I've avoided market timing but...

[EvrClrx311]

I'm a mechanical investor, so I avoid emotions (best I can) and stick to plans, always looking for a deeper understanding of how these processes work. Over the years I've read countless books on the long long term patterns in the market, and I've even started to run my own on what I can get a hold of (Shiller's data is fun to play with). Statistics and numbers fascinate me, I actually enjoy sitting and running models on big data, often writing computer programs to do this for fun... just to gain a deeper understanding of what's going on.

Last fall I decided to project the market peaks and troughs into today's dollars using inflation adjusted values. Basically projecting each of the markets highs and lows over the last 100 years onto today... and I also found the median stock market value (that line that is created on a long horizon). What I found is that most of the Highs averaged out to a market or approximately 23,000 (in 2016... which would be about 23,700 today). That is... when looking at the half dozen highs in the history of the DOW... and averaging them out, they peaked on average right where the market is right now. That said, some peaked lower in todays dollars (19,000 was the lowest peak I saw) and some were much higher (I believe 35,000 in today's dollars, and I think it was that rally that happened a decade before the great depression (1916ish was it?) - 35K sounds high, but it's really just 30% higher than we are now - another year of gains like we've seen Nov 2016 - Nov 2017 and we'll get there).

On the lows, I saw that the troughs averaged out to around 12,500 in todays dollars (the bad times would translate to our current market being 45% lower than it is today... yicks). With the lowest of the worst going way down to 7,000 or so in todays dollars and the less shocking long terms lows being around 15,000 in todays DOW figures.

The median of all of this puts the market around 18,000... regression to the mean (that 100 year linear line the market follows of around 7.1% after inflation) indicates that we are higher than our regression pressures want us.

This doesn't mean the market is absolutely going down in the next year or even five years. But I can safely say it's higher than it should be on a longer term view (20+ years) ... if it were to correct 20-30% it would then be lower than it should be on the longer term trend.

To my question... I've never tried timing the market. In fact, I've been very against it... choosing to just index and let compounding work it magic. Staying the course. Noticing what I noticed above... I'm so tempted to pull back my 100% equity stake to move 10-30% of my 401k towards bonds or cash in anticipation of this regression happening in the next year or two (that's timing though... ugh).

Just speaking out loud my thoughts on this... as I'm curious to hear others thoughts. I'm probably going to do nothing and just stick to my current plan... however... it's so tempting, based on my understanding of how history repeats. Times like this (when everyone thinks it's ridiculous to move away from stocks) have shown to be the time when people should have. I'm sure I'll read this thread again in a year or two and chuckle about it Probably wishing I either had or hadn't done something different... but that's the key I've learned in all of my research and reading stories of people timing the market. The more you do, the worst off you are. Which is why I tend to lean on doing nothing.

That said, in all my years of studying these patterns, I've never felt such a strong desire to act on... call it a gut feeling.

 

[REWahoo]

Resist.

 

[zesty]

I went from 80/20 to 75/25. That is as far as I'll let myself go. And actually since I am getting older and closer to FI, it probably makes sense just to stay there.

 

[EvrClrx311]

I went from 80/20 to 75/25. That is as far as I'll let myself go. And actually since I am getting older and closer to FI, it probably makes sense just to stay there.

This makes sense... I am invested aggressively (100% equity index exposure) as I'm still about 15 years away from when I plan to FIRE, I was planning on holding off on shifting to a bonds allocation for 20-30% of my funds for another 5 years... but it may be time to begin that now in a way where it's percentage attempts to take advantage of this "higher" or "lower" sense of the market. That is, owning more bonds when the market feels too high, less when it feels low...

Does anyone else do this?

 

[easysurfer]

Greed vs fear.

Set your allocation to where you can sleep at night.

I'm resisting the urge to rebalance sooner than annually in Jan (if the allocations are greater than my target allocations). Emotion has me thinking, with such a good run, would be a shame to see some of that evaporate if the market takes a December dive.

 

[Sunset]

OP - Yes.
Do it now.
You are not talking crazy talk, but are really talking about moving to a pretty normal accepted allocation of 70% stock , 30% bonds.
Having an allocation like this does mean you should rebalance it once per year to take advantage of the lower volatility it has compared to 100% stocks.

 

[brokrken]

I tend to agree with your analysis. But, like you am reluctant to mess with my plan. However, what I have done is begin to build up some cash in anticipation of a correction. For instance, I had a bond get called and have 2 more that come due in 2018. Typically, I would just roll this over into some new bonds, to keep my AA intact. However, I am sitting on the cash. If a correction happens my AA will need to be rebalanced with more equities, so I'll use this cash for that.

 

[Red Badger]

70/30 AA
2 years CD ladder
1 year SHTF cash

Sleeping well.

 

[joylesshusband]

Resist.

Or not.

Many of us don't think of ourselves as market-timers. Quite the opposite - we do have established AA plans and stick to them.
However, those plans change, and I don't see anything wrong with adjusting them and then following up with actions.

My personal anecdote is that I needed speedy accumulation, targeting exit from the workforce by mid-2018, and to achieve this I always was 100% in stocks.
Until 2 weeks ago, when I executed my last adjustment to protect the nest egg in a sensible manner and prepare for a likely correction which might hurt the start of my retirement. Now my stocks allocation is @ roughly 71%.
Essentially the outcome is what the OP contemplated.

Was this market timing? Or was it adjusting the plan and then sticking with it?

 

[REWahoo]

Was this market timing? Or was it adjusting the plan and then sticking with it?

I suppose you'll have to come back to this thread in a few years and let us know.

 

[Senator]

I do not time the market, but I put my buy order in around the first of the month. A limit order at ~1% below where it is.

If it doesn't hit, I buy anyway before the end of the month.

 

[target2019]

I'm so tempted to pull back my 100% equity stake to move 10-30% of my 401k towards bonds or cash in anticipation of this regression happening in the next year or two (that's timing though... ugh).

It could be that the 100% allocation is wrong for you. 90-10?

 

[SheitlQueen]

I think we will be okay for the next three years...after that things can change and then I will be concerned. If you get my drift...

I am approximately 65/35 and am coming in to a nice inheritance. I am putting that into long term CDs for absolute safety. 2.5% for 5 years, I know it may not keep up with inflation and that interest rates could go up (but also down) before the end of it. But I will sleep better knowing it's safe and I have enough already invested in other areas to give me a nice return.

 

[NW-Bound]

I'm a mechanical investor, so I avoid emotions (best I can) and stick to plans, always looking for a deeper understanding of how these processes work...

I'm so tempted to pull back my 100% equity stake to move 10-30% of my 401k towards bonds or cash...

Were you always 100% in equity? Has it always been your plan? If not, then you have had a big win by going from 60%, 70% or whatever to 100%. I have never been at 100% stock. 80% is about as high as I ever went.

Keep pushing your luck and stay at 100%? Do you feel lucky? It's your money. Do as you wish. Heh heh heh...

 

[audreyh1]

How old are you?

Are you still working? Are you planning to retire in 5 years? 10 years?

I think those would drive a target AA.

Theoretically 80/20 beats 100% equity if you are drawing from a portfolio, but I can understand if someone is a long ways from retirement letting 100% equities ride. I did when I was young.

Me? I’m getting a bit more conservative with CAPE10 soaring to the second highest levels ever. I don’t plan to go below 50/50 though. But I’m retired and living off my investments.

 

[flintnational]

As others have suggested;

1) Determine your long term AA (It should be something you can stick with through highs and lows)
2) 100% equities is probably high (but I don't know your situation)
3) If you are looking to make a long term change to your AA, now is probably a good time (for the reasons you outline)

But hey, what do I know. On Tuesday I rebalanced for the 3rd time this year. But I kept my AA at my long term 70/30. That is the closest I have come to MT.

 

[Whisper66]

Your profile suggests you have ~20 yrs to retirement. When I was in your position, I was 100% in equities and ignored all market swings. I was ok with that since I had a stable income to live off of and years to recover from a market down swing such as the one in 2008. Also I had knowledge that you may or may not have developed. I played with some market timing type investments for about 5 yrs and decided it wasn't for me.

As I approached retirement, I wrote up a retirement plan. That plan allowed for asset allocation ranging from 90/10 to 60/40 depending on how comfortable I felt with current market conditions. Upon retirement in early 2015 I was at ~85/15. Have since moved that to 55/45. Additionally, much of our investments are now in things that pay good dividends. These changes were just to ensure my comfort level in a major downturn. This of course has limited my returns but I sleep well at night and the returns are good enough for our needs.

Best of luck to you.

 

[EvrClrx311]

I'm midway through my accumulation phase (12 years in, ~15 years to go). I'd say I'm entering a period where my balance is starting to grow large enough ($370K) that maybe I want to get away from 100% equity, but in my long term plan I wasn't really going to worry about bonds till I was within 10 years of my projected FIRE date. At least that was (is) the plan I've laid out for myself.

 

[imokurok]

Good dialogue as usual. No harm in taking a percentage out of stocks given your research conclusions. Personally I find comfort in diversification both among types if individual stocks held and types of investment and savings vehicles. Individual equities for dividend income and some growth in different sectors, mutual funds in 401k with differing focus, CD ladder for safety/emergency reserve. I’m planning on stopping reinvestment of stock dividends Jan. 1st both because I figure I’m a year or two from freedom and it’s time to build up the cash reservoir and for reasons you stated OP - we are getting a little frothy at NYSE. But I’m not really smart enough to time market, so I don’t even pretend. I don’t value sleep at night however.

 

[imokurok]

I DO value sleep, actually. (Correction)

 

[ejman]

Much latter in the process than the OP since I ER'd 15 years ago. I found that since my investments are my primary source of income (+ tiny pension of $4k a year) my sleep point is 50/50. Since the op is 15 to 20 years from retirement the sleeping point is probably much higher in the direction of stocks but it probably wouldn't hurt to consider a glide path toward higher bond component and his research would seem to indicate this is a good time to do it.

For myself, I have mechanically followed the 50/50 allocation with a wide 10% band. This made me sell equities early in 2007 but when the 2008 unpleasantness hit it didn't seem so bad. Which when one thinks about it is in reality market timing - sell high buy low, but it is based on actual portfolio performance numbers, not a "gut feel"

 

[SumDay]

I'm about a year from freedom, and decided I'd like four years of expenses in something a little 'safer'. So, I already had two in cash, and just yesterday moved 3% into my 401(k)'s stable value fund. Now I have 2.5 years ready for a downturn, I'll probably keep moving some on a monthly basis until I get to the goal of four year$. No timing, just working on the much valued $leep factor.

 

[Chuckanut]

I do not time the market, but I put my buy order in around the first of the month. A limit order at ~1% below where it is.

If it doesn't hit, I buy anyway before the end of the month.

Interesting.

Have you kept any long term stats on this so you see if over a period of two to three years you actually are buying at a lower total cost, than simply buying the shares on a certain day every month?

 

[frayne]

Don't know if this is necessarily pertinent to this thread but after this past 12 months run up in equites, I switched from a 60/40 split (equites/fixed income) to a 50/50 portfolio. Just felt right on a gut level. After experiencing the dot com bubble and 2008 fiasco, I can't help but think of mean reversion, sooner rather than later. It has been a great run for quite a long time and I'm not exactly battening down the hatches but am preparing for a correction. YMMV !

 

[imokurok]

This is going to sound simplistic but at some level virtually any well thought out investment is going to provide more ongoing value than pretentious consumerism buys.