Trying to play it safe

[mrWinter]

This is the first real market dip I've participated in, I had money invested in 2007-9 but not much skin in the game. I'm fighting the urge to do some market timing, dump some stock now, and buy back later. But, I keep telling myself that rather than fool with that I should play it safe. The market will eventually come back to last month's levels. If I just go along for the ride I'll be fine (I have plenty time before I need to withdrawal). But, if I cash out now, I'm exposing myself to risk that things bounce back right after that and I've sold low and will need to buy higher. I want to market time, but not because it's safe, just because I'm greedy. It really is hard to sit on your hands.


What I realized though and had a chuckle at, is that my 'play it safe' plan of keeping 100% equities is the exact opposite of the 'safe' option many other investors are taking. I think many people are now saying 'I better play it safe and move money from these volatile equities into more stable bonds or cash while this whole thing plays out'.


Direct opposite strategies, both considered the 'safe' one by those that are executing them. I'm not really sure who is right, maybe it's possible they both are and it's their different life circumstances that make the two opposites the safe bet for each of them, but at the same time I feel like every trade has a winner and a loser.

 

[VanWinkle]

This is the first real market dip I've participated in, I had money invested in 2007-9 but not much skin in the game. I'm fighting the urge to do some market timing, dump some stock now, and buy back later. But, I keep telling myself that rather than fool with that I should play it safe. The market will eventually come back to last month's levels. If I just go along for the ride I'll be fine (I have plenty time before I need to withdrawal). But, if I cash out now, I'm exposing myself to risk that things bounce back right after that and I've sold low and will need to buy higher. I want to market time, but not because it's safe, just because I'm greedy. It really is hard to sit on your hands.


What I realized though and had a chuckle at, is that my 'play it safe' plan of keeping 100% equities is the exact opposite of the 'safe' option many other investors are taking. I think many people are now saying 'I better play it safe and move money from these volatile equities into more stable bonds or cash while this whole thing plays out'.


Direct opposite strategies, both considered the 'safe' one by those that are executing them. I'm not really sure who is right, maybe it's possible they both are and it's their different life circumstances that make the two opposites the safe bet for each of them, but at the same time I feel like every trade has a winner and a loser.

Each person's capacity for risk is different. No one is right or wrong, it is a personal choice of what it takes for them to sleep at night. Doing nothing is fine. Buying on sale to keep your asset allocation correct is also fine. Going to maximum risk when your personality isn't built for risk is not a good ideal in my opinion. Selling low now is a choice, just not the best choice.

 

[target2019]

What I realized though and had a chuckle at, is that my 'play it safe' plan of keeping 100% equities is the exact opposite of the 'safe' option many other investors are taking. I think many people are now saying 'I better play it safe and move money from these volatile equities into more stable bonds or cash while this whole thing plays out'.

It's a rare person IMO who sets equities and lives with that through thick and thin. I compare it to any setting, like a thermostat setting in the winter. With one person in the house you may make an adjustment as conditions outside change up or down. With two in the house, you get 100% more feedback, and begin to question your too-hot too cold feelings. That is why we have this HVAC forum, and discuss how we feel...

 

[ckelly78z]

By selling now, you would be locking in losses from stocks that are down in value. By keeping them, your balance sheet will look bad for awhile, but you will retain the same number of stocks, to most likely rebound stronger.

If you are still working/contributing, you will be buying more shares, at a cheaper price. My 401K has taken a big hit with 10 years to go for me, but, I ma buying PLCGX shares at rock bottom prices right now.

 

[jazz4cash]

I don’t think I’ve ever heard anyone equate 100% equity as a safe position. IMO the additional return is the reward you get for taking the risk. If your timeline is very long it mitigates the risk.

 

[Aerides]

If you are still working, with more than a couple of years to go, do absolutely nothing. There is no "play" for you (and that looks like your position given your prior recent posts). You are in the long game, and this will all be in the rear view mirror by the time you retire.

If you are retired, and were truly 100% equities, then you'd be in a very small group of folks who like living a bit dangerously.

One strategy a lot of us use in retirement, particularly pre-SS/pensions, is to keep a 2-3 year balance of cash so we can cover expenses and continue to ignore market fluctuations, and never sell equities during the dips.

 

[target2019]

I think OP may have been equating "safe" with sticking with the original planned 100% equities.

 

[Mdlerth]

"When people get scared, I get greedy". Warren Buffett

I think many people are now saying 'I better play it safe and move money from these volatile equities into more stable bonds or cash while this whole thing plays out'.

Those people are locking in their losses. Don't be one of them.

Since you have plenty of time, don't change anything now. Use this event to reassess your risk tolerance and select your allocation strategy based on where you are along your FIRE journey. Later on, when sanity is restored, reconfigure to your new AA.

 

[nap470]

That's why I love this forum! Calm, life-tested people providing straight forward, non-judgmental feedback. Everyone's personal situation and circumstances are different, as is their risk tolerance. Sometimes people just need a sounding board to bounce their thoughts off of. I know it really helps me to read this forum and keep things in perspective.

 

[SumDay]

If you're trying to play it safe, don't touch it, not now anyway. Wait until this passes (and it will) and then review your asset allocation, make a plan and stick with it.

In 2007-09 I was 10 years from retirement and just didn't open my snail mail statements when they arrived. When everyone at work started talking about the "bounce back" I opened them and couldn't believe I'd been down 50%. It came back, and then some and just kept going.

Now I'm retired and am comfortable with my bucket strategy asset allocation, which currently has five years of cash to ride bumps like this out. We'll be tightening our belts a little, but certainly won't be eating cat food.

This is the first major market event since we retired, and I'm probably being too cautious, but I'm still sleeping, so that's worth something.

 

[easysurfer]

Funny how the market volatility brings out the inner market timer in some.

I'm sticking to my plan on doing nothing as I rebalance only once a year, in January.

Kinda hoping things will go down some more just to test my own will power of doing nothing as a confirmation I can ride things out as some others do the market timing dance .

 

[pb4uski]

I've sort of painted myself into a corner.

At year end I used all my cash that at the time was yielding ~1.7% to pay off my 3.375% mortgage 7 years early and pay off a 1.9% car loan a year early so we were totally debt-free. That along with some rebalancing changed our AA to 61/39/0 (compared to a target of 60/35/5).

Our prior target was 60/35/5 and since the cash was used to pay off the loans our new target was set at 65/35/0.... and the plan was to let the AA drift from 61/39 up to 65/35 over time. As of yesterday's close, it had instead drifted down to 56/44 from 61/39 at year end... since my fixed income is in credit union CDs rather than brokered CDs the AA drift has been moderated somewhat (the down in stocks hasn't been offset by an up in fixed income)... but more importantly, I'm pretty happy with my fixed income positions that are mostly 3.0-3.5% credit union CDs (27% of the 44%) and a preferred stock portfolio (11% of the 44%) so I really don't have much in fixed income that I'm keen to part with to buy stocks.

As a result, I'm just riding it out. I think everything will be fine at the end of this crisis but concede that my decision to get rid of cash has limited my ability to make any moves to take advantage of the crisis.... but on the upside it has cut short my ability to "guess wrong" or get greedy and make a big mistake.

 

[Gumby]

I figure I'll repeat what I did to survive and prosper in the wake of the 2008-09 debacle - absolutely nothing. Actually, back then, I continued to dutifully buy more stock every two weeks when I made my 457 contribution from my paycheck.

I'm retired now, but we are fortunate to be in a position where our pensions can cover our basic living expenses, and I start social security in ten months. We also have a fairly large cash cushion at the moment. So I'm just waiting it out. One way or another, this pandemic and the containment efforts that are causing all the financial damage will be over in the not too distant future and the economy can get back to growing. Will there be some damage to the real economy? Sure. But it's not permanent.

 

[38Chevy454]

I think OP has identified the root of his concern - greed. Don't succumb to the greed and have it override your logical side and do something dumb. Just ride it out since you are not needing any of this money now. It is tough to see the paper losses, but they are exactly that, just losses on paper. Once you sell it locks in that loss and it becomes real loss. Numerous studies have shown that people who try to time the market are usually worse off than those that let it stay invested and ride it out.

 

[Dalmore]

Out of curiosity, when people talk about cash reserves for two+ years, are they talking just CDs & MM, or do they include bonds in that figure?

 

[bobbyr]

That's why I love this forum! Calm, life-tested people providing straight forward, non-judgmental feedback. Everyone's personal situation and circumstances are different, as is their risk tolerance. Sometimes people just need a sounding board to bounce their thoughts off of. I know it really helps me to read this forum and keep things in perspective.

agree 100%

 

[REWahoo]

Out of curiosity, when people talk about cash reserves for two+ years, are they talking just CDs & MM, or do they include bonds in that figure?

There have been long, contentious and lively threads on the definition of "cash".

Example: https://www.early-retirement.org/forums/f28/are-cds-and-short-term-bonds-cash-or-bonds-70279.html

 

[jazz4cash]

Out of curiosity, when people talk about cash reserves for two+ years, are they talking just CDs & MM, or do they include bonds in that figure?

I’d say very very short term bonds are generally included. That’s pretty much what MM is. So that shifts the debate to a definition of “short term”. I use 2 yrs or less.

Edit: Bonds, cash, MM, and CDs are all fixed income but many times the AA lumps them together e.g. 50/50.

 

[Gumby]

I would count short term treasuries, say <5 yrs. Although I do not own treasury bonds directly, so that definition doesn't affect me personally. My cash consists of bank deposits and the folding green stuff in my safe.

 

[mrWinter]

Kinda hoping things will go down some more just to test my own will power of doing nothing as a confirmation I can ride things out as some others do the market timing dance .

Agree, I have some perverse sense of satisfaction in the drop, if I can ride it out I'm in a way proving I can handle it. I feel like I've talked a big game, and due to my chosen allocation of 100% equities have basically commited to walking the walk, now just need to live up to the plan.

 

[SumDay]

Funny how the market volatility brings out the inner market timer in some.

I'm sticking to my plan on doing nothing as I rebalance only once a year, in January.

Kinda hoping things will go down some more just to test my own will power of doing nothing as a confirmation I can ride things out as some others do the market timing dance .

I had the same thought! Plus, I want to at least get a ROTH conversion squeezed in here - if I only knew when to do it...

 

[Finance Dave]

This is the first real market dip I've participated in, I had money invested in 2007-9 but not much skin in the game. I'm fighting the urge to do some market timing, dump some stock now, and buy back later. But, I keep telling myself that rather than fool with that I should play it safe. The market will eventually come back to last month's levels. If I just go along for the ride I'll be fine (I have plenty time before I need to withdrawal). But, if I cash out now, I'm exposing myself to risk that things bounce back right after that and I've sold low and will need to buy higher. I want to market time, but not because it's safe, just because I'm greedy. It really is hard to sit on your hands.


What I realized though and had a chuckle at, is that my 'play it safe' plan of keeping 100% equities is the exact opposite of the 'safe' option many other investors are taking. I think many people are now saying 'I better play it safe and move money from these volatile equities into more stable bonds or cash while this whole thing plays out'.


Direct opposite strategies, both considered the 'safe' one by those that are executing them. I'm not really sure who is right, maybe it's possible they both are and it's their different life circumstances that make the two opposites the safe bet for each of them, but at the same time I feel like every trade has a winner and a loser.

I disagree with the bold statement...I don't think that's what most peoples safe option is.

IMO your safe option should have been decided BEFORE the market downturn. My safe option was to limit equity exposure at a time when the market continued to hit all time highs. As a result, I'm buying now..not selling.

 

[daylatedollarshort]

In 2008 we did sell a chunk of equities early on and missed the largest drops. Not the conventional wisdom here but it worked for our peace of mind at the time. We had a lay off and then initial market crash all in the same week and it got scary. After that we ramped down our equity positions over time and have kept them under 20%. We also optimized all our expenses so that Social Security and pensions cover all our core expenses and a few frills, and took our pensions as annuities to have diversified income streams. We read up on TIPS and realized we could have a 3.33% SWR for thirty years with even a zero real return and low risk, and most of our ladder is at 1 - 2% (plus inflation). So we could do the 4% SWR or at least close to it without stocks.

We're really into sustainable living - no fast fashion, cook from scratch, plant based diet, low energy use, low carbon footprint, etc. and low overhead living just followed pretty naturally from that. We go out often (well we used to before the virus warnings) but we're cheap dates so it is out dancing with friends, restaurants on half price hours, plays using seat filler tickets, hiking groups and college plays and concerts and life is good. I grew up poor so it is still a treat seeing a symphony even if it is with seat filler tickets in the back row or the U.C. Berkeley student orchestra. Living like we do for us means being able to live on half of what we could even without much in stocks, and no market jitters.

 

[PatrickA5]

Those people are locking in their losses. Don't be one of them..

Or, maybe they are locking in "gains"??

Over the last x number of years, my stocks have gone up well over 100%. I sold some yesterday that are down around 5% YTD. Have I locked in losses of 5% or locked in gains of 95+%? More than one way to look at things.

To the OP, if you don't see a need for the money over the next 10 years or so, you might as well hold on, I guess. Just depends on your risk tolerance. I held on in 2001 and 2009 and added like crazy. Now that I'm in retirement and will be needing the money to live on starting probably next year, my risk tolerance is pretty low - which is the reason I lowered my stock allocation from 45% to 20%. Probably too low, but DW feels better now.

 

[bobbyr]

We're really into sustainable living - no fast fashion, cook from scratch, plant based diet, low energy use, low carbon footprint, etc. and low overhead living just followed pretty naturally from that. We go out often (well we used to before the virus warnings) but we're cheap dates so it is out dancing with friends, restaurants on half price hours, plays using seat filler tickets, hiking groups and college plays and concerts and life is good. I grew up poor so it is still a treat seeing a symphony even if it is with seat filler tickets in the back row or the U.C. Berkeley student orchestra. Living like we do for us means being able to live on half of what we could even without much in stocks, and no market jitters.

we do mostly the same (golf and beer together are my biggest monthly expense)

I enjoyed your post