Holding Cash because Tried to time Market

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LateArrival
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Holding Cash because Tried to time Market

Post by LateArrival » Thu Sep 04, 2014 11:19 am

Hi,
In 2008, I pulled my 401(k) out of the stock market, after listening to some gloom and doom forecasts from close friends in the federal government. I then went through a nasty separation and divorce which took over 5 years and prevented me from investing any cash earned or changing my investment strategy in my 401(k) fund until it was resolved. So, I have a lot of cash on sidelines and fear entering the market thinking that a bear market will occur at any time. I don't need this cash for at least 10-20 years. Any helpful advice on reentering the investment market should be greatly appreciated! Talked to two investment advisors who wanted high fees and didn't have much insight.

yosef
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Re: Holding Cash because Tried to time Market

Post by yosef » Thu Sep 04, 2014 12:40 pm

So DCA in? Historically speaking it has been better to jump in with a lump sum. But there are no guarantees other than you can't win the game if you're not playing.

livesoft
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Re: Holding Cash because Tried to time Market

Post by livesoft » Thu Sep 04, 2014 12:49 pm

Here is a good article that may help you:
Barry Ritholz: Missed the big market rally, here's what to do now

Are you having psychological or emotional problems investing? Or is it something else such as "don't know about index funds?" or "don't know about asset allocation?"
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SpaceCommander
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Re: Holding Cash because Tried to time Market

Post by SpaceCommander » Thu Sep 04, 2014 12:52 pm

So what have we learned about prognostication here? You would do well to determine an appropriate allocation (the wiki can help), set it, and then let it do it's thing. Worrying about the short-term is unproductive. If these funds are not needed for 10-20 years, then why worry about a possible negative outcome in the short term? I would recommend getting invested with the right allocation and don't even check your balances online. Stay focused on your career, family, and other things that matter more. Maybe take a peek at your quarterly statements, but even that is unnecessary. Once a year is fine just to see if you need to rebalance. Quite simple actually,
I honor my personality flaws, for without them I would have no personality at all.

LateArrival
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Re: Holding Cash because Tried to time Market

Post by LateArrival » Thu Sep 04, 2014 12:55 pm

Thanks for the advice. My concern is that I'll start investing and then 2007 will happen again. I hear many well-informed analysts out there saying that the market should drop significantly in the next six months, but I've been hearing that for two years. Was originally intending to wait for anticipated market fall, but it's not happening, so I guess I have to make the plunge.

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ogd
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Re: Holding Cash because Tried to time Market

Post by ogd » Thu Sep 04, 2014 12:57 pm

LateArrival: I've found that this WaPo article from investor / writer Barry Ritholz works well for people in your situation (and there are many):

http://www.washingtonpost.com/business/ ... story.html

Some tough love in there, but he strikes a good balance IMHO and he's in a better position to proselytize than us anonymous posters. His recommended portfolio is a little more complex than we'd prefer around here (see: http://www.bogleheads.org/wiki/Three-fund_portfolio) but everything else is excellent. You don't need an advisor going forward if you think you can stay the course, however an honest fixed fee advisor could help protect you from yourself.

As for the market highs and bear markets, all of us who are fully invested in our target allocations don't want to lose our assets either. If we thought one was about to occur we'd pull out (not selling is the same as buying, if taxes are not an issue). But of course we can't know that, and as you've seen the cost of a bad call can be pretty great. So we stay invested at all times and it's for the same reason that you should just put your money to work after the requisite amount of soul searching as per Barry's article.

Hope this helps!

(edit: preempted by livesoft with the same article! Oh well, some positive reinforcement can't hurt)
Last edited by ogd on Thu Sep 04, 2014 12:59 pm, edited 1 time in total.

John3754
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Re: Holding Cash because Tried to time Market

Post by John3754 » Thu Sep 04, 2014 12:59 pm

LateArrival wrote:Thanks for the advice. My concern is that I'll start investing and then 2007 will happen again. I hear many well-informed analysts out there saying that the market should drop significantly in the next six months, but I've been hearing that for two years. Was originally intending to wait for anticipated market fall, but it's not happening, so I guess I have to make the plunge.
And if you "make the plunge" and then the market does crash, what will you do?

The Wizard
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Re: Holding Cash because Tried to time Market

Post by The Wizard » Thu Sep 04, 2014 12:59 pm

LateArrival wrote:Thanks for the advice. My concern is that I'll start investing and then 2007 will happen again. I hear many well-informed analysts out there saying that the market should drop significantly in the next six months, but I've been hearing that for two years. Was originally intending to wait for anticipated market fall, but it's not happening, so I guess I have to make the plunge.
Sounds good.
What funds are you planning to use to jump back into?
And how much $$$ (or %) in each?
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LateArrival
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Re: Holding Cash because Tried to time Market

Post by LateArrival » Thu Sep 04, 2014 1:04 pm

I'll DCA back into the market and if it falls, I'll probably try to earn more money to keep on investing. I've learned my my costly mistake that the wait and hold move only works for people who have a sufficient net worth that they don't need to invest anymore. I'm starting to look at funds to invest in but haven't formulated how I'll allocate the cash. I have about $500K outside of my 401(k) to invest and more inside the 401(k) to reallocate into the market.

The Wizard
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Re: Holding Cash because Tried to time Market

Post by The Wizard » Thu Sep 04, 2014 1:09 pm

LateArrival wrote:I'll DCA back into the market and if it falls, I'll probably try to earn more money to keep on investing. I've learned my my costly mistake that the wait and hold move only works for people who have a sufficient net worth that they don't need to invest anymore. I'm starting to look at funds to invest in but haven't formulated how I'll allocate the cash. I have about $500K outside of my 401(k) to invest and more inside the 401(k) to reallocate into the market.
OK, but putting that entire amount into stock funds, whether a lump or DCA, may not be the best idea, depending partly on your age and partly on your known or unknown risk tolerance.
Step one might be to determine a stock/bond percentage mix you can live with...
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LateArrival
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Re: Holding Cash because Tried to time Market

Post by LateArrival » Thu Sep 04, 2014 1:12 pm

Agreed. I would never just go into stocks. That's why I need to do my research on the stock/bond mix. So much information on the internet (often conflicting) that it will be a challenge but that actually doesn't bother me. A few people have encourage me to allocate some in REIT indexes so I need to ramp up my knowledge on potential investments.

The Wizard
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Re: Holding Cash because Tried to time Market

Post by The Wizard » Thu Sep 04, 2014 1:17 pm

LateArrival wrote:... I've learned my my costly mistake that the wait and hold move only works for people who have a sufficient net worth that they don't need to invest anymore...
I'm not quite sure what this means, but I nonetheless don't think it's right.
Long-term investors at any stage, whether 3 years or 30 years into their career, still need to deal with market fluctuations and will have new money to invest weekly or monthly, while still employed.
And even if/when we get to a few $Million or more invested, very few people (here at least) pull the plug on investing entirely...
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Dutch
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Re: Holding Cash because Tried to time Market

Post by Dutch » Thu Sep 04, 2014 1:26 pm

You sold low and you're buying high.

You need to ask yourself if you'd be able to deal with the next stock market crash, which inevitably will come. Maybe you simply have a very low risk tolerance. In which case stocks wouldn't be for you (or only a very low percentage).

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grap0013
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Re: Holding Cash because Tried to time Market

Post by grap0013 » Thu Sep 04, 2014 1:37 pm

OP,

Since you sold low that tells me you do not likely have a high risk tolerance. I think you should do 50% stocks at maximum. Maybe 50:50 allocation? It's a nice agnostic approach.
There are no guarantees, only probabilities.

mptfan
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Re: Holding Cash because Tried to time Market

Post by mptfan » Thu Sep 04, 2014 1:50 pm

LateArrival wrote:I hear many well-informed analysts out there saying that the market should drop significantly in the next six months...
It doesn't matter how well informed or well educated someone is, the fact is nobody knows what the market will do in the future. Nobody. Go back and read that again. Did you read it again? Good, now read it a third time. Nobody. Knows. The. Future.

When that sinks in, you will stop worrying about so called expert predictions and you will start to make better decisions.

livesoft
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Re: Holding Cash because Tried to time Market

Post by livesoft » Thu Sep 04, 2014 1:55 pm

LateArrival wrote: So much information on the internet (often conflicting) that it will be a challenge but that actually doesn't bother me.
So do not use the internet to gather information. Try to get info from something less ephemeral such as a book. There is a reading list on this forum. How many of those books have you read?
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JW-Retired
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Re: Holding Cash because Tried to time Market

Post by JW-Retired » Thu Sep 04, 2014 2:08 pm

LateArrival wrote:Thanks for the advice. My concern is that I'll start investing and then 2007 will happen again. I hear many well-informed analysts out there saying that the market should drop significantly in the next six months, but I've been hearing that for two years. Was originally intending to wait for anticipated market fall, but it's not happening, so I guess I have to make the plunge.
Don't make the plunge too deep. I agree you appear to have exceedingly low risk tolerance so my suggestion would be that you put something like 25% into stocks and the remainder into fixed income. If you get through the next sizable market correction at that AA with no thoughts of bailing out low again, then consider raising equities to 50%.

And stop reading analyst predictions!
JW
Retired at Last

leonard
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Re: Holding Cash because Tried to time Market

Post by leonard » Thu Sep 04, 2014 2:09 pm

LateArrival wrote:Hi,
In 2008, I pulled my 401(k) out of the stock market, after listening to some gloom and doom forecasts from close friends in the federal government. I then went through a nasty separation and divorce which took over 5 years and prevented me from investing any cash earned or changing my investment strategy in my 401(k) fund until it was resolved. So, I have a lot of cash on sidelines and fear entering the market thinking that a bear market will occur at any time. I don't need this cash for at least 10-20 years. Any helpful advice on reentering the investment market should be greatly appreciated! Talked to two investment advisors who wanted high fees and didn't have much insight.
Set an Asset allocation, specifically stock-bond mix, that is conservative enough that you can buy the entire AA today. If you can't do that, it needs to be more conservative (i.e. more bonds) until you can.
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.

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cfs
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Re: Holding Cash because Tried to time Market

Post by cfs » Thu Sep 04, 2014 2:12 pm

Why bother?

Why bother? You are not going to follow the recommendation to invest and remain invested given by anyone on this forum, and I am not talking about the recommendation to buy a particular stock or mutual fund, I am talking about investing without market timing. You must accept the fact that the market goes up and down. If you are going to sell every time the market goes down, why investing at all? If you are not willing to accept the up and downs of the market, then in my opinion you do not belong in the stock market and your best course of action is to stay as far as you can from the market.

Thanks for reading.
~ Member of the Active Retired Force since 2014 ~

dickenjb
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Re: Holding Cash because Tried to time Market

Post by dickenjb » Thu Sep 04, 2014 2:14 pm

JW Nearly Retired wrote:Don't make the plunge too deep. I agree you appear to have exceedingly low risk tolerance so my suggestion would be that you put something like 25% into stocks and the remainder into fixed income. If you get through the next sizable market correction at that AA with no thoughts of bailing out low again, then consider raising equities to 50%.

And stop reading analyst predictions!
JW
This is very good advice.

Another option might be to buy something like Target Retirement 2020 or Life Strategy Conservative Growth and just leave it alone.

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Toons
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Re: Holding Cash because Tried to time Market

Post by Toons » Thu Sep 04, 2014 2:16 pm

LateArrival wrote:Hi,
In 2008, I pulled my 401(k) out of the stock market, after listening to some gloom and doom forecasts from close friends in the federal government. I then went through a nasty separation and divorce which took over 5 years and prevented me from investing any cash earned or changing my investment strategy in my 401(k) fund until it was resolved. So, I have a lot of cash on sidelines and fear entering the market thinking that a bear market will occur at any time. I don't need this cash for at least 10-20 years. Any helpful advice on reentering the investment market should be greatly appreciated! Talked to two investment advisors who wanted high fees and didn't have much insight.

Put no-load mutual funds on auto pilot investing.It takes the emotion out of the investing equation.Emotion is what Ruins 99% of well intended investment strategies.
When I was practicing that strategy for over 30 years while working I WELCOMED,,,I repeat WELCOMED ,down markets ,bear markets ,whatever you want to call them.I was always getting more shares for my money.It worked in the eighties,the nineties,2000-2011.A bear market is a long term investors ally when accumulating shares.Forget where the market is now,it is meaningless.Each day you delay investing is one less day the compounding machine is NOT working for you.Remember ,A Bear market is the long term investors ally.As Warren Buffet put it in so many words,,"Be thankful when you can buy hamburger on sale"
Fear?Fear Nothing.
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

LateArrival
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Re: Holding Cash because Tried to time Market

Post by LateArrival » Thu Sep 04, 2014 3:38 pm

The Wizard wrote:
LateArrival wrote:... I've learned my my costly mistake that the wait and hold move only works for people who have a sufficient net worth that they don't need to invest anymore...
I'm not quite sure what this means, but I nonetheless don't think it's right.
Long-term investors at any stage, whether 3 years or 30 years into their career, still need to deal with market fluctuations and will have new money to invest weekly or monthly, while still employed.
And even if/when we get to a few $Million or more invested, very few people (here at least) pull the plug on investing entirely...

Thanks for the advice. What I meant was that I can't take the risk of not investment in the market. I know many wealthy individuals who can live on their assets indefinitely (or will eventually inherit money that savings are not an issue). While everyone wants more money, these individuals see the market as more of a game than investing. For clarification, I didn't pull the plug on investing entirely, I still had 20% of my assets in individual stocks that I bought in the late 1990s that have done very well, but those stock investments were always considered by me to be side money and not counted as savings. My other assets were frozen for 5 years due to a very messy divorce. I should have rentered the market in 2012 but kept on thinking (wrongly) that the market would drop given certain economic statistics. My mistake. Lesson learned (I hope).

LateArrival
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Re: Holding Cash because Tried to time Market

Post by LateArrival » Thu Sep 04, 2014 3:44 pm

cfs wrote:Why bother?

Why bother? You are not going to follow the recommendation to invest and remain invested given by anyone on this forum, and I am not talking about the recommendation to buy a particular stock or mutual fund, I am talking about investing without market timing. You must accept the fact that the market goes up and down. If you are going to sell every time the market goes down, why investing at all? If you are not willing to accept the up and downs of the market, then in my opinion you do not belong in the stock market and your best course of action is to stay as far as you can from the market.

Thanks for reading.

For clarification, I used the phrase "that doesn't bother me" to reference my willingness to do research and figure out my comfort level with investing in the market which it's at historical high levels. The government-induced artificially low interest rates also distorts the bond market so I need to figure out my comfort level with that type of investment as well. I am aware I need to gain some more knowledge to determine my investment allocation, that is all.

LateArrival
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Re: Holding Cash because Tried to time Market

Post by LateArrival » Thu Sep 04, 2014 3:48 pm

livesoft wrote:
LateArrival wrote: So much information on the internet (often conflicting) that it will be a challenge but that actually doesn't bother me.
So do not use the internet to gather information. Try to get info from something less ephemeral such as a book. There is a reading list on this forum. How many of those books have you read?


I just discovered this forum today and will investigate the recommended books. While I have read some investment books, there is good information (with the bad) on the internet. My pullout was frankly a reaction to too much behind the scenes information on what was happening in DC in 2008. Thanks for the advice.

swaption
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Re: Holding Cash because Tried to time Market

Post by swaption » Thu Sep 04, 2014 4:42 pm

LateArrival wrote:What I meant was that I can't take the risk of not investment in the market. I know many wealthy individuals who can live on their assets indefinitely (or will eventually inherit money that savings are not an issue). While everyone wants more money, these individuals see the market as more of a game than investing.
Just my opinion, but you need to right the ship on this line of thinking asap. I honestly don't think you have any idea how other people view investing, and certainly makes little sense to somehow us that as a from of rationalizing why you might have less latitude than they do. I'm sure there are armies of others who would think at your asset level you would have the luxury of considering it a game as well. You always have choices, and yours are no different or more difficult than those of others, regardless the level of wealth.

I say all this because essentially all you are dealing with here is psychological. The day after you are fully invested in a diversified portfolio, the impact of a market drop is no different for you than any of those on this board. The only diference is that yours comes with the psycholigical baggage of the last 5 years, and the implication that you screwed up again. You just need to come to terms with that. You don't drive while only looking in the rearview mirror, you can't manage your money that way either. What's done is done.

The Wizard
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Re: Holding Cash because Tried to time Market

Post by The Wizard » Thu Sep 04, 2014 5:01 pm

swaption wrote:...You don't drive while only looking in the rearview mirror, you can't manage your money that way either. What's done is done.
I like this quote.
I may actually borrow it for future use myself...
:)
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Phineas J. Whoopee
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Re: Holding Cash because Tried to time Market

Post by Phineas J. Whoopee » Thu Sep 04, 2014 5:08 pm

JW Nearly Retired wrote:
LateArrival wrote:Thanks for the advice. My concern is that I'll start investing and then 2007 will happen again. I hear many well-informed analysts out there saying that the market should drop significantly in the next six months, but I've been hearing that for two years. Was originally intending to wait for anticipated market fall, but it's not happening, so I guess I have to make the plunge.
Don't make the plunge too deep. I agree you appear to have exceedingly low risk tolerance so my suggestion would be that you put something like 25% into stocks and the remainder into fixed income. If you get through the next sizable market correction at that AA with no thoughts of bailing out low again, then consider raising equities to 50%.

And stop reading analyst predictions!
JW
If I'd gone through what you describe, LateArrival, I'd be risk averse, without any question. JW's advice would be really good. It would suggest I assume some risk, but not too much, and not to worry about the talking heads who say you can make more! I wouldn't need to make more. I'd only need to make enough.

I think it's a good idea to start with something. If, as it turns out, over time and after a non-raging-bull-market, more risk is appropriate, you can always make an adjustment. Risk tolerance changes, and is neither a challenge nor a competition.

Listen to JW.

And best of luck to you, sir.

PJW

Lafder
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Re: Holding Cash because Tried to time Market

Post by Lafder » Thu Sep 04, 2014 6:18 pm

LateArrival,
Welcome! At least you got here the day before tomorrow! Which is sooner than next week.

This forum is one of the best places I have found for financial advice. Where else can you get advice from folks who do not make money off of what they tell you, and with all of the views/comments there can be many perspectives to help you sort out what really feels best for you.

I would suggest you take a good look at all of your financial holdings as well as debt and post here in this format. If it is literally all cash, put that. Are there any retirement account options you can list? Here is the format: http://www.bogleheads.org/forum/viewtop ... f=1&t=6212

Note it asks for your desired asset allocation. Here is the link for more discussion. A general suggestion is age in bonds, higher than age if you are cautious/conservative with risk. http://www.bogleheads.org/wiki/Asset_allocation

Here are sample portfolios with lots more on the wiki nearby http://www.bogleheads.org/wiki/Lazy_por ... portfolios

Do take the time to present your portfolio as described in asking portfolio questions above. It will help you take a deep look at what you have, what your expenses are, and what your options are. And you will get more detailed replies.

You do still have time to make a big difference in your savings!
best wishes,
lafder

Funkey
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Re: Holding Cash because Tried to time Market

Post by Funkey » Thu Sep 04, 2014 7:43 pm

Toons wrote:
LateArrival wrote:Hi,
In 2008, I pulled my 401(k) out of the stock market, after listening to some gloom and doom forecasts from close friends in the federal government. I then went through a nasty separation and divorce which took over 5 years and prevented me from investing any cash earned or changing my investment strategy in my 401(k) fund until it was resolved. So, I have a lot of cash on sidelines and fear entering the market thinking that a bear market will occur at any time. I don't need this cash for at least 10-20 years. Any helpful advice on reentering the investment market should be greatly appreciated! Talked to two investment advisors who wanted high fees and didn't have much insight.

Put no-load mutual funds on auto pilot investing.It takes the emotion out of the investing equation.Emotion is what Ruins 99% of well intended investment strategies.
When I was practicing that strategy for over 30 years while working I WELCOMED,,,I repeat WELCOMED ,down markets ,bear markets ,whatever you want to call them.I was always getting more shares for my money.It worked in the eighties,the nineties,2000-2011.A bear market is a long term investors ally when accumulating shares.Forget where the market is now,it is meaningless.Each day you delay investing is one less day the compounding machine is NOT working for you.Remember ,A Bear market is the long term investors ally.As Warren Buffet put it in so many words,,"Be thankful when you can buy hamburger on sale"
Fear?Fear Nothing.
:happy
What wise words. Thank you Toons.

LateArrival
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Re: Holding Cash because Tried to time Market

Post by LateArrival » Wed Sep 17, 2014 5:49 pm

Thank you for all of your comments. At Lafder's suggestion, I have attempted to list my financial holdings and answer in the Boglehead format typically used. Understand its been over a week since this subject was active, thought I'd post here first. Any comments appreciated.

Tax Filing Status: (Head of Household/Divorced three years ago); two kids; age 47
Tax Rate: 35% Federal, 5% State (IL)

Work full time: low to mid six figures

My Asset Allocation
--35% Tax advantaged/retirement accounts (401(k)): mid six figures (contributing maximum amount per year). Moved basically to cash/conservative investments in 2009 and couldn’t reallocate due to protracted divorce. Always maxed out contributions. Recently reallocated as follows:

American Funds 15%
Washington Mutual R5 10%
T. Rowe Price Instl Large Cap Growth 10%
Vanguard Institutional Index I 15%
Vanguard Mid Cap Index I 15%
Dodge & Cox Balanced 30%
PIMCO Total Return Instl 20%

--55% Cash: High six figures (higher than retirement account at this time)
--5% Emergency funds: low six figures (cash)
--5% Individual Stocks (bought small amounts for fun prior to having kids; never sold)

529 Accounts: $135,000 for each child with no further contributions contemplated. Invested in stock mutual funds. One child going to college next year, the other in four years.

Debt: $75,000 mortgage. No other debt. (House valued at high six figures)

Desired Asset allocation: As mentioned in this forum, not clear. Ideally would like the risk of more in stocks but with stock market at historical highs, not sure if that is the appropriate allocation. Would eventually like to have more of my investment in stock market.
Desired International allocation: Unclear.

My Issue: Investing into market when stock and bond market are high. Should that affect my investment considerations? Yes, yes I know that I made a really stupid mistake in 2009.

Future Contributions:
-New annual Contributions: Could invest in taxable account 4 figures monthly
-Max contributions to 401(k) account
-Currently pay off an extra $1,000 each month on mortgage
Last edited by LateArrival on Wed Sep 17, 2014 5:56 pm, edited 2 times in total.

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Toons
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Re: Holding Cash because Tried to time Market

Post by Toons » Wed Sep 17, 2014 5:52 pm

Funkey wrote:
Toons wrote:
LateArrival wrote:Hi,
In 2008, I pulled my 401(k) out of the stock market, after listening to some gloom and doom forecasts from close friends in the federal government. I then went through a nasty separation and divorce which took over 5 years and prevented me from investing any cash earned or changing my investment strategy in my 401(k) fund until it was resolved. So, I have a lot of cash on sidelines and fear entering the market thinking that a bear market will occur at any time. I don't need this cash for at least 10-20 years. Any helpful advice on reentering the investment market should be greatly appreciated! Talked to two investment advisors who wanted high fees and didn't have much insight.

Put no-load mutual funds on auto pilot investing.It takes the emotion out of the investing equation.Emotion is what Ruins 99% of well intended investment strategies.
When I was practicing that strategy for over 30 years while working I WELCOMED,,,I repeat WELCOMED ,down markets ,bear markets ,whatever you want to call them.I was always getting more shares for my money.It worked in the eighties,the nineties,2000-2011.A bear market is a long term investors ally when accumulating shares.Forget where the market is now,it is meaningless.Each day you delay investing is one less day the compounding machine is NOT working for you.Remember ,A Bear market is the long term investors ally.As Warren Buffet put it in so many words,,"Be thankful when you can buy hamburger on sale"
Fear?Fear Nothing.
:happy
What wise words. Thank you Toons.
:sharebeer
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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ogd
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Re: Holding Cash because Tried to time Market

Post by ogd » Wed Sep 17, 2014 6:41 pm

LateArrival wrote:My Issue: Investing into market when stock and bond market are high. Should that affect my investment considerations? Yes, yes I know that I made a really stupid mistake in 2009.
Well, you could wait some more and perhaps face another 20% of missed highs a year or two down the road...

OR, you tell yourself: There. Shall. Be. No. More. Market. Timing. Ever. Period. Otherwise, this isn't going to work. And just accept the current state of the market, which is the one that you can actually invest in instead of pining for.

If it makes you feel better, all of us with assets in the market are choosing every day to not sell them at the current highs, which means we're making the exact same determination as we're recommending. At least before taxes are considered -- or in retirement accounts where they're not an issue. If we thought strongly that it's a bad time to invest, we'd be outta here.

livesoft
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Re: Holding Cash because Tried to time Market

Post by livesoft » Wed Sep 17, 2014 7:07 pm

I have to write that if there was less "unclear" in your most recent post, then it would be easy to give advice. But I get no sense of conviction yet that you have bought into doing this. Sorry.

For instance, I can write:

Set your asset allocation to 50% equities and 50% fixed income. Within your equities make 60% US and 40% foreign. So that would mean you would have 30% US, 20% foreign, and 50% fixed income. You can dollar-cost average to this asset allocation in the following way: Starting tomorrow invest fully half of your investments into this asset allocation. For the other half, invest one-tenth of it each month for the next 10 months or even sooner if the market drops.

Would you do that? Why or why not?
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berntson
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Re: Holding Cash because Tried to time Market

Post by berntson » Wed Sep 17, 2014 7:42 pm

Hi LateArrival! Here's one way to look at your situation. I'm sure you've seen this before, but consider a pretty standard efficiency frontier chart.

Image

Everyone should have at least 30% in stocks (outside of "I have so much money I can do whatever the heck I want" scenarios). If you look at the above curves, holding less than 30% in stocks usually lowers returns and increases risk. So I can see no reason not to put at least 30% in stocks as soon as humanly possible. The rest of your money could then be split between cash and very safe bonds. Maybe intermediate treasuries.

This is a very safe portfolio. It lost 5% in 2008. So even if we're on the verge of the next great recession, you won't lose much.

If 30/70 is too conservative for you long-term, you could gradually raise the stock allocation. Maybe add 5% every six months until you have a number you're comfortable with. But a 30/70 portfolio would be a nice transition portfolio. You would be fully invested in the markets, but would also have about as much protection as an investor could have from future corrections.
Last edited by berntson on Wed Sep 17, 2014 7:52 pm, edited 1 time in total.

livesoft
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Re: Holding Cash because Tried to time Market

Post by livesoft » Wed Sep 17, 2014 7:45 pm

Note that berntson's idea of minimum 30% equities is not too far from the starting point of what I wrote. I leave it as an exercise to those that want to figure out why I can write that.

(Those curves probably need more explanation to someone who hasn't seen them before. :) What is S? What is B? What does each dot represent?)
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berntson
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Re: Holding Cash because Tried to time Market

Post by berntson » Wed Sep 17, 2014 7:56 pm

^ Ah! Good point. B is 100% bonds. S is 100% stocks. Each dot closer to the middle of the chart from B is a 10% increase in stock allocation. Each dot closer to the middle from S is a 10% decrease. Dots farther to the left of the chart were safer. Dots closer to the top had higher returns. Six of the curves represent the returns in different decades. The black one is for the whole period.

And yes, my suggestion is essentially equivalent. :D
Last edited by berntson on Wed Sep 17, 2014 8:01 pm, edited 1 time in total.

JW-Retired
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Re: Holding Cash because Tried to time Market

Post by JW-Retired » Wed Sep 17, 2014 8:01 pm

LateArrival wrote:
My Asset Allocation
--35% Tax advantaged/retirement accounts (401(k)): mid six figures (contributing maximum amount per year). Moved basically to cash/conservative investments in 2009 and couldn’t reallocate due to protracted divorce. Always maxed out contributions. Recently reallocated as follows:

American Funds 15% ...................(not sure but probably all stocks)
Washington Mutual R5 10% ...................(all stocks)
T. Rowe Price Instl Large Cap Growth 10% ...............(all stocks)
Vanguard Institutional Index I 15% .........................(all stocks)
Vanguard Mid Cap Index I 15% .........................(all stocks)
Dodge & Cox Balanced 30% .............................(65% stocks)
PIMCO Total Return Instl 20% ................... (all bonds & cash)

--55% Cash: High six figures (higher than retirement account at this time)
--5% Emergency funds: low six figures (cash)
--5% Individual Stocks (bought small amounts for fun prior to having kids; never sold)

529 Accounts: $135,000 for each child with no further contributions contemplated. Invested in stock mutual funds. One child going to college next year, the other in four years. .............................(all stocks)
OK, I added the red comments. You say you changed your investments in the pre-tax accounts to the above, from which one can get a pre-tax accounts AA of equities/bonds&cash = 30.5/69.5. Leaving the 529's aside, pre-tax is only 35% of your total portfolio so that gives 0.695x35% = 24.3% stocks from the pretax + another 5% individual stocks giving a grand total portfolio AA of 29.3% equities. Overall AA = 29/71. IMO, this seems plenty aggressive based on what you have said.

Is that what your intended target AA was?

Finally, if your oldest child is going off to college next year I don't think all stocks in his 529 is appropriate.
JW
edited to correct for livesoft pointing out the dodge & cox fund has only 65% stocks.
Last edited by JW-Retired on Wed Sep 17, 2014 8:22 pm, edited 1 time in total.
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mwm158
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Re: Holding Cash because Tried to time Market

Post by mwm158 » Wed Sep 17, 2014 8:14 pm

deleted
Last edited by mwm158 on Thu Jan 08, 2015 2:40 pm, edited 1 time in total.

LateArrival
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Re: Holding Cash because Tried to time Market

Post by LateArrival » Wed Sep 17, 2014 9:34 pm

livesoft wrote:I have to write that if there was less "unclear" in your most recent post, then it would be easy to give advice. But I get no sense of conviction yet that you have bought into doing this. Sorry.

For instance, I can write:

Set your asset allocation to 50% equities and 50% fixed income. Within your equities make 60% US and 40% foreign. So that would mean you would have 30% US, 20% foreign, and 50% fixed income. You can dollar-cost average to this asset allocation in the following way: Starting tomorrow invest fully half of your investments into this asset allocation. For the other half, invest one-tenth of it each month for the next 10 months or even sooner if the market drops.

Would you do that? Why or why not?

The "why not", is that I am investing into the market with all of my assets when stocks/bonds are historical highs, which wouldn't be my first choice; even if the market made a minor correction, I would be more comfortable jumping in. While obvious to you, it is clearer to me that personal events affected my risk tolerance and I need to continue to reflect on that in order for me to develop an effective financial strategy. But I'm starting. As mentioned in my profile, I recently reallocated my retirement account so that a majority of its assets are now invested in stocks. I plan to weight my retirement account more heavily with stocks (it should be around 70/30 with my current allocation). Every three months, I would like to increase my stock exposure in my retirement account. Then, with my taxable accounts which holds more than half of my assets, I am looking at some Vanguard funds (tax exempt medium and index). Since it would be taxable, I am researching tax exempt funds. Would you recommend any non-stock funds to keep in a taxable account?

LateArrival
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Re: Holding Cash because Tried to time Market

Post by LateArrival » Wed Sep 17, 2014 9:41 pm

berntson wrote:Hi LateArrival! Here's one way to look at your situation. I'm sure you've seen this before, but consider a pretty standard efficiency frontier chart.

Image

Everyone should have at least 30% in stocks (outside of "I have so much money I can do whatever the heck I want" scenarios). If you look at the above curves, holding less than 30% in stocks usually lowers returns and increases risk. So I can see no reason not to put at least 30% in stocks as soon as humanly possible. The rest of your money could then be split between cash and very safe bonds. Maybe intermediate treasuries.

This is a very safe portfolio. It lost 5% in 2008. So even if we're on the verge of the next great recession, you won't lose much.

If 30/70 is too conservative for you long-term, you could gradually raise the stock allocation. Maybe add 5% every six months until you have a number you're comfortable with. But a 30/70 portfolio would be a nice transition portfolio. You would be fully invested in the markets, but would also have about as much protection as an investor could have from future corrections.
Thank you Berntson! I am moving towards 30/70 with my recent reallocation in my retirement account. I would like to put my cash into at least tax exempt funds (am looking at medium tax exempt funds). I would like to gradually shift towards a more aggressive allocation but don't feel comfortable to put more in stocks when putting all of my money in when the market is high.

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sdsailing
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Re: Holding Cash because Tried to time Market

Post by sdsailing » Wed Sep 17, 2014 9:47 pm

Given your history and risk tolerance, I recommend studying the approach of Zvi Bodie. His methods should be a good fit, if I understands your past investing habits correctly. Start with his website, there are pretty good videos as well.

LateArrival
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Re: Holding Cash because Tried to time Market

Post by LateArrival » Wed Sep 17, 2014 9:49 pm

sdsailing wrote:Given your history and risk tolerance, I recommend studying the approach of Zvi Bodie. His methods should be a good fit, if I understands your past investing habits correctly. Start with his website, there are pretty good videos as well.
sdsailing wrote:Given your history and risk tolerance, I recommend studying the approach of Zvi Bodie. His methods should be a good fit, if I understands your past investing habits correctly. Start with his website, there are pretty good videos as well.
JW Nearly Retired wrote:
LateArrival wrote:
My Asset Allocation
--35% Tax advantaged/retirement accounts (401(k)): mid six figures (contributing maximum amount per year). Moved basically to cash/conservative investments in 2009 and couldn’t reallocate due to protracted divorce. Always maxed out contributions. Recently reallocated as follows:

American Funds 15% ...................(not sure but probably all stocks)
Washington Mutual R5 10% ...................(all stocks)
T. Rowe Price Instl Large Cap Growth 10% ...............(all stocks)
Vanguard Institutional Index I 15% .........................(all stocks)
Vanguard Mid Cap Index I 15% .........................(all stocks)
Dodge & Cox Balanced 30% .............................(65% stocks)
PIMCO Total Return Instl 20% ................... (all bonds & cash)

--55% Cash: High six figures (higher than retirement account at this time)
--5% Emergency funds: low six figures (cash)
--5% Individual Stocks (bought small amounts for fun prior to having kids; never sold)

529 Accounts: $135,000 for each child with no further contributions contemplated. Invested in stock mutual funds. One child going to college next year, the other in four years. .............................(all stocks)
OK, I added the red comments. You say you changed your investments in the pre-tax accounts to the above, from which one can get a pre-tax accounts AA of equities/bonds&cash = 30.5/69.5. Leaving the 529's aside, pre-tax is only 35% of your total portfolio so that gives 0.695x35% = 24.3% stocks from the pretax + another 5% individual stocks giving a grand total portfolio AA of 29.3% equities. Overall AA = 29/71. IMO, this seems plenty aggressive based on what you have said.

Is that what your intended target AA was?

Finally, if your oldest child is going off to college next year I don't think all stocks in his 529 is appropriate.
JW
edited to correct for livesoft pointing out the dodge & cox fund has only 65% stocks.

Thank you for reviewing. I was shooting for 70/30, give or take. I kept the 529s in stock at this point because I have the cash to pay for college right now due to my bad investing choices. I can keep the 529 going with stock and transfer to my other child if necessary.

LateArrival
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Re: Holding Cash because Tried to time Market

Post by LateArrival » Wed Sep 17, 2014 9:51 pm

mwm158 wrote:When I found this site in 2011, and finally realized how I should invest my money, I lump summed all of my $50k into my asset allocation. The market then immediately began to drop. What I didn't know at the time was I put all of my money in at a short term high. It's not a great experience, but this forum had me prepared for this and I just kept buying more. The market kept dropping. Sometime in the summer the market was gaining and dropping crazy amounts everyday. I remember coworkers panicking, and I just went ahead and bought more, though I was not feeling particularly confident. Every single buy I had made into the market was in the red, with the initial one down about 20%. That buy turned out to be the bottom, but I certainly could never have guessed it at the time. Fast forward to now, 3 years later, and those investments are way up. I wasn't invested during the '08-'09 crash, so I have never been tested with anything that dramatic, but this little drop in '11 tested me right out of the gate as a first time investor. Just 3 years later, looking back, I realize that drop was a blip, it was nothing, it didn't matter. 27 years from now I probably won't even remember this story, it took some effort to even recall it.

My point is, pick your AA, get your money in, and don't waste your energy being concerned about short term movements.

Thanks for the insight. I wanted to invest in 2011 but my assets were frozen due to my pending divorce. I felt like I missed my opportunity. But I will start the investing and try to maintain an autopilot approach.

LateArrival
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Re: Holding Cash because Tried to time Market

Post by LateArrival » Wed Sep 17, 2014 9:52 pm

sdsailing wrote:Given your history and risk tolerance, I recommend studying the approach of Zvi Bodie. His methods should be a good fit, if I understands your past investing habits correctly. Start with his website, there are pretty good videos as well.
Thank you. I will investigate.

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Re: Holding Cash because Tried to time Market

Post by z3r0c00l » Thu Sep 18, 2014 6:19 am

There is no shame in admitting that you don't have the nerve for investing. Instead, you can put your money in CDs and just work harder or longer. Could potentially do less damage that way.

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Bustoff
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Re: Holding Cash because Tried to time Market

Post by Bustoff » Thu Sep 18, 2014 7:45 am

LateArrival wrote: So, I have a lot of cash on sidelines and fear entering the market thinking that a bear market will occur at any time. I don't need this cash for at least 10-20 years.
As an exercise, ask yourself at what level of market correction you would commit all your cash to stocks? In other words, if there were a market correction, at what point would you say, "this is too good to pass up". Would a 50% correction do it for you?
You do remember that the S&P 500 lost almost 50% in early 2000's. That may have felt like a great time to go all in, but less than 6 years later it happened again.
LateArrival wrote:...Ideally would like the risk of more in stocks...
Ask yourself, Why? What kind of return do you roughly expect from stocks in exchange for the risk? You wouldn't commit all your cash to a CD without knowing what rate of return the bank would provide. The point is to get a sense of what you are trying to accomplish rather than blindly committing capital to an investment with no sense of what you expect in return.

Perhaps you should not commit to any substantial investment until you determine what Larry Swedroe describes as your need, ability, and willingness to take the risks that concern you. What is your risk tolerance?

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Re: Holding Cash because Tried to time Market

Post by freebeer » Thu Sep 18, 2014 8:06 am

LateArrival wrote:...In 2008, I pulled my 401(k) out of the stock market, after listening to some gloom and doom forecasts...
When exactly in 2008 did you do this?

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Re: Holding Cash because Tried to time Market

Post by JW-Retired » Thu Sep 18, 2014 8:17 am

LateArrival wrote: I kept the 529s in stock at this point because I have the cash to pay for college right now due to my bad investing choices. I can keep the 529 going with stock and transfer to my other child if necessary.
Sure, if the $135k in child one's 529 turns to half that amount at a bad time, you can pay for college 1 out of your mountain of cash and shift that 529 to the other child........ but why would you risk this? These 529 accounts contain short to medium term needed money and should be in investments appropriate to that.

If you want to hang on to this 529 amount of equities, then you could sell it in the 529 and buy the equivalent amount back in your taxable account (which can hold an ultra long term investment). Then, in the event of the downturn you are worrying about, you could tax loss harvest (TLH) there, win-win. :beer

http://www.bogleheads.org/wiki/Tax_loss_harvesting
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LateArrival
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Re: Holding Cash because Tried to time Market

Post by LateArrival » Thu Sep 18, 2014 8:43 am

freebeer wrote:
LateArrival wrote:...In 2008, I pulled my 401(k) out of the stock market, after listening to some gloom and doom forecasts...
When exactly in 2008 did you do this?
February 2009. I thought that I was going to lose my job because of the downturn and also half my assets in a divorce. I couldn't risk losing more assets if the market continued to fall.

LateArrival
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Re: Holding Cash because Tried to time Market

Post by LateArrival » Thu Sep 18, 2014 8:44 am

freebeer wrote:
LateArrival wrote:...In 2008, I pulled my 401(k) out of the stock market, after listening to some gloom and doom forecasts...
When exactly in 2008 did you do this?
February 2009. I thought that I was going to lose my job because of the downturn and also half my assets in a divorce. I couldn't risk losing more assets if the market continued to fall.

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