Cash-on-the-sidelines thread

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ge1
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Cash-on-the-sidelines thread

Post by ge1 »

Due to valuation concerns I am underweight US stocks and decided to buy a fixed amount every month until I reach my target AA. Should take me approx 24-36 months. Should markets decrease I buy additional stocks, which means I would reach my target AA earlier. I don't claim that this will outperform the market, but it works for me.

At the close of today I added 1% (I'm approx 12% below my target AA).

Anybody else buying with "cash on the sidelines"?
LeeMKE
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Re: Cash-on-the-sidelines thread

Post by LeeMKE »

Not me. I don't keep idle cash.
The mightiest Oak is just a nut who stayed the course.
alil
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Re: Cash-on-the-sidelines thread

Post by alil »

I am, my plan is according to S&P number - 5K if hits 1900, 10K - for 1800, etc. If S&P goes down to low 1000's will start rebalancing with bonds in 401K.
sawhorse
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Re: Cash-on-the-sidelines thread

Post by sawhorse »

LeeMKE wrote:Not me. I don't keep idle cash.
So you don't have an emergency fund, or are you referring to cash outside an emergency fund?

The "idle" modifier you use is important. There's a difference between idle cash and non-idle cash that is earning interest. If you have money in interest bearing accounts or CDs, you can think of that as part of your asset allocation.
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Re: Cash-on-the-sidelines thread

Post by LeeMKE »

Right. I have CDs and some bond funds.
The mightiest Oak is just a nut who stayed the course.
magneto
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Re: Cash-on-the-sidelines thread

Post by magneto »

Our aim 'A Well Balanced Porfolio' with exposure to the four main income producing asset classes of stocks, bonds, real estate and cash.

The real estate can be overlooked, but cash IMHO is important as insurance, esp in times such as these when stocks and bonds both seem bearish. :(
How much cash is a more complex issue, bearing in mind it will be a drag long term on portfolio performance..
There is a variety of opinion whether to define some assets as bonds or cash, as they can straddle the border (e.g. I bonds,CDs).

We seldom seem to talk much about cash here, mostly limiting discussion to stocks and bonds. :!:
But cash is worth thinking about as the third leg of an investment stool.

In retirement we use a valuation driven variable ratio stock allocation, and are currently using cash to add to stocks but in a controlled progressive manner. Not moving straight to target but garnering some momentum effect from delayed action. If nothing changed we would reach about 66% of the way to target in twelve months.
This is not for everyone. :!:
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Dandy
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Re: Cash-on-the-sidelines thread

Post by Dandy »

I think your approach is reasonable. As you said it may not result in higher end portfolio but suits your mind set. People who invested a lump sum before year end are probably kicking themselves - but over time they should be ok too. I think the difference in retirement is "over time" may be a bit longer than your actual time.
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Re: Cash-on-the-sidelines thread

Post by livesoft »

Where are all the "bonds-on-the-sidelines" threads?

Total Bond Market is up 0.8% so far this year and can be exchanged into equities on any day that the US stock markets are open. That is so much better than cash has done this year. I mean, who wouldn't like to have an annualized return of more than 30% with their cash?
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Bustoff
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Re: Cash-on-the-sidelines thread

Post by Bustoff »

Speaking of bonds, what happen to all the bond fund armageddon threads?
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midareff
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Re: Cash-on-the-sidelines thread

Post by midareff »

Bustoff wrote:Speaking of bonds, what happen to all the bond fund armageddon threads?

Wait for the third week of January.
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ge1
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Re: Cash-on-the-sidelines thread

Post by ge1 »

magneto wrote:Our aim 'A Well Balanced Porfolio' with exposure to the four main income producing asset classes of stocks, bonds, real estate and cash.

The real estate can be overlooked, but cash IMHO is important as insurance, esp in times such as these when stocks and bonds both seem bearish. :(
How much cash is a more complex issue, bearing in mind it will be a drag long term on portfolio performance..
There is a variety of opinion whether to define some assets as bonds or cash, as they can straddle the border (e.g. I bonds,CDs).

We seldom seem to talk much about cash here, mostly limiting discussion to stocks and bonds. :!:
But cash is worth thinking about as the third leg of an investment stool.

In retirement we use a valuation driven variable ratio stock allocation, and are currently using cash to add to stocks but in a controlled progressive manner. Not moving straight to target but garnering some momentum effect from delayed action. If nothing changed we would reach about 66% of the way to target in twelve months.
This is not for everyone. :!:
Agree that cash should be part of the portfolio, and not just emergency fund. It is 10% of my target AA (admittedly we have a low need to take risk).

Can you expand what your methodology is to add stocks?
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Bustoff
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Re: Cash-on-the-sidelines thread

Post by Bustoff »

midareff wrote:
Bustoff wrote:Speaking of bonds, what happen to all the bond fund armageddon threads?

Wait for the third week of January.
By that time you might see an 18 in the first two S&P numbers.

Really? What's the significance of the third week of January?
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Re: Cash-on-the-sidelines thread

Post by livesoft »

I think the fourth week of January will be more significant.
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blueblock
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Re: Cash-on-the-sidelines thread

Post by blueblock »

Right now, I'm 7% in cash. That's my 2016 and 2017 living expenses, which also serve as my emergency fund.
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goingup
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Post by goingup »

I think 36 mos is too long to DCA a lump sum into stocks to reach a target allocation. My theory has been to get cash invested and go get some more. :) Personally I wouldn't stretch that out more than 12 mos. Rick Ferri wrote an interesting piece about DCA'ing: http://www.forbes.com/sites/rickferri/2 ... -lump-sum/
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Re: Cash-on-the-sidelines thread

Post by magneto »

ge1 wrote: Agree that cash should be part of the portfolio, and not just emergency fund. It is 10% of my target AA (admittedly we have a low need to take risk).
Can you expand what your methodology is to add stocks?
Here is an extract from an earlier post which related to an Asness et al paper, adding momentum filters to valuations.
See viewtopic.php?f=10&t=177653&p=2689501#p2689501 :-

QUOTE
"Financial Markets everywhere seem to exhibit momentum, or trending behavior and contrarian investors ignore this at their peril."

For the Dynamic Allocator using valuations, the momentum effect has always been a counter to it's success.

Momentum is irritating. It shouldn't exist :annoyed since :-
Momentum = Mass * Velocity
And as far as it can be judged stocks/bonds do not have 'mass'.
In fact prices can turn on a dime which denies the existence of mass.

The real explanation for momentum has beeen termed by some the 'band-wagon' effect.
Investors notice a trend and ever more momentum followers climb aboard the 'band-wagon' perpetuating the trend..
Most investing techniques stop working the more they are known. Momentum is an exception, as the more investors become aware of it the more it succeeds.
Irritating to value investors seeing assets being driven by such forces, rather than fundamentals.
However the 'band-wagon' will eventually fail and reverse from extreme valuations as investor's doubts creep in and they start to climb off in a hurry. We just don't know when that will be. :(

The solution proposed in the article is quite difficult to put into practice.

A simpler solution to accomodate both valuations and 'momentum' :annoyed
can be to :-
1. Set a proportional (not binary) target range based on valuations, and be aware that as the article points out, the median will vary over decades.
2. Approach that target at a controlled rate, say 10% of deviation per month, as has been proposed by others in other threads. Thereby keeping 90% back each month to benefit from 'momentum'.
Won't be as optimal as the article but a damm sight easier to put into practice.
UNQUOTE

For stock allocation target a multiple of yield (a smoothed, alledgedly broken, measure) works quite well, if as noted above adjustments are made over decades to allow for changing payout ratios, etc.
Note : Origins of this line of thinking can be found in Classical Control Theory - Integral Action, where system stability is paramount, the investor being part of a control system.

Hope that is of some help.
Any feedback or further ideas would be welcome.

All Best
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midareff
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Re: Cash-on-the-sidelines thread

Post by midareff »

Bustoff wrote:
midareff wrote:
Bustoff wrote:Speaking of bonds, what happen to all the bond fund armageddon threads?

Wait for the third week of January.
By that time you might see an 18 in the first two S&P numbers.

Really? What's the significance of the third week of January?
It comes after the second week, but before livesoft's fourth week. If calculated fair value is very low 2000's an 18 is not enough, need a 17 or lower.
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bru
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Re: Cash-on-the-sidelines thread

Post by bru »

I have a large cash position. Too large to be considered just an emergency fund but because of my situation (disabled wife, minimal income) it makes me feel better. After the rough start to the year I figured the market was on sale so I put $5K in to TSM on Thursday. As a percentage of my cash position it was negligible. If I had waited until Friday I would have gotten a few extra shares. But that is market timing, right?
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Re: Cash-on-the-sidelines thread

Post by Electron »

Investing the cash over 24-36 months does seem like a long period of time. One possibility might be to review longer term charts of the U.S. stock market and then come up with an investing time frame with the best average fit to the periods with negative returns.

In the long term, a disciplined approach with no market timing or judgement likely wins. However, it is tempting to take advantage of declines and vary the investment amount. It is also tempting to consider valuations, market cycles, sentiment, and other factors. The problem is that the market often turns up before one is fully invested. As a result, I've generally done better investing too early in market declines although that has been in generally favorable markets.

Does anyone remember 1966-1982? That period was very difficult for investors with the major averages in a trading range for sixteen years.

It is interesting that cash as part of an investor's asset allocation is not mentioned very frequently. There will undoubtedly be periods of time when cash earning interest outperforms both stocks and bonds. Short term debt market investments even with high rates of return cannot replace longer maturities as many retirees discovered in the last two decades. Retirees that invested heavily in Money Market funds and CDs in the 1980s and 1990s saw a major drop in their income when rates came down.
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ge1
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Re: Cash-on-the-sidelines thread

Post by ge1 »

Futures are down quite a bit, may turn out to be a decent day to invest some of that cash today :D
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Re: Cash-on-the-sidelines thread

Post by nolapepper »

I have a large cash position too, about 30%. It was from my husband's business sale. I don't know what to do as DH's uncertain future. I put half in 5 year CD, another half just sit there (for the next two years' expense if DH income stops). If I see a sale, I would buy some. I bought 10K total stock yesterday.
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ge1
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Re: Cash-on-the-sidelines thread

Post by ge1 »

Make sure to invest only cash in the market that you don't need for years. Even when things are on sale, they can become much cheaper.

Good luck for DH job search!
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Re: Cash-on-the-sidelines thread

Post by ge1 »

The way the markets are going that cash will be invested sooner that I thought :-)
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Post by livesoft »

And my bond funds are going up faster and more than I thought!
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Post by nelson1015 »

I have some extra cash due to a recent bonus. I'm considering buying some additional equities on sale.
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Re: Cash-on-the-sidelines thread

Post by dbr »

"Cash on the sidelines" has the sound of some kind of sensible strategy, but I don't think it stands up to rational analysis. It is in a category with the false "dry powder" analogy.
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Re: Cash-on-the-sidelines thread

Post by Toons »

"Cash" on sidelines?
Timing to me.
If the cash is available after expenses I invest it.
Regardless of where the market is.
Matter of fact I purchased more shares of Lifestrategy Conservative Growth,this AM
Put your money to work for you according to your asset allocation :happy
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ge1
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Re: Cash-on-the-sidelines thread

Post by ge1 »

dbr, Toons

In my initial post I made it clear that I don't claim this to be a superior strategy. Everybody has to do though what they feel comfortable with and for myself that meant to underweigh my allocation to US stocks due to valuation concerns.
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Re: Cash-on-the-sidelines thread

Post by Castanea_d. »

"Cash on the sidelines?" Not for much longer.
I made the mistake of paying heed to the "Bond Armageddon" talk some years ago, and moved most of the bond money in my 403(b) to the money market account, which (after the 30 basis point 403(b) expenses) comes out to about a - 0.25% rate. And I missed out on the good returns from bonds during that period.

Having come to my senses (thank you, Vanguard; one of their webcasts convinced me that a bond "meltdown" is not at all like an equity crash), I have been gradually moving the cash back into the investment grade bond fund (DODIX, Dodge & Cox Income), with the idea that the remaining cash was available for equities as well if needed for rebalancing -- it hasn't been. I use the 403(b) as my main vehicle for overall asset rebalancing between equities and bonds/cash so that I can leave our taxable funds in "buy and hold" mode for the most part, and I follow a "tilted" allocation based on the CAPE (Schiller's cyclically adjusted price/earnings ratio), so I have been light on equities for the last couple of years.

As of Jan. 1, I had $50,000 of cash remaining, with my next rebalancing due right now, the latter part of January, and lo and behold, at current prices (and with the CAPE down several points from where it was), it is going to take all of it to get the equities to where they should be. I normally do this all at once, but it feels like such a large sum and the market is so volatile that I moved $10 K on Friday, and plan to move $20 K this Friday, and (if conditions still warrant) the last $20 K the following Friday.

I have about $100 K in bonds in the account, so I still have money for future rebalancing if equities continue downward. But no more large sums of cash, not in the 403(b). Bonds or equities; I have learned my lesson.

[We do have an emergency fund, and a lot of money in bank CDs and U.S. Savings Bonds, but that is our liability matched portfolio. That is a whole other thing, not available for investment.]
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Re: Cash-on-the-sidelines thread

Post by surfstar »

*Cue financial commercial*

"Coach, I'm ready to go in"
"Not yet, its only part-way through the first quarter"


[voice over] Does your cash sit out, waiting to go in to the big game?
Here at Sports Analogy Financial, we'll let you know when the time is right, to put your cash in the game.
Play with us and we guarantee you'll come out a winner.
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Toons
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Re: Cash-on-the-sidelines thread

Post by Toons »

ge1 wrote:dbr, Toons

In my initial post I made it clear that I don't claim this to be a superior strategy. Everybody has to do though what they feel comfortable with and for myself that meant to underweigh my allocation to US stocks due to valuation concerns.
I couldn't agree more.
Some are comfortable with Bonds.
Some Cds.
Some 100% equity
Some 50/50.
Some foreign
Everyone's asset allocation is different
Do what is Right for you that ,is all that matters.
It is your money. :happy
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Re: Cash-on-the-sidelines thread

Post by wulfric »

I keep 10% of my portfolio in cash (money market). Good thing in light of the tanking market.
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Post by wolf359 »

magneto wrote: The real estate can be overlooked, but cash IMHO is important as insurance, esp in times such as these when stocks and bonds both seem bearish. :(
The market sentiment is bearish on bonds because of the rising interest rates. However, I just noticed that my bond position, which has been showing negative most of last year due to the long lead-up to the rate hike, is currently showing a profitable position.

In a falling equity market, people are still fleeing to bonds. Bonds are up.
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Re: Cash-on-the-sidelines thread

Post by jrbdmb »

wolf359 wrote:
magneto wrote: The real estate can be overlooked, but cash IMHO is important as insurance, esp in times such as these when stocks and bonds both seem bearish. :(
The market sentiment is bearish on bonds because of the rising interest rates. However, I just noticed that my bond position, which has been showing negative most of last year due to the long lead-up to the rate hike, is currently showing a profitable position.

In a falling equity market, people are still fleeing to bonds. Bonds are up.
Well, to be exact *some* bonds are up. When markets are "less calm" there is often a flight to quality. Looking at Vanguard funds, the Treasury and government bond funds are doing well, while High yield Corporate is down 2.44% for 2016.
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Re: Cash-on-the-sidelines thread

Post by nolapepper »

I don't understand about this timing issue. Timing market all the time is wrong and that I can understand, but if you know the market is going to tank, isn't it reasonable to hold the cash for a while? Isn't it reckless to dump all the cash you have when you know the market is unstable?
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Re: Cash-on-the-sidelines thread

Post by rerod »

Iv been holding almost half of my port in VBTLX . I had a lame adviser who kept mentioning China, four years ago! Its time that changes..
I hope that what ever low we drop to, will iron out most of the bubbles. Word is, Oil may bottom in the low 20's, but I wont wait that long. But not quite yet.

I see nothing wrong with buying allot of VTSAX in my case, and wouldn't call it timing because we see it happening. And we felt overvalued.

OK. I'm guilty.. That's timing. But with all the reports of dismal returns for the next decade, its tempting. I don't regret it, but maybe its the reason I'm not getting much advise here.. Not boglelicious enough. :D
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Re: Cash-on-the-sidelines thread

Post by razeus »

For the last 3 years I stay cash until Dec 31st. I now longer dollar cost average every month.

I save as much as I can through the year, then on Dec 31st, I take whatever I manage to put in my Ally account for the year, split it in half, and move it to my Vanguard accounts, and that's how I "rebalance" (ie, if I managed to save $12k, $6k goes into Vanguard, the other $6k stays in my "emergency fund".

It's a nice way to build up an emergency fund and have money invested at the same time. Great thing about it is that if something major comes up (which it hasn't for me yet), I've got the cash on hand to take care of it. By the end of the year, I'm sitting on what I saved; I figured I didn't need it and thus becomes suitable to put "in the market".
wolf359
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Re: Cash-on-the-sidelines thread

Post by wolf359 »

jrbdmb wrote:
wolf359 wrote:
magneto wrote: The real estate can be overlooked, but cash IMHO is important as insurance, esp in times such as these when stocks and bonds both seem bearish. :(
The market sentiment is bearish on bonds because of the rising interest rates. However, I just noticed that my bond position, which has been showing negative most of last year due to the long lead-up to the rate hike, is currently showing a profitable position.

In a falling equity market, people are still fleeing to bonds. Bonds are up.
Well, to be exact *some* bonds are up. When markets are "less calm" there is often a flight to quality. Looking at Vanguard funds, the Treasury and government bond funds are doing well, while High yield Corporate is down 2.44% for 2016.
While junk bonds are bonds, they're too highly correlated to stocks during market turbulence. My Investment Plan states the use of bonds specifically for ballast, not for return. (That keeps me out of foreign bonds as well.) I'm primarily in treasuries and quality municipals. It was annoying when the thing I bought for safety kept dropping with every interest rate rumor, and especially with the actual rate hike. So it was odd to see that my overall bond position is now positive, after being slightly negative for most of the last year.
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ge1
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Re: Cash-on-the-sidelines thread

Post by ge1 »

Bought a bit more at the close today. Now approx 7% below target for stocks.
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Re: Cash-on-the-sidelines thread

Post by David Jay »

surfstar wrote:*Cue financial commercial*

"Coach, I'm ready to go in"
"Not yet, its only part-way through the first quarter"


[voice over] Does your cash sit out, waiting to go in to the big game?
Here at Sports Analogy Financial, we'll let you know when the time is right, to put your cash in the game.
Play with us and we guarantee you'll come out a winner.
That means I get the sprinkles, right?
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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