For the first time ever I sold all my stocks

[njhowie]

Can you or anyone tell me about the Vanguard Short Term Federal Fund Admiral Shares (VSGDX). I am thinking that may be better than CDs for my cash in my Vanguard IRA since I may not want to tie up the cash too long. Thanks.

If it's not cash/CD or similar it can lose value.

If your money is in VSGDX, it can go down in value, more than the monthly payouts you collect.

 

[bmcgonig]

+1. I tend to agree with this opinion after reading quite a few posts on different threads and notice how the tune of investment management drastically changed on this forum since this February.
Some people feel offended. Other people call the above comment judgmental or arrogant. And I think they feel it that way because they try to justify their own emotions or decisions they made recently.
Imagine if we didn't have the current problem going on. Would anyone say that it's time to sell all equities and go to cash or bonds? Barely anyone thought that they had 'won the game' before the pandemic and the collapse of economy began.

It merely shows that investing is definitely ruled by emotions and that's been proven by all those behavioral experts out there and there is nothing to be upset or offended about. We cannot help it how we're wired in our brains.

I read not long ago that real and painful events help to assess one's risk tolerance, not those silly questionnaires asking "how would you feel if equities fell 50-60%?" because it doesn't feel that painful when the stock market and economy are chugging along just fine. It's totally different when you need money to live on, and the piggy bank is slimming rapidly.

If COcheesehead had reworded his post a bit differently and said that the current situation is testing everyone's risk tolerance, people wouldn't have thought that s/he was demeaning

The implication is that you should be an automaton with a plan that says never sell even if you feel you've won the game.

Let's say it's 1929 and the Dow is at 370 and you're just retired. By mid 1932 it's down to 50. Down almost 90%.

So removing all emotions, the obvious one being fear, at what point in that 90% drop do you think it's fine to say "enough". Is it when you're down 30%, 50%, 80%? The implication is we never say "enough". We just hold until we have 10% left?

We have the emotion fear for a reason. Sometimes what's rattling behind the bush really is a snake. Even though the chances are that it's just a field mouse.

 

[2177V]

I am in my late 60s and I have been buying mutual funds for almost 40 years. I have had a stock fund/bond fund allocation that I have stayed with through thick and thin--through all the recessions, through 9/11, etc. But today I sold all my equities and moved the money to a money market fund for now (it was all in my IRA so no tax consequences). I have never been a market timer but there is something about the market now that just does not seem right to me. I recouped all most all my losses from March and April and just got out. I don't see anything good to come in the near future and at my age I just decided to not take any more risks.

I will decide what to do with all the money market funds in the near future--CDs? Bonds? Treasuries? but I just don't think stocks are the right place for me to be now.

Smart move. The market P/E ratio indicates the market is over valued. In the 2nd quarter, corporate earnings will drop further and this will worsen the P/E ratio. Another crash may be coming when investors realizes that the P/E ratio is too high, bankruptcies are occurring, unemployment will continue to rise, the virus is not going away, and the economy is not coming back because people do not want to spend money. A lot of people are also thinking this way including Warren Buffet who sold his airline investment to increase his cash position. Your statement of "I don't think stocks are the right place for me to be now" is absolutely correct IMO. I suggest 6 month CD since cash is king. In 6 month we will know if the second crash had occurred or not. It may be tempting for you to go back into the market if the dow is below 20,000 in 6 months from now.

 

[BeachOrCity]

Regarding negative retail deposit interest rates. I agree that for market sentiment purposes they won’t want to have a negative headline.

But what I do think they might end up doing is giving you 0% and then charging a 10 or twenty dollar account service fee monthly. That would work out to negative 1/8 or -1/4% on a 100k account.

 

[clobber]

Let it sit in Ally savings account of no-penalty CD so you have immediate access to it when the time comes for using it or putting it in to some other investments.

I'm just going to throw this out there since CDs from Ally and similar keep getting mentioned. How strong are these banks? I keep assuming these banks have higher rates because they have lower costs due to being online only. Maybe they actually have higher risk too?

 

[REWahoo]

I'm just going to throw this out there since CDs from Ally and similar keep getting mentioned. How strong are these banks? I keep assuming these banks have higher rates because they have lower costs due to being online only. Maybe they actually have higher risk too?

As long as you stay under FDIC limits it doesn't really matter.

 

[gwraigty]

I'm just going to throw this out there since CDs from Ally and similar keep getting mentioned. How strong are these banks? I keep assuming these banks have higher rates because they have lower costs due to being online only. Maybe they actually have higher risk too?

DH and I banked with Ally Bank for several years before we decided to just stick with the banking options at Fidelity and Schwab. We had no issues at all with Ally Bank and I feel comfortable in recommending them to anyone. Our kids still bank with Ally Bank. Our daughter had someone try to fraudulently use her debit card number and Ally Bank blocked it and notified her before she was aware it had happened. She got a replacement card in just a couple of days. I call that great customer service.

Here's a review:

Ally Bank Review 2020

 

[pb4uski]

Regarding negative retail deposit interest rates. I agree that for market sentiment purposes they won’t want to have a negative headline.

But what I do think they might end up doing is giving you 0% and then charging a 10 or twenty dollar account service fee monthly. That would work out to negative 1/8 or -1/4% on a 100k account.

Perhaps, but I would think that competition would result in downward pressure on fees even if the interest rate is zero... just like competitive pressure has made fees close to extinct today.

 

[pb4uski]

As long as you stay under FDIC limits it doesn't really matter.

+1

 

[Fermion]

Saffron is a bit more expensive than gold per ounce, something around $2000 per ounce.

 

[clobber]

+1

But if I'm not?

 

[pb4uski]

Then you are taking on credit risk when it can easily be avoided.

But to answer your original question, my understanding is that the online banks can offer better rates principally because they avoid bricks and mortar costs of traditional banks. I haven't looked at their financials but I doubt that they are higher risk.

But you can check it out for yourself: https://www.ally.com/files/sections/investor/pdf/2019-10k.pdf

 

[clobber]

Ally Bank Review 2020

That review is mostly of their rates and services. What about the strength of the bank?

I'm not saying it is not strong or riskier than anywhere else. Wondering how to know?

 

[stephenson]

I don’t trade MFs much, but was surprised by the fact that Vanguard doesn’t allow changes on an order prior to close ... did I read all this correctly?

Then, if I did read it all correctly, why would someone continue to buy Vanguard funds when there are other funds that allow full flexibility prior to closing?

I’m not trying to pump up any other company - disclosure - I am about 60% Fidelity management (some Fidelity funds, but mainly them holding my other funds), and 40% Vanguard of Vanguard funds.

 

[gwraigty]

That review is mostly of their rates and services. What about the strength of the bank?

I'm not saying it is not strong or riskier than anywhere else. Wondering how to know?

The site has changed quite a bit since I last used it to look up the strength and safety of banks. They used a star rating to reflect the strength and safety of the banks. I thought the 4.4 star review of Ally Bank might still be applicable, but maybe not.

Try this:

https://www.bauerfinancial.com/star-ratings/?ref=#2-loadhere

Type Ally Bank into the institution name field in the middle.

 

[Whisper66]

.....why would someone continue to buy Vanguard funds when there are other funds that allow full flexibility prior to closing?.....

Good question. For me....
(1) Very low cost funds (everything I own are Admirality level index funds, very low cost)
(2) Have received excellent service on anything I've asked for
(3) Simple to understand web site which I can do all regular transactions that I wish to do on it.
(4) That flexibiity you mention is not something that is of importance to me. When I get ready to buy / sell a fund, I put the order in near the end of a day that I'm ok with the movement of the market. No big deal for long term buy / hold kind of person like myself.
(5) Thought about switching to equivalent Vanguard ETF's but honestly haven't seen enough benefit to overcome inertia. I suppose if I were starting over, I'll probably buy the equivalent ETFs if they were available.
Just one person's viewpoint of course....

 

[MRG]

Then, if I did read it all correctly, why would someone continue to buy Vanguard funds when there are other funds that allow full flexibility prior to closing

I don't trade anymore but if I wasn't sure about a trade I would NOT enter it till just prior to the close. No problem.

 

[VanWinkle]

Good question. For me....
(1) Very low cost funds (everything I own are Admirality level index funds, very low cost)
(2) Have received excellent service on anything I've asked for
(3) Simple to understand web site which I can do all regular transactions that I wish to do on it.
(4) That flexibiity you mention is not something that is of importance to me. When I get ready to buy / sell a fund, I put the order in near the end of a day that I'm ok with the movement of the market. No big deal for long term buy / hold kind of person like myself.
(5) Thought about switching to equivalent Vanguard ETF's but honestly haven't seen enough benefit to overcome inertia. I suppose if I were starting over, I'll probably buy the equivalent ETFs if they were available.
Just one person's viewpoint of course....

+1 This list would match the reasons for Vanguard Brokerage account as well.

 

[pb4uski]

.... Then, if I did read it all correctly, why would someone continue to buy Vanguard funds when there are other funds that allow full flexibility prior to closing? ...

Because if you only make a few trades a year the downside of a little inflexibility is overwhelmed by the benefit of lower expense ratios.

 

[stephenson]

Im seeing the same ERs with Schwab and Fidelity ... granted, at the time I started investing Vanguard was the low ER leader ... is this still true?

 

[2177V]

I'm just going to throw this out there since CDs from Ally and similar keep getting mentioned. How strong are these banks? I keep assuming these banks have higher rates because they have lower costs due to being online only. Maybe they actually have higher risk too?

If the bank is FDIC insured, it does not matter.

Here is a Q&A on the internet about FDIC that I copy and pasted below.....

Q: How do you know if a bank is FDIC insured?

A: To determine if a bank is FDIC-insured, you can ask a bank representative, look for the FDIC sign at your bank, call the FDIC at 877-275-3342, or you can use the FDIC's BankFind tool.Mar 24, 2020

 

[pb4uski]

vchan, not sure if you saw it but clobber indicates that his deposits exceed the FDIC limits, hence his concern with Ally's financial strength.

 

[audreyh1]

That review is mostly of their rates and services. What about the strength of the bank?

I'm not saying it is not strong or riskier than anywhere else. Wondering how to know?

Depositaccounts.com gives the published ratings for all the banks they cover. You can compare them.

 

[MRG]

Im seeing the same ERs with Schwab and Fidelity ... granted, at the time I started investing Vanguard was the low ER leader ... is this still true?

The big 3 are all bunched together on ER today. Around the '08 crisis Vanguard took a bunch of business from most fund companies and the other 2 lowered their rates to compete. The remaining funds don't compete on price due to their internal costs.

Vanguard does everything I need them to do. I also feel very comfortable with their support. I had the opportunity to visit many financial services companies during my career and have strong impressions on many of them. You don't care about support until SHTF. There are places I won't do business with because I don't believe they have the resources to handle major issues.

 

[Out of Steam]

We backed down from 40% stocks to about 20% in retirement accounts after the first step back up in late March. I'm comfortable with that allocation.

If the S&P closes below its March low, I plan to feed some money back.

As far as what to do with cash, we have a small mortgage we can accelerate payments on.