Preserving capital question

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ctus
Posts: 1
Joined: Tue Mar 05, 2013 2:31 pm

Preserving capital question

Post by ctus » Tue Mar 05, 2013 3:01 pm

Hi all. Great forum, with lots of good advice.

Lots of talk lately about many "financial experts" seeing 20-30% correction coming soon for stocks, and a possible bond crash if interest rates go up. I have a 401K that I only contribute to get the 2% matching from my employer. I've been considering moving some of my 401K to a money market fund (it's one of the investment options in my 401K program). Currently, I have 100% of my 401K invested in a single fund. It breaks down like this:

58% US Stocks
28% Non US Stocks
8% Bonds
6% Cash

Total 401K value = $52K (100% vested)

I was considering moving about 50% of this into the money market fund (which I realize will give me basically 0% return on that %). I was thinking about this simply to preserve the 50% and protect it mainly from a large market correction. Is this a good strategy at this point? I realize I am still a long way off from retiring (42 years old), but I really don't want to see a huge loss in value "if" the market does correct that drastically in the near future.

My other investments/ holdings:

Home (conservative value at $380K, and I have about $120K in equity). Mortgage 14 years remaining on a 15 year/ fixed @ 3.65%

IRA account = $100K (mostly in stocks and bonds) *Perhaps should look at moving some of this into capital preservation?

Physical gold = 15 oz.

Physical silver = 250 oz.

**Other than mortgage, I have zero debt (no credit card debt or car/student loans).

Anyway, thanks for taking the time. I appreciate any feedback.

dbr
Posts: 26598
Joined: Sun Mar 04, 2007 9:50 am

Re: Preserving capital question

Post by dbr » Tue Mar 05, 2013 5:26 pm

It is an excellent idea to balance your portfolio between risky and less risky assets so that you take no more risk than you have need, ability, and willingness to accept. Larry Swedroe in some of his books explains those concepts very well.

It is a terrible idea to flee to one investment or another because you read or hear that something is or isn't going to happen.

Money markets are at an extreme end of seeking no volatility in value at a cost of giving up return. There is a range of low risk investments in such instruments as CD's, stable value funds, EE and I bonds, short term bonds and so on that parse out risk and return in various portions. Stocks are the more risky and higher possible returning investments. No one can say when or how much stocks are going to "correct" as opposed to continue to rise in value for awhile.

You should seek a judgement to target a middle ground for the long run and stay there.

Call_Me_Op
Posts: 6794
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Preserving capital question

Post by Call_Me_Op » Wed Mar 06, 2013 8:58 am

dbr wrote:It is an excellent idea to balance your portfolio between risky and less risky assets so that you take no more risk than you have need, ability, and willingness to accept. Larry Swedroe in some of his books explains those concepts very well.

It is a terrible idea to flee to one investment or another because you read or hear that something is or isn't going to happen.

Money markets are at an extreme end of seeking no volatility in value at a cost of giving up return. There is a range of low risk investments in such instruments as CD's, stable value funds, EE and I bonds, short term bonds and so on that parse out risk and return in various portions. Stocks are the more risky and higher possible returning investments. No one can say when or how much stocks are going to "correct" as opposed to continue to rise in value for awhile.

You should seek a judgement to target a middle ground for the long run and stay there.
+1 - Nice post, dbr.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

ResNullius
Posts: 2091
Joined: Wed Oct 24, 2007 3:22 pm

Re: Preserving capital question

Post by ResNullius » Wed Mar 06, 2013 10:14 am

Get rid of the gold and silver. Stay invested. At your age, you won't have squat when you reach 65 if you jump in and out of the market in response to current events or the opinions of talking heads or financial advisors. It's your money, why not make the most of it.

Dandy
Posts: 5062
Joined: Sun Apr 25, 2010 7:42 pm

Re: Preserving capital question

Post by Dandy » Wed Mar 06, 2013 3:10 pm

There is always talk of impending corrections or another leg up on the market by "experts" - often at the same time. How many thought that the market would rally when government failed to stop sequestor? Now we do live with some equity markets reaching new highs and interest rates at historic lows. But if you adjust your portfolio significantly every time you or media experts think something good or bad is going to happen you will drive your returns low and yourself nutty.

If your long term need is preservation of capital then adjust your portfolio allocation accordingly. Consider other fixed income alternatives if possible such as CDs, IBonds, etc. If not try not to play with your overall allocation between equities and fixed income. You might consider some modest changes like reducing the duration of your bond funds, or moving money from money market to a CD.

If you predict a correction long enough you are bound to be right sometimes. Same with predicting a bull market.

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