Is the Market Expensive?

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alpha101
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Is the Market Expensive?

Post by alpha101 » Wed Nov 29, 2017 7:20 am

Greetings. I am close to retirement and have a mid six figures portfolio, and am currently about 75% in cash, the rest in REITs and BioTech all of which I plan to sell soon. My plan is to go to a simple 3 or 4 Vanguard Fund portfolio. When I see the P/E ratios of funds like VIT at around 23 with huge gains from last year I wonder if I am likely buying just before a pull back. Would it be smarter to patiently wait for a pull back or correction before investing my life's savings? I have read that investors who go in with a lump sum versus in increments do better on average. Do any of you let the high valuations in the markets affect your decisions to invest? Thanks in advance for your input.

Dottie57
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Re: Is the Market Expensive?

Post by Dottie57 » Wed Nov 29, 2017 9:17 am

alpha101 wrote:
Wed Nov 29, 2017 7:20 am
Greetings. I am close to retirement and have a mid six figures portfolio, and am currently about 75% in cash, the rest in REITs and BioTech all of which I plan to sell soon. My plan is to go to a simple 3 or 4 Vanguard Fund portfolio. When I see the P/E ratios of funds like VIT at around 23 with huge gains from last year I wonder if I am likely buying just before a pull back. Would it be smarter to patiently wait for a pull back or correction before investing my life's savings? I have read that investors who go in with a lump sum versus in increments do better on average. Do any of you let the high valuations in the markets affect your decisions to invest? Thanks in advance for your input.

I am close too. I keep investing in 401k and Roth IRA. My asset allocation is 50/50 stock to fixed income. If stock market crashes 50% I will lose 25% of portfolio. Part of my fixed income is 5 years of minimal bare bones expenses in CDs. I use the three fund portfolio. Just try to avoid spending assets that are down.

livesoft
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Re: Is the Market Expensive?

Post by livesoft » Wed Nov 29, 2017 9:32 am

Welcome to the forum. You have asked the ol' "Invest Now or Wait?" question which is asked very often on this forum.

Here is a search of the question with 22,400 hits for your reading pleasure.

https://www.google.com/search?q=site%3A ... or+wait%3F

Oh, the answer is always: Invest Now and Rebalance when there is a market drop.
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rkhusky
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Re: Is the Market Expensive?

Post by rkhusky » Wed Nov 29, 2017 9:38 am

Since you are close to retirement, perhaps you should start with a 30/70 (stock/bond) portfolio, which is the end point allocation for Vanguard's Target Retirement funds.

Incidentally, how long have you been 75% cash? Hopefully you haven't missed out on the last 8 years of gains in the stock market.

alpha101
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Re: Is the Market Expensive?

Post by alpha101 » Wed Nov 29, 2017 10:15 am

Wow, I see this is a bit of a tired topic, sorry. I have been mostly in the market and had been following an advisor which cost me quite a bit with the decline of the energy sector this year. Thanks for the links and info. Also, are any of you concerned about investing in BND with the rising interest rates?

Jack FFR1846
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Re: Is the Market Expensive?

Post by Jack FFR1846 » Wed Nov 29, 2017 10:22 am

Money where my mouth is.....I just sold some total stock to buy total bond as a rebalance.
Bogle: Smart Beta is stupid

livesoft
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Re: Is the Market Expensive?

Post by livesoft » Wed Nov 29, 2017 10:30 am

alpha101 wrote:
Wed Nov 29, 2017 10:15 am
Also, are any of you concerned about investing in BND with the rising interest rates?
I own BND and I will buy more with the dividend that will be paid next week. I am unconcerned about losing money in bond funds like BND because I will never lose as much money in BND as I will in my stock funds.
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David Jay
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Re: Is the Market Expensive?

Post by David Jay » Wed Nov 29, 2017 10:37 am

alpha101 wrote:
Wed Nov 29, 2017 10:15 am
Also, are any of you concerned about investing in BND with the rising interest rates?
The biggest ever one-year drop in the Vanguard Total Bond Fund (BND is the ETF class of this fund) is 2.66% (in 1994). Is that "concerning" to you?

What is your time horizon? If you plan to withdraw these funds within 2-3 years, the funds should probably be in a short term bond fund. But if you have a 5 year (or longer) time horizon, any drop in NAV will be overtaken by the higher yield from those increased interest rates.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Sandtrap
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Re: Is the Market Expensive?

Post by Sandtrap » Wed Nov 29, 2017 10:43 am

Dottie57 wrote:
Wed Nov 29, 2017 9:17 am
alpha101 wrote:
Wed Nov 29, 2017 7:20 am
Greetings. I am close to retirement and have a mid six figures portfolio, and am currently about 75% in cash, the rest in REITs and BioTech all of which I plan to sell soon. My plan is to go to a simple 3 or 4 Vanguard Fund portfolio. When I see the P/E ratios of funds like VIT at around 23 with huge gains from last year I wonder if I am likely buying just before a pull back. Would it be smarter to patiently wait for a pull back or correction before investing my life's savings? I have read that investors who go in with a lump sum versus in increments do better on average. Do any of you let the high valuations in the markets affect your decisions to invest? Thanks in advance for your input.

I am close too. I keep investing in 401k and Roth IRA. My asset allocation is 50/50 stock to fixed income. If stock market crashes 50% I will lose 25% of portfolio. Part of my fixed income is 5 years of minimal bare bones expenses in CDs. I use the three fund portfolio. Just try to avoid spending assets that are down.
50/50 equity/fixed allocation then 50% drop = 25% overall loss in value.
Is that a "Rule of Thumb"?

thanks,
j :D

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Sandtrap
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Re: Is the Market Expensive?

Post by Sandtrap » Wed Nov 29, 2017 10:46 am

alpha101 wrote:
Wed Nov 29, 2017 7:20 am
Greetings. I am close to retirement and have a mid six figures portfolio, and am currently about 75% in cash, the rest in REITs and BioTech all of which I plan to sell soon. My plan is to go to a simple 3 or 4 Vanguard Fund portfolio. When I see the P/E ratios of funds like VIT at around 23 with huge gains from last year I wonder if I am likely buying just before a pull back. Would it be smarter to patiently wait for a pull back or correction before investing my life's savings? I have read that investors who go in with a lump sum versus in increments do better on average. Do any of you let the high valuations in the markets affect your decisions to invest? Thanks in advance for your input.
If you are hesitant, one option set would be to:
1. Choose a conservative allocation,
2. DCA (dollar cost average) into the market as you fill out a 3-4 fund portfolio.
j :D
Some helpful links:
Bogle Philosophy
https://www.bogleheads.org/wiki/Bogleh ... hilosophy
Here are links to the wiki's "Getting Started" and "Investing Startup Kit" pages:
https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Bogleh ... rt-up_kit
Define General Investment Goals and Objectives
https://www.bogleheads.org/wiki/Invest ... statement
Outline of Investing
https://www.bogleheads.org/wiki/Outline_of_investing
Suggested Reading List
https://www.bogleheads.org/RecommendedReading.php
What the experts say about investing
https://www.bogleheads.org/wiki/What_ ... investing
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212
Last edited by Sandtrap on Wed Nov 29, 2017 11:14 am, edited 1 time in total.

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nisiprius
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Re: Is the Market Expensive?

Post by nisiprius » Wed Nov 29, 2017 10:58 am

alpha101 wrote:
Wed Nov 29, 2017 7:20 am
Greetings. I am close to retirement and have a mid six figures portfolio, and am currently about 75% in cash, the rest in REITs and BioTech all of which I plan to sell soon. My plan is to go to a simple 3 or 4 Vanguard Fund portfolio. When I see the P/E ratios of funds like VIT at around 23 with huge gains from last year I wonder if I am likely buying just before a pull back. Would it be smarter to patiently wait for a pull back or correction before investing my life's savings? I have read that investors who go in with a lump sum versus in increments do better on average. Do any of you let the high valuations in the markets affect your decisions to invest? Thanks in advance for your input.
If anybody really knew when the market was "expensive," then there would be no risk in stocks and they would not earn a risk premium.

Remember that there are really two questions to consider. The second is more important.

1) Is the market expensive?

2) If so, should I do anything about it?

My personal answers:

1) Gosh, I don't know. I can find experts saying whatever I think I want to hear. My personal opinion is that it does not feel to me like 1996-2000, which was a market that had been steadily going up for along time suddenly going up much faster... with the rise being on top of an existing rise. In this case, roughly half of 2009-2017 has been spent just climbing out of a deep hole, and numbers that look big if you measure from the bottom of the hole don't look nearly as big as if you measure from some other point. Naturally, much depends on what that other point is, and what your reasons are for choosing it, but measuring from the bottom of the hole does not look right to me.

Since I'm not working I'm not tuned in at the water cooler, but in 1999 there were stories of people quitting their job to "become day traders," and people who, when asked what their occupation was, would say "I'm a day trader." Is anything like that happening nowadays?

2) It is hard to believe that you can't improve on indexing. It is hard to believe that you can't at least spot and avoid the obvious dogs. For some people, obvious dogs are specific individual stocks; for others, obvious dogs are small-cap growth, the whole category. But, anyway, I believe in indexing. I don't think it's likely that I can improve much on indexing, and I don't think I need to.

Well, exactly the same thing is true about time. "Staying the course" is to time as "indexing" is to portfolio choice.

If I just ignore valuation, then I will have bought some of my assets at bad times and some at good, I will get the (CAGR) average return of the asset class over time, and I will be averaging over the longest possible length of time.

If I try to invest only at good times... or even if I modulate, doing a limited amount of "tactical asset allocation," I don't believe that I will improve my results much, and I don't think I need to. Furthermore, I will be effectively be "in the market" for a smaller number of years, thus averaging over a smaller number of years, so unless I really focus on the "better times," I will experience more of the luck of the draw, more chance, more standard deviation, more "manager risk" than if I stay the course.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

dbr
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Re: Is the Market Expensive?

Post by dbr » Wed Nov 29, 2017 11:06 am

nisiprius wrote:
Wed Nov 29, 2017 10:58 am


Remember that there are really two questions to consider. The second is more important.

1) Is the market expensive?

2) If so, should I do anything about it?

Wonderful. The idea that yes to 1) implies yes to 2) is pernicious. It is especially pernicious when one does not even know that is what one is doing.

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bottlecap
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Re: Is the Market Expensive?

Post by bottlecap » Wed Nov 29, 2017 11:11 am

Welcome!

This forum is dedicated to investing based on the notions that you stay the course, don't time the market, and that NOBODY knows what the market will do tomorrow, the next month, the next year, or the next ten years.

Plan accordingly!

And visit the wiki. Come back with any questions.

Good luck,

JT

magneto
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Re: Is the Market Expensive?

Post by magneto » Wed Nov 29, 2017 2:05 pm

Stage 1
Yes the market is expensive, mainly IMHO and IOHO, because all competing assets (Cash excluded) are also expensive due to central banks QE, lo interest rates policies, etc.

Stage 2
Q. When will the markets be less expensive?
A. Haven't a clue :annoyed

In retirement we are :-
25% Risk = Stocks
25% Defensives
50% Cash

Q. Is this optimal?
A. Probably not, but we sleep nights.

If Stocks succumb and were to hit rock-bottom, then as Adaptive Value Investors (a la Ben Graham), would lift Stocks progressively towards 70% max.

http://thismatter.com/money/investments ... -plans.htm

see Variable Ratio v Constant Ratio
'There is a tide in the affairs of men ...', Brutus (Market Timer)

3funder
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Re: Is the Market Expensive?

Post by 3funder » Wed Nov 29, 2017 2:51 pm

Yes, I let valuations affect my asset allocation decisions, but not to a significant degree. Example: My wife and I recently reduced our allocation to equities by ~5%.

alpha101
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Re: Is the Market Expensive?

Post by alpha101 » Wed Nov 29, 2017 10:59 pm

Thanks for the all the replies and links. Not a surprise really that a SWAN portfolio means different things for different people,

Ron Scott
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Re: Is the Market Expensive?

Post by Ron Scott » Thu Nov 30, 2017 6:38 am

The market IS expensive.

There is absolutely nothing wrong, or unBogle-like, with DCAing into a 25-75 portfolio.

Expecting low real rates of return over the foreseeable future and spending accordingly is a wise plan you can implement yourself.

Putting yourself in a position in which you’d need to sell stocks in a down market just to live would be a bad idea.

The most powerful financial asset you own—a veritable press for printing money, with highly predictable short-term returns—is your ability to earn by working.

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CyclingDuo
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Re: Is the Market Expensive?

Post by CyclingDuo » Thu Nov 30, 2017 9:33 am

alpha101 wrote:
Wed Nov 29, 2017 7:20 am
Greetings. I am close to retirement and have a mid six figures portfolio, and am currently about 75% in cash, the rest in REITs and BioTech all of which I plan to sell soon. My plan is to go to a simple 3 or 4 Vanguard Fund portfolio. When I see the P/E ratios of funds like VIT at around 23 with huge gains from last year I wonder if I am likely buying just before a pull back. Would it be smarter to patiently wait for a pull back or correction before investing my life's savings? I have read that investors who go in with a lump sum versus in increments do better on average. Do any of you let the high valuations in the markets affect your decisions to invest? Thanks in advance for your input.
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WhiteMaxima
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Re: Is the Market Expensive?

Post by WhiteMaxima » Thu Nov 30, 2017 12:03 pm

Yes market is expensive which might reduce future return. But if you stay out of market, you will get nothing minus inflation. Going too conservative might reduce your potential return while going too aggressive might increase your potential loss.

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