Frothy market, anyone positioning for a drop?

RetireAge50 said:
On average stocks double about every 7 years. If they get a little overvalued then maybe it will take 8 or 9 years to double again. I'm good with that so I hang on to stocks.

Since we started investing 35 years ago stocks have averaged 10.4%. A little higher than the historical average of 10% so I adjusted my future stock return expectation to 9.3%.
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Oh if only the market would just be "average" every year. This investing stuff would be so easy. It's those 30-40% down years that pop up every once in a while that can really torpedo a portfolio. I read so many posts on here from smart people that say "steady as she goes, I set it and forget it and I've made a ton of money".

I just wonder how these same folks made it through the bear markets of 2001-2003 and 2008-2009 watching their portfolio go down in value day after day for months and years.... I guess I just don't have the same risk tolerance and should adjust my AA accordingly.
 
explanade said:
Their wage demands are interesting too, high double-digit percentage over the life of the next contract, which is like 4-6 years.


But an escalated war in the Middle East might roil the markets for awhile, unless there is some sustained disruption of oil from the Gulf.
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My Neighbor is in that Union. Their opening demands are 77% over a 7 year contract, or about $5 an hour raise for each year. They haven't had to strike for wages since 1977.
The sticking point these negotiations will be the "No Automation" clause.....that's a non-starter.

Interesting to note that the Head of the ILA Union is paid $770K per year on the books. Lord only knows what he gets 'under the table'.
 
Ballhawker said:
I just wonder how these same folks made it through the bear markets of 2001-2003 and 2008-2009 watching their portfolio go down in value day after day for months and years....
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I probably set aside more in cash than many here. During those downturns, my attitude was "Yay, a buying opportunity!" Morgan Housel has outlined an approach that goes something like "Market down 10%? I invest 10% of my cash into it." If down more. invest more. As you said, the market does not follow a straight average line, so keep some cash on hand for the inevitable downturns.
 
Ballhawker said:
Oh if only the market would just be "average" every year. This investing stuff would be so easy. It's those 30-40% down years that pop up every once in a while that can really torpedo a portfolio. I read so many posts on here from smart people that say "steady as she goes, I set it and forget it and I've made a ton of money".

I just wonder how these same folks made it through the bear markets of 2001-2003 and 2008-2009 watching their portfolio go down in value day after day for months and years.... I guess I just don't have the same risk tolerance and should adjust my AA accordingly.
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It was awful... downright awful! In 2000-2002, I felt some compensation in the sense that my salary was increasing nicely, and all spare cash went into the market... the "buying opportunity" mantra. By 2007, the S&P 500 had just barely recovered to the prior highs of 2000, and I was mentally absolutely unready for another drop. It really, really hurt.

Today, being semi-retired, my running-savings are zero. There are no resources to take advantage of a "buying opportunity". Not a cheery feeling!
 
Ballhawker said:
I just wonder how these same folks made it through the bear markets of 2001-2003 and 2008-2009 watching their portfolio go down in value day after day for months and years.... I guess I just don't have the same risk tolerance and should adjust my AA accordingly.
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I find it easier when I do not look day after day.

When I was working I would total up the assets once a year. With more time on my hands now, I look monthly.
 
GrayHare said:
I probably set aside more in cash than many here. During those downturns, my attitude was "Yay, a buying opportunity!" Morgan Housel has outlined an approach that goes something like "Market down 10%? I invest 10% of my cash into it." If down more. invest more. As you said, the market does not follow a straight average line, so keep some cash on hand for the inevitable downturns.
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Great thought - having dry powder is not a bad idea when markets are as expensive as they are today. Perhaps this is a good time for me to take some profits and sit on a bit of cash, just in case. Not wholesale abandon ship, but perhaps 10-15% to bring my AA down to about 50/50. Especially since I know my own risk tolerance isn't very high. It's only a good strategy for me personally if I know I can weather the inevitable storms.
 
Ballhawker said:
I just wonder how these same folks made it through the bear markets of 2001-2003 and 2008-2009 watching their portfolio go down in value day after day for months and years.... I guess I just don't have the same risk tolerance and should adjust my AA accordingly.
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Made it through OK. Rebalanced when warranted. Took advantage of tax loss harvesting when possible. Didn’t watch the markets every day. Didn’t change my AA. Had plenty available to cover my expenses for the next year or so, so it didn’t matter that much.

After living through those two extended bear markets I became quite inured to the stock market drama.
 
Ballhawker said:
.....

I just wonder how these same folks made it through the bear markets of 2001-2003 and 2008-2009 watching their portfolio go down in value day after day for months and years.... I guess I just don't have the same risk tolerance and should adjust my AA accordingly.
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I was working, so felt I was now investing in 401K as things were on sale. Also appreciated my job more!

For one of those times, I borrowed $50K and invested it , sold it a few years later for $30 profit after paying off loan + interest.
 
Sunset said:
I was working, so felt I was now investing in 401K as things were on sale. Also appreciated my job more!
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If there is anything I felt I valued from the financial advisor I had at the time it was the "coaching" aspect of the relationship, where he would reassure me in the downturns that I was now buying into the market at a low, and that if I just keep putting money into the 401k steadily through the downturns and inevitable recoveries I would be okay in the end. (It's funny that he never called me when the market was on a tear to "reassure" me that I should keep putting money into the 401k then, too.) So I stayed the course, kept a somewhat conservative AA (judging from what I read here sometimes), and what has accumulated since I was 22 is apparently just maybe enough now, says FIRECalc, etc. But this is the Active Investing forum, and I'm respectful of those who believe they know when to move money around.
 
I remember in the 2008 time people here talking about being down various nice car amounts - like new Ferrari dollars. Then there was the two comma club, a bit more rarified group. I just kept collecting rent and paying bills and wishing I could retire & stop fixing toilets. It was a horrible time to sell though.
 
Ok so today I ratcheted down my 457(b) pre-tax account equities today. My new AA is 50% Equities /30% Bonds /20% Cash. I am fine with potentially missing out on some big stock market gains in exchange for mitigating risk of steep declines at this stage of my life.

Also an important factor is that starting now I am no longer contributing to my pre-tax account. Which means there is no longer the dollar cost averaging through a big downturn that would have been possible mid-career.

This also will help me feel more comfortable with market volatility. And luckily with this new AA I am still at 100% firecalc success rate due to multiple income streams. This is a big one. Why take excess risk if you don't have to?
 
For relative insight, we are sitting on millions in cash. I had to have a consult with my longest term friend today, as I was feeling a little over balanced in MM fund. FWIW, he managed the investments for a very wealthy pair of Libertarian brothers, and knows risk management. I can't say more, but he is very well informed.

We hold significant real estate, and really do not need to do anything but keep ahead of inflation at our age.

My takeaway today was a mix of no need to play the game, look at what Ken Griffen and others are saying and doing etc. Something big will happen, and life is too short to recover. As for where to put it, the one thing that is safest is Treasuries (not funds, actual t-bills and notes, but mainly short term). Yes, Agencies are fine if you accept the calls, but don't go too long. With the risk of rates going higher, do not go long on Corp Bonds at this time, being a bit contrarian. Also we can consider, if inflation is truly down to 2.4%, then we are beating it with 4.7% t-bills for now. It is very likely that a supply shortage will occur causing a similar inflation cycle, and the Fed will have to control it with the tools they have. History does repeat. This all coupled with why buy any higher risk, at these valuations. He advised we play the buy/write game with SPY (like many others do) to get returns when the VIX is >30, and that has worked out well.

So to the point, we are fairly well positioned for the coming drop, and fine if it does not happen......
 
Ballhawker said:
Oh if only the market would just be "average" every year. This investing stuff would be so easy. It's those 30-40% down years that pop up every once in a while that can really torpedo a portfolio. I read so many posts on here from smart people that say "steady as she goes, I set it and forget it and I've made a ton of money".

I just wonder how these same folks made it through the bear markets of 2001-2003 and 2008-2009 watching their portfolio go down in value day after day for months and years.... I guess I just don't have the same risk tolerance and should adjust my AA accordingly.
Click to expand...
If the market was just average every year, it would be predictable and "safe" and yield less without the risk premium....

Those bear markets taught me that I can't time the market and it's super easy to hold steady today due to those lessons. I was in accumulation stage and the early 2000's was a sale for me. In 08/09 I stayed invested but did loss harvesting. Every time I sat on cash when I thought the market was frothy I never got a chance to buy in lower. I didn't "lose" money but the opportunity cost was substantial. ~100% equity now and don't sweat it at all. Watching the markets is just entertainment.
 
FLSUnFIRE said:
If the market was just average every year, it would be predictable and "safe" and yield less without the risk premium....

Those bear markets taught me that I can't time the market and it's super easy to hold steady today due to those lessons. I was in accumulation stage and the early 2000's was a sale for me. In 08/09 I stayed invested but did loss harvesting. Every time I sat on cash when I thought the market was frothy I never got a chance to buy in lower. I didn't "lose" money but the opportunity cost was substantial. ~100% equity now and don't sweat it at all. Watching the markets is just entertainment.
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The Bear market of the 1970s and early 80s taught me the value of not panicking and stayingto the course. . But, it also taught me to have a safety cushion. As mentioned before the US market did not return to break even in real terms until 1990. That’s a long time to wait for a retired person in their last decade or two on this planet. I recommend a thick security blanket. My two cents. YMMV.
 
Chuckanut said:
The Bear market of the 1970s and early 80s taught me the value of not panicking and stayingto the course. . But, it also taught me to have a safety cushion. As mentioned before the US market did not return to break even in real terms until 1990. That’s a long time to wait for a retired person in their last decade or two on this planet. I recommend a thick security blanket. My two cents. YMMV.
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Back testing shows I'd survive the 70's.... Most here would call me overly conservative in my WDR even all in equities. During accumulation phase it can be very costly to stay out of the market... one should have been buying like mad during the 70s and early 80s... and 90s and 00s. Once dependent, or close to dependency, on the funds more conservatism should be built in. My biggest threat IMO is inflation, I hedge that by being in the market and hedge a crash with a low WDR and flexible spending.
 
Happyras said:
For relative insight, we are sitting on millions in cash. I had to have a consult with my longest term friend today, as I was feeling a little over balanced in MM fund. FWIW, he managed the investments for a very wealthy pair of Libertarian brothers, and knows risk management. I can't say more, but he is very well informed.

We hold significant real estate, and really do not need to do anything but keep ahead of inflation at our age.

My takeaway today was a mix of no need to play the game, look at what Ken Griffen and others are saying and doing etc. Something big will happen, and life is too short to recover. As for where to put it, the one thing that is safest is Treasuries (not funds, actual t-bills and notes, but mainly short term). Yes, Agencies are fine if you accept the calls, but don't go too long. With the risk of rates going higher, do not go long on Corp Bonds at this time, being a bit contrarian. Also we can consider, if inflation is truly down to 2.4%, then we are beating it with 4.7% t-bills for now. It is very likely that a supply shortage will occur causing a similar inflation cycle, and the Fed will have to control it with the tools they have. History does repeat. This all coupled with why buy any higher risk, at these valuations. He advised we play the buy/write game with SPY (like many others do) to get returns when the VIX is >30, and that has worked out well.

So to the point, we are fairly well positioned for the coming drop, and fine if it does not happen......
Click to expand...
Follow the money. The ultra rich have their money in money market, over 6 trillions.
 
The point made was the risk in MM accounts gives no more yield than holding T-bills individually, which is the lowest risk. MM have some credit risk.
 
This doesn’t really count as “positioning for a drop” but DW and I are going to skip putting new money into the market while it’s at all times highs and instead build up a fund that will pay for our next four big travel adventures.

It’s in the spirit of “if you want to use the money in the next few years, it doesn’t belong in the stock market.”

If the market tanks, yay for me, I’ve got the money set aside to pay for the travel.

If the market climbs higher I’ve given up a bit of gains but it’s not life changing.
 
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