Moving 20% into cash
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Moving 20% into cash
The market did very well during the last 1.5 month (up 5%, translate 40% annually). So I decide to move 20% from equity to cash to lock some of the profit. While I still have 80% in the stock market (no bonds). So if the market is doing well during rest of year, I will still enjoy 80% of the growth (I still believe so). So the 20% cash will sitting there to make me more comfortable just in case.
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Re: Moving 20% into cash
This is market timing. Stay the course.
Re: Moving 20% into cash
I'm curious whether you posted this as a game to see how many "market timing" accusations you could amass?
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Re: Moving 20% into cash
Why not bonds instead of cash. I've actually sold some equity lately but not to go into cash.....sell-to-buy from equity to bond as a rebalance.
Bogle: Smart Beta is stupid
Re: Moving 20% into cash
If the recent run up and potential pull back cause you some anxiety, why not just add some bonds to your allocation, rebalance periodically, and sleep better at night?
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Re: Moving 20% into cash
Not really. 5% gain within the 1st two months of the year makes me nervous. 80/20 AA is still tilt to market perform but make me more comfortable at least.mckaydw wrote:I'm curious whether you posted this as a game to see how many "market timing" accusations you could amass?
Re: Moving 20% into cash
Maybe you should take this as a sign to stick with 80/20 as an allocation whether in good times or in the bad. Lock in the gains in the good times, such as you did now, and buy low when the market is not so good.
Or if you intend to dynamically switch between 100/0 and 80/20 based on your feelings (or even mathematical approaches such as P/E, or % gain in a year) then make sure you record the details every time you do it and report back in the coming years on how you did.
Or if you intend to dynamically switch between 100/0 and 80/20 based on your feelings (or even mathematical approaches such as P/E, or % gain in a year) then make sure you record the details every time you do it and report back in the coming years on how you did.
Re: Moving 20% into cash
If you are looking for Bogleheads to confirm your market timing, I would share this quote from John Bogle himself:
The problem with market timing is that you have to be right TWICE. When to get out (like you did) and when to get back in. If the market is - as is widely believed - a random walk, your odds of hitting the correct OUT and IN timing on a single market cycle are poor. If you look out over your investing lifetime with many, many market cycles, you will necessarily underperform when compared to holding an appropriate asset allocation.“The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently." - John Bogle
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
Re: Moving 20% into cash
+1Crisium wrote:Maybe you should take this as a sign to stick with 80/20 as an allocation whether in good times or in the bad. Lock in the gains in the good times, such as you did now, and buy low when the market is not so good.
Or if you intend to dynamically switch between 100/0 and 80/20 based on your feelings (or even mathematical approaches such as P/E, or % gain in a year) then make sure you record the details every time you do it and report back in the coming years on how you did.
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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Re: Moving 20% into cash
This is a weird way to think about it. I'd also bet against the stick market increasing 40% this year. (Really, you're extrapolating 1.5 months? That's the extreme short view, as opposed to the Bogleheads long view!)WhiteMaxima wrote:The market did very well during the last 1.5 month (up 5%, translate 40% annually). So I decide to move 20% from equity to cash to lock some of the profit. While I still have 80% in the stock market (no bonds). So if the market is doing well during rest of year, I will still enjoy 80% of the growth (I still believe so). So the 20% cash will sitting there to make me more comfortable just in case.
But, okay, the market has increased 5% so far. Maybe the market only increases 2% for the remaining 10.5 months, thereby falling off the pace dramatically. But that is still very much more than the cash will return! Don't compare the 10.5 months ahead in stocks to the 1.5 months that passed in stoacks. Compare the 10.5 months ahead in stocks to the 10.5 months ahead in cash...you'll see the light!!
cheers,
jwf
If you aren't familiar with Mr. Bogle and his investment philosophy, then you don't know Jack!
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Re: Moving 20% into cash
from 100% to 80% makes not much difference. I will keep the AA and rebalance once in a while.
Re: Moving 20% into cash
Great market timing move to be in 100% equities the past few months!!
I've hit another rebalancing trigger point and rebalanced, too.
The OP was ALREADY right the first time: They were at 100% equities.David Jay wrote:The problem with market timing is that you have to be right TWICE.
I've hit another rebalancing trigger point and rebalanced, too.
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Re: Moving 20% into cash
It is market timing of the best kind. The stock market is high. It is definitely not selling low. Poster was previously 100% stock. This is a great time to rebalance, particularly if doing so first into the long term strategy.
Re: Moving 20% into cash
And we can do the math: If 20% of one's portfolio gained 5%, that's like a 1% contribution to the annual return. So the OP is 1% ahead of an 80:20 portfolio asset allocation.
To put that in perspective, here are two YTD (through 2/13/2017) performances of two similar funds:
2.34% Vanguard Wellington (66% equities)
3.18% Vanguard TargetRetirement 2025 (65% equities)
The difference is 0.84%. So even with a similar stock:bond AA, the performance can be disparate.
To put that in perspective, here are two YTD (through 2/13/2017) performances of two similar funds:
2.34% Vanguard Wellington (66% equities)
3.18% Vanguard TargetRetirement 2025 (65% equities)
The difference is 0.84%. So even with a similar stock:bond AA, the performance can be disparate.
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Re: Moving 20% into cash
Just like mowing the lawn. When grass growing too tall after the rain, mow the lawn to make it look neat. When grass is getting yellow. I will never mow till the root but keep it at 80% of it's tall. I will water it with cash to make it look green. Image the you neighbor's lawn never get mowed or has no cash to water it. I heard W. Buffet always keep some cash reserve for potential purchase.
Last edited by WhiteMaxima on Tue Feb 14, 2017 1:40 pm, edited 1 time in total.
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Re: Moving 20% into cash
But imagine that your neighbor's lawn doesn't need cash/water, because it rains regularly! That's the opportunity cost of not being invested.WhiteMaxima wrote:Just like mowing the lawn. When grass growing too tall after the rain, mow the lawn to make it look neat. When grass is getting yellow, I will water it with cash to make it look green. Image the you neighbor's lawn never get mowed or has no cash to water it. I heard W. Buffet always keep some cash reserve for potential purchase.
And W. Buffet keeps cash reserve for purchases because he's buying individual companies. That's different than buying (presumably) index mutual funds.
cheers,
jwf
If you aren't familiar with Mr. Bogle and his investment philosophy, then you don't know Jack!
Re: Moving 20% into cash
The neighbor who doesn't cut his grass and waters it with cash every couple of weeks when he get's his paycheck, regardless of the weather forecast, typically ends up with a lot more grass when he retires...WhiteMaxima wrote:Just like mowing the lawn. When grass growing too tall after the rain, mow the lawn to make it look neat. When grass is getting yellow. I will never mow till the root but keep it at 80% of it's tall. I will water it with cash to make it look green. Image the you neighbor's lawn never get mowed or has no cash to water it. I heard W. Buffet always keep some cash reserve for potential purchase.
(I lost track of my metaphor )
Re: Moving 20% into cash
Really... so, if the market goes down 5% over some month and a half, you wouldn't be tempted to go 100% stocks again?WhiteMaxima wrote:from 100% to 80% makes not much difference. I will keep the AA and rebalance once in a while.
If this was an AA adjustment to 80/20 and you really stick to it, I think that's fine. But, even with your posts about this being your new AA, I sense an underlying tone that you will make changes based on market moves.
Make a plan you can stick with... and then do so.
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Re: Moving 20% into cash
If I was 80/20 months ago, I will still end with 4% gain. But 100% AA is making me nervous. 80% is still a lot heavy tilt toward to equity. 60/40 is much more balanced I believe. But human are greedy. 60% seems never enough than 100%.
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Re: Moving 20% into cash
You made the right move, OP. I recently rebalance because my IPS said to. Had I stayed where I was, the account would have been overweight equities and underweight fixed income, no regrets. Last year this time, the market was in beginning stages of recovering from sell-off, sold fixed income and bought equities, my what a difference a year makes.WhiteMaxima wrote:If I was 80/20 months ago, I will still end with 4% gain. But 100% AA is making me nervous. 80% is still a lot heavy tilt toward to equity. 60/40 is much more balanced I believe. But human are greedy. 60% seems never enough than 100%.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: Moving 20% into cash
For what it's worth, today on cnbc Jeremy Siegel said that "Dow 22,000 is closer than you think". He stated that would be "a nearly 8% rise from current levels". Unfortunately this would be dependent upon what happens in Washington which is verboten on this foum. Of course it could go the other way as well, he admits. So the market could go up or could go down. Now back to our regularly scheduled program.
http://www.cnbc.com/2017/02/14/dow-22k- ... iegel.html
http://www.cnbc.com/2017/02/14/dow-22k- ... iegel.html
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
Re: Moving 20% into cash
Markets were at all time highs in April 2015 too. Why didn't you sell then? What makes this high different than yesterday's high? Or last months? Or last years?
A good quote from this blog post: "...investors often fear markets breaking new ground because they too literally interpret the phrase, “Buy low and sell high” to mean “don’t buy at a record high."
http://www.marketminder.com/a/fisher-in ... 7f44d.aspx
Great read... check it out.
A good quote from this blog post: "...investors often fear markets breaking new ground because they too literally interpret the phrase, “Buy low and sell high” to mean “don’t buy at a record high."
http://www.marketminder.com/a/fisher-in ... 7f44d.aspx
Great read... check it out.
BH Contests: 23 #89 of 607 | 22 #512 of 674 | 21 #66 of 636 |20 #253/664 |19 #233/645 |18 #150/493 |17 #516/647 |16 #121/610 |15 #18/552 |14 #225/503 |13 #383/433 |12 #366/410 |11 #113/369 |10 #53/282
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Re: Moving 20% into cash
It's only a profit if you never put the money back into the market. If you do, it's not a loss but a smaller gain.WhiteMaxima wrote: move 20% from equity to cash to lock some of the profit.
For example, you put $100 on red and double your money. Put $150 aside and only gamble with the other $50. Once you lose the $50, you only make a profit when you walk out. Unfortunately, most don't just walk out.
Re: Moving 20% into cash
It's a good thing to do if you need to sleep better at night. It's far less damaging than selling everything. In that respect, it's a healthy reaction, a moderate one.
It's easier said than done to be a purist.
It's easier said than done to be a purist.
Re: Moving 20% into cash
Is this about market timing or risk tolerance? Seems more like risk tolerance, based on your reference to feeling "more comfortable just in case." And that's a smart move because if there is a market downturn this year, you are more likely to stay your new course.WhiteMaxima wrote:The market did very well during the last 1.5 month (up 5%, translate 40% annually). So I decide to move 20% from equity to cash to lock some of the profit. While I still have 80% in the stock market (no bonds). So if the market is doing well during rest of year, I will still enjoy 80% of the growth (I still believe so). So the 20% cash will sitting there to make me more comfortable just in case.
But why not some bonds?
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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Re: Moving 20% into cash
The main thing for long term investing success is not to be
so concerned with letting drops occur.
I've been a nearly 100% stock investor since the 1960's
and seen tremendous booms and crashes. Just ignoring it all and letting it ride has worked out very very well
so concerned with letting drops occur.
I've been a nearly 100% stock investor since the 1960's
and seen tremendous booms and crashes. Just ignoring it all and letting it ride has worked out very very well
Last edited by malabargold on Tue Feb 14, 2017 6:30 pm, edited 1 time in total.
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Re: Moving 20% into cash
Cite?arcticpineapplecorp. wrote:So the market could go up or could go down.
But seriously, the S&P 500 P/E is higher than at any point between (roughly) 1895 and 1998. Down seems likelier than up.
Re: Moving 20% into cash
20% in fixed income is my strategy as well. Now is a great time to go to it. But why are you goign cash instead of bonds? If you are worried about risk/NAV fluctuations why not go short term treasuries?
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Re: Moving 20% into cash
arcticpineapplecorp. wrote:So the market could go up or could go down.
I already provided the link to the cnbc article which Jeremy Siegel hedges and says it could go up another 8% or down depending on what happens in Washington. But since you ask, here it is again:ribonucleic wrote:Cite?
http://www.cnbc.com/2017/02/14/dow-22k- ... iegel.html
People said that yesterday too. Oh, and they've been saying that since 1895 too.ribonucleic wrote:But seriously, the S&P 500 P/E is higher than at any point between (roughly) 1895 and 1998. Down seems likelier than up.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
- arcticpineapplecorp.
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Re: Moving 20% into cash
Thanks. Good article. This is my favorite part, just follows your quote above:sperry8 wrote:Markets were at all time highs in April 2015 too. Why didn't you sell then? What makes this high different than yesterday's high? Or last months? Or last years?
A good quote from this blog post: "...investors often fear markets breaking new ground because they too literally interpret the phrase, “Buy low and sell high” to mean “don’t buy at a record high."
http://www.marketminder.com/a/fisher-in ... 7f44d.aspx
Great read... check it out.
However, if the record is, say, #146 of the 1990s’ 347, did you buy high or low? Considering that occurred September 12, 1995 and the S&P 500 rose another 188% before peaking in March 2000, we’d argue that record high was actually low. Fear of heights may be rational if the high thing you fear is a really, really tall ledge without a railing, but applying it to financial markets is dangerous. It often causes investors to avoid stocks long before bull markets end, leading them to miss out on market returns over time. Miss enough growth, and you risk missing your long term goals. This is why overcoming your brain’s tendency to lead you astray is vital to successful investing.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
Re: Moving 20% into cash
I just did the opposite as I was underweight equities because I donated a bunch of securities at the end of last year! Even worse is that I was really underweight intl equities and that has gone up more than the US! So I've bought and like you, I felt I've bought at the top. If I'm right, I'll have TLH opportunities. If I'm wrong, I'll get to participate in the market melt up.
Good luck!
Good luck!
Re: Moving 20% into cash
Agreed. that was a great quote. Here's another nice article from them for the OP:arcticpineapplecorp. wrote:Thanks. Good article. This is my favorite part, just follows your quote above:sperry8 wrote:Markets were at all time highs in April 2015 too. Why didn't you sell then? What makes this high different than yesterday's high? Or last months? Or last years?
A good quote from this blog post: "...investors often fear markets breaking new ground because they too literally interpret the phrase, “Buy low and sell high” to mean “don’t buy at a record high."
http://www.marketminder.com/a/fisher-in ... 7f44d.aspx
Great read... check it out.
However, if the record is, say, #146 of the 1990s’ 347, did you buy high or low? Considering that occurred September 12, 1995 and the S&P 500 rose another 188% before peaking in March 2000, we’d argue that record high was actually low. Fear of heights may be rational if the high thing you fear is a really, really tall ledge without a railing, but applying it to financial markets is dangerous. It often causes investors to avoid stocks long before bull markets end, leading them to miss out on market returns over time. Miss enough growth, and you risk missing your long term goals. This is why overcoming your brain’s tendency to lead you astray is vital to successful investing.
http://www.marketminder.com/a/fisher-in ... 5c231.aspx
Look at the graph and all those new highs. Why not sell at any of them?
A good quote from the blog:
"... “all-time high” isn’t synonymous with “apex.” At some point, this bull will hit its ultimate all-time high and inflection point, but between now and then, stocks likely reach many more all-time highs, and none will predict future returns."
And look at Exhibit 2. Look at all those new highs in the 1990s. Over 347 of them! So which one was the one you should've sold at? None. If you held til today, you'd have seen another new high. There simply was no way to market time the highs... getting out is one thing. Getting out at the top another. And buying back in lower than when you sold is still another. Think you can do them all? Why? No one else can. What is it that you believe you know that the market and all the very smart people who invest in it do not?
BH Contests: 23 #89 of 607 | 22 #512 of 674 | 21 #66 of 636 |20 #253/664 |19 #233/645 |18 #150/493 |17 #516/647 |16 #121/610 |15 #18/552 |14 #225/503 |13 #383/433 |12 #366/410 |11 #113/369 |10 #53/282
Re: Moving 20% into cash
If this is a permanent change to 80/20 AA, then I wouldn't call it market timing. Nothing wrong with going more conservative to sleep at night.WhiteMaxima wrote:If I was 80/20 months ago, I will still end with 4% gain. But 100% AA is making me nervous. 80% is still a lot heavy tilt toward to equity. 60/40 is much more balanced I believe. But human are greedy. 60% seems never enough than 100%.
If you intend to go back to 100/0 at some point, then you will indeed be market timing, and it's a dangerous game to get into.