Too scared to invest.. Market timing

[jetpack]

Earlier this year, many were predicting the market would be flat or decline this year. Despite that, the s&p is now up 23% for the year & 87% over the last 5 years. I now wish that I had been fully invested, but no, I've held significant & growing cash reserves (20% or 10 years of spending)

With this market outperforming long term 10% average, it certainly seems likely it's going to correct again.

I'd like to stop worrying and just balance my portfolio, but the market is driving me crazy!

What are you all doing with new cash? How much do trust the general advice.

 

[Fermion]

Earlier this year, many were predicting the market would be flat or decline this year. Despite that, the s&p is now up 23% for the year & 87% over the last 5 years. I now wish that I had been fully invested, but no, I've held significant & growing cash reserves (20% or 10 years of spending)

With this market outperforming long term 10% average, it certainly seems likely it's going to correct again.

I'd like to stop worrying and just balance my portfolio, but the market is driving me crazy!

What are you all doing with new cash? How much do trust the general advice.

I had some cash that I was holding waiting for the market to drop on the debt ceiling thing. When it didn't happen, I held my nose and bought 500 shares of VTI for $90.47. It is trading at $91.70 today, just a few days later.

Sometimes you just have to hold your nose and buy. Perhaps invest 25% of your cash, then invest more if the market drops 20% or goes up 20%.

 

[Tandemlovers]

Same here. We bought shares of Amazon @ $319 last Friday. Of course, we hope the buy will pay off, and wish we had bought last October, but you have to be willing to take chances, and it's crucial to understand your tolerance for risk.

 

[John Galt III]

I was checking out a couple interesting stock mutual funds in my 401k, but realized they were both at all time highs, so I'm waiting for some kind of pullback from either of them before I buy in. Even a 2 percent pullback would do.

 

[Andre1969]

I've been in the process of cashing out a bit every time I think the market's getting too high up there. And, when the drop doesn't come, I've been using the extra cash to pay down the mortgage.

Originally, I was going to hold off on doing any more of that until next year, just because of the tax ramifications. But, if things keep going up, I might just keep paying the mortgage down.

If you don't want to pay down your mortgage, maybe look into buying some stocks that pay good dividends? Like in the 4-6% range?

 

[Mulligan]

I was checking out a couple interesting stock mutual funds in my 401k, but realized they were both at all time highs, so I'm waiting for some kind of pullback from either of them before I buy in. Even a 2 percent pullback would do.

This is why I just have a direct monthly contribution to my funds. In January I needed to make my Roth contribution for the previous year. I thought I would get smart and let the market drop a few percentage points then make the deposit. Well, 2 weeks before the deadline in April I threw in the towel and had to buy at a significantly higher amount. I have given up on timing. I'm not suggesting you shouldn't but I have no luck at all in this. I bet I could get a 5% pull back purchase....after I watched it go up 15% more first, to get that 5% pullback...

 

[Andre1969]

This is why I just have a direct monthly contribution to my funds. In January I needed to make my Roth contribution for the previous year...I have given up on timing. I'm not suggesting you shouldn't but I have no luck at all in this.

Yeah, I know the feeling. I tried doing my Roth IRA contribution all at once last year, putting it into a money market account, and figuring I would rebalance to the other funds when things dipped. Only problem is, there never really was much of a dip last year. I remember May getting a bit turbulent, but that was about it.

This year, I've just been doing the Roth contribution monthly, letting the dollar cost averaging do its thing.

 

[runchman]

Smartest thing I ever did years ago, for my peace of mind and investment performance, was determining the asset allocation I'm comfortable with, setting my portfolio to that, and then completely ignoring the market. No more decision making, no more worry, no more 'nuthin except rebalancing once in a blue moon.

 

[foxfirev5]

AA 45/35/20 cash. A little high in cash right now but I'm looking at ER in two years +/-. I don't want to get a downturn just as I quit working. At that point I'll spend down the cash and slowly build the equity to approx. 50%.

 

[Lsbcal]

...(snip)...
What are you all doing with new cash? How much do trust the general advice.

I don't carry any "dry powder waiting for an opportunity" because it's never clear to me when an decline might extend to a crash.

Since Jan 2013 the 12 month returns have varied from 13% to 27%. If you look back historically you will see this is nothing new. No way to predict when the next dip will occur.

What do you mean by trusting the "general advice"? If you think about it, the current market pricing in stocks and bonds is exactly the "general advice". It is the consensus among all market participants of what to pay for a particular investment at the moment.

 

[NW-Bound]

I am also sitting on a big pile of cash (28%), but that's because I have only 5% in bonds right now.

Regarding reluctance to buy after a big market run-up, it's a common fear of course, although looking back we can see that in the past, the market has kept rising for a long time. And even when it finally pulls back, it is still higher than when one might decide to sit out.

And then, there have been two recent huge market drops in 2003 and 20009 that still scare those of us with memory. However, counteracting that is the fact that despite the recent market climb, if we look at the peak in 2000 until now, the market is just above break even, if we account for inflation. And that is with dividend reinvested. Still, it's hard to commit fresh money...

My personal way of dealing with this is to look for pockets that have been trailing the whole market. Hence, I probably will stay a slicer-and-dicer forever. I can justify to myself the purchase of beaten down sectors, or even some country indices, more easily than buying the S&P when the latter sets new high.

Does the above work? Over time, it seems to. Does it beat the "conventional way"? I do not know, as that would require keeping multiple sets of books. However, it does get me to put money into the market, and so it helps.

 

[KiraC]

Sitting on 90% cash right now. Strictly trading for short term gains only.

 

[Ed_The_Gypsy]

Smartest thing I ever did years ago, for my peace of mind and investment performance, was determining the asset allocation I'm comfortable with, setting my portfolio to that, and then completely ignoring the market. No more decision making, no more worry, no more 'nuthin except rebalancing once in a blue moon.

Same here. As it happens, I am still in the accumulation phase. My AA is close to 100% diversified equities. The dividends and capital gains go into a MMF and when it gets big enough, I look at my portfolio and buy some more of what is down at the time. Then, once a year, I will update my excel spreadsheet and consider rebalancing. Some times I rebalance and sometimes I don't. Fully invested through the '87 crash, the Asian Flu, Dot-com bust and 2008. So far it has worked out OK.

 

[RetireAge50]

The point of stock allocation is high long-term returns. Why would one wait for a dip, stocks go UP over time so the more time you are out the less return you get.

 

[jebmke]

I rarely hold any more cash than I expect to spend in the next 30 days.

 

[HFWR]

If this is long-term money, just bite the bullet and invest. If it feels better, invest it in 25% increments.

This advice is worth what you paid for it!

 

[nun]

Smartest thing I ever did years ago, for my peace of mind and investment performance, was determining the asset allocation I'm comfortable with, setting my portfolio to that, and then completely ignoring the market. No more decision making, no more worry, no more 'nuthin except rebalancing once in a blue moon.

Me too. I'm thinking of ER in 2014 and my target AA is now 50/50. The only change I've made in the last couple of years has been to move some Bond market into my 457 Stable Value fund to guarantee I have enough to get me to 59.5. My holdings are

53% Equities
20% Intermediate Corporate Bonds (mostly in Wellesley)
11% Bond Market
8% Stable Value
5% Deferred Annuity to be used as longevity insurance
3% Cash

I don't think about the market much, just keeping my AA within a +/- 5% threshold of the target.

 

[aja8888]

I am only discussing tax advantaged accounts here:

Last year at this time (October) I was about 50% cash and mostly in broad market stock ETFs and an intermediate bond fund with the invested portions. It was then when I decided to start a program of automatically buying into a Vanguard broad market stock ETF each week at a rate of $2,000 every Friday with the available cash.

Right now I am heavily tilted into the broad market stock ETF's and only 5 - 10% in very short duration bond/income funds and 15% in cash. I sold the intermediate bond fund this summer when rates took off. I have a hanful of positions in high paying quality dividend stocks also, and it accounts for about 20% of my portfolio.

I just added funds to OSTIX (Osterweis Strategic Income Fund) to increase my fixed income holdings. This fund did well in 2008 (only dropped about 6%) and pays out about 4% with and expense ratio of 0.91%. This is my most expensive fund.

This is a tricky time with the persistent low interest rates and the economies of the world on the mend (at least we hope so). Interest rates will go up one of these days and you don't want to get caught holding a long duration bond fund unless you have a long horizon for recovery of NPV. While the Boglehead's forum members preach the simple portfolio with few funds and periodic re-balancing, it's hard for me to not be very frequently involved with my retirement assets in order to try to maximize income and be rigorous on capital preservation. I don't know if I am doing any better than using the Boglehead approach, but I feel better with diligent oversight.

 

[Tom52]

I am still working so each paycheck I am dumping all of my 401K contribution + over 55 catch up contribution into Vanguard Target Retirement. Each year I fund DW TIRA and my Roth IRA into Vanguard Wellesley. Obviously, not the most aggressive asset allocation but one I can sleep with. I don't worry when the market seems high. If I lost my job now I have enough in CDs to carry me nicely until SS at 66 so I don't have to worry about short term market gyrations.

 

[ChiliPepr]

I've held significant & growing cash reserves (20% or 10 years of spending)

If 20% is 10 years spending, 100% is 50 years of spending, sound like you could have a 2% withdrawal rate and cover your spending without any issues. Why not put into 10 year treasuries make 2.5% and call it a day?

 

[Severinooh]

Hey, someone talked about market timing, probably 5 years away from ER, had a great year. Would this be an opportunity to get out of the market and wait for the next big dip. Granted may miss a couple of good days attempting to time but after the year we have had could it really be that bad a move?

 

[donheff]

I am with the stable AA folks. That helped me weather the big downturns with not much more than a yawn. I fiddle around at the edges by timing my liquidation events for annual expenses and occasionally buy up a bit of equities but I always hover near the 60/40 level.

 

[John Galt III]

Took the plunge today since the market looks like it will end down a bit today. Moved out of a stagnant bond fund into a midcap fund. It has huge perf numbers something like 29%, 20%, and 19% for 1, 3, 5 year.

I notice whenever I buy a highly performing fund like this, I have to take profits when I can (if it goes up 20 % or more) because the thing will crash after a year or 2 and I'll have a loss. hmmm. Maybe instead of just taking a profit, I should just dump the whole thing after it goes up 20 %, and get into something else.

 

[Animorph]

Took the plunge today since the market looks like it will end down a bit today. Moved out of a stagnant bond fund into a midcap fund. It has huge perf numbers something like 29%, 20%, and 19% for 1, 3, 5 year.

I notice whenever I buy a highly performing fund like this, I have to take profits when I can (if it goes up 20 % or more) because the thing will crash after a year or 2 and I'll have a loss. hmmm. Maybe instead of just taking a profit, I should just dump the whole thing after it goes up 20 %, and get into something else.

Performance chase much? I'm happy to buy funds that are not having their best years.

 

[NW-Bound]

Performance chase much? I'm happy to buy funds that are not having their best years.

Or better yet, find out why these funds are down relative to the hot ones. Perhaps the downers are too concentrated in certain sectors.

Then, one can buy just a bit of those sectors, after some study of course.