Cardinal Sin - went to cash the day before 2016 election

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darthA17
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Cardinal Sin - went to cash the day before 2016 election

Post by darthA17 » Sat Jan 14, 2017 5:05 pm

Prior to 2016 election I went to the sidelines with my entire portfolio. I know the cautions against market timing but truly thought the emotional- hence market reaction would be different :beer . As a result, I would like to seek advice on how to manage my retirement moving forward: how to get back into the market, portfolio allocation across company 401k choices, Vanguard Roth IRA allocation etc.. Thank you in advance

40 yrs old -
Desired retirement age: 65
3 kids (all under 5)

Emergency Fund: 6 months salary
Debt: 30K at 1.9%
Tax Filing Status: Married Filing Jointly
Tax Rate: 28% Federal, 6.9% State
529 plan: 40K
Desired Asset allocation: open for suggestion? Historically - balanced approach
Desired International allocation: open for suggestion?

Total Portfolio: 640K

Current Retirement Assets

401k: 440K
100% money market

His Roth IRA at Vanguard: 52k
100% money market

Her Roth IRA at Vanguard: 28K
100% money market

Contributions

Annual Contributions
$16,500 401k (company matches 10%)

Available Funds w gross expense ratio
Inflation Protection .02%
Fixed Income Index .03%
Fixed Income .22%
High Yield .53%
large Cap Index .01%
Large Cap Value .48%
Large Cap Growth .44%
Small Mid Cap Index .03%
Small Mid Cap Value .63%
Small Mid Cap Growth .83%
Reit Index .10%
International Index .06%
International Value .50%
International Growth .77%
Emerging Markets .49%

Questions:

1. How should I allocate total portfolio, both 401k (company investment options above) and Vanguard Roth IRA/s (his/hers) to re-enter the market

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Aptenodytes
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by Aptenodytes » Sat Jan 14, 2017 6:56 pm

It isn't clear if you want advice on how to avoid a repeat of your November mistake or if you are asking what your AA should be. Do you know what your AA was before the election? What was it and what did you think of it? It is hard for strangers to tell you what your AA should be.

barnaclebob
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by barnaclebob » Sat Jan 14, 2017 7:07 pm

Just put it back to what it was before and be prepared to pay more for your unlucky decision should the market drop 10%.

Alan S.
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by Alan S. » Sat Jan 14, 2017 7:21 pm

Well, if you had the experience and access to insiders that George Soros has - you would have still made the same mistake! The conventional wisdom regarding both the election and the affect of the election on the markets was incorrect the entire year.

In addition, the decision to get out of the market is usually much clearer than when to get back in because if the market exit was costly, getting back in would come with increased risk because the market is now higher than when you exited. If it tanks after you get back in, that means you were right in the first place except that you were too early.

The last year was an excellent lesson in staying the course and recognizing that the noise emanating from the financial press is generally self serving with little predictive value.

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Re: Cardinal Sin - went to cash the day before 2016 election

Post by Fallible » Sat Jan 14, 2017 7:39 pm

darthA17 wrote:Prior to 2016 election I went to the sidelines with my entire portfolio. I know the cautions against market timing but truly thought the emotional- hence market reaction would be different :beer . As a result, I would like to seek advice on how to manage my retirement moving forward: how to get back into the market, portfolio allocation across company 401k choices, Vanguard Roth IRA allocation etc. ...
Welcome to the forum.

What was your previous asset allocation and what did you base it on? How long were you in the market? Did your wife also agree to a bailout? Knowing how you decided an an allocation that did not work for you will help create one that better reflects your need, ability, and willingness to take risk.

Have you read any Boglehead books or the BH wiki?

Thanks.
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

livesoft
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by livesoft » Sat Jan 14, 2017 7:40 pm

The funny thing is that as far as the markets go, it didn't matter who won the election since uncertainty was removed. The markets were going to go up regardless of the election outcome. I thought everybody knew that. Just the name of the rally would change, but the outcome in the short term was destined to be the same.
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brad.clarkston
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by brad.clarkston » Sat Jan 14, 2017 7:51 pm

livesoft wrote:The funny thing is that as far as the markets go, it didn't matter who won the election since uncertainty was removed. The markets were going to go up regardless of the election outcome. I thought everybody knew that. Just the name of the rally would change, but the outcome in the short term was destined to be the same.
+1 to that.

I would look at something simple like a 3-fund/6-fund port

https://www.bogleheads.org/wiki/Three-f ... head-style
https://www.bogleheads.org/wiki/Lazy_portfolios

in a 80/20 stock/bond or 40/20/20 stock/non-us stock/bond setup.

And stop looking at politics.

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blueblock
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by blueblock » Sat Jan 14, 2017 7:57 pm

Aptenodytes wrote:Do you know what your AA was before the election? What was it and what did you think of it? It is hard for strangers to tell you what your AA should be.
+1

In the grand scheme of things, while this mistake cost you, it's hardly catastrophic. But before you pile back in, you should make sure you understand what happened, so you don't make the same mistake again. You don't have the time to recover from mistakes like this if you make them repeatedly and wish to retire at 65.

Have you looked at Vanguard's asset allocation tool, to help you figure out the right AA for you? It's here: https://personal.vanguard.com/us/funds/ ... mmendation

gkaplan
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by gkaplan » Sat Jan 14, 2017 8:18 pm

OP, are you sure you won't go to cash the next time you think the market will have an "emotional- hence market reaction"?
Gordon

aristotelian
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by aristotelian » Sat Jan 14, 2017 8:30 pm

I still think a correction is coming. It's been a while, and P/E's are starting to get out of whack. Nowhere near 2008-9 but the stock market just seems to be outpacing the economy. I certainly don't see a major run-up happening any time soon. That said, if you want to get back in, you could try coming in gradually to hedge against a correction. Otherwise, if you come back in at the wrong time, it is possible you could get doubly killed, first by missing the run up to the peak, and then getting hit on the downswing.

livesoft
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by livesoft » Sat Jan 14, 2017 8:33 pm

Who cares about a correction? If it happens, then rebalance into equities with the money you have put into bond funds. Those bond funds won't drop as much as equity funds will, so there is no way to get doubly-killed. That's simply nonsense.
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ved
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by ved » Sat Jan 14, 2017 8:48 pm

livesoft wrote:The funny thing is that as far as the markets go, it didn't matter who won the election since uncertainty was removed. The markets were going to go up regardless of the election outcome. I thought everybody knew that. Just the name of the rally would change, but the outcome in the short term was destined to be the same.
But, it was virtually certain that one of the 2 leading contenders would win...and the date of the outcome was also certain.
So, if the markets didn't care who won, then there was no uncertainty in the outcome - so, wouldn't the markets have priced this virtual certainty before the election day?

livesoft
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by livesoft » Sat Jan 14, 2017 8:54 pm

ved wrote:So, if the markets didn't care who won, then there was no uncertainty in the outcome - so, wouldn't the markets have priced this virtual certainty before the election day?
First, I didn't state that "the markets didn't care who won, …." Second, whether markets go up or down is controlled by a subset of market participants. I will state that there were probably at least two subsets of market participants and a different subset would make sure the market went up after the election. Third, stocks were down about 4% in the month before the election due I think to the actions of a subset of market participants like the OP.
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KlangFool
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by KlangFool » Sat Jan 14, 2017 9:01 pm

OP,

Invest in a fund of funds and/or balanced fund. I do not think you are ready to invest in a stock and/or bond only fund at this moment.

KlangFool

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bligh
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by bligh » Sat Jan 14, 2017 9:10 pm

KlangFool wrote:OP,

Invest in a fund of funds and/or balanced fund. I do not think you are ready to invest in a stock and/or bond only fund at this moment.
+1

Until you, once and for all, give up the idea that you can somehow see into the future in a way the market cannot, you will continue to sell and buy back in trying to outsmart the market. Through sheer luck, sometimes the market might even do what you were expecting. You will forget the times you were wrong about the market, and remember the times you were right.

Buy a balanced fund like Klangfool is suggesting, and just keep buying it. If the market goes up, buy more, if the market goes down, buy more. Will that method make you a ton of money? No one has a clue, but it is probably going to be your best shot. One thing is for sure, whatever the market does in the next 30+ years, you will either match or outperform the majority of investors.

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hornet96
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by hornet96 » Sat Jan 14, 2017 9:22 pm

livesoft wrote:
ved wrote:So, if the markets didn't care who won, then there was no uncertainty in the outcome - so, wouldn't the markets have priced this virtual certainty before the election day?
First, I didn't state that "the markets didn't care who won, …." Second, whether markets go up or down is controlled by a subset of market participants. I will state that there were probably at least two subsets of market participants and a different subset would make sure the market went up after the election. Third, stocks were down about 4% in the month before the election due I think to the actions of a subset of market participants like the OP.
Actually, Ved has a good point here. If the markets were "going to go up, regardless of election outcome" (as you put it), then what we witnessed was a clear violation of the Efficient Markets Hypothesis. If the election outcome didn't matter, then why weren't markets already higher to begin with? There must have been some kind of risk priced in that didn't hinge on either candidate. I believe that risk was a long, contested election result had Trump lost and not conceded the outcome, resulting in a potential constitutional crisis.

Even if we did indeed have two competing subsets of market participants (bears vs bulls), why didn't more of the bulls step in the month before the election to take advantage of what they would have perceived as price dislocations that "were destined to go higher" after the election? (Hint: I think it's because one can move fluidly between each subset at any time).

I don't mean to imply that markets are totally efficient at all times, but clearly there had to be some kind of unique risk priced into the market just prior to the election, that dissipated the morning after. My theory is that which is stated above.

livesoft
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by livesoft » Sat Jan 14, 2017 9:28 pm

hornet96 wrote:Even if we did indeed have two competing subsets of market participants (bears vs bulls), ….
You missed my point about subsets. There were bulls if one candidate won and bulls if the other candidate one. That is bulls vs bulls. Both of these were bears before the election. There is human psychology happening here and not efficient market hypothesis which assumes I think that everybody is rational. Ha!
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bligh
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by bligh » Sat Jan 14, 2017 9:34 pm

hornet96 wrote: Actually, Ved has a good point here. If the markets were "going to go up, regardless of election outcome" (as you put it), then what we witnessed was a clear violation of the Efficient Markets Hypothesis. If the election outcome didn't matter, then why weren't markets already higher to begin with? There must have been some kind of risk priced in that didn't hinge on either candidate. I believe that risk was a long, contested election result had Trump lost and not conceded the outcome, resulting in a potential constitutional crisis.

My understanding of the EMH is that Markets are priced probabilistically. The markets aren't always right, but the prices are the best guess incorporating the wisdom of the crowds based on the best information available at the time. The markets were pricing in 4 possible outcomes all with some probability of occurring.

1) HRC wins, DT concedes/no social instability.
2) HRC wins, DT contests/social instability
3) DT wins, HRC concedes/no social instability
4) DT wins, HRC contests/social instability.

Once the election was over, all probabilities except 3 no longer needed to be accounted for and the markets adjusted. The prices always reflected all the available information, it is just that after the election was over, and conceded by the losing side, new information was made available and so the markets adjusted to the new information, that is how you would expect an efficient market to behave.

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dwickenh
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by dwickenh » Sat Jan 14, 2017 9:35 pm

2020 is just around the corner, maybe the decision could be stalled until then?

Just kidding of course, but the original move made as much sense.

Decide on an Asset Allocation, jump back in now as you have 25 years to ride the ups and downs.

Btw, you have great funds to choose from with super low expenses.

Best wishes on you decision and good luck,

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

delamer
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by delamer » Sat Jan 14, 2017 9:38 pm

brad.clarkston wrote:
livesoft wrote:The funny thing is that as far as the markets go, it didn't matter who won the election since uncertainty was removed. The markets were going to go up regardless of the election outcome. I thought everybody knew that. Just the name of the rally would change, but the outcome in the short term was destined to be the same.
+1 to that.

I would look at something simple like a 3-fund/6-fund port

https://www.bogleheads.org/wiki/Three-f ... head-style
https://www.bogleheads.org/wiki/Lazy_portfolios

in a 80/20 stock/bond or 40/20/20 stock/non-us stock/bond setup.

And stop looking at politics.
Agreed -- check out the wiki for recommendations. You are fortunate to have some low ER index funds in your 401(k) that you can use to create a lazy portfolio.

You have a substantial portfolio for your age (unless you are extremely well paid), so you must have done something right before this most recent decision. So another option would be to go back to what you were doing, unless you were so heavily weighted toward stocks that it caused you to bail due to fear of loss.

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hornet96
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by hornet96 » Sat Jan 14, 2017 9:41 pm

livesoft wrote:
hornet96 wrote:Even if we did indeed have two competing subsets of market participants (bears vs bulls), ….
You missed my point about subsets.
You made my point about the fluidity of moving between subsets (bulls vs bears). Subsets are not stationary populations. There must have been a reason that the composition of those subsets were different just before and just after the election. That reason couldn't have been the "uncertainty" of the election, as the markets were virtually certain that either Clinton or Trump would win. So whatever uncertainty (otherwise known as "risk") that was alleviated after the election had to relate to something else.

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hornet96
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by hornet96 » Sat Jan 14, 2017 9:43 pm

bligh wrote:
hornet96 wrote: Actually, Ved has a good point here. If the markets were "going to go up, regardless of election outcome" (as you put it), then what we witnessed was a clear violation of the Efficient Markets Hypothesis. If the election outcome didn't matter, then why weren't markets already higher to begin with? There must have been some kind of risk priced in that didn't hinge on either candidate. I believe that risk was a long, contested election result had Trump lost and not conceded the outcome, resulting in a potential constitutional crisis.

My understanding of the EMH is that Markets are priced probabilistically. The markets aren't always right, but the prices are the best guess incorporating the wisdom of the crowds based on the best information available at the time. The markets were pricing in 4 possible outcomes all with some probability of occurring.

1) HRC wins, DT concedes/no social instability.
2) HRC wins, DT contests/social instability
3) DT wins, HRC concedes/no social instability
4) DT wins, HRC contests/social instability.

Once the election was over, all probabilities except 3 no longer needed to be accounted for and the markets adjusted. The prices always reflected all the available information, it is just that after the election was over, and conceded by the losing side, new information was made available and so the markets adjusted to the new information, that is how you would expect an efficient market to behave.
Agree 100%. Very well put.

ABQ4804
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by ABQ4804 » Sat Jan 14, 2017 9:44 pm

Don't beat yourself up for that decision - most of us arrived here with some poor financial decision(s) in our past also!

I'd go with the recommendation to jump back into a balanced portfolio, lifestyle or target date fund, since you indicated a balanced portfolio was what you were invested in before. Include your spouse in the decision. Advantages of a balanced fund are you don't see the dramatic day-to-day changes in the stocks, plus you are well diversified. Maybe choose different low cost ER balanced funds for your Roth, spouse's Roth, and see how they do? Then you'd really be well diversified. You do have some nice low ER choices in your 401k of large stock index, mid-small stock index, and international index, to make a 3 fund portfolio. Read the Boglehead wiki for more education.

Good luck, and welcome to the forum!

livesoft
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by livesoft » Sat Jan 14, 2017 9:46 pm

^@hornet96, If you say so, then I'm OK with that.

I have to also write that if one was a bear because of the election outcome, then it would be very very difficult to sell equities in the face of the actual rising market. Instead, one would just sit tight and say, "I hate stocks now, but I will just keep collecting gains even though I don't believe the market should be going up."

By the same token, it was easier to sell before the election because there was that 4% drop before. "I'll get out now before it drops further."
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Phineas J. Whoopee
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by Phineas J. Whoopee » Sat Jan 14, 2017 10:13 pm

aristotelian wrote:I still think a correction is coming. It's been a while, and P/E's are starting to get out of whack. ...
A correction is always coming.

We won't know whether P/Es are in or out of whack until later. Earnings are reported after the fact. They're backward looking. Stock prices are forward looking, and exist under conditions of uncertainty.

PJW

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Phineas J. Whoopee
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by Phineas J. Whoopee » Sat Jan 14, 2017 10:23 pm

hornet96 wrote:...
Actually, Ved has a good point here. If the markets were "going to go up, regardless of election outcome" (as you put it), then what we witnessed was a clear violation of the Efficient Markets Hypothesis. ...
The efficient market hypothesis, contrary to political propaganda, does not claim all prices are perfect at all times, nor that nobody ever will beat the market. There is no perfect pricing standard for equities to be compared to, and most potential buyers and sellers of any individual stock disagree about the fair price most of the time.

You may wish to review this post I wrote a little over a year ago. The middle part, which does not depend on the EMH being true, but merely explains the mechanics of stock exchanges and prices, is the most important in the context of this thread.

PJW

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hornet96
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by hornet96 » Sat Jan 14, 2017 10:31 pm

livesoft wrote:....if one was a bear because of the election outcome (hornet96: This is irrelevant to this discussion, since we already know that bulls vastly outnumbered the bears after the election. Although, it does further illustrate my point since bears outnumbered bulls before the election, showing how fluid each subset of the market is.)
I'm also trying to reconcile these two thoughts:
livesoft wrote:By the same token, it was easier to sell before the election because there was that 4% drop before. "I'll get out now before it drops further."
vs.
livesoft wrote:The funny thing is that as far as the markets go, it didn't matter who won the election since uncertainty was removed. The markets were going to go up regardless of the election outcome.I thought everybody knew that. Just the name of the rally would change, but the outcome in the short term was destined to be the same.
These are contradicting thoughts. Why would you sell before the election if you knew the markets were going to go up regardless of the outcome?

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hornet96
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by hornet96 » Sat Jan 14, 2017 10:43 pm

Phineas J. Whoopee wrote: The efficient market hypothesis, contrary to political propaganda :confused , does not claim all prices are perfect at all times, nor that nobody ever will beat the market. There is no perfect pricing standard for equities to be compared to, and most potential buyers and sellers of any individual stock disagree about the fair price most of the time.

You may wish to review this post I wrote a little over a year ago. The middle part, which does not depend on the EMH being true, but merely explains the mechanics of stock exchanges and prices, is the most important in the context of this thread.

PJW
Where did I say that all prices were perfect at all times? (I didn't). Prices largely reflect probabilistic assumptions about the future. If the sum of all market participants knew that in the future, it was nearly 100% certain that one of two candidates would win, then the risk that was priced in prior to the election must have revolved around something other than whether one of those two candidates would win.

Also, FYI "efficiency" does not necessarily mean "rational". Prices can certainly become irrational for a period of time, but eventually the market forces act upon those prices to arbitrage those dislocations away.

I know you have know way to know this, but trust me when I say I've read enough about the EMH and the economics of stock prices to last me a while (I'm a CFA Charterholder). :sharebeer

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Re: Cardinal Sin - went to cash the day before 2016 election

Post by aristotelian » Sat Jan 14, 2017 10:50 pm

livesoft wrote:Who cares about a correction? If it happens, then rebalance into equities with the money you have put into bond funds. Those bond funds won't drop as much as equity funds will, so there is no way to get doubly-killed. That's simply nonsense.
He would care about a correction. Since he sold before the peak, he has already taken a hit over a buy-and-hold strategy. If he comes back in at the peak and the market drops, he gets hit again relative to holding cash. Not sure why that would be nonsense.

I agree, some portion in bonds would be better than cash as a hedge against a market drop...but then again every dollar in bonds could have an opportunity cost if the market continues to go up. It all depends on his plan and his risk tolerance.

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Phineas J. Whoopee
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by Phineas J. Whoopee » Sat Jan 14, 2017 11:07 pm

hornet96 wrote:...
Also, FYI "efficiency" does not necessarily mean "rational". Prices can certainly become irrational for a period of time, but eventually the market forces act upon those prices to arbitrage those dislocations away.
...
Your assertion illustrates the problem so many have with the EMH concept. There is no external-to-the-market standard of rationality any more than there's an external-to-the-market standard of correct prices. There's only you disagreeing with other potential market participants.

Almost all potential market participants disagree with almost all the others most of the time, and each believes they themselves are being rational. Furthermore, they all may be. The basis of commerce is that different people assign different values to the same thing at the same time.

The definition of rational is not that which you think as opposed to that which somebody else who disagrees with you thinks.

Please read the link I provided, repeated here for your convenience.

PJW

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hornet96
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by hornet96 » Sat Jan 14, 2017 11:29 pm

Phineas J. Whoopee wrote:
Please read the link I provided, repeated here for your convenience.

PJW
I skimmed through your link, but with all due respect, your summary there seems fairly simplistic and misstates some of the basic tenets of the EMH. Your explanations of weak vs. semi-strong vs. strong forms of the EMH need some refinement (e.g. where is your discussion about technical vs fundamental analysis, and which one applies to which form? It's not just about the speed of information. What about non-material nonpublic information? Also, where does mosaic theory come in to play with the EMH?). Also, your discussion about how limit orders set prices in the market leaves out a tremendous amount of other economic forces at play (such as how dark pools influence pricing).

I don't want to re-litigate that thread here since that is not what the OP is looking for.

22twain
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by 22twain » Sun Jan 15, 2017 12:37 am

ved wrote:But, it was virtually certain that one of the 2 leading contenders would win...and the date of the outcome was also certain.
So, if the markets didn't care who won, then there was no uncertainty in the outcome - so, wouldn't the markets have priced this virtual certainty before the election day?
IIRC US market futures did drop precipitously during election night, and so did the overseas markets that were open for trading. I remember going to bed thinking my portfolio was going to be way down in the morning. By the end of the next day the markets had recovered, and my portfolio was up slightly, but only within the usual "random noise" range. There was a modest increase in the week before Thanksgiving, but wasn't until early December that there was a major increase.
My investing princiPLEs do not include absolutely preserving princiPAL.

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Re: Cardinal Sin - went to cash the day before 2016 election

Post by Fallible » Sun Jan 15, 2017 12:44 am

alisa4804 wrote:Don't beat yourself up for that decision - most of us arrived here with some poor financial decision(s) in our past also!

I'd go with the recommendation to jump back into a balanced portfolio, lifestyle or target date fund, since you indicated a balanced portfolio was what you were invested in before. Include your spouse in the decision. Advantages of a balanced fund are you don't see the dramatic day-to-day changes in the stocks, plus you are well diversified. Maybe choose different low cost ER balanced funds for your Roth, spouse's Roth, and see how they do? Then you'd really be well diversified. You do have some nice low ER choices in your 401k of large stock index, mid-small stock index, and international index, to make a 3 fund portfolio. Read the Boglehead wiki for more education.

Good luck, and welcome to the forum!
Yes, he did mention a balanced approach and it does seem right for him and for his wife. I do hope he will take time to understand why he bailed out so there is no repeat. OP, do you have an investment policy statement to help you stay the course? If not, check it out on the wiki:

https://www.bogleheads.org/wiki/Investm ... _statement
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

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Re: Cardinal Sin - went to cash the day before 2016 election

Post by TIAX » Sun Jan 15, 2017 2:39 am

OP, have you ever market timed before? Let us know when, based on what event and what changes you made.

henrikk
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by henrikk » Sun Jan 15, 2017 9:05 am

22twain wrote: IIRC US market futures did drop precipitously during election night, and so did the overseas markets that were open for trading. I remember going to bed thinking my portfolio was going to be way down in the morning.
I confess, just like the OP, I almost was guilty of another version of the cardinal sin as well. I was so excited about the drop in futures on election night! I checked my accounts to see if I had some money to invest... and I was going to buy or move some cash into stocks the next day as soon as that 700+ DOW drop materialized. Alas, the drop did not materialize and my allocations stayed the same. So sad!

SGM
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by SGM » Sun Jan 15, 2017 11:36 am

You can't time this crap and you don't need to. If the market is down it is good for accumulators. You get more shares for your dime. :confused What is bad about that? Is the OP worried about job security? or has a family and underinsured or saving for an upcoming purpose other than retirement?

Bear markets are an issue early in retirement not someone with a secure job and years to go before needing the proceeds. Pick an AA you are comfortable with and stick with it at least until your personal situation changes.

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Re: Cardinal Sin - went to cash the day before 2016 election

Post by Lafder » Sun Jan 15, 2017 1:57 pm

Welcome to bogleheads!

Panicking and going to all cash is generally discouraged around here :0 (Of course you are not the only one who did that.............but perhaps one of the few to admit it)

We suggest coming up with a plan that you can ride out through market turbulence and news sensations :)

Given your behavior of going to cash, I would suggest a more cautious portfolio for you of age in bonds. This will result in less drastic drops during stock market crashes. You might think you will miss out on stock market gains. But at 60% stocks, more than half of your portfolio will be exposed to gains, and the other 40% will buffer drops as it also grows.

I would suggest 30% International, though there are arguments for 0-50% and any number in that range is reasonable.

There is a rec for age in bonds down to age-20 in bonds. SO that would be 20-40% bonds for you. I am 48 and we were at 80/20 until my mid 40s, and went to 70/30. Now we are aiming for 65/35. (Our average age is 50) I realized I was more afraid of a big drop than I wanted to chase extra gains. You have to decide what feels right for you. What does your spouse want? Seriously, not panicking and going to cash then having to jump back in, will probably make more of a difference that what specific AA you choose. Just choose something and stick with it. Yes you can change your AA over the years. But try not to make changes based on news events since that is all designed to sell ads :) I believe a 50/50 portfolio without panicked cash and back will out do any AA with repeat pullouts and re-entry.

My proposal for you is 60/40, with 30% of stocks International

This can be written as: 42% US stock/ 18% International Stock/40% bonds

I like to keep smaller accounts less holdings for simplicity. You can rebalance in the bigger account during stock market shifts.

Emergency Fund: 6 months salary ((Nice!))
Debt: 30K at 1.9% ((I would pay this off if you have the cash as a guaranteed 1.9% return which beats cash))

Desired Asset allocation: open for suggestion? Historically - balanced approach ((Do you mean 50/50 or ?))

Total Portfolio: 640K ((Nice. But I am only getting 520k. We usually do not include emergency fund in this since it may be spent for living expenses. I added 440k 401k + 52k his Roth + 28k her Roth= 520 k. Did you include your emergency fund or what have you left out of your holdings here?))

((What I am listing below is just one way to invest your current holdings to hit 60/40, 30% International. If you decide you want a different AA, or even at this AA, there are many ways to slice a pie. I am just trying to show one way I would consider reaching that AA and keeping things simple with smaller accounts not replicating the overall AA. You can rebalance with incoming and periodically do a rebalance if needed))

His Roth IRA at Vanguard: 52k
((Consider this which is currently about 30% International for simplicity, and allows some rebalancing

36,000 VTSAX US stock index
16,000 VTIAX International stock index))

Her Roth IRA at Vanguard: 28K
((Consider
28,000 VTSAX US stock index))

401k: 440K

((Consider (40% of portfolio 520k portfolio) in bonds. This will be your stock/bond rebalance space in a market crash))

((208,000)) in one of the bonds below
Inflation Protection .02% ((I am not sure whether to use this or not. Others can give input))
Fixed Income Index .03% ((In general anything that has index in the title is likely better. I would read more about these to decide, but would more likely choose this))

((Consider to fill out your AA))((To mimic total stock market, it is 81% large cap, 19% small/midcap))
(( 125,064)) large Cap Index .01%
(( 29,336)) Small Mid Cap Index .03%
((77,600 )) International Index .06%

Reit Index .10% ((Nice low ER if you want more than the % REITs in total stock market. The % would come from total US stock % if you want to include this))

Hopefully this will help in some way :)
lafder

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Munir
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by Munir » Sun Jan 15, 2017 2:32 pm

You are 40 years old and have a long time horizon. How about the Vanguard Balanced Index Fund (VBIAX)? Plan on staying in it long term and adding periodically. You might even consider DCA into it.

MathWizard
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by MathWizard » Sun Jan 15, 2017 2:49 pm

Were you 100% equities before?

If not did you cash out your bond allocation as well?

If the answer is that you held onto Bonds or were 100% equities, I'd suggest that you consider any gains that you missed out on education,
on your risk tolerance, and get back in with a lower equity allocation.

You didn't mention what you did in 2008/9
That seemed like a riskier situation than an election, even this one.

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Re: Cardinal Sin - went to cash the day before 2016 election

Post by patrick » Sun Jan 15, 2017 2:50 pm

Alan S. wrote:Well, if you had the experience and access to insiders that George Soros has - you would have still made the same mistake! The conventional wisdom regarding both the election and the affect of the election on the markets was incorrect the entire year.
Ironically, if you are wrong on both questions (who will win and who will be good for the market) you could end up with the correct result on how the market will do.

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SeeMoe
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by SeeMoe » Sun Jan 15, 2017 5:51 pm

Maybe invest half now immediately, then stretch the other half out over time?

SeeMoe.. :?:
Neighbor did the same thing you did...
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}

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Re: Cardinal Sin - went to cash the day before 2016 election

Post by aj76er » Mon Jan 16, 2017 2:50 am

As some other posters have mentioned, I would suggest using a target retirement fund (e.g. target year 2045) if at all possible. Use the same (targeted date) fund across all three retirement accounts. If you don't have access to that, then do a three fund portfolio with your age in bonds, which is considered conservative these days. Log in once per year, rebalance accordingly (possibly ticking up the bond percentage by 1%), and then forget about it.

Going to cash was a mistake, sure, but in the grand scheme of things it's no big deal. Don't sweat it. You missed something like a 5-6% run up? Who cares. Your cumulative return over your investing lifetime will probably be well over 1000%. Just make sure you don't repeatedly do this - that would be a portfolio killer over time!

Don't worry about a correction. Just rebalance if/when one happens which is a mechanical way to buy low and sell high. Stay the course and you'll be fine. You seem like a good saver, and that is the most important part :).
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

Eric76
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by Eric76 » Mon Jan 16, 2017 5:11 am

I'm convinced that the best investment strategy is to set a monthly contribution to a Vanguard target date fund based purely upon when you will need the money, then burn your tv, computer, cell phone and tablet, and, preferably move into a cave. Take the psychology of fear and greed out of the equation.

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Re: Cardinal Sin - went to cash the day before 2016 election

Post by Quark » Mon Jan 16, 2017 7:12 am

Phineas J. Whoopee wrote:
hornet96 wrote:...
Actually, Ved has a good point here. If the markets were "going to go up, regardless of election outcome" (as you put it), then what we witnessed was a clear violation of the Efficient Markets Hypothesis. ...
The efficient market hypothesis, contrary to political propaganda, does not claim all prices are perfect at all times, nor that nobody ever will beat the market. There is no perfect pricing standard for equities to be compared to, and most potential buyers and sellers of any individual stock disagree about the fair price most of the time....
If there were a perfect pricing standard for equities, one would really wonder how and why prices would ever diverge from that standard.

One problem with the EMH is the vagueness of "reflect" in the standard "market prices reflect all relevant information". Just what does it mean to reflect?

None of that, however, matters for any single investor. The question for our investor is whether she has more information than the market does or is better able to analyze that information than the market is. As a theoretical matter, it's clear that most are not so talented - not everyone can be above average. As an empirical matter, the answer is almost always "no", which means moves such as going to cash the day before the election are almost always a mistake.

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Re: Cardinal Sin - went to cash the day before 2016 election

Post by bertilak » Mon Jan 16, 2017 9:29 am

MathWizard wrote:You didn't mention what you did in 2008/9
That seemed like a riskier situation than an election, even this one.
Not quite. You can't assign risk to an event that already happened. The question is, what was the perceived risk at the time?

In 2008 we didn't know there was going to be a market crash until it was pretty much over. Since we knew nothing there was no out of the ordinary perception of risk. It was like getting hit by a bus. You cross the street hundreds or thousands of times. The one time you got hit was no riskier than any other. You were just unlucky. Those who CLAIM to have predicted it were probably right --- but out of how many attempts over the years?

Like investment advice, one should not rely too much on political experts. The experts we are most exposed to generally have an agenda. That's WHY we are exposed to them. There is no reason to believe that agenda includes your well-being. "Where are all the voters' yachts?"

I had my own prediction for the election but my confidence in that prediction was not strong enough for me to act on it.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

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Re: Cardinal Sin - went to cash the day before 2016 election

Post by livesoft » Mon Jan 16, 2017 9:34 am

Eric76 wrote:I'm convinced that the best investment strategy is to set a monthly contribution to a Vanguard target date fund based purely upon when you will need the money, then burn your tv, computer, cell phone and tablet, and, preferably move into a cave. Take the psychology of fear and greed out of the equation.
I like to use the psychology of fear and greed in other people to do market timing. :twisted:
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michaeljc70
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by michaeljc70 » Mon Jan 16, 2017 11:04 am

aristotelian wrote:I still think a correction is coming. It's been a while, and P/E's are starting to get out of whack. Nowhere near 2008-9 but the stock market just seems to be outpacing the economy. I certainly don't see a major run-up happening any time soon. That said, if you want to get back in, you could try coming in gradually to hedge against a correction. Otherwise, if you come back in at the wrong time, it is possible you could get doubly killed, first by missing the run up to the peak, and then getting hit on the downswing.
And what if the 10% correction is after the market goes up another 20%?

I agree with the other poster that there is no point in putting the money back in the market if OP is just going to pull it all out the next time he thinks something might happen.

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Re: Cardinal Sin - went to cash the day before 2016 election

Post by aristotelian » Mon Jan 16, 2017 11:38 am

michaeljc70 wrote: And what if the 10% correction is after the market goes up another 20%?

I agree with the other poster that there is no point in putting the money back in the market if OP is just going to pull it all out the next time he thinks something might happen.
Sure, I do not believe in market timing either. But now that he has started playing that game (and cost himself some $$ by selling before the peak), at least one possible outcome of getting back in is that he costs himself again by buying at the peak. If he truly believes the market is overvalued, arguably he is abandoning a rational plan and giving in to his emotions by getting back in at this time.

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Re: Cardinal Sin - went to cash the day before 2016 election

Post by MoonOrb » Mon Jan 16, 2017 11:43 am

OP,
Consider dollar cost averaging your way back into the market instead of just putting everything back in one chunk. The available studies on this appear to show that putting it all back at once leads to the higher value in the long term. However, you need to first deal with behavioral aspect here, which is the one single thing above all else that can crush returns--as you've seen. If you panic sell at a time when the market is basically steady, what are you going to do if it drops? Because it is going to drop at some point, probably by a lot--that's normal.

So, come up with a plan that suits your tolerance for risk and consider spreading your return to the market back over a year or six months or some other amount of time.

MathWizard
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Re: Cardinal Sin - went to cash the day before 2016 election

Post by MathWizard » Mon Jan 16, 2017 2:08 pm

bertilak wrote:
MathWizard wrote:You didn't mention what you did in 2008/9
That seemed like a riskier situation than an election, even this one.
Not quite. You can't assign risk to an event that already happened. The question is, what was the perceived risk at the time?

In 2008 we didn't know there was going to be a market crash until it was pretty much over. Since we knew nothing there was no out of the ordinary perception of risk. It was like getting hit by a bus. You cross the street hundreds or thousands of times. The one time you got hit was no riskier than any other. You were just unlucky. Those who CLAIM to have predicted it were probably right --- but out of how many attempts over the years?

Like investment advice, one should not rely too much on political experts. The experts we are most exposed to generally have an agenda. That's WHY we are exposed to them. There is no reason to believe that agenda includes your well-being. "Where are all the voters' yachts?"

I had my own prediction for the election but my confidence in that prediction was not strong enough for me to act on it.
The change in risk that I perceived the was
in early Sept 2008. In just over a week, From the 7th to 16th we had Fannie and Freddie taken over by the Feds, the Fed brokering the deal where Bank of America took over Meryl Lynch,
Lehman Brothers was allowed to collapse, and AIG looked like it might go as well taking the rest of the financial institutions with it.
The djia dropped below 10,000 soon thereafter.
At that point I considered pulling out to preserve capital and to buy back in after it dropped further. Instead I rebalanced in and in Apr 2009 went 100% stock. Market timing maybe, but it was more faith in the system in the long term.

I am now 80/20 which is where I will stay for a while.

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