stayed out of the market, what to do now?

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anoop
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stayed out of the market, what to do now?

Post by anoop » Tue Mar 04, 2014 1:43 am

Reading a lot of negative stuff around 2007, I pulled out of the market completely in early 2008. Most of the blogs I follow, save for one, recommended staying away from the market saying that the Fed's actions would not work. Along the way, prior to the crash of 2008/2009, I also encountered the work of Zvi Bodie which made me feel I could get away without investing in stocks.

However, because of the weird interest rate environment that we are in now and are likely to be for the foreseeable future, I have been earning < 1% on my entire portfolio, across 401(k), Roth IRA, and taxable accounts. I have been shying away from long bonds because I fear interest rates will rise, and I think stocks are now overvalued. I buy 1-Bonds every 6 months (taxable money, of course), and occasionally buy a TIPS (have to go out 10+ years to get a non-negative yield) every now and then in my Roth IRA. But other than that it's money market funds and savings accounts.

Where to from here? Is it OK to continue to stick with this portfolio? Should I move into stocks? If so, what is a good strategy for that given they are at an all time high?

Edit:
Right now, my current thinking is to stay the course with this, wait till rates start to rise and slowly start buying long bonds. I don't invest in bond funds. Whatever i have like TIPS and a few treasuries are individual issues that I plan to hold till maturity.

I'm 43, don't own a house and have no debt.

Johm221122
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Re: stayed out of the market, what to do now?

Post by Johm221122 » Tue Mar 04, 2014 7:45 pm

Don't time the market .Read Boglehead philosophy


"This is perhaps the most challenging part of Boglehead investing, but is essential to its success. Bogleheads adopt a reasonable investment plan and then stay the course"

http://www.bogleheads.org/wiki/Boglehea ... philosophy
John

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Re: stayed out of the market, what to do now?

Post by pkcrafter » Tue Mar 04, 2014 7:59 pm

anoop, we need to get more information to offer suggestions. One important piece is how much do you now have saved for retirement.

It would be very helpful in you provide information in this suggested format. It saves us from having to ask all the questions individually.

http://www.bogleheads.org/forum/viewtop ... f=1&t=6212


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Onyxmeth
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Re: stayed out of the market, what to do now?

Post by Onyxmeth » Tue Mar 04, 2014 8:02 pm

Can you handle having equities in your portfolio? Over the last 6 years or so we've gone through the full gamut of highs and lows and you've been wary to invest the entire time. What is your history of equity investing like?
Last edited by Onyxmeth on Tue Mar 04, 2014 8:07 pm, edited 1 time in total.

lloydbraun
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Re: stayed out of the market, what to do now?

Post by lloydbraun » Tue Mar 04, 2014 8:04 pm

Unless you have a lot of money I would recommend at least investing in something like Vanguard's Target Retirement Income fund, which has about 30% in stocks. Bonds are fine as a hedge against stock market volatility that will hopefully generate some income above the inflation rate, but if you want to have a positive real return over the long run, some stock exposure is your best way forward.

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Re: stayed out of the market, what to do now?

Post by Ged » Tue Mar 04, 2014 8:08 pm

anoop wrote: Where to from here? Is it OK to continue to stick with this portfolio? Should I move into stocks? If so, what is a good strategy for that given they are at an all time high?
No, it's pretty unreasonable to stick to a portfolio that is a consistent money loser in real terms for the next 25 years or whatever time from now you plan for retirement. Bonds just do not keep up with inflation.

If you are worried about buying into a market that is at a high, I suggest you start examining the ideas of dollar cost averaging, rebalancing and value investing.

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Re: stayed out of the market, what to do now?

Post by tibbitts » Tue Mar 04, 2014 8:11 pm

When you got out of equities, you had a re-entry plan. What was it?

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Re: stayed out of the market, what to do now?

Post by livesoft » Tue Mar 04, 2014 8:34 pm

This article written specifically for folks like the OP has been linked here:
http://www.bogleheads.org/forum/viewtop ... 8#p1923208
Wiki This signature message sponsored by sscritic: Learn to fish.

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ERMD
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Re: stayed out of the market, what to do now?

Post by ERMD » Tue Mar 04, 2014 8:50 pm

get back in the market and stay there for the next 30 years.
between scotch and nothing, i'll take scotch. -- faulkner

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Re: stayed out of the market, what to do now?

Post by MindBogler » Tue Mar 04, 2014 8:52 pm

ERMD wrote:get back in the market and stay there for the next 30 years.
They say there is no time like the present...

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Re: stayed out of the market, what to do now?

Post by Calm Man » Tue Mar 04, 2014 9:43 pm

This is a very interesting post. I know a more than insignificant number of people who panicked around the time OP did and went to cash, TIPS, short term bonds, CDs, i bonds, etc. Some actually read Zvi Brodie like OP did and have suffered the consequences. So right now, today, they are locked into negative real return or zero return portfolios at a time when stocks are at an all time high and bonds are still very high in price. Some like OP recognize they need to do something. Others, more, are waiting for "rates to go up" as OP is doing too to "lock in higher yields". But what if that day goes out for decades? I think they are permanently stuck, literally for life. The only way out is a dollar cost averaging program even if over 3 or 4 years into stock and intermediate term bond funds. And to do the hardest thing, which is to stop thinking and predicting because "nobody knows nothing".

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Re: stayed out of the market, what to do now?

Post by berntson » Tue Mar 04, 2014 10:26 pm

anoop wrote: Where to from here? Is it OK to continue to stick with this portfolio? Should I move into stocks? If so, what is a good strategy for that given they are at an all time high?
The media breathlessly reports that the stock market "hit a new high today" as if this were an interesting fact, one that suggests that the air is getting thinner and that a crash is imminent. This is generally nonsense.

Think of it like this. Every day, my savings account hits a new "all-time high." That has nothing to do with speculative excess and everything to do with compound interest. Over time, the account goes up in value because roughly the same rate of return is applied to more and more capital (i.e. savings).

The stock market works the same way. When companies have earnings, they return some to their shareholders through dividends or share buybacks. The rest they keep and plow back into their businesses. This means that there is more capital in the markets in the same way that there is more savings in your checking account after an interest payment. Just as a larger bank account produces more interest, a market with more capital produces more earnings. Over time, this raises the price of stocks. So even without speculative excess, we should always expect there to be new market highs. That just means that the markets are working.

This is not to say that there aren't legitimate concerns about valuations. Maybe prices have been going up too fast relative to earnings.

There are very few situations, in my view, in which an investor should have less than 25% of her portfolio in equities. One of the reasons is that a small allocation of equities can actually reduce risk while boosting returns. The long-term efficiency frontiers tend to look like this.

Image

Notice that moving from an all-bond portfolio to a mix of stocks and bonds reduces risk and raises returns. That is an enormous free lunch.

You found out in 2008 that you had too much in equities, so you want to take it really slow. You need to find a level of market risk that you're comfortable with, and that may take some time. What about gradually buying in until you reach a conservative target, like 25% equities and 75% bonds? You could add 5% equities every three months or something like that.
Last edited by berntson on Tue Mar 04, 2014 10:28 pm, edited 1 time in total.

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Re: stayed out of the market, what to do now?

Post by supernova » Tue Mar 04, 2014 10:27 pm

The market could go down, it could go up, it could stay the same. No one can predict the future. If you are real worried, do dollar cost averaging, as that is the (in most people's eyes) safest allocation plan.

If you only invest what you can afford to lose, you will be just fine.

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Re: stayed out of the market, what to do now?

Post by inbox788 » Tue Mar 04, 2014 11:25 pm

anoop wrote:Reading a lot of negative stuff around 2007, I pulled out of the market completely in early 2008. Most of the blogs I follow, save for one, recommended staying away from the market saying that the Fed's actions would not work. Along the way, prior to the crash of 2008/2009, I also encountered the work of Zvi Bodie which made me feel I could get away without investing in stocks.

However, because of the weird interest rate environment that we are in now and are likely to be for the foreseeable future, I have been earning < 1% on my entire portfolio, across 401(k), Roth IRA, and taxable accounts. I have been shying away from long bonds because I fear interest rates will rise, and I think stocks are now overvalued.

I'm 43, don't own a house and have no debt.
So, let me get this straight, stocks are overvalued and bonds are going to crash. Cash works in low inflation or even better in deflationary environments. But the fed is fighting deflation with QE, and some people think we're going to see high inflation, which goes with high interest rates. Gold is supposed to be a good hedge against inflation, so that might be a good option if this line of reasoning makes sense. If not, what else is left? Real estate? Commodities? You used to be able to hide in a government job and count on a good pension, but the ticking timebomb of pensions is creating a lot of changes, especially for younger workers. So, the only thing left is Bitcoins! And prices are low right now, so get in before it shoots up again.

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Re: stayed out of the market, what to do now?

Post by BolderBoy » Tue Mar 04, 2014 11:45 pm

anoop wrote:I have been earning < 1% on my entire portfolio, across 401(k), Roth IRA, and taxable accounts.

Where to from here? Is it OK to continue to stick with this portfolio? Should I move into stocks? If so, what is a good strategy for that given they are at an all time high?
"... all time high" is a state of mind. You are going backwards with your investment net worth. That is NOT a state of mind.

You can hold your nose and do what the others here are suggesting - at least long enough to see that they are right - and you can probably turn this around, given your age. But staying out of equities completely is a fool's game in the long run.

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anoop
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Re: stayed out of the market, what to do now?

Post by anoop » Wed Mar 05, 2014 12:50 am

Thanks for all the replies.

>>>
anoop, we need to get more information to offer suggestions. One important piece is how much do you now have saved for retirement.
>>>

Well, I don't know that I'm comfortable giving out my net worth. Perhaps the best I can say is that my savings are about 65% outside retirement and 35% in retirement. The bulk of all that is sitting in money market/savings accounts. Less than 10% is in short-mid term bonds, I-Bonds, and TIPS. I could probably go 10-15 years living very conservatively with my savings outside retirement without a job assuming nothing untoward were to happen (like coming down with a chronic illness).

>>>
Can you handle having equities in your portfolio? Over the last 6 years or so we've gone through the full gamut of highs and lows and you've been wary to invest the entire time. What is your history of equity investing like?
>>>

Prior to getting out of equities, I was close to 100% equities in retirement accounts. One unfortunate loss happened in 2003...I had lost my job and needed to transfer the 401(k) which had all my money...the custodian sold it almost at the bottom, and sent me the check after the market had recovered a good chunk of the losses. I have no idea why it took them that long. Outside retirement I had play money which I used to invest in random individual issues. That play money is a disaster...I am at 80% of what I started with 14 years ago. It's a good thing I haven't tried adding to it. I recently had a decent gain via speculating on NOK, and that has been my best ever, but still not enough to pull my portfolio out of the red. I usually claim the $3K capital loss every year. :)

>>>
Unless you have a lot of money I would recommend at least investing in something like Vanguard's Target Retirement Income fund, which has about 30% in stocks.
>>>

If I get into stocks in a big way, it will be via an S&P500 ETF/index fund only. I don't care for any of the fancy things because they just add fees.

>>>
If you are worried about buying into a market that is at a high, I suggest you start examining the ideas of dollar cost averaging, rebalancing and value investing.
>>>

I have been thinking on those lines...basically buy a few shares of IVV every quarter till it hits about 20% or so of my portfolio.

>>>
When you got out of equities, you had a re-entry plan. What was it?
>>>

My plan was to follow the method of Zvi Bodie and not worry about stocks at all. But now we're in this weird interest rate environment and we may be there for decades. Money market funds and stable value funds yielding close to 0% and TIPS having a negative yield...to give you some perspective, the returns on my current employer's 401(k) where I have been for 2 years were less than the $20 quarterly fee!

>>>
But what if that day goes out for decades? I think they are permanently stuck, literally for life.
>>>

That's my main concern here. That rates may not go up for the next 20-30 years. I am seriously considering buying 30-year bonds in small amounts.

>>>
You are going backwards with your investment net worth.
>>>

The way I justify it is that it's a tax I pay to keep my principal safe.

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Re: stayed out of the market, what to do now?

Post by visualguy » Wed Mar 05, 2014 1:28 am

Keeping it mostly in cash in the long run is quite bad, but I understand the dilemma. If you put it in the stock market now, it's not unlikely that you will see a loss of principal (on paper) for some (potentially prolonged) periods in the future. The market is richly valued right now... However, if it's money that you won't need for 20 years, then why worry - it's extremely unlikely that your money will do poorly in the market over a 20-year period or longer.

The problem for some of us is that we don't have a lot of money (or any) that we know with reasonable certainty that we won't need for 20 years...

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Re: stayed out of the market, what to do now?

Post by rr2 » Wed Mar 05, 2014 2:18 am

Anoop -- Welcome to Bogleheads.

Given your savings thus far, I assume you have a high savings rate. Thus, there is probably nothing wrong in proceeding the way you have gone thus far with mostly capital preserving safe investments. Putting enough into I and EE bonds is a strategy that might work for you given your high risk aversion.

Doesn't Bodie say that you cannot compensate for the current low interest regime by increasing your allocation to equities. Either you have to save more, work longer, or spend less in retirement.

Are you confident that if your equity investments decline/look like declining, you will not sell? You were lucky once pulling out near the peak in 2007-08.

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Re: stayed out of the market, what to do now?

Post by MossySF » Wed Mar 05, 2014 4:06 am

Here's option 2:

If your savings rate is high enough, there is no need for stocks or bonds. I know of many immigrants who only put their money in CDs and are retired just perfectly fine with a conservative lifestyle. Sure they wince with today's 1% CDs so they just hunker down more and spend up to what their social security benefits will allow.

If you are extremely risk averse and hate seeing your balance ever go down, there's nothing wrong with this strategy. It's not the aspirational retirement you see in commercials where folks are scuba diving off the Great Barrier Reef or skiing in the Alps ... but it's still better than the majority of Americans who retire with nothing.

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Re: stayed out of the market, what to do now?

Post by z3r0c00l » Wed Mar 05, 2014 6:34 am

anoop wrote:Reading a lot of negative stuff around 2007, I pulled out of the market completely in early 2008. Most of the blogs I follow, save for one, recommended staying away from the market saying that the Fed's actions would not work. Along the way, prior to the crash of 2008/2009, I also encountered the work of Zvi Bodie which made me feel I could get away without investing in stocks.
Don't take this the wrong way, but I don't think you have the grit to invest in stocks if this is how you reacted to a recession. These things happen once per decade or so. I suggest you work a bit harder to save, and just put the money in CDs.

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Re: stayed out of the market, what to do now?

Post by Frugal Al » Wed Mar 05, 2014 8:44 am

z3r0c00l wrote: Don't take this the wrong way, but I don't think you have the grit to invest in stocks if this is how you reacted to a recession.
In fairness I doubt we can determine how much grit the OP does or doesn't have. I suspect the problem was two-fold: having the wrong asset allocation for their risk tolerance and listening to the noise of the market pundits. I suggest the OP study the wiki materials, paying close attention to market timing, asset allocation and risk.

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Raymond
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Re: stayed out of the market, what to do now?

Post by Raymond » Wed Mar 05, 2014 8:58 am

Given your lower tolerance for risk, I'd go with the plan you and others have discussed in this thread:

- Continue to gradually sell off all the individual "play money" stocks, especially those with losses - and never buy individual stocks again :P

- Put the proceeds into iShares Core S&P 500 (IVV) ETF shares, until it comprises 25% of your portfolio.

- Put the rest of your money into a combination of a long-term CD ladder (taxable or IRA), individual TIPS ladder (in an IRA), Series EE or I Savings Bonds, or higher-yielding savings accounts such as the one at Barclays.

-Stop watching or listening to pornography - financial pornography, that is. Junk food for the mind :D
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Re: stayed out of the market, what to do now?

Post by Prudence » Wed Mar 05, 2014 9:08 am

OP, the AA guidance on this site says that every investor needs to have at least 25% of his/her portfolio in equities. Given your age, I would devise a plan to get to 25% asap. After a while, if you find that you can live with that, then perhaps revise your plan to get to 40% - 50% and leave it there until you get close to retirement. For equities, go with the S&P 500 index as touted by Buffett. For your fixed portfolio, go with CDs until interest rates normalize, which, as you say, may take years. Good luck.

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Re: stayed out of the market, what to do now?

Post by staythecourse » Wed Mar 05, 2014 9:17 am

I congratulate you on the fact that you TRIED to read and learn about investing in 2007 to help guide you. As you now know and will continue to find out as you read more that you read the WRONG stuff!!

Investing is probably one of the easiest things I have learned in my life. Riding a bike was significantly harder as was ice skating!! The problem is with the latter you can afford to learn the hard way with investing you don't want to make mistakes if you don't need to. You just need to read the RIGHT books to get more information on the crux of investing.

Below is my personal favs:
1. Easy level: Jack Bogle edition to the Little Book series and Allen Roth's "How a second grader beat wall street"
2. Intermediate level: Rick Ferri's "All about asset allocation" and Dr. Bernstein's "Intelligent asset allocator"
3. Difficult level: Roger Gibson's "Asset Allocation".

Read the above and come on here and ask as many questions as you have and you will EASILY learn more then 80-90% of what is important in investing and how to execute it as well.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: stayed out of the market, what to do now?

Post by Onyxmeth » Wed Mar 05, 2014 9:41 am

Frugal Al wrote:In fairness I doubt we can determine how much grit the OP does or doesn't have. I suspect the problem was two-fold: having the wrong asset allocation for their risk tolerance and listening to the noise of the market pundits. I suggest the OP study the wiki materials, paying close attention to market timing, asset allocation and risk.
i'm going to quote this because I also believe this is the problem. You pay attention to too much and to too many voices. We follow pretty simple rules here. We can't predict the market. No one can. We can control risk, taxes and costs. That's it. There are a lot of good books to read on this. The best book is The Boglehead's Guide to Investing. Everyone will recommend that one. The one that drove the point home to me was The Little Book of Common Sense Investing by Jack Bogle. It's short and it drills this philosophy into your skull.

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Re: stayed out of the market, what to do now?

Post by JMacDonald » Wed Mar 05, 2014 9:54 am

Best Wishes, | Joe

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Re: stayed out of the market, what to do now?

Post by pkcrafter » Wed Mar 05, 2014 10:12 am

anoop, the reason I asked about total savings was to get an idea of how reasonable your idea of not investing in equities really is. We say you need about 25X your initial withdrawal rate in assets to retire, but that assumes some growth potential from equities. Without equities, you will need considerably more than 25X initial withdrawal rate. Risk goes both ways--risk in equities vs risk of not meeting goals. Balance is usually the best answer.

Thanks for the additional information. Overall it looks like you were involved in some of the worst kind of major mistakes possible. I don't know what happened to the 401k, but it does not sound good. Did you not get it rolled over in 60 days? 100% in stocks then, 100% out of stocks now, except for speculating in individual stocks. It appears you really have not had a good plan to follow.
Where to from here? Is it OK to continue to stick with this portfolio? Should I move into stocks? If so, what is a good strategy for that given they are at an all time high?
I think you are asking the right questions. We can suggest and discuss, but the real goal is for you to learn some fundamentals and come up with a strategy you can stay with.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: stayed out of the market, what to do now?

Post by JonnyDVM » Wed Mar 05, 2014 11:40 am

My father-in-law did the same thing and bailed out on the market at the worst possible time in 08. Really did devastating damage to their retirement savings. What they have done, and I would urge you to consider the same thing, is to hire a financial advisor. For some people I think it's worth the 1%.
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

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Re: stayed out of the market, what to do now?

Post by scone » Wed Mar 05, 2014 1:24 pm

Leaving aside the inflation problem, It depends on how big your portfolio is, and how small your withdrawals are going to be. If you had a 10 billion dollars and only took out 25k per year in retirement, you could go all cash. There would be no need to take stock risk. But at a million dollars, with a 25k withdrawal, you likely will have to invest part of the portfolio in stock to fund a retirement. Then taking up the inflation issue, you will definitely lose something going all cash, unless there is persistent and extreme deflation in our future!

I would recommend you read some of the commentary by Larry Swedroe, who's a very clear thinker on how to evaluate your need to take risk.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

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Re: stayed out of the market, what to do now?

Post by swaption » Wed Mar 05, 2014 1:54 pm

Do you drive a car while only looking in the rearview mirrow? The first two paragraphs in the original post are essentially irrelevant. The only aspect that merits consideration is some self examination of your decision making process,, both then and now.

So what you are left with is a question of how to invest your money now and in the future, recommnedations that cannot be made in the absence of the extensive relevant information that you have yet to provide. Your decisions and approach now would be no different than for those that never got out of the market in first place, all else being equal (and provided you have a sufficient understanding of your own risk tolerance).

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Re: stayed out of the market, what to do now?

Post by weltschmerz » Thu Mar 06, 2014 3:26 am

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stemikger
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Re: stayed out of the market, what to do now?

Post by stemikger » Thu Mar 06, 2014 3:45 am

If you were to ask this question to one of the greatest investors in the world this is what he would say:

https://www.youtube.com/watch?v=1N3g47P-iRc

https://www.youtube.com/watch?v=yk94tI_2QOY

https://www.youtube.com/watch?v=Cbg08uf5unI

https://www.youtube.com/watch?v=rEX81lGhMwM

Charlie Munger makes a good point and he says if you are not willing to see your short term balance go down 50%, you should not be an investor in the stock market.

Life is full of risk, use age in bonds which is a conservative way to capture the stock and bond market. Being too conservative is more risky, it just doesn't feel the same way. Smart people like Buffett know this, the guy on the street never really thinks about the silent killer (inflation).
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: stayed out of the market, what to do now?

Post by 4nursebee » Thu Mar 06, 2014 5:56 am

4nursebee

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Re: stayed out of the market, what to do now?

Post by z3r0c00l » Thu Mar 06, 2014 6:51 am

Frugal Al wrote:
z3r0c00l wrote: Don't take this the wrong way, but I don't think you have the grit to invest in stocks if this is how you reacted to a recession.
In fairness I doubt we can determine how much grit the OP does or doesn't have. I suspect the problem was two-fold: having the wrong asset allocation for their risk tolerance and listening to the noise of the market pundits. I suggest the OP study the wiki materials, paying close attention to market timing, asset allocation and risk.
Ill be back for the next post-bull thread in 7 years about how to get back in.

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Re: stayed out of the market, what to do now?

Post by Karamatsu » Thu Mar 06, 2014 7:39 am

Where to from here? Is it OK to continue to stick with this portfolio? Should I move into stocks? If so, what is a good strategy for that given they are at an all time high?
I don't think you're really giving the experts here enough to go on, but I understand the reluctance to publish too much personal information. The real question is whether you'll have enough to meet your future needs. Zvi Bodie had a spreadsheet for that on his web site a while back that could help, but it's been a while so I don't have a link. In any case, if you have enough, then you're fine. If you don't then you'll need to augment what you have. At 43 a lot of that can be done simply by saving and continuing to buy inflation-linked bonds (at this point it's only the 5Y TIPS that still have negative yield). If you decide you'd like to add equities, the way most people around here do that is to choose an allocation, invest with low-cost index funds, and stick with their allocation no matter what happens. Well, except maybe to rebalance now and then. Alternatively Bodie suggested a strategy involving LEAPS, but I don't know anyone who's actually done that.

First decide what you need, then work out a path to achieve that. No reason to take on more risk than you're comfortable with unless it's necessary to meet your goals. If it is, then it could easily be the goals that are the problem!

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Re: stayed out of the market, what to do now?

Post by Jazztonight » Thu Mar 06, 2014 11:11 am

I just forwarded this thread to a good friend of mine who also got out of the market and, to my knowledge, has never been able to get back in, probably because it's impossible to know just when "the right time" is. If the market is "down," maybe it will continue to go down. If it's "up," it's already too high, and too late to get back in.

The recommendations and reactions here are all over the map, from "stay put" to various Boglehead-type allocations (from "age in bonds" to "second grader," etc.).

I can only say that it's one thing to read the Wikis and recommended investment guides, but it's another thing to actually "pull the trigger." From my own experience, the water's much more comfortable once you're in the pool.
"What does not destroy me, makes me stronger." Nietzsche

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anoop
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Re: stayed out of the market, what to do now?

Post by anoop » Thu Mar 06, 2014 11:13 am

Off topic, but it's Interesting that none of them chose to give it all away to charity. :)

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anoop
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Re: stayed out of the market, what to do now?

Post by anoop » Thu Mar 06, 2014 11:25 am

Karamatsu wrote:Zvi Bodie had a spreadsheet for that on his web site a while back that could help, but it's been a while so I don't have a link. In any case, if you have enough, then you're fine. If you don't then you'll need to augment what you have. At 43 a lot of that can be done simply by saving and continuing to buy inflation-linked bonds (at this point it's only the 5Y TIPS that still have negative yield). If you decide you'd like to add equities, the way most people around here do that is to choose an allocation, invest with low-cost index funds, and stick with their allocation no matter what happens. Well, except maybe to rebalance now and then. Alternatively Bodie suggested a strategy involving LEAPS, but I don't know anyone who's actually done that.
The calculator is here:
http://www.prenhall.com/worryfree/downl ... lator.xls‎

Yes, my philosophy thus far has been to save more and use conservative investments. That was my thinking when I got out of the market. It's just that the warped interest rate environment makes it hard to swallow this strategy. My 401(k) doesn't offer individual TIPS or even a TIPS fund. Zvi Bodie had suggested a stable value fund for those types of accounts. The equivalent fund that we have earns close to 0%. My previous employer offered a brokerage in the 401(k). The bulk of my retirement funds are there, but I worry about buying long dated treasuries/TIPS because if the company is acquired or stops offering the brokerage service for whatever reason, I would be forced to sell all of the individual issues potentially at a loss. That's part of my dilemma.

letsgobobby
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Re: stayed out of the market, what to do now?

Post by letsgobobby » Thu Mar 06, 2014 1:12 pm

If you are conservative then you probably shouldn't increase equities. But you may have to increase your savings rate.

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Re: stayed out of the market, what to do now?

Post by surfstar » Thu Mar 06, 2014 1:30 pm

Roll over that previous employer's 401k to Vanguard and put it all in Wellesley
https://personal.vanguard.com/us/funds/ ... IntExt=INT

Look at the 10 year chart - if you had cash and left it alone it would roughly have done the same as VWIAX from 2004-2009 (that BIG hit), but continue to follow it and...

1/3 2/3 stock:bonds is pretty darn conservative and you will be doing much better than you have been. Cash buried in the backyard or under your mattress is LOOSING value. That should scare you enough to take even a moderate amount of risk. Throw it all in one fund, then don't worry about it. No rebalancing or watching needed.

Earning 0% real, is not an investment. Let your money do some work for your future!

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Re: stayed out of the market, what to do now?

Post by SC Hoosier » Thu Mar 06, 2014 2:08 pm

anoop wrote: The way I justify it is that it's a tax I pay to keep my principal safe.
Safe from what? Inflation? Robber Barons? Ultimate Safety is an illusion. Who knows where the best place to keep money is for the next 10-20 years? Diversification makes sure that whatever that place is, you'll be represented there. The fear you have is from getting the wrong information. Read the Wiki and the books it recommends. I used to feel very overwhelmed by the topic of investing. The Boglehead gospel is the tortoise against Wall Street's hare.

I know a guy that kept all of his $100,000 retirement nest egg in CDs. In 2000 he looked like a genius. Now he looks like a moron. The best strategy through 2008 was to keep buying the market. Those that did that are the smart ones now.
I live in No Payment Land. It is wonderful, and I'd love for you to live here too.

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Re: stayed out of the market, what to do now?

Post by SC Hoosier » Thu Mar 06, 2014 2:12 pm

surfstar wrote:
Earning 0% real, is not an investment. Let your money do some work for your future!
Yes! The mattress is real competition here. Who needs retirement accounts if your earnings is zero?! There are no Mattress Contribution Limits. :D You're earning nothing, but at least you'll SLEEP better. Ha ha ha.
I live in No Payment Land. It is wonderful, and I'd love for you to live here too.

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Re: stayed out of the market, what to do now?

Post by asha1001 » Thu Mar 06, 2014 2:23 pm

Given your risk averse style, you may want to dollar cost average your way back into stocks. Before you do that decide how much you want in stocks and how long are you going to take to get to that number.

Getting into the business of predicting the future is not a very profitable hobby. Stocks on average return higher than bonds and enjoy lower taxes (if your assets are in a taxable account). Of course with higher returns comes higher risk....

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Re: stayed out of the market, what to do now?

Post by Clearly_Irrational » Thu Mar 06, 2014 4:05 pm

The Dan wrote:Have you considered the Permanent Portfolio? It is 25% each of stocks, long-term treasuries, gold, and cash. One or more of these markets is usually at high, so the whole portfolio balances out, giving modest yields with low volatility. If you are not a fan of market timing, this could be a good option for you.
Even if you're not sure you want to do it long term, I think the PP would be a great way to get back in the game. It's got a lot of crash protection so your risk tolerance doesn't have to be particularly high, yet the stock allocation of 25% is much higher than the 0% you have now. When the next crash occurs (and it will eventually) you can re-evaluate whether you want to move to a more traditional portfolio or not at a time when valuations are more reasonable.

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Re: stayed out of the market, what to do now?

Post by inbox788 » Thu Mar 06, 2014 5:19 pm

Clearly_Irrational wrote:
The Dan wrote:Have you considered the Permanent Portfolio? It is 25% each of stocks, long-term treasuries, gold, and cash. One or more of these markets is usually at high, so the whole portfolio balances out, giving modest yields with low volatility. If you are not a fan of market timing, this could be a good option for you.
Even if you're not sure you want to do it long term, I think the PP would be a great way to get back in the game. It's got a lot of crash protection so your risk tolerance doesn't have to be particularly high, yet the stock allocation of 25% is much higher than the 0% you have now. When the next crash occurs (and it will eventually) you can re-evaluate whether you want to move to a more traditional portfolio or not at a time when valuations are more reasonable.
Going from 100% cash to 25% equities is a small step, especially along the efficiency frontier, especially if long term. However, the long-term treasuries is a problem given OPs outlook on bonds. If OP is right and long-term rates go up a bit soon, any funds will likely be underwater in the short to mid term. The other two parts, 25% cash is no change, while 25% gold is a speculative play anytime. If gold is used as a proxy for inflation, our current low rate, low inflation environment appears to be a fluke, and sometime in the future, will correct itself, but if we only knew which one will go higher, inflation or rates, we could pick long-term treasuries vs. gold. But if both are going higher as expected by some, then they're both losers. Add to that the feeling that stocks are overvalued, and the only remaining component in the Permanent Portfolio that will not underperform is going to be cash. :confused

http://www.investopedia.com/ask/answers ... onship.asp

selftalk
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Re: stayed out of the market, what to do now?

Post by selftalk » Thu Mar 06, 2014 5:38 pm

The market isn`t a place to be for everyone. Eventually you will guess wrong. Then what?

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Clearly_Irrational
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Re: stayed out of the market, what to do now?

Post by Clearly_Irrational » Thu Mar 06, 2014 5:52 pm

inbox788 wrote:Going from 100% cash to 25% equities is a small step, especially along the efficiency frontier, especially if long term.
True, but anything that gets him back in the market is a long term win, so tip toeing is better than nothing.
inbox788 wrote:However, the long-term treasuries is a problem given OPs outlook on bonds. If OP is right and long-term rates go up a bit soon, any funds will likely be underwater in the short to mid term.
If long term rates go up that means things are going well and his stocks will too.
inbox788 wrote:The other two parts, 25% cash is no change
Yep.
inbox788 wrote:, while 25% gold is a speculative play anytime. If gold is used as a proxy for inflation, our current low rate, low inflation environment appears to be a fluke, and sometime in the future, will correct itself, but if we only knew which one will go higher, inflation or rates, we could pick long-term treasuries vs. gold. But if both are going higher as expected by some, then they're both losers.
For inflation and interest rates to go up at the same time we'd have to be in a wage/price spiral which is highly unlikely right now. The Feds main concern at the moment is actually inflation that's too low.
inbox788 wrote:Add to that the feeling that stocks are overvalued
I agree, but there isn't currently enough data to suggest that we should do anything with that information.

Look, the PP is weird, it doesn't seem like it should work when the components are viewed in isolation but taken together its actually been pretty solid over the long term. Still, it's not the default response around here by any means. *shrug* Whatever portfolio he chooses will have some risk, so it's just a matter of what kind of risks he's comfortable with.

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Re: stayed out of the market, what to do now?

Post by anoop » Thu Mar 06, 2014 11:04 pm

I did look at PP some time back. It did look interesting, but I somehow never actually invested in it. I think I will investigate this option further. I did buy GLD a while ago in my brokerage and did quite well with that over a 2 year period or so.

Regarding timing the market...I don't know if it can be done. So far only one of the blogs that I follow seems to have gotten it right on the way down and right on the way up. I obviously did not follow his analysis for the economy to improve or I would be wealthy now! He doesn't offer investing advice, just an analysis of the economy and whether or not there is a chance of recession.

I just went back an re-read an old Q&A with Zvi Bodie:
http://www.businessweek.com/stories/200 ... out-stocks

"If you have a high tolerance or are saving more than you need to in order to reach your goals, you can put some of your savings in stocks."

This makes me comfortable with putting say 20% or so of my portfolio in stocks. What makes my situation really difficult to work with is being single and not owning a home. If either of these were to happen I think there is a potential to significantly impact capital and ongoing expenses. But for now, I think I would be willing to take a complete beating on 20% of my portfolio and not worry about it. I'll keep adding to TIPS and will start adding some treasuries (individual issues) as well (hey, they're yielding better than zero). I will buy the TIPS in the 401(k) brokerage and treasuries in the taxable account (I can go longer maturity without worrying about having to sell midway because of a "401(k) plan change" by the company.

Here are a few quotes that make me nervous about following the general bogleheads.org wisdom:

"The consensus view -- and this is based on estimates -- is that over the next 30 years, if you were to invest in a diversified portfolio of U.S. stocks, you'd beat inflation by about 4 percentage points a year. But there's a tremendous amount of uncertainty surrounding that -- not just in the short-run but in the long-run.
...
This risk explains why the longer your time horizon, the more expensive it is to buy put options [which are like an insurance policy that protects you against the risk of a stock market decline].
"

"Don't fool yourself into thinking that your basic needs are being taken care of in the long-run with a stock market portfolio. Much of the conventional advice about investing is dangerously misleading."


I was so comfortable with the Bodie way until recently where stocks seem to be having a huge bull run.
http://anoopsplace.blogspot.com/2010/04 ... sting.html

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Re: stayed out of the market, what to do now?

Post by ajb115 » Thu Mar 06, 2014 11:55 pm

Anoop, it sounds like you overthink investing and get sucked into the noise of the market. You invested in individual stocks in 2000. You exited equities in the crash. You bought GLD over the last two years. You didn't also happen to buy three homes in 2006, did you?

You've already gotten a lot of good advice from smarter investors than I. My advice? LISTEN TO THEM. Start buying into stocks a little bit at a time, or put your retirement into an all-in-one fund. But for god's sake, don't start buying 30-year treasuries and intermediate TIPS and hope to come out ahead. This is a recipe for continually losing to inflation.

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Re: stayed out of the market, what to do now?

Post by Karamatsu » Fri Mar 07, 2014 12:22 am

It's always hard to stick with a plan, particularly when the pendulum swings and people who've taken another path seem to be doing so well. If I were you I think I'd re-read Bodie, as well as some of the other Boglehead books, think about how you want to invest, write up an IPS, and then implement it. Know your reasons for choosing this or that asset in this or that amount, rather than simply following the trend or putting 20% into equities because you feel you can lose it. There's no rush.

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