All cash now ($1M) - need advice on entering this lofty market

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RetiredEd
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All cash now ($1M) - need advice on entering this lofty market

Post by RetiredEd »

Wife and I both 64 and retired last Fall. We went to cash Feb '13 after our portfolio recovered from the '08-'09 debacle. Been waiting for a reentry point and have missed $250,000-300,000 in opportunity cost since going to cash. Grrrr! Just came to VG after two years of no help from our former advisor. We know we've screwed up and need to get invested, but just KNOW the market will tank once we jump back in. With help from a VG PFA, we have decided on a 50/50 AA, but we wonder should we put the 50% Equity allocation in Total Bond for now pending a market correction? We have enough cash in CD's and bank MM to cover our cash needs for approx 5-6 years, so there is no urgent need for portfolio income. BUT, we don't want to reenter the market now, only to be back where we were in 2009. (We had planned on retiring then, but contued working because our portfolio had dipped 37%) Going back to work now is probably not an option.
I've read a lot on VG and here and know the philosophy, but we are really struggling with the market being so high right now. (Of course, that's what we were thinking when we cashed out in 2013!)
Any ideas appreciated!
Please be gentle...I guess I know what we SHOULD do!

Thanks!
Ed
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by Jack FFR1846 »

All in, total bond market. When you feel ready, sell-to-buy whatever you want.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by RadAudit »

It is always the wrong time to get back into the market. There's always a reason not to pull the trigger. It's too high. It's too low and going lower. Heavens knows where it will end. Been there. I know the feeling.

Unsolicited opinion. 50 / 50 for your age is probably a good asset allocation. (I'm biased. It's my asset allocation and I'm 68) I'd suggest get a plan to dollar cost average into your target asset allocation over the next two years - ~ 4% of assets per month. And then stick to the plan.

It'll probably cost you a little if you go this way as opposed to all in at the get go. But, you avoid buyer's remorse.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.
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greg24
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by greg24 »

RadAudit wrote:Unsolicited opinion. 50 / 50 for your age is probably a good asset allocation. I'd suggest get a plan to dollar cost average into your target asset allocation over the next two years - ~ 4% of assets per month. And then stick to the plan.
I second this suggestion.
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RetiredEd
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by RetiredEd »

Jack, Total Bond Market is certainly on the table. Even with a little NAV erosion if rates increase, we could be ready to take advantage of a correction and probably recover the little NAV we may have lost fairly quickly. Good idea!

Rad, the DCA reentry is a good idea, too. Does anyone know if you can set up an automatic monthly VG fund purchase so I don't have to be sure and stick to the plan for the next 48 months? We're totally in a VG MM right now. I don't want to have that emotional connection to moving the money each month!
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by BolderBoy »

RetiredEd wrote:we have decided on a 50/50 AA, but we wonder should we put the 50% Equity allocation in Total Bond for now pending a market correction?
But, but... What about the impending rise in interest rates which will surely kill your bond holdings?

I think you are describing "paralysis by analysis". And you are way over thinking this. Sure, the market looks high now, but if it is higher next month, then what will paralyze you? You are going to see the market go up and down in the short term, but aren't you in this for the long term?

It sounds like you are a prime candidate to dollar cost average into the market.
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RetiredEd
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by RetiredEd »

I should mention, too that once we are back fully invested, I will NEVER EVER try to time anything again! The only thing I'll be doing is rebalancing and sleeping well at night!
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by pkcrafter »

I also agree that DCA is your best choice, but it might be useful to know what your needed initial withdrawal % of total assets will be. What stock and bond funds are you planning to use?


Paul
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by The Wizard »

We go over this topic from time to time here.
I'm 65 and have been "all in" the markets for over four decades now.
Never have I been all cash.
I'd recommend finding an AA you can live with and get with the plan now.
And yes, part of your "bond" holding can be in CDs if you want...
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BolderBoy
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by BolderBoy »

RetiredEd wrote:I should mention, too that once we are back fully invested, I will NEVER EVER try to time anything again! The only thing I'll be doing is rebalancing and sleeping well at night!
That's the Spirit!

Did I see you write that you are planning to DCA back into the market over 48 months? How did you pick that time frame?
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by lack_ey »

You can schedule automatic monthly purchases of mutual funds.

I was going to say that 50/50 might be a bit much (hard to say without most of the relevant information), but you seem to be not counting the CDs and cash to cover 5-6 years. What's your Social Security situation? The best bet is probably to file and suspend at full retirement age (whoever would get the higher benefit), collect the spousal benefit for a few years, and then both delay until age 70 to take max, but it depends on a variety of factors. What are spending needs relative to assets and income sources?

There may not particularly be much need to take stock market risk, though I wouldn't ever go below 25% stocks (that includes the CDs and cash as part of the allocation).

Are you looking at an IRA or what?
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by highercall »

I'm in the same boat as you but aren't you trying to time the market getting in. How much does it have to drop to make you feel comfortable to get back in. No matter how much it falls the "noise" says it's going lower and I listened to the "noise" and watched it go back up to the level today.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by mindbogle »

RetiredEd wrote:I should mention, too that once we are back fully invested, I will NEVER EVER try to time anything again! The only thing I'll be doing is rebalancing and sleeping well at night!
With due respect, I don't believe you - if your timing now then why would you not time after being "fully invested"? Why not choose an asset allocation that you and spouse can feel comfortable with now and in future, regardless which way the market turns? Perhaps that's 100% total bond, or maybe 20% in stocks? But it does not seem like 50-50 is going to do it, based on what you said in your OP. Have you assessed how much risk you really need to take to achieve your objectives?

Regards,

MB
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RetiredEd
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by RetiredEd »

Bolder, you're right about the "paralysis analysis". That's why we're sitting on cash two years after our "perceived" market high (Oct '07 level of 14,000)! What makes this hard is we're not just thinking about changing our allocation of already invested money, which in my mind would be a LOT easier.
We asked our PFA about DCA and his advice was to go all in. But that's what his model more or less require him to tell us.
These ideas are really helpful!

Thanks,

Ed
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by The Wizard »

Going all in over a day or two helps validate the statement of no more market timing...
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by DSInvestor »

RetiredEd wrote:Jack, Total Bond Market is certainly on the table. Even with a little NAV erosion if rates increase, we could be ready to take advantage of a correction and probably recover the little NAV we may have lost fairly quickly. Good idea!

Rad, the DCA reentry is a good idea, too. Does anyone know if you can set up an automatic monthly VG fund purchase so I don't have to be sure and stick to the plan for the next 48 months? We're totally in a VG MM right now. I don't want to have that emotional connection to moving the money each month!

Yes, you can set up automatic transactions at Vanguard. If the money is not at Vanguard, you can setup an automatic investment and pull money from your bank account. Since you money is currently in a VG Money Market fund, you can setup an automatic exchange from your MMF to another fund.

Vangaurd exchanges are quite powerful. For example, exchange from a taxable account to an IRA is a contribution to the IRA. Exchange from Traditional IRA to Roth IRA is a conversion. If you have multiple accounts at Vanguard say taxable, TIRA, Roth IRA, make sure pay attention to the "exchange from" account and the "exchange to" account and make sure they are correct.

If you logon to vanguard.com, scroll down to the bottom of the page and click on Account Maintenance. Look in the section for Banking and money movement.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by TareNeko »

I would start with 90% Intermediate Term Bond Index and 10% Total Stock Market Index, and slowly change it to 50:50. It is up to you if you want to do it in 2 years or 5 or whatever you are comfortable with. Having 5-6 years of expenses in CDs is a great buffer.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by ogd »

This is a good talking-to for the kind of mistake you've made: http://www.ritholtz.com/blog/2013/06/mi ... to-do-now/

The best thing to do is abandon all pretense that you're any good at market timing (by now, with good evidence) and put your money where it should have been. Because with all this fretting, what might end up happening is that the market climbs another 20% into "overvaluation", and then what?

50/50 should be bearable to anyone; you can even go 40/60 given the past history. Clearly you were uncomfortable with the allocation you had, and you're not comfortable with it now.

I don't like DCA for a couple of theoretical reasons. One is that it can't possibly do anything objective like risk reduction (edit: at a better than normal return penalty), otherwise we who are invested would periodically pull out and DCA back in again. So it's just a psychological aid. Now one shouldn't underestimate psychological factors, but still. Remember the market doesn't know or care when you put your money in, it's just factoring in the best guesses going forward at all times (which are likely to be much better than yours). To me the psychological benefit is countered by the fact that you allow an indecision which has already cost you so much to linger for a year or two, which means opportunities to second-guess yourself all the way through then.

The other reason is this: right after investing is actually a better time to take more risk than later on, if you're a taxable investor. The government will partake in your losses if they happen soon after investing (through capital loss income deductions), whereas later on as get farther and farther from your cost basis this insurance is much reduced. DCA, which increases risk exposure over time, has this backwards. This reasoning doesn't apply for tax-advantaged accounts.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by epictetus »

I would encourage you to be more cautious than you think you need to be at this point on the stock allocation. worse situation is to sell when low, hold onto cash, buy when high, market goes down, sell when low.

whatever amount you put in stocks would encourage you to write down the number that reflects a 50% in value. if you put 500,000 in stocks then that amount could decline by $250,000 at any time.

when the market goes down there is often a lot of bad news in the air, world is going to end, etc. is hard to stay firm on allocation and watching losses in that climate.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by TdF fan »

If you simply can't go all in now, then take 50% and invest now and DCA the other 50% over the next two to three (or five) years. That way you won't be kicking yourself that you put 100% in at the top (if this is the top) and likewise won't be kicking yourself in two to five years if this isn't the top and you're still in all cash.

This is just a psychological crutch of course, but it can be a way of getting you off the mark and down the road to where you want to be.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by BolderBoy »

RetiredEd wrote:We asked our PFA about DCA and his advice was to go all in. But that's what his model more or less require him to tell us
Actually, the research shows that those who do it in lump sum fashion (all in) come out ahead of those who DCA, over the long term, so the PFA is right. My DCA recommendation to you was based on my perception of your terror of making a misstep, which ironically you've already made. As others have pointed out, you need to abandon your belief that you are smarter than Mr Market (timing) and simply get on the train. The longer period of time you set for DCAing, the more I'm convinced you are still hoping to time the market.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by letsgobobby »

How much income do you need from this portfolio, and when do you need it?

Assuming you need something reasonable - 4-5% or less annually - I suggest 25% stocks, 75% bonds now, and DCA over 12 months to get to 50/50. That combines two elements which are behaviorally optimizing. First, you do something NOW. That helps you overcome analysis paralysis and loss aversion and gets you started down the road. There's no time like the present. Second, DCA helps minimize the odds of future regret in the event of a market downturn, while still helping you increase stock exposure steadily.

After 12 months you are more likely to be comfortable with your AA, and 50/50 at your age is very reasonable. It could be 40/60, as you seem to be quite conservative.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by dolphinsaremammals »

RetiredEd wrote:I should mention, too that once we are back fully invested, I will NEVER EVER try to time anything again! The only thing I'll be doing is rebalancing and sleeping well at night!
You're trying to time right now.

You haven't said how your assets compare to your spending, taking into account any Social Security, pension, what happens with those when one of you passes away, etc.

You seem to have enough cash (I assume that is not part of the proposed investments), to take you both to age 70. I'll guess that then Social Security kicks in nicely for both of you, so you can, unless you spend a lot of money, do quite nicely with very conservative investments, including, for example, federally insured 5 year CDs, so you can sleep at night.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by backpacker »

RetiredEd wrote: With help from a VG PFA, we have decided on a 50/50 AA, but we wonder should we put the 50% Equity allocation in Total Bond for now pending a market correction? We have enough cash in CD's and bank MM to cover our cash needs for approx 5-6 years, so there is no urgent need for portfolio income. BUT, we don't want to reenter the market now, only to be back where we were in 2009. (We had planned on retiring then, but contued working because our portfolio had dipped 37%) Going back to work now is probably not an option.
1) The financial media likes to talk about the market being "high" and "due for a correction". That's all BS. No one knows whether the market is high or low because no one knows what the market is going to do in the future.

2) Because no one knows whether the market is high or low, you need a retirement plan that works even if the market is high and drops 50% the day after you invest your $1 million. Would losing $250,000 tomorrow create financial hardship? If so, then a 50/50 portfolio is too aggressive. You may want something more like 30/70 or even 20/80.

3) I would consider using CDs for a large portion of your "bond" allocation. CDs are in many ways safer and offer rates that are competitive with total bond.

4) Maybe you should consider buying a SPIA?
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by joebh »

RetiredEd wrote:With help from a VG PFA, we have decided on a 50/50 AA, but we wonder should we put the 50% Equity allocation in Total Bond for now pending a market correction?
You mistimed the market before and paid a hefty price.
Why would you think you could correctly time the market this time?

Go with your 50/50 AA, don't look back, and stay the course.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by lack_ey »

There's little theoretical basis for DCA. I would repeat most of the dissenting opinions voiced so far, but that's obviously redundant so I'll spare you the time for those.

At any given point, there is an allocation you probably should have (obviously what this should be is up for debate, but let's say it's something, like 50/50). When you DCA, you are intentionally dragging out the period where you're straying from the proper allocation.

But really, it may not make much difference anyway. And because a lot of the relevant details about needs and assets are unknown, we're all shooting in the dark and can't really say what in particular might be appropriate anyway.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by fidobogo »

Keep in mind that this is Bogleheads, and you're going to hear an almost religious adherence to ideas like "you can't time the market". That wisdom indeed seems to apply to most situations, as far as I can tell. However, my impression is that stocks and bonds look crazier than normal right now, and there's plausible reasons that they would be crazier than normal (QE, rates, faux recovery, international economic battles).

Let's say you've wanted to go outside and play for weeks. But it kept looking like it was going to rain, so you kept staying inside. But it didn't rain, and you missed all that playtime. Lots of other kids played outside and had lots of fun, and they say that you should always play outside, because sometimes you get rained upon, but you get tons of fun overall. So now you're really ready to go outside, even though the sky is clouding and those might be thunderclaps just over the hill. Sure, I'd go play outside now, but I wouldn't stray as far from home as on a clear skies day, and I wouldn't be surprised if I got soaked before the end of the year.

Disclosure: I'm moving my AA more to cash right now, and would be very happy if there were lots of fresh new retail investors driving up prices on what I'm dumping, so disregard what I just said, because you can't time the market. :)
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by The Wizard »

90% of what's called DCA is just automatic contributions from each pay check, monthly, weekly, whatever.
That's obviously not a rationale for doing something similar with a lump sum...
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by pkcrafter »

Ed, I know you're getting a lot of feedback here, but there's one more thing you should do--read a good book on investor behavior. The Wiki article has some good starting information and suggested books at the bottom of the page.

http://www.bogleheads.org/wiki/Behavioral_pitfalls

Paul
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by ogd »

fidobogo wrote: Let's say you've wanted to go outside and play for weeks. But it kept looking like it was going to rain, so you kept staying inside. But it didn't rain, and you missed all that playtime. Lots of other kids played outside and had lots of fun, and they say that you should always play outside, because sometimes you get rained upon, but you get tons of fun overall. So now you're really ready to go outside, even though the sky is clouding and those might be thunderclaps just over the hill. Sure, I'd go play outside now, but I wouldn't stray as far from home as on a clear skies day, and I wouldn't be surprised if I got soaked before the end of the year.
This is a false analogy, because your playtime doesn't have an oscillating cost, one that varies with what others are observing. A better one would have something to do with the price of umbrellas.

The discouraging of market timing is not religious, just mountains of data indicating that it can't be done and it only leads to pain, regret, possibly with a detour through an expensive advisor once the investor decides they're no good at this. All the more so in the case of the OP. You are doing him a disservice, but on the "bright" side it's what you're doing yourself, so I can't accuse you of maliciousness.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by livesoft »

I'm always more afraid of missing out on gains than I am about missing out on losses. I would terrified if I was all cash now. Indeed, I have no cash now.

That said, we've seen the Lump Sum versus DCA argument periodically on the forum. The "Invest now or wait?" question is a frequently asked question. The RItholz link is a great one to read, but here is another great one from stlutz: viewtopic.php?t=132098 It's good because a compromise is even suggested in that thread: Invest half now and then DCA the rest over the next 10 months. If the market drops, accelerate your DCA schedule.
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RetiredEd
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by RetiredEd »

You guys are GREAT! My wife and I REALLY appreciate your comments and suggestions. I realize I need to take a minute and learn how to bring questions posed into my replies as "quotes" so my replies make sense.

Let me fill In some income and expense questions. My wife and I are both on SS now. We did the math and we didn't need the extra income by waiting until FRA or even age 70. At 62 it would have taken me 12 years from age 66 to "break even" from the increased FRA benefit. I didn't feel like hoping I live to age 78 to start reaping the benefit of a higher SS benefit! While a higher SS benefit would be nice, we feel like we will be fine because our income needs from our portfolio are pretty conservative. Our budget is about $65,000 in GROSS income to cover expenses. SS is about $43,000, so we only need about $20,000-25,000 additional and we'll be fine. We figure gains over the years (equities and bonds) will cover things like a new car or new roof. Everything else ( vacations, Christmas, birthdays, etc) is covered in the $65k. When we hit 65 next year and go on Medicare, we'll be in a little better postion because we are now maxing out our HSA contribution of $7,650 and that goes away next year.
That answers several questions posters had about income/expense needs. So we're thinking 2 1/2 - 3% would more than cover our income needs. Since we have 5-6 years of income needs in cash (outside of our IRA), we feel pretty comfortable with a 50/50 AA now with maybe more of a bond tilt down the road as yields increase. We plan on keeping a fairly high cash position just for when portfolio returns are down. We see the equity side as more of a Legacy part of our estate rather than generating income to live on.
VG portfolio w/o specific %:
Total Stock
Total Bond
Intermediate Bond
Suggestions?
I know we should have some Int'l exposure, but we just don't see the long term benefit to us. I think our withdrawal needs are flexible enough that we can ride out any domestic volatility we encounter without introducing a scary Int'l component!
Bolder, I misspoke on the DCA for 48 months...should have said 24 months. That was just a timeframe Rad threw out early in this post. He had said 4%/ month which is 48%/yr.
Ogd, thanks for the link to the "talking to". I'll read tonight. We've beaten up ourselves on our screwup. You guys have been very kind.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by Uncle Pennybags »

RetiredEd wrote:I should mention, too that once we are back fully invested, I will NEVER EVER try to time anything again! The only thing I'll be doing is rebalancing and sleeping well at night!
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by john94549 »

There's nothing wrong with cash. Last I checked, the fellow at the 7-11 took cash. Quarters, dimes, even nickels, not a problem.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by Fclevz »

RetiredEd wrote:...I will NEVER EVER try to time anything again!
Then I guess you answered the question from your original post "...should we put the 50% Equity allocation in Total Bond for now pending a market correction? "
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by patriciamgr2 »

1. Ways to address the emotional issues surrounding lump sum investing were addressed by a recent Vanguard blog posting:
http://vanguardadvisorsblog.com/2015/05 ... -the-wind/

2. While it's true that published studies support lump sum investments, I note the following. (A) the Goldman study (often-quoted) noted that stock prices rose overall during the times they studied (ie I haven't seen a comparable study done during eg Japan's long & flat-to-down equity run) and, as I recall, the portfolio wasn't being reverse dollar-averaged during drops (ie no hypothetical retiree was making withdrawals during the down years) (B) I personally don't recall stocks & bonds both being so highly valued at the same time during my lifetime. So perhaps there's a small possibility that DCA might work better for you right now. I can't argue the theory; I'll just say that a plan that gets you into the market on a schedule not dependent on your gut feelings is better than waiting for the "right" time to lump into the market.

Key practical point = having an asset allocation you can stick with and getting to it matters more IMO than how many steps it takes to get to your mix. You & spouse explicitly agreeing that drops of 35-40% (use actual dollar numbers) won't impact your allocation is key to staying the course.

Congratulate yourselves on what you got right (you didn't sell at the bottom); look to the future & enjoy your wonderful retirement.


Good Luck.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by nisiprius »

RetiredEd wrote:Rad, the DCA reentry is a good idea, too. Does anyone know if you can set up an automatic monthly VG fund purchase so I don't have to be sure and stick to the plan for the next 48 months? We're totally in a VG MM right now. I don't want to have that emotional connection to moving the money each month!
Yes, you can do this. Automatic purchase and automatic exchanges are under the "accounts" section.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by nisiprius »

RetiredEd wrote:Rad, the DCA reentry is a good idea, too. Does anyone know if you can set up an automatic monthly VG fund purchase so I don't have to be sure and stick to the plan for the next 48 months? We're totally in a VG MM right now. I don't want to have that emotional connection to moving the money each month!
Yes, you can do this. Automatic purchase and automatic exchanges are under the "accounts" section, IIRC.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Mrxyz
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by Mrxyz »

RetiredEd wrote:. BUT, we don't want to reenter the market now, only to be back where we were in 2009.
So how do you know what will happen? That is trying to time the market, right? :happy
Many ways to get back. Figure out where you want to place the funds and go in 50% and the rest DCA over the next x months OR just go in 100%.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by Jebediah »

Ability to take risk... Low. Don't have enough money/time to weather large or sustained losses.
Need to take risk... Low. You have just enough to get by without it.
Willingness to take risk... Low - medium. You are afraid of drawdowns.


Plus the fact that stocks are very expensive...makes me wonder why you're not putting it all in TIPS and/or annuities?
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by Christine_NM »

If you are wary of putting 50% in equities now, how about less than 50%? Generally if you can't pull the trigger on a plan, the plan is wrong for you and you will abandon it at the first opportunity.

Do something like 25% World Equity Index/75 % Total Bond now, knowing that 25% is considered in some circles to be a valid minimum equity position. Stop there if you feel OK and call it an income portfolio. Or call it your Black Swan portfolio.. 8-)

If you really are having trouble with this then maybe you think you have earned some bad karma with stocks and the market will want to punish you now for avoiding 2008 losses. Be thankful that the market doesn't know any of us exist or where we live. :D
18% cash 44% stock 38% bond. Retired, w/d rate 2.5%
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by magneto »

RetiredEd wrote: I've read a lot on VG and here and know the philosophy, but we are really struggling with the market being so high right now. (Of course, that's what we were thinking when we cashed out in 2013!)
Any ideas appreciated!
Ed
Monthly q data may be of interest :-

http://www.advisorperspectives.com/dsho ... uation.php


There is a school of thought that stocks may dip, but will then, regardless of valuations, always recover and head on steadily North East, so you will see the oft quoted expression 'time in the market is more important than timing the market', whatever the observer may mean by the latter.
This approach has worked well for many decades, but if we take the worst case 1930s ? markets lost circa 85%, and took circa 21 years to recover; or perhaps Japan 1989, still yet to recover.
A minority here who think 'valuations matter' adjust stock target exposure in proportion to the valuations on offer, increasing stock AA when downside risk seems less and expected returns seem a little higher; and vice-versa.
The same could be applied to the Bonds/Cash balance.
If you are one of those that think 'valuations matter' then adopting such an approach might suit.
Incidentally after a terrific run, US stocks as measured by PE1 (maybe a poorer measure than q or CAPE), with chequered history, are expensive but not wildly so. Predicting a direction is another matter.
There is still the problem of how to enter the market, but an alternative proportional entry at e.g. 10% deviation from target per month was suggested by a poster in another thread, which we found helpful, and moves the debate on from lump sum versus DCA, and set the little grey cells working.

Just some ideas which were helpful to us in retirement where sequence of returns becomes so important; and which might help with getting into a hot bath.

But must repeat this is a minority, repeat again, a minority view.
Others' (majority) views should be given very full weight.

Good Luck
Last edited by magneto on Fri May 29, 2015 2:39 am, edited 1 time in total.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by midareff »

RadAudit wrote:It is always the wrong time to get back into the market. There's always a reason not to pull the trigger. It's too high. It's too low and going lower. Heavens knows where it will end. Been there. I know the feeling.

Unsolicited opinion. 50 / 50 for your age is probably a good asset allocation. (I'm biased. It's my asset allocation and I'm 68) I'd suggest get a plan to dollar cost average into your target asset allocation over the next two years - ~ 4% of assets per month. And then stick to the plan.

It'll probably cost you a little if you go this way as opposed to all in at the get go. But, you avoid buyer's remorse.

At age 67.5 it's my allocation as well. When I was (lots) younger I tried timing the market with part of my investments and did make a few (truly a few) $ doing that but it was not worth the time, trouble, aggravation and so forth. I put it in the luck category since I am well convinced now no one can time the market successfully in the long term, it's all luck.

I'm with Rad on this one 100% although my expectations of profits for the next few years are muted. My expectations of profits from cash and CD's are even less.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by epictetus »

finding an allocation you can stick with is more important than trying to force yourself to adopt a particular allocation because you think you should, because other people are comfortable with that allocation, because you believe you made a mistake in the past with your allocation/action and think you have to make up for it, somehow prove you can do it differently this time, etc.

would encourage you to see the prior money moves you made as feedback to yourself (versus a failure) re: what works and doesn't work for you. that is the key : finding what works for you. then it is not as hard to implement it, stick to it during bad times, etc. it may still be hard but will not be as hard and will be much more doable.

it sounds like you have a lot of hesitancy re: implementing your plan which may be a clue that you aren't comfortable with it.

would suggest consideration of Bogle's "age in bonds" or something close to that allocation. would be more conservative than you are planning with a mechanical method of making the allocation incrementally more conservative over time. and you don't have to do exactly age in bonds but something close to that.

if you were considering a 40/60 allocation or a 35/65 allocation versus the 50/50 would that seem to fit you better? seem more comfortable, more doable? something you would be more confident about implementing, sticking with when the market goes down 50% (which it definitely will at some point)?

hope the above provides some useful food for thought.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by john94549 »

The gent at 7-11 suggested Canadian coins would not mix. I have yet to find a coinstar which will accept my Canadian.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by rgs92 »

Mr. Bogle said recently that the U.S. corporations are growing on average 4 to 5% a year and when added to dividends of about 2% you can reasonably expect 6 to 7% returns a year on the S&P 500 going forward in the longer run. He said to ignore the noise in the stock market, because it's a distraction from the benefits of reaping the profits of corporate America. He said major American businesses do not change in value by 10% or more over a short time, that this is just the noise of the stock market that should be ignored.
So just set up a 50/50 allocation, relax about the stocks because they will have decent returns, and the bonds won't vary that much to make a big difference. That's all you need to know.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by RetiredEd »

Christine_NM wrote:
If you really are having trouble with this then maybe you think you have earned some bad karma with stocks and the market will want to punish you now for avoiding 2008 losses. Be thankful that the market doesn't know any of us exist or where we live. :D
There may be more truth here than you realize! Glad to know "the market doesn't know any of us exist or where we live."

This is my first stab at replying directly to a post, but I have read every single word everyone offered up. My wife and I appreciate all the suggestions and comments. Like I said earlier, you guys (meaning everyone!) have great ideas that really makes one think. Our only regret is that we didn't seek advice here a long time ago.

If anyone has asked me a question, please remind if it has not been answered. I should have figured out how to reply with "quotes" earlier, but I think it would be confusing to go back now and reply.

Thanks again to everyone,

Ed
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by dc81584 »

50/50 AA and dollar cost average to get back in. You can't really go wrong with this arrangement.
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by RetiredEd »

dc81584 wrote:50/50 AA and dollar cost average to get back in. You can't really go wrong with this arrangement.
Thanks dc, wish our investment "advisor" had given us this sage advice a long time ago! That's why we decided to come to VG!

Ed
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Re: All cash now ($1M) - need advice on entering this lofty market

Post by Noobvestor »

Any day you're not in your target allocation is a day you're out of sync with your own goals - or: any day you're not buying you're actively selling. Either find an allocation that suits your risk aversion or commit yourself to this allocation and move to it. Sure, you can DCA if you really need to, but realize that you'd be doing that to satisfy psychological needs and fears and not for rational reasons.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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