My biggest mistake - market timing

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sambb
Posts: 2161
Joined: Sun Mar 10, 2013 3:31 pm

Re: My biggest mistake - market timing

Post by sambb » Wed Oct 03, 2018 8:19 pm

Why do people go from fully invested to fully out.
Why not just go 50/50 or 60/40, if one is worried. its reasonably comfortable and it is a good balance for the nervous. Why put all eggs in one basket

make_a_better_world
Posts: 38
Joined: Mon Mar 18, 2013 11:55 pm

Re: My biggest mistake - market timing

Post by make_a_better_world » Wed Oct 03, 2018 8:27 pm

Despite your husband saying he won't check it and that you seem confident, I recommend adding bonds at a significant portion to your stocks as many have suggested. What will happen is that when the market skyrockets you go up but not quite as much. When the market tanks you go down but not as much. And in the long term the return is actually very similar!

I can't find the Boglehead thread I got this from but I saved the main link. Check this out. It is 3 portfolios over ~30 years. The first is 100% stocks. The second is 80% stocks and 20% bonds. The third is 60% stocks and 40% bonds. Look at the portfolio returns at the bottom.

https://www.portfoliovisualizer.com/bac ... easury3=40

The returns are quite close. But the ride is not as rocky. So it may be a good compromise between the two of you. And many suspect we are headed toward a recession in the near future anyway. None of us can really predict the future, which is the whole point of the strategy.

sman09
Posts: 211
Joined: Fri Mar 23, 2018 12:02 am

Re: My biggest mistake - market timing

Post by sman09 » Sat Oct 06, 2018 11:07 pm

make_a_better_world wrote:
Wed Oct 03, 2018 8:27 pm
I can't find the Boglehead thread I got this from but I saved the main link. Check this out. It is 3 portfolios over ~30 years. The first is 100% stocks. The second is 80% stocks and 20% bonds. The third is 60% stocks and 40% bonds. Look at the portfolio returns at the bottom.

https://www.portfoliovisualizer.com/bac ... easury3=40

The returns are quite close. But the ride is not as rocky. So it may be a good compromise between the two of you. And many suspect we are headed toward a recession in the near future anyway. None of us can really predict the future, which is the whole point of the strategy.
Thanks for sharing this information and the link to Portfoliovisualizer. That's nice to know.

Interestingly, in the dropdown corresponding to Rebalancing even when the 'Annual rebalancing" is changed to "No rebalancing" the returns are nearly the same (perhaps it is to be expected, given all the 3 portfolios are not rebalanced - i was more specifically intrigued that the return with/without rebalancing was nearly the same for each of the PFs)

Also, with regards the bond allocation, given the so many options there, why "Intermediate Term Treasury" is chosen? Is the VBMFX of the same class?

Thank you!

make_a_better_world
Posts: 38
Joined: Mon Mar 18, 2013 11:55 pm

Re: My biggest mistake - market timing

Post by make_a_better_world » Sun Oct 07, 2018 1:07 pm

VBMFX is essentially high rated US bonds of all types (short, intermediate, long term - US government and corporate). It avoids high risk/high return bonds (junk bonds). VBMFX is a good fund in my opinion to use for bonds in your investments.

You could back test all sorts of scenarios on Portfoliovisualizer. I have not tested different term bonds. To mimick VBMFX you would have to allocate some to several bond types. Although you may get some differences in the return, I think the main lesson to take is that the single most important thing is to be in the game, meaning invested. The second most important thing will be that you can use asset allocation to determine the risk (another way of saying how abruptly your portfolio will drop in any given year) against return. And market timing won't work.

If you really want to see something interesting, try 100% US stocks as a portfolio (no international stocks, no bonds of any kind). That return beats all the other portfolios I've seen. But you better be ready to hang on for a wild ride.

If you put most of your money into stocks, a good portion of it into bonds, use dollar cost averaging to save and invest automatically going forward, then you will have a lower chance of watching your portfolio cut in half at some point and having the reverse discussion with your husband, you can turn off all the finance news/noise and focus on other things in life, and still have a great return. If you want to chase the best possible return and live and die several times times along the way, then forget the bonds.
Last edited by make_a_better_world on Sun Oct 07, 2018 1:25 pm, edited 3 times in total.

WhiteMaxima
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Re: My biggest mistake - market timing

Post by WhiteMaxima » Sun Oct 07, 2018 1:12 pm

You can't time the market. But you can time the business cycle. Buy low and sell high.

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watchnerd
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Location: Seattle, WA, USA

Re: My biggest mistake - market timing

Post by watchnerd » Sun Oct 07, 2018 1:18 pm

make_a_better_world wrote:
Sun Oct 07, 2018 1:07 pm
VBMFX is essentially high rated US bonds of all types (short, intermediate, long term - US government and corporate). It avoids high risk/high return bonds (junk bonds). VBMFX is a good fund in my opinion to use for bonds in your investments.
Corporations can default on bonds during times of economic distress, refuse to pay coupon payments, get refinanced / bailed out at pennies on the dollar. Look at AIG during the financial crisis.

That's not what I want out of my bonds.

I prefer to take all my risk on the equity side, which is why I use Treasuries for my major taxable bond allocation, as do advisors like Swensen, Bernstein, etc.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

sman09
Posts: 211
Joined: Fri Mar 23, 2018 12:02 am

Re: My biggest mistake - market timing

Post by sman09 » Sun Oct 07, 2018 3:22 pm

make_a_better_world wrote:
Sun Oct 07, 2018 1:07 pm
VBMFX is essentially high rated US bonds of all types (short, intermediate, long term - US government and corporate). It avoids high risk/high return bonds (junk bonds). VBMFX is a good fund in my opinion to use for bonds in your investments.

You could back test all sorts of scenarios on Portfoliovisualizer. I have not tested different term bonds. To mimick VBMFX you would have to allocate some to several bond types. Although you may get some differences in the return, I think the main lesson to take is that the single most important thing is to be in the game, meaning invested. The second most important thing will be that you can use asset allocation to determine the risk (another way of saying how abruptly your portfolio will drop in any given year) against return. And market timing won't work.

If you really want to see something interesting, try 100% US stocks as a portfolio (no international stocks, no bonds of any kind). That return beats all the other portfolios I've seen. But you better be ready to hang on for a wild ride.

If you put most of your money into stocks, a good portion of it into bonds, use dollar cost averaging to save and invest automatically going forward, then you will have a lower chance of watching your portfolio cut in half at some point and having the reverse discussion with your husband, you can turn off all the finance news/noise and focus on other things in life, and still have a great return. If you want to chase the best possible return and live and die several times times along the way, then forget the bonds.
'

Thanks @make_a_better_world for taking the time to explain in details and share all this information! Very helpful.

This line in particular was appealing as that is what most of us seek
If you put most of your money into stocks, a good portion of it into bonds, use dollar cost averaging to save and invest automatically going forward, then you will have a lower chance of watching your portfolio cut in half at some point

Cascade425
Posts: 8
Joined: Fri Jun 08, 2018 10:12 pm

Re: My biggest mistake - market timing

Post by Cascade425 » Sun Oct 07, 2018 6:13 pm

That's the thing with market timing. You have to do it twice! You need to decide when to get out of the market (hard) and then when to get back in (hard). Much easier just to stay in and stick with the three fund portfolio.

I think you got some great advice about how to get back in. Good luck!

JBTX
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Joined: Wed Jul 26, 2017 12:46 pm

Re: My biggest mistake - market timing

Post by JBTX » Sun Oct 07, 2018 7:26 pm

Chalk it up as a valuable learning experience. You are still well ahead of the game.

I'd recommend two funds in tax advantaged accounts:

Vanguard target date fund (roughly 1/2 of $)
Vanguard balanced index (roughly 1/2 of $)

This will give you roughly 70% equity and put you on auto pilot.

Seriously consider vanguard PAS.

If it were me, I'd want a firmer commitment from DH. Maybe in writing. Over the years my DW has suggested I do this or that and I explain why that is probably a bad idea and she usually relents. Investing is probably not best a collaborative exercise when one party doesn't have the background or temperament for it. You are the "alpha" as far as investing in this situation

Somebody above had an interesting approach of allowing to liquidation of 5-10% max just to feel like they are doing something. That isn't a terrible idea if DH is absolutely panicked, although I'd prefer sticking to your guns.

jdsky
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Joined: Tue Sep 01, 2015 10:11 pm

Re: My biggest mistake - market timing

Post by jdsky » Tue Oct 09, 2018 5:38 pm

shainy wrote:
Mon Oct 01, 2018 7:12 pm
Dear friends,

I am here to seek help from the you all again.
After going through uncertainty in 2015 and part of 2016, my husband was not comfortable in staying market with the fear of losing our principal. So we pulled out all the investments mainly from 401k and 529 accounts and put them all into prime market funds. It turned out t be the biggest mistake of our life so far. We missed out on almost 40% returns since we moved to cash in 2016.

With the market at peak level, i am not sure when to enter into the market. We have about 600k sitting in cash now.
What would you do if you were in my shoes?
One suggestion? Stop beating yourself up over the decision to pull out in 16' due to the hypothetical paper losses. Instead focus on any positive impacts this had on your lives - ability to sleep at night, happier home life etc... You know, all the things that are really important in life. I would also posit that this is hardly the biggest mistake of your life - maybe specific to investing in the stock market over the past 2 years but hardly a really big mistake in general because at that time nobody could predict the future returns you now are certainly very well aware of. If this in fact your biggest mistake then I will list a couple that I have put in the rear view:

The first was not taking the advice and following the actions of a very close personal friend that told me to liquidate the stock options I held in my current company and invest it all in Apple in 1998. Total hypothetical value of exchanging those options for that high flier? $7.8M today. What did I do instead? Held onto those options with an iron fist until the company was taken private 15 years later and I was forced to sell them. What was the value of not just the vested shares I owned in 98' but all of the additional options I received, let vest and then subsequently held? A big fat $1000 check. My wife and I went out for a nice dinner with that check... Something positive did come out of holding onto those shares.

The second mistake? It's a bit more recent. Not listening to my own instincts along with several other close friends that moved a portion of their retirement assets to Amazon stock in 2014 when it was around $300 a share. While some moved as much as 100% of their retirement funds the average was 25%. Lets say I only moved 10 or 15% of mine. What would it be worth today? Over a million bucks.

Do I say these are the biggest mistakes of my life? Absolutely not. Why? Because those are outcomes based on a thorough appraisal of the past and opportunities that I chose not to participate in based on my specific situation and feelings at that very point in time. Who's to say I would have ever had the guts to ride out that wave of AAPL stock gains for 20 years? Its more likely that once I made 5 or 10 or 20 times my money I would have bailed out long before they reached their peak. Would that have been a mistake? Not really...

This is no different than anyone with stock market investments today that posts up a value of those investments based on the market close of any given day. That value is not actual value until the assets are sold and the cash is in the bank. Til that time its a paper value that could double or triple or even go to zero. What will happen over the next two years? Nobody knows but you still need to somehow maintain a happy life all while the market will continue to do what it does best - frustrate everyone that participates in it.

What do I think you should do? Take the advice of some here that say to create a plan. Specifically a plan that you feel satisfied with and can make you happy and sleep well when you go to bed at night. If that means slowly investing back into the market over a specific period of time do that. If it means reinvesting all of it tomorrow then do that. In the end you cannot beat yourself up over lost investment opportunities. My hope for you and your husband is you find a way to reach the goals you are trying to achieve. Best of luck.

shainy
Posts: 65
Joined: Thu Jul 19, 2012 9:42 am

Re: My biggest mistake - market timing

Post by shainy » Mon Oct 15, 2018 11:43 am

jdsky wrote:
Tue Oct 09, 2018 5:38 pm
shainy wrote:
Mon Oct 01, 2018 7:12 pm
Dear friends,

I am here to seek help from the you all again.
After going through uncertainty in 2015 and part of 2016, my husband was not comfortable in staying market with the fear of losing our principal. So we pulled out all the investments mainly from 401k and 529 accounts and put them all into prime market funds. It turned out t be the biggest mistake of our life so far. We missed out on almost 40% returns since we moved to cash in 2016.

With the market at peak level, i am not sure when to enter into the market. We have about 600k sitting in cash now.
What would you do if you were in my shoes?
One suggestion? Stop beating yourself up over the decision to pull out in 16' due to the hypothetical paper losses. Instead focus on any positive impacts this had on your lives - ability to sleep at night, happier home life etc... You know, all the things that are really important in life. I would also posit that this is hardly the biggest mistake of your life - maybe specific to investing in the stock market over the past 2 years but hardly a really big mistake in general because at that time nobody could predict the future returns you now are certainly very well aware of. If this in fact your biggest mistake then I will list a couple that I have put in the rear view:

The first was not taking the advice and following the actions of a very close personal friend that told me to liquidate the stock options I held in my current company and invest it all in Apple in 1998. Total hypothetical value of exchanging those options for that high flier? $7.8M today. What did I do instead? Held onto those options with an iron fist until the company was taken private 15 years later and I was forced to sell them. What was the value of not just the vested shares I owned in 98' but all of the additional options I received, let vest and then subsequently held? A big fat $1000 check. My wife and I went out for a nice dinner with that check... Something positive did come out of holding onto those shares.

The second mistake? It's a bit more recent. Not listening to my own instincts along with several other close friends that moved a portion of their retirement assets to Amazon stock in 2014 when it was around $300 a share. While some moved as much as 100% of their retirement funds the average was 25%. Lets say I only moved 10 or 15% of mine. What would it be worth today? Over a million bucks.

Do I say these are the biggest mistakes of my life? Absolutely not. Why? Because those are outcomes based on a thorough appraisal of the past and opportunities that I chose not to participate in based on my specific situation and feelings at that very point in time. Who's to say I would have ever had the guts to ride out that wave of AAPL stock gains for 20 years? Its more likely that once I made 5 or 10 or 20 times my money I would have bailed out long before they reached their peak. Would that have been a mistake? Not really...

This is no different than anyone with stock market investments today that posts up a value of those investments based on the market close of any given day. That value is not actual value until the assets are sold and the cash is in the bank. Til that time its a paper value that could double or triple or even go to zero. What will happen over the next two years? Nobody knows but you still need to somehow maintain a happy life all while the market will continue to do what it does best - frustrate everyone that participates in it.

What do I think you should do? Take the advice of some here that say to create a plan. Specifically a plan that you feel satisfied with and can make you happy and sleep well when you go to bed at night. If that means slowly investing back into the market over a specific period of time do that. If it means reinvesting all of it tomorrow then do that. In the end you cannot beat yourself up over lost investment opportunities. My hope for you and your husband is you find a way to reach the goals you are trying to achieve. Best of luck.
jdsky,

Thank you so much for such a nice write up! I really appreciate it. Looks like you read my mind and wrote exactly what i thought. Initially I used to curse myself for listening to my husband and moving to cash. Now i see that as an opportunity we missed and not beating myself up over that.
My husband and I sat together and came up with a plan that suits our tolerance level and started acting on it.

aristotelian
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Re: My biggest mistake - market timing

Post by aristotelian » Mon Oct 15, 2018 5:10 pm

OP, what if you invest accounts in your name 100% stocks and accounts in his name 100% cash and short term bond, what would your allocation be?

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Taylor Larimore
Advisory Board
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Asset Allocation

Post by Taylor Larimore » Mon Oct 15, 2018 6:12 pm

aristotelian wrote:
Mon Oct 15, 2018 5:10 pm
OP, what if you invest accounts in your name 100% stocks and accounts in his name 100% cash and short term bond, what would your allocation be?
aristotelian:

Assuming a permanent relationship: 50% stocks/50% fixed-income.

You might reasonably expect a 25% (one-half your stock allocation) overall decline in the next bad bear market.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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