Bogleheads

[Jabberwocky]

My VFINX and NAESX funds are losing money. Why not get out into MMF or stable value fund until the market stabilizes? In December 2007, I moved my employer's 401k money from their Stable Value fund into VFINX (Vanguard 500 Index) and NAESX (Vanguard Small Cap Index) - both prompty lost 10% in about a month. At least in their stable value I was earning 3-4%.
All the financial news for the next several months looks bleak. I don't think the market has bottomed, so why stay in?

[TheEternalVortex]

Because you won't know when to get back in the market. Remember that you have to be right ~60-70% of the time for market timing to work.

[kpanghmc]

Because that's market timing.

Unless you know something the rest of us don't, your gut feeling has already been priced into the market. Remember that active fund managers and day traders watch the market much more carefully than the rest of us and still can't beat the market on a consistent basis. Stay the course.
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Kevin

[livesoft]

Yep, get out of equities. I have no problem with that if that's the way you feel.

Let me ask you this though. You were in stable value in December. When did you move to stable value and why? What were your 401k funds invested in before you moved them to stable value?

[SteveB3005]

Jabberwocky by Lewis Carroll

'Twas brillig, and the slithy toves
Did gyre and gimble in the wabe:
All mimsy were the borogoves,
And the mome raths outgrabe.
"Beware the Jabberwock, my son!
The jaws that bite, the claws that catch!
Beware the Jubjub bird, and shun
The frumious Bandersnatch!"
He took his vorpal sword in hand:
Long time the manxome foe he sought—
So rested he by the Tumtum tree,
And stood awhile in thought.
And, as in uffish thought he stood,
The Jabberwock, with eyes of flame,
Came whiffling through the tulgey wood,
And burbled as it came!
One, two! One, two! And through and through
The vorpal blade went snicker-snack!
He left it dead, and with its head
He went galumphing back.
"And hast thou slain the Jabberwock?
Come to my arms, my beamish boy!
O frabjous day! Callooh! Callay!"
He chortled in his joy.
'Twas brillig, and the slithy toves
Did gyre and gimble in the wabe:
All mimsy were the borogoves,
And the mome raths outgrabe.

To sell would be nonsense like the poem, Jabberwocky.

[BigBird]

As it was explained to me, a recession or other kind of stagnating economic slump does not necessarily mean that stock prices will fall, or otherwise continue to collapse. As far as we know, panic has already been priced in, and the indexes may never be lower than they are today. In fact, monetary supply inflation may be helping to keep asset prices propped up, and it may stay that way for a long, long time. In other words, there is a growing number of dollars out there looking for a place to go, and for all the long term individual and institutional investors out there, it may very well be the stock market. As the economy re-strengthens (this could take years), earnings will be restored with new, more abundant, inflated dollars, and today's prices won't look so bubbly.

You don't lose money unless you sell.
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BB

[Jabberwocky]

I don't know why I switched from the stable value fund into the other funds. Like most people, I leave my 401k alone. I just saw that the Vanguard funds had a better return over time. Sure, it's market timing, but aren't the market gods screaming at us that there's a bad moon on the rise?

[Wagnerjb]

[MWCA]

[kpanghmc]

Jabberwocky,

You've obviously heard the old adage "buy low, sell high". You're doing the exact opposite. You bought into equities at the end of last year at a high, and now after a couple months of poor performance you're going to sell at a low. That's a recipe for killing your retirement if you repeat it too often. The best advice I can give you and the advice that has been consistently proven to work is this: come up with an asset allocation that will let you sleep at night regardless of how the market is performing. If that requires a higher allocation to bonds / cash, then so be it, but come up with this asset allocation and stick to it no matter what. Buy when the market is going up. Buy when the market is going down. That's how you make money over the long run. If you get too focused on the short term noise, you're going to miss out on the real long term gains.
_________________
Kevin

[leonard]

Search "market timing" on this forum and you will be set.
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Leonard

Market Timing: Do you seriously think you can predict the future? What else do the voices tell you?

If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

[market timer]

I agree, cut and run. I like to buy when there's not a cloud in the sky. Tech stocks in 2000, real estate in 2006. Everyone's gonna be online, and everyone needs a home, right?

[fishnskiguy]

Jabberwocky,

You remind me of my father. A very fine man with many wonderful traits, but a terrible investor. I always assumed it was because he was a child of the Depression.

He dabbled only slightly in stocks, but held CDs in every bank in the county and then some.

He only bought stocks when the economy was good and sold when it was bad. He lost money time and time again. His saving grace was stocks were only 2-4% of his savings.

Some folks just do not belong in equities. You may be one. No shame in that, just know who you are.

Full disclosure: we have never been over 25% equities. No regrets.

Chris
_________________
Trident D-5 SLBM- "When you care enough to send the very best."

[DiscoBunny1979]

[PiperWarrior]

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” - Warren Buffett

[tibbitts]

I disagree with the other posts. You should exit the market and stay out, but only if you are confident that you will be able to resist the temptation to ever return to the market. I believe that holding the same investment over the long term is more important than owning equities. It sounds to me like you might be able to maintain your investment in stable value, but not equities, but I'm just guessing.

The odds are you will sacrifice return over time without equity exposure, but it's possible you will not. You may be able to make up for a more modest return by saving more or spending less, and I think for some people that's a better choice than being in equities.

Paul

[Random Musings]

Jabberwocky,

As a compromise, why don't you just make more "minor" adjustments if your willingness to take risk changes?

For example, if target AA is 50/50 equities/bonds, go to 40/60 (and on the other hand, if you are optimistic go to 60/40. If you are right, you've saved (or made) a few chips. If wrong, you won't get completely whipsawed.

Making major adjustments with your AA due to your willingness to take risk, IMO, will probably result in poorer results, in the aggregate. Also, making the correct "call" in this case (or even stringing a few in a row) may result in continuing to guess the markets direction which could result in one disasterous wrong call.

RM

[dougpnca]

Jabber:

Dec 07 was not a good time to make the shift you did (1st market timing mistake). But that's history & you can't undo it so don't dwell on it. Selling now will only compound the error & catalyze your (now only paper) losses.

The funds you moved into are excellent choices over the long term - that being several years or decades, not one or two months. Continue to dollar cost average into them thru your 401(k) as you planned to do. Do not panic at this point.

A stable value fund typically barely keeps up with inflatiion but does not provide much growth. Stick to equities for the most part while you are young to capture long term growth. Spend some time researching the entire subject of portfoloio development & management on this site & others to get a broad perspective.

Good judgment comes from experience; experience comes from bad judgment. There's no bad time to make a good investment.

dougP
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every dollar not spent is a buck & a half you don't have to make.

[hoxbox]

Like what others said stick do whatever AA you decided on and dollar cost average into them as planned and ignore the market.

For me I'm doing lump summing contributions to my 403(b) (100% payroll deduction) until it's maxed, just like I planned it out 1 year ago thanks to some 0% credit card money! Now if only I can actually not read market reports everyday...

[cleansparks]

When it comes to equities, I think it is always a "time of uncertainty". There wouldn't be an equity premium if there wasn't real risk involved.

[Henni]

Jabberwocky wrote:
>December 2007, I moved my employer's 401k money from their Stable Value fund into VFINX ..NAESX .. both prompty lost 10% in about a month.

sorry to hear that, if any consolation, as long as you maintain the position, you have not really lost anything and both will eventually recover and exceed the previous value you are comparing.

if I may ask, what were your selections *before* the Stable Value? did you have a Large Cap or International Fund in the 401k?

[Judsen]

Jabberwockey,
There is a saying that goes "Buy from the rabbits, sell to the pigs."
The moral from that saying is "Be Neither". (or be contrarian and buy low-sell high if you have the time to wait it out)
Or, Stay the course and avoid transaction costs.

[Regal 56]

Jabberwockey:

We don't have nearly enough information to advise you. We don't know what your time horizon is. We don't know your age. We don't know what your total investments are. We don't know if you have any debt. We don't know what your goals are. All we know for sure is that you hold VFINX and NAESX.

That's simply not enough info on which to offer good advice. Respectfully, I suggest that if you're going to be in charge of your own investments, then you need to educate yourself. Throwing money into a 99.5% equity portfolio and then panicking when it drops 10% suggests you haven't yet done this. For example, you may be happier in a balanced fund like Wellington (VWELX), but you won't know for sure until you get a better handle on what you're doing.

—Tom Poore

[grumel]

That doesnt work, since it relies on all other market participants being complete idiots. If they are not complete idiots, obvious things are priced in. If some are actually smart, everything you could ever find is priced.

[jh]

...

[Jabberwocky]

Knowing what I know now, I never would have moved into those funds. If I'd been in longer and riding the peaks and troughs, I'd stay in. To me, the macro economic indicators (which I failed to check before I moved into the those funds) are too unstable. I didn't follow rule #1, Never lose money. I'll be back in the market, just not now and I'll be wiser for it.

My profile is this: 40 yo, 40% in TIPS (FINPX), LIGRX (Loomis Sayles Investment Grade Bond A), & VFIIX (Vanguard VFIIX). The FINPX is a leftover Roth from former employer and the LIGRX is the least expensive bond fund my current employer offers.

Everything else in MMFs. I can put money in a group of funds (via a rollover) from the University of California which are less expensive than Vanguard's (.15 expense ratio no load or sales charges). Among other things, they have a Insurance Company Contract Fund (UC ICC) which I'm thinking of moving money into. Any suggestions?

[edge]

I think its pretty obvious to everyone here that you are doomed to perpetual hand wringing and underperformance. The best time to invest is when the weak hands (e.g. your hand) have already folded.

[hamishdad]

Tomorrow's fear and greed and not priced into today's market.

[minesweep]

[tibbitts]

[market timer]

I love this risk aversion. It keeps interest rates down, allows the government to borrow at rates less than inflation, and keeps the interest expense for corporations low. Thank you.

[livesoft]

This probably won't help jabberwocky, but there are others reading this thread that worry about losing money. Here is a missive by Paul Merriman which you may find useful: http://www.fundadvice.com/arti....o-fun.html

[clay]

I think your reaction is completely natural, almost predictable. First impressions have a lot of power, and when you first get in and things drop precipitously it's only natural to feel burned and to withdraw.

Investing is mostly about being able to control your emotions (well, ... to some extent ), and for most of us the only way to get where we can is to make some mistakes and see first hand how the market goes up and down and just how unpredictable it is. I think to outsiders it feels like, if you just read the news or watch buying trends, you can make good investment decisions. Many of us here learned the hard (expensive way) that you cannot do that with any consistency.

I started investing at a time when everything was going up, and it took awhile to absorb the fact that that wasn't so. It might help to look at a graph of the prices of the things you own over the last ten years, say

[DiscoBunny1979]

[gdetore]

Here is my story if it is any comfort. Around 1999 I started monthly investments into Vanguard 500 at around $134.00 per share. Every month I invested (retirement account) it was lower. Eventually it bottomed at about $85.00. I kept investing. It went back up to about $135. Stay the course and ignore the daily static. I doubt you will succeed if you jump in and out based on anything you feel or read. I imagine if I'd had daily internet access to Vanguard back then I would have folded and lost out on the eventual gains. Nothing ventured, nothing gained.

[Jabberwocky]

Rule No.2: Never forget rule No.1.

[Richard Berg]

[Greenberry]

Over what time frame does Rule #1 apply?

Buffet generally invests for a very long time frame -- many many years. At least 5, but more like 10, 20, or 30+ years.

If you refuse to lose nominal dollars in the short-term of 1 month, you are almost guaranteed to lose real dollars in the 30+ year time frame compared to riskier investments.

In order to have a decent likelihood of making real dollars over 30 years, you have to accept that you're likely to have temporary losses. It's the nature of risk.

[msi]

There are bear market funds, but then wouldn't you be worrying about the economy suddenly picking up and reversing all those gains?

[pkcrafter]

First, welcome to the Bogleheads forum. I'm not at all sure why you are posting here. Is it because you would like to adopt the Bogleheads way of investing, or is it just because you held some Vanguard funds and are now unhappy with the result? The cure to your problem is some education, and to that I suggest you look at the recommended reading list.

To address the title of your first post:

[openminded]

Stay the course you say.

What course? It does not sound like he even has a well thought out plan, so what course exactly do you want him to stay?

He should of stayed the course in stable value!

Dont get me wrong, I believe in developing a strategy one can live with and staying that course, but to just throw out the mantra after someone was performance chasing in this case is just silly!

How bout "get a grip" instead

[Jabberwocky]

Thank you openminded. I didn't have a plan I just saw "the ghost of past returns" and thought I'd do better in other, ie equity, funds. I'm not expecting that equity funds will never go down (as you would with MMFs or stable value funds); however, if I get the sense that the larger macro economic fundamentals are murky, why get in now? Even Buffet buys at the lows. Financial big thinkers aren't saying that a recession mgiht happen or that we might have a credit crunch, they just don't know how big it will get. What's the harm in putting my 401k in MMFs and the stable value fund or the low expense ICC fund and, when I think it's safe, get into the Vanguard 500 or similar fund or set up a "lazy portfolio" ? Is that "market timing"? Is there anyone out there who thinks that VFINX and NAESX will be up by year's end? If so, why?

[MossySF]

[jhd]

[financialguy]

What's your required return between now and your expected retirement date? Since 1972, nearly risk-free 5 year T-Bills have returned an average of 8% a year. If 8% is all you need, maybe there's no need to take equity risk at all. Hopefully someone smarter than me can correct me if I'm wrong.

[msi]

It's difficult to swing in and out of the market at bottoms and tops. It looks like it would be easy in retrospect looking at charts or through technical analysis, but it's not. Hindsight is 20/20, and when stocks suddenly go up you need to realize what's a short-covering rally before another bottom and what's not.

A lot of people have to learn that the hard way. That's one reason a long-term investment in index funds is the best idea. But if large cap US equities aren't your thing, or you know yourself and know your tolerance for risk prohibits that, then there as financialguy said there's always treasuries. You can buy a fund or buy them with no fee from treasurydirect.gov.

[tibbitts]

[fishndoc]

[Ruprecht]

It's actually been really good for me that my investing career (via my 403b and pension plan) just started in mid-2006. I've lost money, of course, since I started buying into the market at a high, and now everything is going straight downhill. But since all I've had to lose is the money in my 403b and pension plan, it hasn't been all that much. Overall, I think I'm approximately breaking even or slightly ahead.

But more importantly than that, I've had the opportunity to witness big gains and really quick losses at the start of my investing career. I think it's given me a great "reality check" on this whole process. When I first started posting here about 9 months ago, I was just starting to learn about investing. I watched the stock market extremely closely, checking on my own funds several times a day. I haven't tinkered with them (much), but it has been very educational to see exactly what happens during these dynamic times.

The end result is that I'm completely "brainwashed" into the Boglehead way of thinking (i.e."buy and hold" and "keep expenses low"). After watching my investments shoot up and down with no discernible pattern, I'm convinced that daily market changes really are just "noise" to anyone without insider information, and are impossible to predict with any consistency. I've lost interest in watching my funds so closely now, but probably still check more often than some others on this board, not with the intent to change, but to learn.

Anyway, I'm glad I started out just before the beginning of a likely bear market. I haven't lost that much, and I've learned some very valuable lessons at the beginning. I hope I will wind up being a smarter investor as a result.

Many thanks to the Bogleheads for helping me get started.