S&P500 vs 3.5% Guaranteed

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Riley15
Posts: 71
Joined: Wed May 11, 2016 9:21 pm

S&P500 vs 3.5% Guaranteed

Post by Riley15 » Mon Jul 11, 2016 12:40 pm

I will make this question as simple as possible and stay on point.

Sold out of the market in May at S&P500 at 2050 (Dow~17500) for reasons that are irrelevant to the situation. Currently all that cash is invested in a stable value fund that has a guaranteed 3.5% return.

Obviously I want to get back into the S&P500 fund but it has moved to it's all time high today ~2140. At a minimum I would like to buy in at a point that will equate to me never selling out. Obviously in this two month timeframe market has gone up more than the return I got in the stable value fund.

Does it make sense for me the wait out the volatility in the market over the coming months or year so that I can go back in at a equivalent point as never selling out. Note that this wouldn't have to be at 2050 but basically 2050 + 3.5% ror since my money is earning a respectable return and not 0%.

jjface
Posts: 2462
Joined: Thu Mar 19, 2015 6:18 pm

Re: S&P500 vs 3.5% Guaranteed

Post by jjface » Mon Jul 11, 2016 12:45 pm

You want to know if it is a good idea to time the market - the answer is no. Only by sheer dumb luck will it work out which is the worst kind of risk to take.

if you are that nervous then you could go back in over a period of time and/or realise your risk tolerance is lower than you think and so you need a lower allocation to equities.

lack_ey
Posts: 5722
Joined: Wed Nov 19, 2014 11:55 pm

Re: S&P500 vs 3.5% Guaranteed

Post by lack_ey » Mon Jul 11, 2016 12:55 pm

The reasons you sold out in May are irrelevant to the situation, as you say.

But the value at which you sold out is likewise also irrelevant. You're not doing yourself any favors anchoring onto past values and attempting a market timing game of chicken to break even compared to a hypothetical other sce4nario. For better or worse you missed out on some returns, though at least you gained something over the period. That's all over. If I could market time my way out and guaranteed get back in at 2080 or whatever it takes for you to break even, then I would too.

barnaclebob
Posts: 2227
Joined: Thu Aug 09, 2012 10:54 am

Re: S&P500 vs 3.5% Guaranteed

Post by barnaclebob » Mon Jul 11, 2016 1:19 pm

You lost out on this round of timing and you may lose on the next. Or the market may go up 20% in the next year...

User avatar
sdsailing
Posts: 516
Joined: Thu Feb 27, 2014 4:42 pm
Location: San Diego

Re: S&P500 vs 3.5% Guaranteed

Post by sdsailing » Mon Jul 11, 2016 1:33 pm

Am I understanding this correctly?

(2140-2050)/2050 = 0.044 = 4.4% ?


"Note that this wouldn't have to be at 2050 but basically 2050 + 3.5%".



The short answer is that you need to start thinking like a long term investor.

Mike Scott
Posts: 649
Joined: Fri Jul 19, 2013 2:45 pm

Re: S&P500 vs 3.5% Guaranteed

Post by Mike Scott » Mon Jul 11, 2016 1:41 pm

Some people might be happy with a guaranteed 3.5% leaving it where it is. Are you?

goingup
Posts: 2786
Joined: Tue Jan 26, 2010 1:02 pm

Re: S&P500 vs 3.5% Guaranteed

Post by goingup » Mon Jul 11, 2016 1:45 pm

It's time to read some books! I suggest "Bogleheads Guide to Investing", "Investor's Manifesto" and others recommended in the Wiki: https://www.bogleheads.org/wiki/Books:_ ... nd_reviews

From your posts I gather you had a large rollover which began in May and landed sometime last month. Sounds as though you stuffed it all in a Stable Value fund, rather than executing an asset allocation strategy. Now the market is frothy again and you're looking for a re-entry point.

Read some books, map out your strategy and then execute. It will be very hard to stay the course unless you have a plan.

Shallowpockets
Posts: 260
Joined: Fri Nov 20, 2015 10:26 am

Re: S&P500 vs 3.5% Guaranteed

Post by Shallowpockets » Mon Jul 11, 2016 1:45 pm

You have a stable value fund paying a guaranteed 3.5%.
Can you tell us what that is?

Riley15
Posts: 71
Joined: Wed May 11, 2016 9:21 pm

Re: S&P500 vs 3.5% Guaranteed

Post by Riley15 » Mon Jul 11, 2016 2:08 pm

Appreciate all the responses, yes in fact this was due to a rollover. My intent was never to market time but it seems like the timing ended up being such that I got the short end of the stick.

I have been considering DCA into my asset allocation slowly as I may be waiting forever to eliminate my loss.
I have been maintaining a 80/20 allocation before this. I am thinking of maybe reducing this to like 60/40 and if that price point does ever come back I can go back to 80/20. That way at least I am somewhat invested.

This Stable Value is insured by insurance companies thru GIC's and every quarter they release what the rate is gonna be, it has historically been great and even has beaten a fund like total bond for the past 5, 10 years.

This also goes to show that tinkering too much with your accounts is not always good. I had been mostly ignoring my 401k and they were doing just fine even if I missed some rebalancing opportunities. But my attempts to simplify and optimize might have caused some serious compounding losses. :(

dbr
Posts: 23770
Joined: Sun Mar 04, 2007 9:50 am

Re: S&P500 vs 3.5% Guaranteed

Post by dbr » Mon Jul 11, 2016 2:11 pm

rahulk30 wrote:
This Stable Value is insured by insurance companies thru GIC's and every quarter they release what the rate is gonna be, it has historically been great and even has beaten a fund like total bond for the past 5, 10 years.



3% is an unusual rate to get from that kind of fund these days. It would have been about par a couple of years ago or more. Most of those funds have declined from 4%-5% to about 1% now. I would be a little concerned how that fund can be out of line with the industry. It may be fine.

NoVa Lurker
Posts: 639
Joined: Tue Jan 18, 2011 11:14 am

Re: S&P500 vs 3.5% Guaranteed

Post by NoVa Lurker » Mon Jul 11, 2016 2:21 pm

dbr wrote:
rahulk30 wrote:
This Stable Value is insured by insurance companies thru GIC's and every quarter they release what the rate is gonna be, it has historically been great and even has beaten a fund like total bond for the past 5, 10 years.



3% is an unusual rate to get from that kind of fund these days. It would have been about par a couple of years ago or more. Most of those funds have declined from 4%-5% to about 1% now. I would be a little concerned how that fund can be out of line with the industry. It may be fine.


Yes, it may be fine, but it sounds fishy. Nobody is paying 3.5% on any term of a GIC these days. For that reason alone, you may want to shift into a more traditional portfolio. That would not necessarily be all stock funds; rather, it should be an appropriate portfolio for you.

NoVa Lurker
Posts: 639
Joined: Tue Jan 18, 2011 11:14 am

Re: S&P500 vs 3.5% Guaranteed

Post by NoVa Lurker » Mon Jul 11, 2016 2:24 pm

rahulk30 wrote:But my attempts to simplify and optimize might have caused some serious compounding losses. :(


To be clear, you didn't lose anything. You could say you lost opportunity, but some investments will always earn a higher return than others, post facto.

Now, if you end up having trouble cashing out of the "3.5% guaranteed" fund, that's a different story.

castlemodesto
Posts: 142
Joined: Sun Sep 15, 2013 12:31 pm

Re: S&P500 vs 3.5% Guaranteed

Post by castlemodesto » Mon Jul 11, 2016 11:30 pm

nationwide is currently paying 3.5% on their Stable Value for many of its accounts. I suspect they are getting to the point where it will be not profitable much longer: but it may still be worth it too them as a "teaser" rate to get business that can be eventually directed to other more profitable funds. Nationwide is rock solid: there is no need to "fear" its 3.5% rate.
Voya is also paying 3.5% for its stable value fund for its CalSTRS customers. However it is clearly a "teaser" rate since it plans to gradually reduce the rate each year. Again not to be "feared": just a marketing decision.
I have 90% of fixed income in these funds at present and sleep very well.

spammagnet
Posts: 705
Joined: Wed Apr 27, 2016 9:42 pm

Re: S&P500 vs 3.5% Guaranteed

Post by spammagnet » Mon Jul 11, 2016 11:50 pm

NoVa Lurker wrote:3% is an unusual rate to get from that kind of fund these days.

The holding fund in my cash balance retirement plan is obliged by the IRS to keep the 5-year geometric mean >=3.75%, else it would not be deemed qualifying. (I may have the exact decimals wrong but between 3.5% and 4%. It's no longer part of the current fund but many employees have signficant money sitting there waiting for their retirement. We have the right to leave it until 70.5. If I didn't need it to pay my cost of living until I draw SS at 70, I would.

User avatar
saltycaper
Posts: 2138
Joined: Thu Apr 24, 2014 8:47 pm
Location: The Tower

Re: S&P500 vs 3.5% Guaranteed

Post by saltycaper » Tue Jul 12, 2016 2:24 am

Without regard for what you should do, I just wanted to note, if anyone here tells you that you should wait to try to get in at a lower price, you should ask them if they are selling stocks and planning to do the same. If they aren't selling stocks with the plan to buy lower, why are they confident enough in the advice they are providing to you (that stocks will indeed go lower), but not willing to make the same bet themselves?
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said." --Alan Greenspan

tibbitts
Posts: 6945
Joined: Tue Feb 27, 2007 6:50 pm

Re: S&P500 vs 3.5% Guaranteed

Post by tibbitts » Tue Jul 12, 2016 7:59 am

saltycaper wrote:Without regard for what you should do, I just wanted to note, if anyone here tells you that you should wait to try to get in at a lower price, you should ask them if they are selling stocks and planning to do the same. If they aren't selling stocks with the plan to buy lower, why are they confident enough in the advice they are providing to you (that stocks will indeed go lower), but not willing to make the same bet themselves?

The OP chose to not explain whether the market exit was intentional, but if it was, it's important to wait for a lower entry point, although the OP should certainly throw as much math at the problem as necessary to come up with a fair comparison in determining "lower." After a day, there's no math necessary, but after years/decades, there probably is. If you make a conscious decision to time the market, you have to stay the course, just like with buy-and-hold. It has nothing to do with anyone else having confidence that the market will be lower at some point. There are worse things than earning 3.5%.

livesoft
Posts: 56634
Joined: Thu Mar 01, 2007 8:00 pm

Re: S&P500 vs 3.5% Guaranteed

Post by livesoft » Tue Jul 12, 2016 8:11 am

The OP might look at what other funds have done since the June 8th highs. Here is a chart to help them:
Image
One will note that foreign funds are down about 4% from their early June highs still. That might mean get started by buying some international index funds.

Also note that the US total stock market index fund is only up about 1% from the early June time point.

As for market volatility, it will NEVER go away. It's always like this, so one would be waiting a very very long time for it to calm down.

As for the Stable Value fund, one-sixth of 3.5% is about 0.6% in that 2 months. Even bond funds did about 2% better than that.

I've learned that I always have to lose some money before making money. I resign myself to the fact that I will lose about 5% or so before new purchases go up. That way, I am usually pleasantly surprised when I only lose 3%.
This signature message sponsored by sscritic: Learn to fish.

Dandy
Posts: 4776
Joined: Sun Apr 25, 2010 7:42 pm

Re: S&P500 vs 3.5% Guaranteed

Post by Dandy » Tue Jul 12, 2016 8:49 am

Being 100% in equities and then being 100% out of equities is the problem. Waiting for the right time to put 100% back into the market, if that is what your are thinking, is doing the same unwise thing -- in my opinion. Let's face it with equities at an historic high and interest rates (outside of your 3.5% deal) are at historic lows it is a very difficult time to invest. The safe harbor of a guaranteed 3.5% seems really good - it is unlikely that safe harbor will be as good going forward as it will be hard to guarantee 3.5% when those interest rates are almost impossible to get without excessive risk.

Many would tell you to determine your risk tolerance and translate that into an equity and fixed income allocation and then basically stick to it. I agree. Many would say once you make that determination just move into that allocation immediately. In this historic market I would recommend putting in a nice lump sum in equities now(broad based, passive/index type equities). Set up a DCA for a decent amount from the guaranteed account into your equities each month with a timeframe of 9-12 months to get fully invested in your target equities. If during that time equities take a plunge double up your monthly investment that month. In a year or less you will be at or very near your target allocation. Once there rebalance every year or so and as you approach retirement maybe consider reducing your equity risk gradually. And please avoid massive moves based on market fears or greed.

inbox788
Posts: 4142
Joined: Thu Mar 15, 2012 5:24 pm

Re: S&P500 vs 3.5% Guaranteed

Post by inbox788 » Tue Jul 12, 2016 9:42 am

rahulk30 wrote:But my attempts to simplify and optimize might have caused some serious compounding losses. :(

Then you did something wrong. If you stick with the AA, you shouldn't have any serious issues. When you simplify and optimize, always keep your eye on the goal and head towards your goal, not against. How is sitting on 3.5% heading towards your AA goal? If it's far and your additional contributions aren't heading towards your AA, then either change the plan or change the goal (but don't do the latter without serious thought).

User avatar
Phineas J. Whoopee
Posts: 6656
Joined: Sun Dec 18, 2011 6:18 pm

Re: S&P500 vs 3.5% Guaranteed

Post by Phineas J. Whoopee » Tue Jul 12, 2016 11:47 am

OP,

You were fully invested in your desired asset allocation before the move. The only reason you went to cash was to facilitate the move. Now that it's accomplished it makes sense to be fully invested again, even if, as you say, your desire is now 60/40.

Your sale was not a matter of timing the market. Your repurchase has become one.

Had you not rolled over your assets, would you have sold and gone to cash on that day, or simply maintained your allocation?

I could sell my assets today and they'd be in cash tomorrow. Would it make sense for me to do so, then wait for whatever S&P 500 2154 - 4.4% + 3.5% annualized but over a short period of time equals, then buy back in? If your answer for me is no, then your answer for yourself should be also.

Hope that's a helpful way of looking at the situation.

PJW

gips
Posts: 272
Joined: Mon May 13, 2013 5:42 pm

Re: S&P500 vs 3.5% Guaranteed

Post by gips » Tue Jul 12, 2016 11:59 am

I suggest you buy now and then sell when the market drops again...just kidding, but it's a very common dynamic. Look, no one can tell you which is better because we don't understand your investment goals and where you stand against those goals.

The only thing we can state with certainty is that you can't time the market.

User avatar
Toons
Posts: 12034
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: S&P500 vs 3.5% Guaranteed

Post by Toons » Tue Jul 12, 2016 12:03 pm

"Does it make sense for me the wait out the volatility in the market over the coming months or year so that I can go back in at a equivalent point as never selling out"

It would not make sense to ME to wait.
I would get back in the market ASAP
The clock never stops ticking.
While I am sleeping,
The money is working,,,
For me. :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

User avatar
saltycaper
Posts: 2138
Joined: Thu Apr 24, 2014 8:47 pm
Location: The Tower

Re: S&P500 vs 3.5% Guaranteed

Post by saltycaper » Tue Jul 12, 2016 3:57 pm

tibbitts wrote:
saltycaper wrote:Without regard for what you should do, I just wanted to note, if anyone here tells you that you should wait to try to get in at a lower price, you should ask them if they are selling stocks and planning to do the same. If they aren't selling stocks with the plan to buy lower, why are they confident enough in the advice they are providing to you (that stocks will indeed go lower), but not willing to make the same bet themselves?


The OP chose to not explain whether the market exit was intentional, but if it was, it's important to wait for a lower entry point, although the OP should certainly throw as much math at the problem as necessary to come up with a fair comparison in determining "lower." After a day, there's no math necessary, but after years/decades, there probably is. If you make a conscious decision to time the market, you have to stay the course, just like with buy-and-hold. It has nothing to do with anyone else having confidence that the market will be lower at some point. There are worse things than earning 3.5%.


I disagree. If we pretend you both have the same target asset allocation, and you are at your target allocation, and the OP is not, why would your advice be any different to him than it is for yourself? The price at which he sold is irrelevant. If there is some math telling you that the OP should not buy yet, then you should sell. Otherwise you're telling OP it's okay for them to time the market, but it's not okay for you to time the market. What sort of advice is that? Or, perhaps even less logical, you're saying you think the price will go lower, but you're not going to take advantage of this future lower price.
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said." --Alan Greenspan

Post Reply