I sold all my mutual funds and stocks on December 20th

[TravelforFun]

I am the one that posted on December 20th that I sold everything (mostly no-load index funds) and that I would repurchase the same on January 2nd. I told everyone that it was purely a defensive move on my part because I was fearing that we were going over the fiscal cliff. I stated that I would pay no taxes because all my money is in IRA accounts. I also said that if things got resolved, market would stay where it was and I would not lose much. This is what has happened the last couple of weeks.

Dec 19. Plan B went nowhere
Dec 20. I sold everything
December 21, market down -1%. Obama headed to Hawaii
December 22 and 23, market closed
December 24, market down -0.4%
December 25, market closed
December 26, market down -0.3%
December 27, market down -0.15%
December 28, market down -1.2%
December 29, 30, market closed
December 31, market up +1.3%
January 1, market closed
January 2, market up ,+2.4%. Re-purchase all mutual funds

Overall, the market stays where it was but my action decreased my portfolio by about 0.5% but that's okay. I was concerned about a market drop of 5-10% but that didn't happen and that's good for everyone.

Would I do it again? It depends on the situation and the hunch I have. I know bogleheads buy and hold but if I see black clouds on the horizon rolling in, I would try to look for a refuge?

[rustymutt]

Good for you. Are you staying out?

[pjstack]

Thanks for the update. Half a percent isn't too bad as losses go. I think you lucked out, BUT the market could still drop 5% to 10%, no one knows.

Happy new year!

[chaz]

The fear factor at work.

[NYBoglehead]

The question remains, did you miss out on any dividends or interest as a result of your actions?

[iceman99]

So what's your plan in 2 months?

[TravelforFun]

The question remains, did you miss out on any dividends or interest as a result of your actions?

Not sure. I just compared the values of my portfolio on December 20th vs. today.

[hazlitt777]

You did this on a hunch? Ouch. I think you got lucky.

What makes you think cash is safe? Only a well diversified portfolio is safe imho.

I hope you can take time to read Mr. Bogle's classic, Common Sense on Mutual Funds. I could even share my personal notes with you if the book is too much for you.

[z3r0c00l]

Will you have to pay taxes on your cap gains one year sooner because of this?

[Johm221122]

The market could drop 5%-10% tomorrow then what?The black clouds are still there
John

[TravelforFun]

Will you have to pay taxes on your cap gains one year sooner because of this?

No. All my money is in tax deferred IRA accounts.

[sschullo]

I know bogleheads buy and hold but if I see black clouds on the horizon rolling in, I would try to look for a refuge?

"Buy and hold" with rebalancing and we have a fixed account allocation appx equal to our age. If you are serious, you need to read more about what we do around here. There are probably about 200 different market variables that can be perceived as "black clouds" and take the market down or all of a sudden start a bull market. One of the very basics of investing is that no one can predict what happens. As it turned out, the fiscal cliff resulted in one of the biggest one day gains in about five years. I am physically and mentally worn out just reading your daily rundown on what the market did and where the 1600 Pennsylvania Ave resident went on his vacation.

[ruralavalon]

I am the one that posted on December 20th that I sold everything (mostly no-load index funds) and that I would repurchase the same on January 2nd. . . .
. . . .
Overall, the market stays where it was but my action decreased my portfolio by about 0.5% but that's okay. I was concerned about a market drop of 5-10% but that didn't happen and that's good for everyone.

Congratulations, I think you lucked out.

On the other hand, "stay the course" and ignoring the noise on the news channels would have worked out better by 0.5% over just 12 days (that's ~ 15% annualized).

[parsi1]

I also sometimes get tempted to do the same thing selling everything and staying on the sideline. But then I think, if I am such an expert in predicting the market direction why do I wake up in the morning and go to work. I can stay home and make bucket full of money every day. That quickly changes my mind about selling. I go to bed wake up in the morning go to work and follow the old Bogleheads advise: stay the course and filter out the noise.
With all the doom and gloom news during 2012 about US and the rest of the world, stock market didn't do bad at all.

[Elbowman]

Don't be too harsh on him, at least he had the guts to come back here and post his loss.

[Cherokee8215]

I guess .5% isn't a bad price for "cliff insurance."

I was tempted to do something similar...rebalance some things a little earlier (into fixed income) than I would have otherwise.

[STC]

I guess .5% isn't a bad price for "cliff insurance."

I was tempted to do something similar...rebalance some things a little earlier (into fixed income) than I would have otherwise.

Until you annualized it. It's 16.59% then. And the cliff isn't resolved, it's delayed. So either keep paying the protection, or get to an AA where you can actually handle equity risk.

[livesoft]

The missing dividends are a rather big deal ... around 1.5% to 2.5%. NAVs of equity funds dropped by the those amounts, so comparing before and after NAVs is not sufficient to understand what went on here.

[atfish]

Don't be too harsh on him, at least he had the guts to come back here and post his loss.

I agree. Maybe some of us learned from this.

[sometimesinvestor]

I think the criticisim is unfair though the comments/analysis are not.. It is well known that many people find they are more conservative than their asset allocation and sell at the bottom. How much better to sell when you are concerned and then get back in as planned. While the OPs decisions did not work out perfectly he avoided making a real error.
Full disclosure: I did something similar though much less extreme by increasing the share of cash by 5%.Regardless of right or wrong I have slept comfortably. I followed the advice of Polononius "To thine own self be true" which in my case meant avoid bold movies. The difference between being described as bold or being described as foolhardy is usually dependent on the result.

[livesoft]

.... It is well known that many people find they are more conservative than their asset allocation and sell at the bottom.

Let's be clear, there is no way any of this could be characterized as "sell at the bottom". The has all occurred at market highs.

[sscritic]

I don't understand the big deal about being out of the market for 7 days. There are those around here who recommend being out of the market for 30 days after a tax loss harvest. Others recommend being only partially invested over a period of months for emotional reasons (DCA instead of jumping in the deep end). Now admittedly the percentage here might be a little larger, but the idea of being out of the market is not the strangest thing I have ever heard of. I sold a house and put the money into CDs before I finally got around to moving it all to Vanguard (it took two years, from 2004 to 2006 to go all in).

[STC]

I don't understand the big deal about being out of the market for 7 days. There are those around here who recommend being out of the market for 30 days after a tax loss harvest. Others recommend being only partially invested over a period of months for emotional reasons (DCA instead of jumping in the deep end). Now admittedly the percentage here might be a little larger, but the idea of being out of the market is not the strangest thing I have ever heard of. I sold a house and put the money into CDs before I finally got around to moving it all to Vanguard (it took two years, from 2004 to 2006 to go all in).

The danger is the precident. It is a pure guess as to the direction of the market over a short period. Something that is provably impossible to do correctly, consistently. The slippery slope...

[bottlecap]

Perhaps someday, you will understand just how meaningless this exercise was.

JT

[sscritic]

I don't understand the big deal about being out of the market for 7 days. There are those around here who recommend being out of the market for 30 days after a tax loss harvest. Others recommend being only partially invested over a period of months for emotional reasons (DCA instead of jumping in the deep end). Now admittedly the percentage here might be a little larger, but the idea of being out of the market is not the strangest thing I have ever heard of. I sold a house and put the money into CDs before I finally got around to moving it all to Vanguard (it took two years, from 2004 to 2006 to go all in).

The danger is the precident. It is a pure guess as to the direction of the market over a short period. Something that is provably impossible to do correctly, consistently. The slippery slope...

The same is true for a 30 day wait after a TLH (which is why I don't do it).

[STC]

I don't 30-day TLH. I have pairs and swap between them.

[sscritic]

I don't 30-day TLH. I have pairs and swap between them.

Nor do I, but some do, which was my point. Some people prefer to stay out of the market for 30 days after a TLH (you and I not included).

[HomerJ]

if I see black clouds on the horizon rolling in, I would try to look for a refuge?

There's almost always black clouds on the horizon... The greatest bull markets always start during a time of black clouds.

The real time to get nervous and reduce your stock allocation is when every news story is happy bunnies and glorious sunshine.

Pick an allocation that you can stick with through bad times and good, and stay the course... It's much easier, and you won't have to second-guess yourself all the time (which is stressful).

I'm 50/50 even though I'm fairly young (mid 40s) because I know I can stick with that allocation over the next 10-20 years no matter what happens.

[WendyW]

Don't be too harsh on him, at least he had the guts to come back here and post his loss.

+1.

90% of people would've closed their Bogleheads account and snuck away in embarrassment.

The OP actually got off quite cheaply compared to, say, the tens of thousands of Americans that bailed out of stocks after 2008's −37% return, and subsequently missed 2009's 26% return and 2010's 15% return.

[madsinger]

I admire you (original poster) for updating us. It's hard to outguess the market. However, if you had happened to get in one day earlier, you would have been up almost 2% for your actions. It's hard to know what to do.

I will admit to a small bit of "market timing" here...I often rebalance my portfolio right before the end of the year (in tax deferred accounts, so taxes are not an issue). Just so I'm starting the new year with my "correct" asset allocation. (My bond target for this year was 31%, and by then end of the year, it was down to 29%...I'm bumping it up to 32% for next year). Because the market had dropped five straight days in "fear" of the fiscal cliff, and because I really felt (hunch?) that SOMETHING would be done by the first week in January, I felt that I should wait (time?) to rebalance.

When I saw the market up 2-3% today, I decided to rebalance about 3pm today. Sold stocks to buy bonds to get my bond from 29% to 32%. It seemed like my small bet (really, it was only 3% of my portfolio I was moving) "worked". Of course, if the market had fallen hard this week, I would have either had to wait (more timing) or accept my "loss" and rebalance. This time, I got a little lucky!

-Brad.

[thebogledude]

are you going to do it again in a couple of months when they decide what to do about the debt ceiling?

[reisner]

If you belong on this website, but still have human foibles, then at least wait to place your bet until the house does. I expected on jan. 2 to be buying stock at a discount; instead I bought bonds.

[pkcrafter]

I am the one that posted on December 20th that I sold everything (mostly no-load index funds) and that I would repurchase the same on January 2nd. I told everyone that it was purely a defensive move on my part because I was fearing that we were going over the fiscal cliff. I stated that I would pay no taxes because all my money is in IRA accounts. I also said that if things got resolved, market would stay where it was and I would not lose much. This is what has happened the last couple of weeks.

Dec 19. Plan B went nowhere
Dec 20. I sold everything
December 21, market down -1%. Obama headed to Hawaii
December 22 and 23, market closed
December 24, market down -0.4%
December 25, market closed
December 26, market down -0.3%
December 27, market down -0.15%
December 28, market down -1.2%
December 29, 30, market closed
December 31, market up +1.3%
January 1, market closed
January 2, market up ,+2.4%. Re-purchase all mutual funds

Overall, the market stays where it was but my action decreased my portfolio by about 0.5% but that's okay. I was concerned about a market drop of 5-10% but that didn't happen and that's good for everyone.

Would I do it again? It depends on the situation and the hunch I have. I know bogleheads buy and hold but if I see black clouds on the horizon rolling in, I would try to look for a refuge?

Have you done this often? It would seem to be a very tedious and unproductive action. There will be another deadline in a few months, what will you do then? It isn't those threats that are waved at us that represent the most danger. The real danger is in those threats which come unannounced, and you can't get out of the way of those in time. Market timing simply does not work. Going on hunches will cost you money, not to mention you can get whip sawed. That is getting out and then back in just in time for a significant drop. If you are concerned about losses, then your equity AA is too high.

I didn't see your portfolio or asset allocation listed in the posts which are available, but if you provide the information, we might be able to offer something useful.

Paul

[westcoast]

Thanks for the update and for the courage to let us know how you fared.

[555]

"The question remains, did you miss out on any dividends or interest as a result of your actions?"

OP lost 13 days worth of dividends, of course.

[john94549]

My hedges are a tad more modest than the OP's, but no great harm in what he did. I do have a question about timing and dividend re-investing. It does appear that dividends, while they might have been earned, would not have been re-invested at the "bargain" prices in the week or so before the end of the year. I do tend to turn an oblivious eye to trading (in my trading account) in "silly season", the last couple of weeks in each quarter.

[zebrafish]

I have to say, if I didn't have a 20+ year time horizon, I might be very tempted to do the same thing.

The problem with this approach is, you can make yourself feel similarly about so many current events. I think no one can predict the future. They key downfall of the market timer.

[555]

OP, this is very risky, and it could have turned out badly. You could have missed out on a runup, and worse still, when confronted with buying back at higher prices, you could have balked at getting back in, and stayed out longer and missed further runups.

Jumping in and out of the market adds risk with no expected reward, and it will generally cost you in the long run.

[thebogledude]

Have you done this often? It would seem to be a very tedious and unproductive action. There will be another deadline in a few months, what will you do then? It isn't those threats that are waved at us that represent the most danger. The real danger is in those threats which come unannounced, and you can't get out of the way of those in time. Market timing simply does not work. Going on hunches will cost you money, not to mention you can get whip sawed. That is getting out and then back in just in time for a significant drop. If you are concerned about losses, then your equity AA is too high.

I'm not saying this was the wrong course for OP to take, but in 20/20 hindsight, it is a better example of what staying the course would have resulted in.

[BHCadet]

Congrat to you!!!
But, this would have given me too much stress.
It also would have taken me half day to sell everything.
And another half day to buy everything back.

[letsgobobby]

The missing dividends are a rather big deal ... around 1.5% to 2.5%. NAVs of equity funds dropped by the those amounts, so comparing before and after NAVs is not sufficient to understand what went on here.

Can anyone find the total return (not price) between end of day Dec 20 and end of day Jan 2? If I am using Morningstar correctly the price difference in NAV was 1.76%, not the 0.5% OP stated. And then the dividends. Does that mean OP missed out on more like 3%?

[NOLA]

Glad you were able to man(woman) up and admit what you did. I think we all did something "stupid" one time or another, which led us to this great site.

Out of curiosity, how are lost dividends calculated in this case?

[CaliJim]

Glad you were able to man(woman) up and admit what you did. I think we all did something "stupid" one time or another, which led us to this great site.

Out of curiosity, how are lost dividends calculated in this case?

Dividend distribution is different for different funds. Good discussion here: viewtopic.php?t=18714

I assume that Bond ETFs behave like stocks and stock ETFs - dividends are not prorated.

[livesoft]

Bond funds paid substantial capital gains distributions this year during the time the OP was out of the market. There were several HELP MY FUND DROPPED 3%! threads while the OP was away. Nevertheless, Morningstar Growth of charts show a small gain of 1.5% to 2% for stock funds from Dec 20th through Jan 2nd with bond funds about even.


That 1.5% to 2% is a big deal, especially if it happens too often. The 2% difference is not going to go away. It will be a 2% difference in the end value of the portfolio during retirement. It will be 6 months worth of annual withdrawal from the portfolio in retirement.

It is also like paying an advisor 1.5% to 2% of the portfolio in 2012 in AUM fees. OTOH, if the OP had an advisor that charged him only 1% for holding his hand during the past few weeks and helping him to stay-the-course, then he would of come out ahead by a little bit. The forum tried to be that advisor and charge nothing, but it didn't work out.

If the OP had re-invested last Friday on Dec 28th, we would all be patting him on the back. And finally, although there were no "worst days" in this time frame, there were some "best days". Be aware that worst/best days often occur relatively close in time. Are we gonna have a worst day coming up?? viewtopic.php?f=10&t=60207

[umfundi]

I am the one that posted on December 20th that I sold everything (mostly no-load index funds) and that I would repurchase the same on January 2nd. I told everyone that it was purely a defensive move on my part because I was fearing that we were going over the fiscal cliff. I stated that I would pay no taxes because all my money is in IRA accounts. I also said that if things got resolved, market would stay where it was and I would not lose much. This is what has happened the last couple of weeks.

Dec 19. Plan B went nowhere
Dec 20. I sold everything
December 21, market down -1%. Obama headed to Hawaii
December 22 and 23, market closed
December 24, market down -0.4%
December 25, market closed
December 26, market down -0.3%
December 27, market down -0.15%
December 28, market down -1.2%
December 29, 30, market closed
December 31, market up +1.3%
January 1, market closed
January 2, market up ,+2.4%. Re-purchase all mutual funds

Overall, the market stays where it was but my action decreased my portfolio by about 0.5% but that's okay. I was concerned about a market drop of 5-10% but that didn't happen and that's good for everyone.

Would I do it again? It depends on the situation and the hunch I have. I know bogleheads buy and hold but if I see black clouds on the horizon rolling in, I would try to look for a refuge?

Am I missing something? How did you purchase before the gain of January 2?

If you continue down this path, you will psych yourself out of ever being invested.

Keith

[dickenjb]

It is also like paying an advisor 1.5% to 2% of the portfolio in 2012 in AUM fees. OTOH, if the OP had an advisor that charged him only 1% for holding his hand during the past few weeks and helping him to stay-the-course, then he would of come out ahead by a little bit. The forum tried to be that advisor and charge nothing, but it didn't work out.

Livesoft that is a great thought. Many AUM advisors would say that is the primary function they serve, keeping Nervous Nellies invested when things look bleak. Not that I would advocate an advisor for folks who have the courage of their convictions to form a plan and stick to it.

[bottlecap]

my action decreased my portfolio by about 0.5% but that's okay.

No it didn't. It increased it by .5%. Even with the correct math, it doesn't mean anything. Very few will be able to predict the next 5 to 10% drop. Those that do will only do so by luck.

JT

[hlfo718]

I think OP should stay away from various business news channels and magazines because all they tried to do is scare investors with stupid headlines. This morning Bloomberg TV was asking "Can you make money in the stock market?". I turned off the TV.

[camontgo]

I recently transferred a meaningful amount of money out of an old retirement account at a former employer.

I had no option for an in-kind or electronic transfer, so, like the OP, I was out of the market for a short period of time before I could repurchase funds similar to the funds I had in the original account.

I was worried about market swings while the transaction was in process, and I ran some stats on how much equity markets can move over a few trading days (using Ken French data library daily return data for U.S. Equities).

Here is the table (of course, when you are out of the market the positive market returns are bad for you, and the negative market returns are good for you):



Conclusion: Large moves in a short time are not particularly uncommon, so there is a lot of risk. I highly doubt these swings can be predicted. On average, of course, you lose money by being out of the market. So, when jumping in and out of the market you are taking a large risk for a negative expected return.

I originally posted this table here:
http://www.calculatinginvestor.com/2012 ... term-risk/

[tadamsmar]

I am the one that posted on December 20th that I sold everything (mostly no-load index funds) and that I would repurchase the same on January 2nd. I told everyone that it was purely a defensive move on my part because I was fearing that we were going over the fiscal cliff. I stated that I would pay no taxes because all my money is in IRA accounts. I also said that if things got resolved, market would stay where it was and I would not lose much. This is what has happened the last couple of weeks.

Dec 19. Plan B went nowhere
Dec 20. I sold everything
December 21, market down -1%. Obama headed to Hawaii
December 22 and 23, market closed
December 24, market down -0.4%
December 25, market closed
December 26, market down -0.3%
December 27, market down -0.15%
December 28, market down -1.2%
December 29, 30, market closed
December 31, market up +1.3%
January 1, market closed
January 2, market up ,+2.4%. Re-purchase all mutual funds

Overall, the market stays where it was but my action decreased my portfolio by about 0.5% but that's okay. I was concerned about a market drop of 5-10% but that didn't happen and that's good for everyone.

Would I do it again? It depends on the situation and the hunch I have. I know bogleheads buy and hold but if I see black clouds on the horizon rolling in, I would try to look for a refuge?

You are comparing apples and rotted apples. You locked in a 0.5% loss. 5-10% market downturns (or stock sales as we sometimes call them) are not really losses till you lock them in. No need to lock them in unless you need the money for consumption. You are not thinking like a good investor.

5% to 10% downturns are pretty common. You will still have some even if you continue to trade in and out on hunches in advance of events.