stayed out of the market, what to do now?

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

Post by anoop » Fri Mar 07, 2014 12:23 am

ajb115 wrote: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?
I tend to overthink everything, not just investing. (It's hard being me!)

I bought GLD because of one of the other blogs/sites that I was reading.

I was about to buy my first home in early 2004 when I decided there was a bubble. The home (new construction) that I was about to buy went up $15K in 3 weeks between the time I expressed interest and the time I was about to go into contract. I kicked myself for not buying in the following year and a half as I saw myself get priced out. Had I bought back then, I would still be underwater, but not by much. I pretty much saw the bottom of real-estate and was ready to buy except that there was next to nothing on the market that I wanted to buy...homes that were on the market were mostly in really bad shape. New construction was relatively over-priced and in areas that I didn't want to live in.
ajb115 wrote: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.
What is wrong with buying TIPS? As long as the purchasing power of my money is intact, I should be OK. The long bond is risky, I agree, but I'm only talking about buying small amounts of that.

My biggest fear at this point is that I may be doing exactly what people warn about...buying the high. Most stock market measures indicate inflated prices (PE, market-cap to revenue, etc.). If I invest any significant amount and it goes down, I will feel like a complete loser. Just like Zvi Bodie says in one of his videos, I hate losing much more than I enjoy winning. So I think my comfort level would be about 20% of assets for now.

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

Post by Johm221122 » Fri Mar 07, 2014 12:29 am

The key is an AA that let's you sleep at night.If it's 20% in stocks, then write your plan and stay the course.Your savings rate will /may need to be high to reach your goal
John

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

Post by anoop » Fri Mar 07, 2014 12:36 am

Johm221122 wrote:Your savings rate will /may need to be high to reach your goal
This conflicts with what Bodie says. He says that you first set aside enough savings in conservative investments, and only then look at stocks for any extra money. Increasing the time horizon does nothing for risk:
"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]."

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

Post by livesoft » Fri Mar 07, 2014 12:39 am

Don't forget that Prof Bodie is in his 70's and still working. Basically, he is either so risk averse that he has to keep working or he really likes his job. I suspect it's a combo of both of these reasons. Thus, I wouldn't take his advice if I wanted to retire before age 70.
Wiki This signature message sponsored by sscritic: Learn to fish.

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

Post by anoop » Fri Mar 07, 2014 12:41 am

livesoft wrote:Don't forget that Prof Bodie is in his 70's and still working. Basically, he is either so risk averse that he has to keep working or he really likes his job. I suspect it's a combo of both of these reasons. Thus, I wouldn't take his advice if I wanted to retire before age 70.
He probably has the summers off. :)

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

Post by letsgobobby » Fri Mar 07, 2014 12:56 am

It's also easy to follow his advice if you've accumulated 50 or 100 times your annual expenses. Most people haven't, even most Bogleheads. So either get comfortable with a little risk, save more, spend less in retirement, or buy an SPIA. Or all of the above.

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

Post by pjstack » Fri Mar 07, 2014 1:34 am

anoop wrote:
My biggest fear at this point is that I may be doing exactly what people warn about...buying the high. Most stock market measures indicate inflated prices (PE, market-cap to revenue, etc.). If I invest any significant amount and it goes down, I will feel like a complete loser. Just like Zvi Bodie says in one of his videos, I hate losing much more than I enjoy winning. So I think my comfort level would be about 20% of assets for now.
No. People don't warn against "buying high", they warn about SELLING LOW, which is what you did. If you invest a significant amount and it goes down, you will "feel like a complete loser", and then you will sell and BE a loser.

Stop reading about " Most stock market measures indicate inflated prices (PE, market-cap to revenue, etc.)." Really. People asked J.P. Morgan about the stock market and he answered crossly, "It will fluctuate".

That's all you really need to know, and that's really all the current crop of gurus know, too.
pjstack

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

Post by visualguy » Fri Mar 07, 2014 1:47 am

anoop wrote: My biggest fear at this point is that I may be doing exactly what people warn about...buying the high. Most stock market measures indicate inflated prices (PE, market-cap to revenue, etc.). If I invest any significant amount and it goes down, I will feel like a complete loser. Just like Zvi Bodie says in one of his videos, I hate losing much more than I enjoy winning. So I think my comfort level would be about 20% of assets for now.
Putting a large lump sum in the stock market right now is frightening even if this isn't the top. For example, the market could go up another 15%, and then fall 35%, and not get back to the current level for a (potentially long) while. You just don't know... The bet is that in the long run (20 years), you'll do fine, which is a pretty safe (but not certain) bet. That doesn't mean that the volatility won't give you an ulcer meanwhile...

As mentioned by others, there's no rush. You don't want to stay in cash in the long run, but a couple of years of low inflation won't destroy the value of your cash.

One way to play it is to wait for the market to reach a valuation that you are comfortable with (say, 14 instead of 16 for the S&P 500 forward P/E). If it doesn't get there any time soon, it's not that big of a deal because you aren't likely to be missing out on significant sustained gains at current valuations. This strategy would work unless "this time is different" and the new normal for forward P/E becomes 18 or 20, etc.

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

Post by Karamatsu » Fri Mar 07, 2014 5:04 am

This conflicts with what Bodie says. He says that you first set aside enough savings in conservative investments, and only then look at stocks for any extra money.
That's a perfectly good strategy and if I had enough capital it's certainly what I would do, although as alluded to above there is some historical data to indicate that 20% equities and 80% bonds would have been optimal in the past. But since the past is gone and that MVO analysis was done with nominal bonds it's not clear what the right mix would be for the future, or with TIPS. The key question is just whether you have enough savings to fund your retirement with TIPS when the 20Y bonds are earning 1.04% real. If you do, then great! Why take more risk than you have to? Likewise if (using Bodie's spreadsheet -- thanks for the link) it looks like you can achieve your goal simply through savings (and buying TIPS with your savings), then why not do so?

Anyway those are things to think about. There's nothing wrong with Bodie's approach. Those of us who held, or bought into, equities are naturally very pleased with ourselves right now. The market is at an all-time high so absolutely anyone anywhere who bought and held now has a profit. But there was a day not so long ago when things were not so clear, and we all know the party could be over tomorrow. Nobody knows what will happen with equities.

On the other hand, nobody knows what will happen in life, either. In the next five years you could buy a house, get married, and have four kids, all of whom demand cellular phones, green hair, and tattoos! So take some time to think about what you want to do and how to achieve it.

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

Post by Karamatsu » Sun Mar 09, 2014 9:52 pm

Not sure if you're still reading but you might want to check out this thread: Wade Pfau: Lifecycle Finance.

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

Post by Mountain Man » Mon Mar 10, 2014 11:10 am

Even if you are worse than this investor http://awealthofcommonsense.com/worlds- ... ket-timer/ , you should be fine with a proper plan based on Boglehead principals that you will follow. For most people, the Wolf of Wall Street stares back at them in the mirror.

inbox788
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Re: stayed out of the market, what to do now?

Post by inbox788 » Mon Mar 10, 2014 12:12 pm

visualguy wrote:
anoop wrote:My biggest fear at this point is that I may be doing exactly what people warn about...buying the high. Most stock market measures indicate inflated prices (PE, market-cap to revenue, etc.). If I invest any significant amount and it goes down, I will feel like a complete loser. Just like Zvi Bodie says in one of his videos, I hate losing much more than I enjoy winning. So I think my comfort level would be about 20% of assets for now.
One way to play it is to wait for the market to reach a valuation that you are comfortable with (say, 14 instead of 16 for the S&P 500 forward P/E). If it doesn't get there any time soon, it's not that big of a deal because you aren't likely to be missing out on significant sustained gains at current valuations. This strategy would work unless "this time is different" and the new normal for forward P/E becomes 18 or 20, etc.
Using PE to keep you in or out of the market can mean being out of the market for long periods of time, and some of them have been very good years. Also, be cautious about different PE numbers being used (i.e. forward PE, Shiller PE, etc.)

http://www.multpl.com/

If you keep missing the boat, you might be just as big a loser in the long run. The biggest loser of course is the one that waits and waits and finally decides to jump in right at the top of a big peak (i.e. QQQ in 2000), but the fellow who didn't get in after 2003 is also a big loser in missed opportunity. There are really few decent alternatives to the market. No guts, no glory.

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

Post by leonard » Mon Mar 10, 2014 1:00 pm

visualguy wrote:
anoop wrote: My biggest fear at this point is that I may be doing exactly what people warn about...buying the high. Most stock market measures indicate inflated prices (PE, market-cap to revenue, etc.). If I invest any significant amount and it goes down, I will feel like a complete loser. Just like Zvi Bodie says in one of his videos, I hate losing much more than I enjoy winning. So I think my comfort level would be about 20% of assets for now.
Putting a large lump sum in the stock market right now is frightening even if this isn't the top. For example, the market could go up another 15%, and then fall 35%, and not get back to the current level for a (potentially long) while. You just don't know... The bet is that in the long run (20 years), you'll do fine, which is a pretty safe (but not certain) bet. That doesn't mean that the volatility won't give you an ulcer meanwhile...

As mentioned by others, there's no rush. You don't want to stay in cash in the long run, but a couple of years of low inflation won't destroy the value of your cash.

One way to play it is to wait for the market to reach a valuation that you are comfortable with (say, 14 instead of 16 for the S&P 500 forward P/E). If it doesn't get there any time soon, it's not that big of a deal because you aren't likely to be missing out on significant sustained gains at current valuations. This strategy would work unless "this time is different" and the new normal for forward P/E becomes 18 or 20, etc.
So, you are suggesting a market timing strategy to someone who stayed out of the run up in stocks over the last 5 years? On the bogleheads forum? Huh...

OP - you should use the advice on this forum to analyze your risk profile, set an Asset Allocation, and buy-hold-rebalance from then on.
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.

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

Post by visualguy » Mon Mar 10, 2014 9:32 pm

leonard wrote:So, you are suggesting a market timing strategy to someone who stayed out of the run up in stocks over the last 5 years? On the bogleheads forum? Huh...

OP - you should use the advice on this forum to analyze your risk profile, set an Asset Allocation, and buy-hold-rebalance from then on.
He stayed out of the market when it was reasonably valued based on historical values, which was a mistake. However, that doesn't mean that he should jump in with a large lump sum when the market is valued very high by historical norms. Large lump sum investing in a market like this is very frightening unless you're going in for the REALLY long term, and don't mind having significant paper losses on the way.

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

Post by Caduceus » Tue Mar 11, 2014 4:35 am

Your posts suggests that your psychological willingness to take risk is quite low. Knowing yourself is one of the most important things and there's nothing wrong with a higher allocation to bonds rather than to equities, if that allocation can still take you to your retirement goals.

Have you sat down and estimated how much you want at retirement, and what rates of return you would need to get there? There are online calculators for things like that - takes all of 20 minutes if you go through the questions thoughtfully. Once you have a sense of your required rate of return, you will have a sense of how much allocation to equities makes sense.

I suggest choosing and staying with an asset allocation, and just investing it. At 43 you have many many years to go. A healthy does of equities makes sense. You could also just choose a target retirement fund and slowly ease your way into it. Put a fixed amount in it every month from your existing savings.

Remember that the real risk is not volatility (watching prices go up and down) but the risk of inflation (loss of purchasing power, which can be devastating to the coupons thrown off by bonds) and not having enough at retirement. If you think about risk this way, it becomes clear that bonds aren't necessarily safer. They are less volatile, but they aren't less risky in relation to your investment goals.

Good luck!

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