bull market. The 10 year treasury note was slightly above 6% as recently as 2000. See chart below.

CBOE Interest Rate 10-Year T-No Index Chart - Yahoo! Finance;

There has been a powerful bull market, and it started from multigenerational high interest rates. But since real rates are now negative, this market had entered a bubble and I believe it might pay to be careful about accepting much duration. It is also true that a large rise in interest rates would put an unsustainable burden on governments at every level, so expect any and all manipulations to be tried to blunt the rise.

Few if any of us alive today will ever again see a bond bull market like this one.

Ha