How do you tolerate the Peaks and Vallies? I'm having a hard time!

[free4now]

If you haven't saved up an emergency fund, or if you have some need for that money in the near future, you may be better off putting it in fixed income.  I remember losing a few hundred bucks on my first employee stock purchase when I was 22.  It was painful because I was selling the stock right away to get the employer 15% contribution and so that money was already spoken for.  

Most of us commenting on this matter have big nest eggs saved up and it's easy to get blase when that is the case.  But when I was just starting out at 22 and living paycheck to paycheck the stock market had a very real effect on my purchasing power that month.  If your situation is similar you might be better off not being in the market.

But there is something to be said for just getting used to it.  I think that only if you have watched small balances rollercoaster around will you be emotionally able to handle watching big balances whipsaw when you have saved up more.

 

[REWahoo]

I'm not seeing any CD's yielding 5%. Where are you seeing them....? I check bankrate.com usually.

Pentagon FCU...anyone can join. www.penfed.org

 

[cute fuzzy bunny]

If I were you I'd be less worried about my investment balances and more worried about Al talking about girding your loins

 

[TromboneAl]

-

 

[cute fuzzy bunny]

I honor and tip the hat to you Al for taking the time to do that, but I'm gonna have to take a point away for not finding the full sized picture I posted a few weeks ago...

 

[mickeyd]

I missed that one also. Does full-sized mean life-sized? Need to know if it is worth the trouble, thats all.

 

[TromboneAl]

It would be hazardous to my health to search through your last few weeks of posts.  I might read some by mistake.

 

[Sheryl]

I look at the daily swings, and they are often over $1,000 these days. It irritates me but I get over it. The one thing that does bug me is when I check off - even mentally - a particular milestone - $10,000 increment, or whatever - and then a few days later I fall back below it.

As long as the general trend is up, I'm happy. For the last 6 mos or so, I've been tallying monthly, and either due to increased savings, 401 matches, gifts, inheritances arriving, or sometimes even market gains, I'm always up nicely - so I'm happy. Life is good.

 

[cute fuzzy bunny]

It would be hazardous to my health to search through your last few weeks of posts. I might read some by mistake.

Rookies...

Get a glass of cold water or something before you click...

http://early-retirement.org/forums/index.php?topic=6201.msg110787#msg110787

 

[cute fuzzy bunny]

There ya go thefed, whenever your portfolio is down and you're in the dumps, click that link.

 

[mb]

thefed,

My opinions:

First, you've received a lot of good advice.  You have to figure out what fits you best.

Second, I think that your feelings are normal and typical.  Most of us have experienced then at one time or another.

Third, you will become less sensitive to big market moves over time.

Fourth, keeping a (small) fraction of your money in a MM and/or bond fund isn't a bad thing even at your age IF it helps you "stay the course" during short and more importantly long term down trends.

MB   

 

[mathjak107]

yesterday was a 10.000 dollar drop for me with a 9,000 the day before...the one thing you need to remember is that long term the avarages play out for most of us..if your 50/50 or 60/40 mix averages 7-8% as an example long term and last year you were up 15 and the year before 18 somewhere you know the avarages have to drop back and level off.like water seeking its own level....it still grows more money over time than anything else.....

 

[thefed]

Thanks for all the advice.

Right now, I like seeing a 5.88% APY for a 7-YR CD, or even 5.5% for a 5 yr.

That, to me, is a good after-expenses return. sure, 10% is better, but I see no problems with 5.88%, and maybe a bit more in the upcoming months.

I have all my calcs based on a 6.5% return, and that 5.88 is darn close!

And I truly do feel that the next year, at least, is going to be sideways or down, I think we've begun the trend.

The question I have to ask myself, though, is how to approach this? Do I divert my next few thusand to a long-term Penfed CD? Do I yank out a few bucks from my roth (only a 3k balance) and secure a 5.88% return? I think I might.....

The only difference, of course, are the tax implications....




Jason

 

[Rich_by_the_Bay]

Right now, I like seeing a 5.88% APY for a 7-YR CD, or even 5.5% for a 5 yr. That, to me, is a good after-expenses return. sure, 10% is better, but I see no problems with 5.88%, and maybe a bit more in the upcoming months.

Jason, it is great that you are thinking about this stuff at your age - well done. It can be "over-analyzed" though. Learn the principles, lay out a plan, and stay the course. Your comfort level is important, but with the right plan, you focus on whether you will be comfortable with the 10 or 20 or 40 year strategy, not just tomorrow's results.

A quick word on 7 y CDs - might make sense for you as a small part of your portfolio, but remember that this is a long time. If stocks and/or bonds do 10-15% or more for a couple of years (especially in the earlier years so the gains can compound), you will be wishing you had your money there. Even with a few down years thrown in, usually you will do better than 5.x%.

It's all about long term results and trade-offs. Main thing is to be in the game. Good luck.

 

[JPatrick]

When I was in my tenth (or so) year of accumulation I came across a very large (about 60" X 24") wall chart of the DJI from pre 1929 to the then present.
I put a big red mark at the point where I had begun and wow, what a great feeling to see the 10 year increase.  I've since lost that chart, but seeing the overall upward progress over all those years gave me lots of comfort during the down times.
I wouldn't get too carried away with CDs at your age unless we get into a period of super rates like we saw in the 80's or you get a lot older. If you liquidate your stock funds now because of the current ugly days we are having you are almost assured of selling at a near term low.  No guarantee, but when you sell with emotion in the equation it always seems to be at the bottom.  Murphy's brother I think.

 

[thefed]

I'm so confused! I know that the most popular, widely accepted advice is ut it it now, and wait!

BUT, considering I strongly feel that we are entering a true recession, I don't think that's the best plan of attack. I know, I know, you can't time the market, but I can try to limit losses when it's in a downward trend.

This is what I'm thinking: I have to leave my 401k money as-is, and it will stay in mostly agressive and growth funds (about 3k balance). BUT, my Roth is another story, it has a balance of about 3k....in the target 2045 fund with Vanguard. I'm considering moving that 3k to the VMMXX fund, which is currently yielding 4.29%...and slowly rising. I can leave it there for 6 or more months while I see what the overall market is going to do. If it goes down as I suspect it will, I'll be much better off (considering the market is neg 4 or 5%, and I'd be + 4.3%, that'd be almost a 10% difference)

What am I missing here, other than the fact that I can't accurately time the market? This would put me at about 50/50 stocks/bonds for the time being.


Thanks

 

[rs0460a]

You're getting "too technical" with an amount invested (as I understand) of 6/hundreth of 1% of $1M.

Relax

 

[brewer12345]

I'm so confused! I know that the most popular, widely accepted advice is ut it it now, and wait!

BUT, considering I strongly feel that we are entering a true recession, I don't think that's the best plan of attack.  I know, I know, you can't time the market, but I can try to limit losses when it's in a downward trend.

This is what I'm thinking:  I have to leave my 401k money as-is, and it will stay in mostly agressive and growth funds (about 3k balance).  BUT, my Roth is another story, it has a balance of about 3k....in the target 2045 fund with Vanguard.  I'm considering moving that 3k to the VMMXX fund, which is currently yielding 4.29%...and slowly rising.  I can leave it there for 6 or more months while I see what the overall market is going to do. If it goes down as I suspect it will, I'll be much better off (considering the market is neg 4 or 5%, and I'd be + 4.3%, that'd be almost a 10% difference)

What am I missing here, other than the fact that I can't accurately time the market? This would put me at about 50/50 stocks/bonds for the time being.


Thanks

Here is a chance to make a very fundamental decision about how you invest.  Either you understand that you, personally, cannot time the marrket and act accordingly, or you decide you want to be a market-timer and act accordingly.  If you choose door#1, stick to your chosen allocation and stop looking at the indexes every day.  If you choose door #2, congratulations, you just got yourself a second (third?) job: now get to work!

 

[Andre1969]

If you're worried about a recession coming on, then one way to hedge against it a bit, or at least fool yourself into thinking you are, would be to just set up an automatic monthly investment into a fund. For example, if you had $1200 to invest now, instead of doing that, put in $100 per month. That way, if the market continues to trend downward month after month, each $100 will buy you subsequently more shares of stock/mutual fund/whatever. And if the market does hit the bottom at the end of the 12 months, you'll have more shares than if you had sunk that $1200 in all at once, in the first month.

But then on the flip side, if the market trends upward, each $100 will buy subsequently fewer shares, and you would not be as well off if you had sunk that $1200 in all at once. But most likely, the market will trend up and down from month to month, and unless you got lucky and timed it just right, either way probably wouldn't make much difference.

 

[JPatrick]

I'm so confused! I know that the most popular, widely accepted advice is ut it it now, and wait!

BUT, considering I strongly feel that we are entering a true recession, I don't think that's the best plan of attack.  I know, I know, you can't time the market, but I can try to limit losses when it's in a downward trend.

This is what I'm thinking:  I have to leave my 401k money as-is, and it will stay in mostly agressive and growth funds (about 3k balance).  BUT, my Roth is another story, it has a balance of about 3k....in the target 2045 fund with Vanguard.  I'm considering moving that 3k to the VMMXX fund, which is currently yielding 4.29%...and slowly rising.  I can leave it there for 6 or more months while I see what the overall market is going to do. If it goes down as I suspect it will, I'll be much better off (considering the market is neg 4 or 5%, and I'd be + 4.3%, that'd be almost a 10% difference)

What am I missing here, other than the fact that I can't accurately time the market? This would put me at about 50/50 stocks/bonds for the time being.


Thanks

If you really believe we are headed for a long term stay in the crapper, then you should go with your plan.  If you believe we will be looking better at the end of the year as I do, then I'd leave it alone (once again check your birthdate)  and put any "new" funds in the MM until you feel we are at a bottom- -then invest.  A downturn in March was almost a no brainer- -and here it is.  The markets always pass out enough pain to keep you from getting to used to the periods of joy.  Disclosure- - -I'm one of the few people that believes the average investor can actually time the market to their benefit over the long run   Remember, market timing does not solely relate to the constant churning of ones portfolio, it also means that you can recognize an overbought/oversold market on the macro sense thus giving you another tool as to when to make regular investments within, say a 60 day window.

 

[sgeeeee]

Thanks all of you for your wisdom and support.

Maybe I said it wrong, but I understand at my age TIME and waiting is what I need to worry about....nothing else. 

To calm myself down though, I'd like a chunk of change earning about 5% that is NOT very volitile...bonds maybe?  How do I go about buying bonds, or what funds offer a good stable yield around 5%?

Thanks!

You might consider I bonds from TreasuryDirect.  I bonds can be purchased in $25 increments up to $30,000 per year electronically plus another $30,000 per year for paper bonds.  You can set up an account online and transfer money directly from any of your other accounts.  I bonds have a built in inflation hedge.  They can be held for any length of time between 1  and 30 years.  If you hold them for less than 5 years you do lose 3 months interest.  They can be used as an emergency fund after the first year,  or you can keep them for their inflation hedge for 30 years.

 

[justin]

If you are averse to volatility, why not set your portfolio allocation to fixed income (cash or bonds) at 40-50% and stick with it. Put the other 50-60% in stocks and fuggedaboudit. Adjust annually and you're an "investor". Keep the monthly purchases going, and set it on autopilot.

The money you are investing is something you plan on needing in 20 years or so? Do you think the stock market will outperform CD's or cash over the next 20 years? I make my decision to be heavy on stocks on that basis. The most important thing is to set a portfolio allocation that is not too risky. But that is a personal decision that no one else can set for you. You don't want to bail as soon as you see a 10% dip. Having some money NOT in stocks will reduce your volatility so you can stay the course. After you have experience losing a lot in the market (then gaining it back), maybe increase your allocation to stocks.

 

[grumpy]

I I can leave it there for 6 or more months while I see what the overall market is going to do.

Thanks

thefed,

Suppose you do as you stated above, and after six months the market is below where it is now. Now what do you do? Will the market continue down or will it start to go back upward? Is that the start of a trend or just a head fake? Will it go up so fast that by the time you pull the trigger to get back in, the market is at a higher level than today? Or will it rise a little only to fall even lower? The trouble with market timing is that you constantly have to make decisions with no more information than you have now about the future, and those decisions have to be right every time or you probably will end up worse off in the long run than with buy and hold. I personally think that market timing is a fools game. But its your decision. Good luck.

Grumpy

 

[cute fuzzy bunny]

yesterday was a 10.000 dollar drop for me with a 9,000 the day before...

I was thinking of reporting my valuation changes as well, but that probably would have really scared the pants off of him!

I would be very cautious of putting my money into any 5-7 year cd's given that the fed looks to continue to raise rates and intermediate/long bonds got pounded last week.

 

[free4now]

I say if you think you can time the market go for it. Learning from experience that you can't is something that's better done when you are young with a relatively low account balance than when you have a bigger egg to break. The biggest benefit of investing with four figure balances is your education. Don't let this educational opportunity go to waste... Just make sure that you track your returns carefully so you can compare with how you would have done if you stayed in the market the whole time.

But understand this about market timing: It's not just about getting an accurate idea of where things are going in the near future. It's also about knowing the exact moment that things have changed and when you need to change your plan. And knowing how to change your plan at that moment. It's also about making sure you are not trading emotionally. There are lots of very smart people doing technical analysis to detect and take advantage of markets movements caused by emotional decisions. I don't want my money to be transferred over to them, not even a little.