Investing in this market

[RunningBum]

My point is, if someone inherits cash, an automatic suggestion made by many is to DCA in. But if someone inherits investments, rarely does someone suggest they sell it all and DCA back in even though with stepped up basis one could easily do so. The starting position in both cases really isn't different, yet they are usually treated very differently.

 

[Freedom56]

I don't get it. I went to my Schwab account and pulled up the Seagate CUSIP 81180WAH4. The best YTM offered was 3.658%

Take a look at the trace data. Brokerage firms make their money from fixed income trades through the bid/ask spreads. This is why you should place limit orders. Call the bond trading desk and ask them to place a limit order to get the yield you want. With Fidelity you can enter the limit orders directly. With Schwab who claim to have commission free bond trades, they are in effect taking about 1 1/2% commission by overcharging.

 

[TheWizard]

My point is, if someone inherits cash, an automatic suggestion made by many is to DCA in. But if someone inherits investments, rarely does someone suggest they sell it all and DCA back in even though with stepped up basis one could easily do so. The starting position in both cases really isn't different, yet they are usually treated very differently.

Many people who inherit assets do not have working familiarity with investing in a taxable account. I personally didn't until after I retired.

And then some folks who inherit stocks attach a personal connection to it, from the person who passed.
My parents did this decades ago after Grandpa died: that Westinghouse stock was a legacy thing that produced dividends and certainly couldn't be sold...

 

[Freedom56]

It's a matter of time before the oil bubble collapses. We have Russia selling oil to China and India at $70 barrel. So as those and other countries ignore sanctions and buy discounted oil, the demand for Middle East and North Sea oil will drop causing an oversupply. Speculators that have been driving oil prices up are going to get burned. You can have oil on the market selling at steep discounts and expect countries to pay higher prices. It just won't happen over the long run.

 

[copyright1997reloaded]

It is actually a 3% real yield gives a 5% SWR, 1.3% real = 4% SWR and 0% real yield = 3.33%. This is for individual bonds only, not funds. Current real yields are here: United States Rates & Bonds - Bloomberg, .45% to .83% today and on an upward trend all this year.

You can buy TIPS at Fidelity within a brokerage or retirement account. You just go to the trade fixed income screen. The simplest way is to wait for the auctions. The schedule is on the Treasury Direct site, or you can sign up for the Fidelity newsletter on bond offerings and the TIPS auctions are included.

I'll probably do some nominal bonds, too, as those are a better deflation hedge. And stocks if the prices get low enough. But for the money we need for retirement expenses, that is all covered by SS, pensions and a TIPS ladder.

If we get TIPS in the 3% real rate, I would be tempted to move my entire 401K into a self-directed IRA to purchase a bunch of these.

 

[daylatedollarshort]

If we get TIPS in the 3% real rate, I would be tempted to move my entire 401K into a self-directed IRA to purchase a bunch of these.

A couple of our 401ks actually let us purchase TIPS. If you have not done so already, you might want to check your plan's investment choices. Some allow for a brokerage account option with individual bond purchases.

 

[Chuckanut]

You brought up a good point about depreciation by inflation. Add that in, and it hurts that much more.

Are we done yet? Wanna add in real estate values? Home prices will crash soon, with mortgage rate more than doubling from 3% to 7.1% now.
.

Crash? I think not. There is still a huge shortage of housing units in the USA. Four million that last time I checked. Prices may get softer and probably may go down somewhat. But crash? I doubt it. Though I do admit if I was a[-] speculator[/-] investor betting on the bigger fool theory to bail me out, I would be sweating.

 

[OldShooter]

If we get TIPS in the 3% real rate, I would be tempted to move my entire 401K into a self-directed IRA to purchase a bunch of these.

Remember that if that happens, plain Treasuries will be yielding more YTM. TANSTAAFL.

 

[copyright1997reloaded]

A couple of our 401ks actually let us purchase TIPS. If you have not done so already, you might want to check your plan's investment choices. Some allow for a brokerage account option with individual bond purchases.

I have a bunch of $ in TIPS fund (and have had it for a long long time), but no individual choices.

I've keep my ex-mega-corp $ there because the charges were unbelievably low. For example, the gross expense level on the tips fund is 0.02%, 0.03% on Lg Cap Value, etc.

Because of this, most of my "passive" index oriented $ are there.

My current employer (part of SUNY) has much higher expense ratios for everything other than a SP 500 passive fund...so I've been pretty much doing those Roth contributions just to that fund. It stinks but it is what it is (when I retire for the 2nd time I will move that money).

 

[Magus]

It's a matter of time before the oil bubble collapses. We have Russia selling oil to China and India at $70 barrel. So as those and other countries ignore sanctions and buy discounted oil, the demand for Middle East and North Sea oil will drop causing an oversupply. Speculators that have been driving oil prices up are going to get burned. You can have oil on the market selling at steep discounts and expect countries to pay higher prices. It just won't happen over the long run.

I wouldn't bet on this. There is a shortage of demand vs production globally and the US government is currently adding a lot of oil to the market from the SPR that will have to stop as well later this year. Additionally, a lot of the current oil supply was from investments started in 2019-2020 here in the US. There is very little investment in the US right now for obvious reasons, so our production will decline over the next few years. There is additional transportation costs with the reshuffle of oil to get around the oil embargos. Now, the world economy could go into a recession, but right now all the major financial players (IMF, UN, research analysts at banks etc) are forecasting ~3% global GDP growth. GDP growth requires more energy.

Now if the US & Euro blink with Russia and drop the embargos, you would likely see oil decline into the 70-90s again but at this point that would be quite embarrassing to them.

Here is a WaPo article on the SPR issue with oil
https://www.washingtonpost.com/busi...899c40-ee04-11ec-9f90-79df1fb28296_story.html

 

[Freedom56]

I wouldn't bet on this. There is a shortage of demand vs production globally and the US government is currently adding a lot of oil to the market from the SPR that will have to stop as well later this year. Additionally, a lot of the current oil supply was from investments started in 2019-2020 here in the US. There is very little investment in the US right now for obvious reasons, so our production will decline over the next few years. There is additional transportation costs with the reshuffle of oil to get around the oil embargos. Now, the world economy could go into a recession, but right now all the major financial players (IMF, UN, research analysts at banks etc) are forecasting ~3% global GDP growth. GDP growth requires more energy.

Now if the US & Euro blink with Russia and drop the embargos, you would likely see oil decline into the 70-90s again but at this point that would be quite embarrassing to them.

Here is a WaPo article on the SPR issue with oil
https://www.washingtonpost.com/busi...899c40-ee04-11ec-9f90-79df1fb28296_story.html

I personally would not use the Washington Post as a source of financial and commodity news. The futures market and commitment of traders is a better indicator of where oil prices are headed. We all saw what happens back in 2020 when speculators were too long in their positions and commercial traders who actually take delivery of oil were short. We had oil drop to -$40 a barrel. We are setting up for a rapid plunge down to $70 or lower. Another indicator is if the market truly believed in a long term oil shortage, money would be flowing into oil drilling stocks in anticipation of CAPEX increases by producers. However oil drilling/service stocks are still trading at multi-decade lows.

 

[Magus]

I personally would not use the Washington Post as a source of financial and commodity news. The futures market and commitment of traders is a better indicator of where oil prices are headed. We all saw what happens back in 2020 when speculators were too long in their positions and commercial traders who actually take delivery of oil were short. We had oil drop to -$40 a barrel. We are setting up for a rapid plunge down to $70 or lower. Another indicator is if the market truly believed in a long term oil shortage, money would be flowing into oil drilling stocks in anticipation of CAPEX increases by producers. However oil drilling/service stocks are still trading at multi-decade lows.

I don’t use the WaPo for even a top 10 source of financial news but in this case the story is very accurate. 2020 isn’t even remotely applicable as more than half the developed world literally shut down overnight.

And no one is going to drill in the current administration. Has nothing to do with wanting to, the time to develop, along litigation cost and shut down risk is simply way too high. You can debate the pros and cons of the stance probably forever, but when the president says "Number one, no more subsidies for fossil fuel industry. No more drilling on federal lands. No more drilling, including offshore. No ability for the oil industry to continue to drill, period, ends, number one." people are not going to invest in that.

 

[target2019]

My point is, if someone inherits cash, an automatic suggestion made by many is to DCA in. But if someone inherits investments, rarely does someone suggest they sell it all and DCA back in even though with stepped up basis one could easily do so. The starting position in both cases really isn't different, yet they are usually treated very differently.

Ok, it's clearer now. I personally wouldn't advise anyone to sell it all, without knowing most of their details. It may make great sense to do it right away in a taxable account. For other accounts there was no urgency, but it did weigh on me that a USAA S&P500 fund costs 10x's more that a Vanguard ETF investing in the same companies. Over a year or so we changed out those funds (in IRA's).

You may inherit assets that were invested according to a well-crafted plan. Why go to CASH in that situation? It will take some time to determine if the investments fit your plan, and so on. But at least take the time to analyze. That's not to say hold on to everything, like high-expense mutual funds.

 

[NW-Bound]

My point is, if someone inherits cash, an automatic suggestion made by many is to DCA in. But if someone inherits investments, rarely does someone suggest they sell it all and DCA back in even though with stepped up basis one could easily do so. The starting position in both cases really isn't different, yet they are usually treated very differently.

That's a very valid point.

Consider my own tax-deferred accounts. I can sell everything at once, or as fast as I can click on my mouse button. No tax liability. No trading fee. I can then DCA back in.

And the truth is that late last year, I had the feeling the market was topping out. I would have lost less money if I did the above. Instead, I reduced my stock AA a bit, then sold put options which slowly brought up my stock AA again.

The reason people don't do everything at once is because of inertia. Doing something all at once means you could be 100% right, but also 100% wrong. The joy of being right is less than the regret of being wrong.

So, most people like to do something that they feel they can live with the result, no matter how it turns out.

 

[RunningBum]

Ok, it's clearer now. I personally wouldn't advise anyone to sell it all, without knowing most of their details. It may make great sense to do it right away in a taxable account. For other accounts there was no urgency, but it did weigh on me that a USAA S&P500 fund costs 10x's more that a Vanguard ETF investing in the same companies. Over a year or so we changed out those funds (in IRA's).

You may inherit assets that were invested according to a well-crafted plan. Why go to CASH in that situation? It will take some time to determine if the investments fit your plan, and so on. But at least take the time to analyze. That's not to say hold on to everything, like high-expense mutual funds.

Right. I wouldn't advise to sell either unless I could see that someone was in clearly the wrong investment for them, or a high fee investment.

But yet when someone gets cash, why should they tiptoe into the market by DCA? How is this money different? If they don't know what to invest in, they certainly should park it somewhere safe while they figure it out, but that wasn't the message here. It was DCA, DCA, DCA.

 

[Freedom56]

I don’t use the WaPo for even a top 10 source of financial news but in this case the story is very accurate. 2020 isn’t even remotely applicable as more than half the developed world literally shut down overnight.

And no one is going to drill in the current administration. Has nothing to do with wanting to, the time to develop, along litigation cost and shut down risk is simply way too high. You can debate the pros and cons of the stance probably forever, but when the president says "Number one, no more subsidies for fossil fuel industry. No more drilling on federal lands. No more drilling, including offshore. No ability for the oil industry to continue to drill, period, ends, number one." people are not going to invest in that.

Now for some facts. Rig counts peaked in 2012 at about 2000 and then collapsed due to oversupply to about 400 in 2016 due to a price war started by Russia and OPEC who were determined to put shale producers our of business. Many drillers were forced into bankruptcy. It recovered to over 1000 in 2018 but began to fall to 772 prior to the pandemic under the previous administration. It then plunged to 339 rigs in 2020 after the lockdowns. Rig counts have been slowly recovering and are now actually higher at 721 not too far below where it was before the pandemic. You are spewing a lot of nonsense about the current administration restricting drilling. There are over a thousand sites with proven reserves that can be reopened without drilling at new sites. Rig counts were at 2000 10 years ago. There are many drilling existing sites that are operable but producers know that they if they repeat the mistakes of the past, they will flood the market once again. The market knows this and oil producers know that they don't have to increase CAPEX to the extent they have in the past when there are so many sites sitting idle.

https://www.eia.gov/todayinenergy/detail.php?id=43796

 

[madatrub]

While there are global supply and demand considerations, the real issue in the US right now is refinery production, not crude oil supply. We've been operating at a deficit of about 500,000 bbls/day since the Pandemic started. Some of those refineries are TRYING to start up their idled assets, but in many cases are waiting on restart permits from the EPA. Meanwhile, refinery shutdowns in Marcus Hook, PA, Eagle Point, NJ, Philadelphia, PA, Port Reading, NJ, and a bunch of others are never coming back, as they have been decommissioned and sold as scrap.

 

[Magus]

Now for some facts. Rig counts peaked in 2012 at about 2000 and then collapsed due to oversupply to about 400 in 2016 due to a price war started by Russia and OPEC who were determined to put shale producers our of business. Many drillers were forced into bankruptcy. It recovered to over 1000 in 2018 but began to fall to 772 prior to the pandemic under the previous administration. It then plunged to 339 rigs in 2020 after the lockdowns. Rig counts have been slowly recovering and are now actually higher at 721 not too far below where it was before the pandemic. You are spewing a lot of nonsense about the current administration restricting drilling. There are over a thousand sites with proven reserves that can be reopened without drilling at new sites. Rig counts were at 2000 10 years ago. There are many drilling existing sites that are operable but producers know that they if they repeat the mistakes of the past, they will flood the market once again. The market knows this and oil producers know that they don't have to increase CAPEX to the extent they have in the past when there are so many sites sitting idle.

https://www.eia.gov/todayinenergy/detail.php?id=43796

Nonsense? LOL It's a direct quote from Biden. There are many similar others from and others in leadership, not to mention court actions and executive orders. Yes there are a lot of rigs out there that have been approved already both in the prior admin and very early in this one including ones the court forced the current admin to allow - I already said that. There is a lot of inertia from the prior administration anytime a new president takes over on EVERYTHING and stuff you already have invested closer to the finish line you'll fight the good fight. But for new capital, the market is forward looking, not backward looking, as are all large companies when it comes to high capital investments with long investment time horizons. I will 100% gladly take the opposite side of that bet (financially, not touching the pros and cons of such an action politically at all).

 

[OldShooter]

... Doing something all at once means you could be 100% right, but also 100% wrong. The joy of being right is less than the regret of being wrong. ...

Excellent! This is exactly what the behavioral finance people tell us. We are risk-averse animals where losses pain us more than the pleasure we would get from an equivalent gain.

Now I understand DCA at a deeper level. I never thought about it from the behavioral viewpoint.

... But yet when someone gets cash, why should they tiptoe into the market by DCA? How is this money different? ...

@NW-Bound has explained. It isn't the money. It's the psychology. Risk aversion. We are Thaler's "humans" in this respect.

Thaler's "econs" OTOH would rationally invest 100% right away as the odds slightly favor a rising market during any DCA period.

Reference: Richard Thaler "Misbehaving." https://www.amazon.com/Misbehaving-Behavioral-Economics-Richard-Thaler/dp/039335279X One of several non-investment books that investors can learn from. Another important concept that bears on investing is the "endowment effect."

 

[corn18]

As I said before, everyone lump sums in every day they are invested. Why would anyone sell all of their Roth/tIRA/401k and then DCA back in? It's a distinction without a difference.

 

[purplesky]

I wouldn't bet on this. There is a shortage of demand vs production globally and the US government is currently adding a lot of oil to the market from the SPR that will have to stop as well later this year. Additionally, a lot of the current oil supply was from investments started in 2019-2020 here in the US. There is very little investment in the US right now for obvious reasons, so our production will decline over the next few years. There is additional transportation costs with the reshuffle of oil to get around the oil embargos. Now, the world economy could go into a recession, but right now all the major financial players (IMF, UN, research analysts at banks etc) are forecasting ~3% global GDP growth. GDP growth requires more energy.

Now if the US & Euro blink with Russia and drop the embargos, you would likely see oil decline into the 70-90s again but at this point that would be quite embarrassing to them.

Here is a WaPo article on the SPR issue with oil
https://www.washingtonpost.com/busi...899c40-ee04-11ec-9f90-79df1fb28296_story.html

Big oil is controlling production And controlling supply and controlling pricing all mixed in with a magical demand for oil number. lol
OPEC plus is grabbing as much money as possible out of the American middle class while they can as the game is changing.

It’s their fiduciary responsibility to their shareholders and blah blah blah. That’s fine I get it.

I find it amazing though that for decades big oil has been playing this game. The supply demand production game and the price gouging being blamed on a small insignificant oil refinery fire or some other ridiculous excuse to price gouge.

The American love affair with the automobile.

Yes the United States and Europe should ignore the unnecessary war that Russia started and drop The embargoes with Russia. .

Now that would be embarrassing.

 

[Magus]

Big oil is controlling production And controlling supply and controlling pricing all mixed in with a magical demand for oil number. lol
OPEC plus is grabbing as much money as possible out of the American middle class while they can as the game is changing.

It’s their fiduciary responsibility to their shareholders and blah blah blah. That’s fine I get it.

I find it amazing though that for decades big oil has been playing this game. The supply demand production game and the price gouging being blamed on a small insignificant oil refinery fire or some other ridiculous excuse to price gouge.

The American love affair with the automobile.

Yes the United States and Europe should ignore the unnecessary war that Russia started and drop The embargoes with Russia. .

Now that would be embarrassing.

Meh, oil company margins are around 8%, not that high, and no one was crying when oil barrels were selling at negative values in May 2020. Oil is the ultimate boom and bust - everyone hates them when it’s up and doesn’t care when it’s down. On average though their margins are below average and the US and state governments make more from gas than the oil companies do.

 

[MichaelB]

<mod note> Let’s please set aside the politics, folks, and not ruin this delightful discussion.

 

[madatrub]

Have been in the oil business for decades. Have never seen a case of this supposed "gouging".

 

[purplesky]

Meh, oil company margins are around 8%, not that high, and no one was crying when oil barrels were selling at negative values in May 2020. Oil is the ultimate boom and bust - everyone hates them when it’s up and doesn’t care when it’s down. On average though their margins are below average and the US and state governments make more from gas than the oil companies do.

I am talking big picture. We all know the big oil game. No silly numbers needed.

My entire adult life the American middle class has been fleeced by big oil.

Fiduciary responsibility and it's just capitalism. Thats fine.

I look forward to shopping at Costco while my car charges.