Will the "Other Shoe" EVER Drop?

[SoReadyToRetire]

My DH and I went to mostly cash in our retirement accounts mid-2020. We're currently sitting on about $1M in money market funds. I also have a "play money" account with about $138K in it.

Now we're trying to figure out when the heck to dive back into the market.

At the start of this year, we were thinking something horrible was looming as a result of the economic destruction caused by the Covid virus. So we keep waiting and waiting for some kind of "significant" (subjective term) drop where we'll feel good about getting back in.

As you well know, all the indexes are now at or near all-time highs. I remember the former president wearing a hat with "30,000" on the front at a news conference back when the Dow hit that number, because it felt amazingly high. And now?--it's over 33.5K! Unbelievable.

Does anyone here still think something "catastrophic" is bound to happen later this year? It just feels like everything is SO high, it's a dumb time to even consider getting back in.

I know this is bottom-line a question about market timing, which never works. So I suspect what we SHOULD do is just decide on some percentage and put that much back into the market say, once per month, until we're back in completely--so basically dollar cost averaging.

Thoughts?

BTW, I retired in Feb 2020 at age 61 and my younger spouse is still working a $40K-year job that pays for our health insurance and most of our bills. I took a part-time job 12-15 hrs/week just to keep my sanity last Spring, so that covers "extra" stuff like personal training and gifts. We don't need any of the money in our IRAs for at least a couple of years.

Thanks.

 

[Montecfo]

Most important 3 words in investing are: Stay Fully Invested.

So now you need to Get Fully Invested.

It is hard to anticipate some carastrophe but we have already had interest rate driven selloffs-there will be more.

But you want to by financials cyclical stocks when rates decline, and secular growth stocks when they rise.

It is an interest rate Fed driven market.

Good luck!

 

[MRG]

In ~2012 I got involved with my DF'S finances during his last year. In any case he had an "expert" FA(he had a newsletter and everything [emoji854]) who knew everything there was to know. One bit of knowledge he gave me was "everyone knows interest rates are going much higher".

Point is 33k looks pretty little next to 44k. Your losing money on your MM against inflation at this time so just DCA back in 50k a week. Boom your done.

 

[UnrealizedPotential]

I think the first thing you need to do is decide on is an asset allocation that lets you sleep at night and one that doesn't cause you to go to all cash or mostly cash. As you found out, it isn't easy deciding when to get back into the market once you are out.

After you settle on an AA, then you can decide on how to proceed from there, but come up with an AA first that fits your risk tolerance. I don't know what your AA was before, but it clearly was too high, otherwise you wouldn't have went to mostly cash, so you have to get the AA nailed first.

 

[flyingaway]

Sell in May and go away. Maybe the other shoe is to drop in May.
(I know nothing.)

 

[Gumby]

To calm the young wife, I trimmed our sails and went cash heavy (about 50%) in the spring of 2020. Starting 1/1/21, I have been putting that money back in the market => $60k every two weeks. Yes, we'd have more now if we had stayed fully invested, but the value of domestic tranquility should not be underestimated.

 

[dmpi]

Pick you asset allocation. For someone your age maybe 50-50 would be good. Then very slowly dollar cost average back into stocks. Also I don't know your exact situation but if you got money to burn this might be a good time to do a Roth Conversion and use that money to pay the taxes.

About the other shoe dropping.... maybe or maybe not. But the action will start when the economy opens up and the stimulus dries up.

 

[yhoomajor]

As others have outlined - you may want to get back in the market (in phases), without knowing when the next big leg-down may come.

I can only provide some context that may help you mentally prepare for it.

1. Fed and US Government have set a precedent (actually a series of precedents by now) that they will come and rescue the financial markets any time there is a big event.

2. So expect Fed and US Government to get involved and shore up the markets if there is a big event. It may not happen overnight, but 3-6 months is all they take to pump the markets back up. Fed will bring the rates to zero and Congress will just print $2T - $3T stimulus every 2-3 months until markets float back up.

3. No President (or US Government for that matter) wants to preside over a declining market. Especially when the solution is as simple as passing a new Bill that takes just 6-10 days if President's party is in power.

Now with this background, if you stay in Money Market, basically you are invested in Negative yielding assets. You are losing purchasing power every single day, just by holding money in MM.

Only you can decide when and how to get back in the market. My suggestion would be to start buying every day or every week in chunks until you reach your desired Asset Allocation for equities.

 

[ejman]

Will the "other shoe" ever drop? Easy answer - yes it will. When? we'll know after it has happened maybe tomorrow, maybe 10 years from now. I understand where OP is coming from however. For the first time since I retired almost 20 years ago I got scared and deviated from my 50/49/1 to a 40/50/10 in 3Q 2020. Not as drastic a move as OP but still I have no idea when to get back in and that 10% cash feels like an anchor. Over the last few months my stock funds have grown to where currently I'm at 45/45/10. Averaging back in over a period of time seems as reasonable as anything but I keep thinking the market seems so high and bonds are paying so little decisions decisions.

 

[W2R]

To calm the young wife, I trimmed our sails and went cash heavy (about 50%) in the spring of 2020. Starting 1/1/21, I have been putting that money back in the market => $60k every two weeks. Yes, we'd have more now if we had stayed fully invested, but the value of domestic tranquility cannot be underestimated.

Gumby's method is a great way to get cash back into the market without market timing. DCA(or DVA).

 

[RetireeRobert]

Will the "other shoe" ever drop? Easy answer - yes it will. When? we'll know after it has happened maybe tomorrow, maybe 10 years from now. ................. but I keep thinking the market seems so high and bonds are paying so little decisions decisions.

+1

Market is historically very highly valued, and length of bull market is unprecedented. Other shoe will drop.

 

[audreyh1]

Yes, but only after everyone has finally given up.

More reason just to stick with an AA and rebalance as needed.

I don’t really like having a ~50% equity exposure with markets so very highly valued, but I don’t know how to do any different.

 

[RobbieB]

Yeah, if you want to feel "safe" dollar cost average it in over a year or 2.

 

[MuirWannabe]

Yes, but only after everyone has finally given up.

More reason just to stick with an AA and rebalance as needed.

I don’t really like having a ~50% equity exposure with markets so very highly valued, but I don’t know how to do any different.

I don’t mind the 50% equity exposure. But no more than that for me. The question is what to do with the other 50%. And there are no good answers for that. None that are much better than plain old cash

 

[street]

Like RobbieB, DCA is the best strategy going forward. It will take some of the sting out of trying to get back in.

If I ever get out, I will have made my mind up, to never get back in. The best strategy is stay in and never get out. I have seen so many through the years sell when high, and then just like we have seen things go higher, and really they lose. Stay Pat has done well for me, and I could never imagine not being in the game, win or lose.

 

[audreyh1]

I don’t mind the 50% equity exposure. But no more than that for me. The question is what to do with the other 50%. And there are no good answers for that. None that are much better than plain old cash

The fixed income just doesn’t bother me. It’s ballast. I generally leave it alone and rebalance between durations including cash as is warranted.

 

[Dd852]

To calm the young wife, I trimmed our sails and went cash heavy (about 50%) in the spring of 2020. Starting 1/1/21, I have been putting that money back in the market => $60k every two weeks. Yes, we'd have more now if we had stayed fully invested, but the value of domestic tranquility should not be underestimated.

You are a wise man - domestic peace has a 89.7% allocation in my AA! (I like a little danger...)

 

[foxfirev5]

Sounds to me like you need a plan. What are your expenses? How do pay them once you both quit working ? A couple of years to full retirement is not very long. My suggestion is to cover your anticipated expenses with safe investments. I use ladders of CD's, Treasuries and Series I bonds totaling approximately 30X annual expenses. Any income produced is my inflation adjustment.

Once your needs are covered put the rest in equities/riskier investments and come back in 10 years. Easy for me to say but it took me 5 years of retirement to figure it out.

 

[kcowan]

We have an 80/20 mix. It was not always that way. It got that way when we stopped rebalancing. So far it has worked.

Naturally we are heavily exposed to the vagaries of the S&P500. We liquidated a bit to increase our exposure to real estate in 2019 by $500k along the lines of Blow that Dough on something we can enjoy now.

My theory is that cheap money from The Fed will continue to juice the equity market. Now that theory is suspect now that they are doubling the rate? So maybe it has to be more dramatic?

The continuing uncertainty in US politics is bound to have an impact. New administration's budget Is inflationary just like the old one was so that will continue the upward pressure. But if the pandemic did not stifle the growth, what will it take?

I think we are left with the rate of recovery in the economy..,I am willing to bet it will continue to be positive with occasional hiccups along the way.

So I am betting on the success of vaccines to fuel the recovery. We just got our second Pfizer shots and I can tell you that we have a sense of relief like we have not had since I paid off the mortgage!

So we will be watching The Fed rates and inflation as key drivers and may shift back to other sectors that have been laggards.

We might shift our mix towards retail and industrial during the pandemic recovery phase. But it will be gradual.

 

[donheff]

Last March I was tempted to move a significant amount to cash as Covid took off. Luckily the drop came before I could take the opportunity and then my ER.org training kicked in and I stayed put and even bought about $200K in equities at a low point. Just before I opened this thread I was looking at my spreadsheet and noted to DW that our portfolio is up over 50% from the nadir a year ago.

There will be a big drop again at some point, maybe Covid variants will overcome the vaccines, maybe inflation will finally take off, maybe something totally unexpected will whack us (nanoparticle gray goo?). I am not going to try to time it. I read recently that if you missed a critical week of the last recovery you missed 36% of the rebound. Just stay put and hope for the best. If the worst happens and everything collapses we will have lots of company in our misery.

 

[Golden sunsets]

This bull market started on March 23, 2020, after the markets dropped 34% due to Covid. So this bull market is not old, rather, quite young. The markets "seem" overvalued at the moment, but with the light at the end of the tunnel on Covid growing by the day and the new stimulus about to jumpstart GDP growth not seen in decades, with predictions that it will last into 2024, and the possibility of infrastructure further stimulating growth, I don't see a major pullback as likely in the near term. (Famous last words[emoji857])

There are always unpredictable black swan events that occur, but we can't really plan for those. Going to cash was your mistake. Staying invested in line with your ISP, rebalancing on the pullbacks, like last March, would have you sitting pretty at this moment. Perhaps this should be your lesson learned.

Having said that our AA is and has been 50/50 for a while now, so our exposure is limited. Our problem is the 50% fixed income side of our portfolio.

 

[Jerry1]

DCA seems like a good plan, but let me suggest an all at one time approach. If you sat down with an advisor today, most likely they would work with you to formulate an asset allocation based on your risk tolerance. Then, you’d implement that plan. You would probably discuss DCA, but since you’ve settled in on your risk tolerance, you’d likely just implement your plan.

One thing the OP gets from the action they took was a better understanding of their risk tolerance. I agree with UnrealizedPotential that understanding your risk tolerance and deciding on an asset allocation is the most important thing. How you implement it DCA or all at once, isn’t as important. What does it matter if the market tanks the day after you go all in or if it tanks two years from now after you’ve DCA’d back in? Probably not much.

 

[sengsational]

First of all, thanks to the OP for putting this up to remind us all the reason not to panic out of the market... getting out is easy. It's that getting back in part that's hard.

I diverge from others on the dollar cost averaging back in. DCA only "works" with new money (earned), IMO. If you have a pot of cash that you're dribbling into equities, you're continually changing your asset allocation target (challenging the first principle of 'never' changing AA).

My approach would be to admit failure and execute whatever transactions required to match my AA target, all in one day. If the market went directly down from there, well, that would be bad. But it could go directly up too. Nobody knows. It's like taking off a band-aid.... just rip it off and get it over with. Once it's done, no matter what happens in the market, you'll find peace with it eventually.

 

[perez99]

First of all, thanks to the OP for putting this up to remind us all the reason not to panic out of the market... getting out is easy. It's that getting back in part that's hard.

I diverge from others on the dollar cost averaging back in. DCA only "works" with new money (earned), IMO. If you have a pot of cash that you're dribbling into equities, you're continually changing your asset allocation target (challenging the first principle of 'never' changing AA).

My approach would be to admit failure and execute whatever transactions required to match my AA target, all in one day. If the market went directly down from there, well, that would be bad. But it could go directly up too. Nobody knows. It's like taking off a band-aid.... just rip it off and get it over with. Once it's done, no matter what happens in the market, you'll find peace with it eventually.

1000+

 

[Markola]

This is one of the reasons why we put all of our assets under the management of a Vanguard advisor, who has them in a fairly conservative 50/50 allocation of index funds. I couldn’t panic and fiddle, even if I wanted to.