I'm getting spooked about the markets

[Dtail]

I'm not scared of missing out on growth unless inflation outpaces my stable value return. I'm very happy with the growth I've locked-in, and the SVF has been keeping a bit above inflation, so the fact that "the Joneses" are currently ahead of me isn't a problem. I know that by owning equities at such a high PE, they are taking more risk than they are getting paid for.

I have half of my "bond allocation" in SVF earning 4.24%. I wish I knew when I was working of the value of this account and would have transferred my rollover Fidelity accounts to the 401k. Not to mention they had the low cost Vanguard index funds, so rebalancing would have been simple.

 

[corn18]

S&P 500 P/E ratio is sitting around 24 right now. If it reset down to 16, that is a 33% drop. If you have a 60/40 portfolio (all 60 in the US), then that would mean a 20% drop in your portfolio. For me personally (60/40), a 20% drop costs me $5k / year. I can work another year or drop my expenses.

It will happen some time in the future, just don't know when. All I know is the market will do what the market will do and there isn't a darn thing I can do about it. I keep my AA set to the risk I am willing to accept.

 

[Oz investor]

Well said. I watch the markets every day, kind of like I watch the TV sets in a bar/restaurant while I'm waiting for food. Random stuff; soccer, tennis, baseball, ... without really knowing or caring who is playing or who is winning. We seriously look at our portfolio once a year, between Christmas and New Year and we make any adjustments during the following two weeks. Probably two out of three years there are no adjustments. This year I think we'll continue simplifying the portfolio, selling a combination of total US and total international funds and putting the proceeds into VTWSX, total world. But that decision is a few months away.

I teach an adult ed investing course. The punch line after six hours of classes is this: "Investing is boring. If you're not bored, you are not doing it right."

the trouble with be bored is i start researching other topics ,

today i was researching one of the pills i am on ( the one my GP and cardiologist are in debate on upping the dose

and found these little gems

Having HF means you're always at risk ( this is with reduced ejection factor )
People with HF have a greater risk of death, with about half dying within 5 years of diagnosis. Risk of hospitalization also increases, as heart failure is the leading cause of hospitalization in those over 65 years of age.

and

It is not uncommon for people with HF to be hospitalized multiple times
More than a million Americans are hospitalized every year with HF. After being treated and leaving the hospital, many end up going back—about 25% within 30 days, and more than half within 1 year.

this is unusually blunt for an expensive 'wonder drug ' but does now throw my budgeting aspirations into disarray ( previously the guesstimate was ' maybe 10 years )

Sooooo i will now have to reconsider if i leave my buy orders in the markets ( overnight ) i normally leave them in for months in case of a big dip .

secondly if the market now dips heavily will i be able to exploit the recovery

( that five year stop-watch DIDN'T start ticking this year BTW )

... maybe i should read more 'market commentary' .. it might be better for my morale ... ( LOL )

the GOOD news my nest egg might not have to stretch beyond 20 years after all and i can consider some more high risk short-term moves .

this might still be more fun than buying a Ferrari and driving like Sammy Haggar

( the meds preclude me from operating ANY machinery even mobility scooters
but leave me too smashed to care )

 

[W2R]

S&P 500 P/E ratio is sitting around 24 right now. If it reset down to 16, that is a 33% drop. If you have a 60/40 portfolio (all 60 in the US), then that would mean a 20% drop in your portfolio. For me personally (60/40), a 20% drop costs me $5k / year. I can work another year or drop my expenses.

It will happen some time in the future, just don't know when. All I know is the market will do what the market will do and there isn't a darn thing I can do about it. I keep my AA set to the risk I am willing to accept.

Exactly.

I feel like we have been expecting this to happen imminently (and therefore preparing for it) for the past nine years. If we don't have a plan in place by now, we never will.

Meanwhile, I have been sitting on the sidelines observing, since it just hasn't happened yet.

 

[jollystomper]

S&P 500 P/E ratio is sitting around 24 right now. If it reset down to 16, that is a 33% drop. If you have a 60/40 portfolio (all 60 in the US), then that would mean a 20% drop in your portfolio.

+1

As I see it, the issue is now trying to figure out when the market will drop. It figuring out at what equity allocation are you comfortable with for a large (say > 20%) drop.

I'm roughly 39% equities so a 33% drop means about a 13% drop in my portfolio... which doesn't cause me to lose sleep. And I have a large cash position that I can draw on if needed for the next 6-7 years. Sure I am being conservative and giving up potential market gains with so much cash. But 2% return on the cash is worth being able to sleep at night.


Interestingly, I just had a session with the financial planning company Megacorp makes available to retirees, and they were suggesting, from their research and market forecast, that I could go to 50% equities and still be fine in the long run.

 

[Surewhitey]

I've been reducing a few ways. Sold the house and bought a smaller one. Pocketed $100k and put into MM @ 1.91%

Buying "on sale" companies, more recently BMY, WMT & T. BMY is back to sell point for me. Really just trading some ETF's on the down swings in energy and telecommunications. Mostly out of risky stuff and the shift of people buying conservative stocks has been a nice bump lately for us.

I'm at a high MM / savings % as of recent. Probably 60% Mutual funds & stocks / 40% Money Market & home loan to DD. Feel fine on our situation, but not ignorant to a possible pullback soon, imo. I'll dive in more on a 10% pullback.

 

[Mr._Graybeard]

Small-cap stocks have a reputation for being more volatile than the stock market as a whole, but they also tend to be domestically-focused industries. I'm thinking there may be some relative stability in that feature, what with the international economy so roiled with the use of tariffs as political tools.

After years of shunning small caps, I dipped a toe back in this month with SCHA. I'll probably add to that (small) position this fall. Small-caps are supposedly an early bull-market play, but conventional wisdom also suggests they're timely in rising-rate environments. Either way, it's my 'mad-money" investment for now.

 

[Oz investor]

+1

As I see it, the issue is now trying to figure out when the market will drop. It figuring out at what equity allocation are you comfortable with for a large (say > 20%) drop.

I'm roughly 39% equities so a 33% drop means about a 13% drop in my portfolio... which doesn't cause me to lose sleep. And I have a large cash position that I can draw on if needed for the next 6-7 years. Sure I am being conservative and giving up potential market gains with so much cash. But 2% return on the cash is worth being able to sleep at night.


Interestingly, I just had a session with the financial planning company Megacorp makes available to retirees, and they were suggesting, from their research and market forecast, that I could go to 50% equities and still be fine in the long run.

i wasn't planning to draw down at all , some late info suggests i might have planned correctly ( for all the wrong reasons ... but i am all over this trend i may as well play it out )

 

[NYEXPAT]

Sitting on 80% cash, so you know I am going to buy the F'ing dip!

 

[happy2bretired]

That You Tube reminded me I was going to check it out. I downloaded the app but since that clip wasn’t closed captioned I’m not going to join. Maybe in another 20 years.

 

[2Moutal]

Good Points

Yes, inflation has been re-markedly tame. In the 2008/09 crisis, I thought we would see a "Ka-boom" effect. What I mean by that is first a sharp deflationary draw in followed by a large wave of inflation caused by all of the increased (easy) money. I have been wrong, but fortunately still had sector investments which have led the economy higher (e.g. technology, medical devices).

So why hasn't all of that increased money sloshing through the financial system caused inflation? Well, partially because of the disintermediation trend that I mentioned (i.e. the internet is a discounting mechanism). Perhaps also because the velocity of money (turnover) has fallen dramatically:
https://fred.stlouisfed.org/series/M2V

Inflation can be thought of as too much money chasing too few goods. But if that money isn't chasing goods (i.e. it is not being used to buy things but is rather saved), then inflation is lessened.

Here's my dilemma: At its core, savings represent deferred spending. A person saves (or invests) and by doing so consumes less now so that they (or whomever they give the money to) can consume more later. So eventually the money will be used and perhaps money velocity increased and will "chase" goods and services.

Maybe the decline in money velocity is a combination of the baby boomer bulge along with some good old fashioned knowledge taught by the 2008/09 mega recession of having something put away for a rainy day. I would love to hear others thoughts on this.

Good points you have disclosed here. It's really hard to know what to expect so I think it's best to have a Plan A, B, C and maybe a plan D to be able to adjust to different paths the economy and market might take.

Keep a diversified portfolio. We are about 20% CDs, 25% Wellesley and 55% dividend paying equities and REITs. So if the market goes up 10% in a year we capture about a 7% increase. If it goes down 10%, we go down about 5%. I have tested this and watched this happen several times so I feel comfortable at age 63 to have a portfolio like this.

seekingalpha.com has some great investment minded authors to follow, but you will need to filter out the overly aggressive and overly negative noise.

AL in VA

 

[audreyh1]

I don't know. The S&P 500 index is up around 5.5% YTD that's not too shabby.

The DJI (is that what you are referring to as "the market"?) isn't up as much, but it's not a particularly good index to follow. Sadly it's what is most widely reported - it just has better PR that the broader indexes.

But the S&P 500 is not up from the late Jan peak. It’s flat to down from there.

 

[corn18]

This tells me I don't know nuthin'

But this tells me my 60/40 AA might help ease the pain of a bear attack:

It also shows the penalty you pay in upside when you carry a 60/40 vs. 100/0 portfolio.

 

[kcowan]

Sorry for the poor quality of the image, but this is out of "rock breaks scissors" and shows what the (very likely over-fit) model results in.

I just recently did a comparison of renting property since 1998 and buying so I used the S&P500 as a comparison. It has earned just under 6% capital gains (not counting dividends) over that period. I wonder what the next few years will bring? BTW the 2009 trough is below the starting point of 936.

 

[OldShooter]

... I don't know nuthin' ...

Me, too. I am embarrassed to say, though, that it took me 20 years of investing to figure it out.

It also took me 20 years to figure out that almost no one in the investment business knows anything useful either. The rare exceptions being Fama, French, Bogle, et al.

 

[Oz investor]

Me, too. I am embarrassed to say, though, that it took me 20 years of investing to figure it out.

It also took me 20 years to figure out that almost no one in the investment business knows anything useful either. The rare exceptions being Fama, French, Bogle, et al.

i disagree

i suggest most people 'know ' but get tricked into adopting a short term focus ( and so doubt in their abilities is created )

investing is like growing trees ( say a nut or fruit tree ) you know the possible outcomes right from the first sprout

A. the plant will die ( at a time so far unknown )

B. the plant has some chance of producing ( how much and how regularly is unknown ) .. while the plant lives there is always a chance of a positive outcome .

if you need more certainty planting more ( and different ) trees may help

 

[pb4uski]

The market has been fairly flat for the last 6 months or so... .

Not!!!! .... $10,000 invested in VTSAX or VFIAX (Total Stock or 500 Index) on 2/14/2018 (6 months ago), with dividends reinvested would be worth $10,841.07 or $10,767.11, respectively, as of 8/14/2018. That is up 7-8%+.

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

 

[pb4uski]

But the S&P 500 is not up from the late Jan peak. It’s flat to down from there.

True, but a tagging the January peak is a bit of cherry picking.... for YTD or LTM it is up 7-8% and 17-18%, respectively.

YTD: VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

LTM: VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

 

[OldShooter]

... I used the S&P500 as a comparison. It has earned just under 6% capital gains (not counting dividends) over that period. ...

I just noticed this. If you mean you're ignoring part of the S&P return, it makes no sense. It is like saying you'll count only the money in your left front pocket, not the money in your right front pocket.

Benchmarking makes sense only if one uses total return, something often forgotten by investors and often exploited by fund and other investment salespeople.

 

[Oz investor]

I just noticed this. If you mean you're ignoring part of the S&P return, it makes no sense. It is like saying you'll count only the money in your left front pocket, not the money in your right front pocket.

Benchmarking makes sense only if one uses total return, something often forgotten by investors and often exploited by fund and other investment salespeople.

i prefer to calculate by div. yield only but keep an eye on how the asset price is tracking against CPI ( and inflation )

but unlike many i use index funds as insurance against my poor stock selection ( and management )

i find benchmarks amusing there are just so many colors of lipstick you can put on pig ... but it is the bacon and ribs that count

using Buffets quote about the market being A. a voting machine ( short term ) and B. a weighing machine ( long term ) all the index needs to do is survive with some stocks still solvent ( not necessarily the same stocks , either ... the S&P might look very different in 15 years time )

 

[audreyh1]

True, but a tagging the January peak is a bit of cherry picking.... for YTD or LTM it is up 7-8% and 17-18%, respectively.

YTD: VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

LTM: VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

The point was simply that we’ve had a stall for a while in the S&P500 index which is one way for the markets to work off excesses versus drops.

 

[pb4uski]

But the S&P 500 is not up from the late Jan peak. It’s flat to down from there.

True, but a tagging the January peak is a bit of cherry picking.... for YTD or LTM it is up 7-8% and 17-18%, respectively.

YTD: VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

LTM: VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

The point was simply that we’ve had a stall for a while in the S&P500 index which is one way for the markets to work off excesses versus drops.

We're not mind readers you know!

BTW, I agree with the whole notion in your last post... I just didn't get that at all from your earlier post on the market being flat from the January peak.

 

[copyright1997reloaded]

The point was simply that we’ve had a stall for a while in the S&P500 index which is one way for the markets to work off excesses versus drops.

I think that this is a great post that people should read a few times and let it sink in. Markets that overshoot on the upside do NOT necessarily need to fall precociously. Instead, sometimes TIME does heal wounds (e.g. a too high PE ratio).

In January, the forward PE of the S&P 500 was around 18X. Since then, at roughly the same levels, we now have a twelve month forward PE estimate of 16.5X. If the S&P 500 earn $170 over the next twelve months, at 18X that puts us at 3050 on the $SPX, 7.5% up from here. Dunno, but while we've seen some of the one time tax bump, we still could see further upside expansion of profits as the economy continues to heat up (or overheats if you are a pessimist).

My prediction way back in early Feb remains...I don't think we've seen the highs in this bull market.

 

[CaliKid]

The Dow is up 400 today. I try to only look on up days! Lol.

 

[kcowan]

I just noticed this. If you mean you're ignoring part of the S&P return, it makes no sense. It is like saying you'll count only the money in your left front pocket, not the money in your right front pocket.

Benchmarking makes sense only if one uses total return, something often forgotten by investors and often exploited by fund and other investment salespeople.

Well I used what I could find. Can you point me to a total return chart for the S&P500 starting at Jan 1, 1998? Thanks.