As of 12/26, should I be in cash?

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strongu
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Joined: Tue Dec 25, 2018 8:34 pm

As of 12/26, should I be in cash?

Post by strongu »

Hello all - I'm a newbie here. I've been using the IBD system, not religiously, for about seven years. I'm 64 years old, and my IRA lost 50% of value during the last recession. Now it's down 22% since August. I'm not a wealthy guy, and I am alarmed about the past two days on the stock market. I should have a healthy chunk in bonds at my age, but I don't. I don't think the economy is headed in a good direction currently. IBD would have me in all cash right now, looking for good stuff to buy if things begin to turn around. I'm ready to cash out today(temporarily), but suspect that the market may go up temporarily on Wednesday the 26th. I'd hate to miss out on that, but I also am not interested in losing much more of my hard-earned cash. Any thoughts from more experienced investors? Thanks, and Merry Christmas!
hawkfan55
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Re: As of 12/26, should I be in cash?

Post by hawkfan55 »

Click on the Wiki and start learning about investing like a Boglehead. Don't do anything until you determine an asset allocation you can sleep with for the long term. No one knows if the stock market will go up or down from here, however, over the long term, equity markets have historically increased in value. I'm not familiar with the IBD system.
Merry Christmas!
Last edited by hawkfan55 on Wed Dec 26, 2018 5:15 pm, edited 1 time in total.
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livesoft
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Re: As of 12/26, should I be in cash?

Post by livesoft »

I don't think the market is going up very much until some issues are resolved. It might fluctuate around this point for a few weeks. Of course, I cannot predict the future, but I am not going into cash because then I would have no chance to participate in any market action.
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dwickenh
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Re: As of 12/26, should I be in cash?

Post by dwickenh »

IBD = Investors Business Daily? Beat the market with individual stocks? 22% down since August?

At 64, my exact age also, I am 50% stock index funds and 50% bond index funds. I am down 5.07% for the year
and am not considering going to cash.

I am guessing you are "all in" on individual stocks and taking a beating in this down market.
You really can't have it both ways. You either take high risk for high returns, or you dial it
back and conserve what you have while still getting a nice return in most years.

Good luck on your going to cash, I think it is a mistake.

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
krow36
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Re: As of 12/26, should I be in cash?

Post by krow36 »

I agree with hawk55fan, BHs don't do what you are doing because we don't want to be in your situation, trying to predict the market, which is not possible. Read the Wiki, figure out your desired stock/bond/cash ratio (asset allocation) that you can tolerate with the ups and downs of the markets, and stick with it. Reduce the Fear/Greed emotions! :D
Last edited by krow36 on Tue Dec 25, 2018 10:17 pm, edited 1 time in total.
aqan
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Re: As of 12/26, should I be in cash?

Post by aqan »

dwickenh wrote: Tue Dec 25, 2018 9:36 pm IBD = Investors Business Daily? Beat the market with individual stocks? 22% down since August?

At 64, my exact age also, I am 50% stock index funds and 50% bond index funds. I am down 5.07% for the year
and am not considering going to cash.

I am guessing you are "all in" on individual stocks and taking a beating in this down market.
You really can't have it both ways. You either take high risk for high returns, or you dial it
back and conserve what you have while still getting a nice return in most years.

Good luck on your going to cash, I think it is a mistake.

Dan
I agree. Sounds like OP is in individual stocks. At 64 I would not touch individual stocks in my retirement accounts with a 10 foot pole and certainly not in this market.
No one knows what direction the market is going to take next but it does look oversold to me. Sorry OP can't give you much advice on when to sell but I'd certainly advice you to allocate a large chunk towards fixed income/cash.
jbranx
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Re: As of 12/26, should I be in cash?

Post by jbranx »

I'm with the other posters here in recommending that you try a different approach to managing your money. You might start by simply buying and reading Jack Bogle's "Little Book of Common Sense Investing," 2017 edition. I'm familiar with IBD's approach and recall that O''Neil's "CANSLIM' system failed pretty miserably when it was tested in a mutual fund. Much like the old Value Line system, it does not work in real life for real money put up by real investors. Those remarkable return charts of such systems assume unlimited ability to invest, flipping stocks in one direction after another like thrashing wheat with a big stick. Lots of chaff and no bread.

Instead of the loser's game, try playing par golf with index funds: low expense ones, mostly total market/asset class ones, trading seldom if ever just to keep your allocations in balance. Saves a bunch of money on newspaper subscriptions as well. I don't have any advice on whether to sell the holdings you have now, but whatever you gain from the experience I hope will lead you to a successful investment future.

Edit: I just checked the Dow Jones index futures for Wednesday and they are currently down 125 further, so you may not have to be concerned about missing that rebound. No one knows what the market is going to do on a short-term basis and no one has perfected a system for consistently forecasting what it will do on a longer term basis. If IBD and Wm. O'neil had found such a system he would not still be in the lousy business of publishing a newspaper.
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mhadden1
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Re: As of 12/26, should I be in cash?

Post by mhadden1 »

strongu wrote: Tue Dec 25, 2018 8:45 pm I should have a healthy chunk in bonds at my age, but I don't. I don't think the economy is headed in a good direction currently. IBD would have me in all cash right now, looking for good stuff to buy if things begin to turn around. I'm ready to cash out today(temporarily), but suspect that the market may go up temporarily on Wednesday the 26th. I'd hate to miss out on that, but I also am not interested in losing much more of my hard-earned cash. Any thoughts from more experienced investors?
It sounds like your system requires you to correctly evaluate economic conditions, picking the right stocks, while also timing the market so that you are in on good days. That seems very difficult. I would despair about my own ability to do that. So, I don't really have any advice about how to trade tomorrow.

At age 64, if you will need some of your assets to cover your expenses, you probably need less volatility than 100% stocks. If you look at the Bogleheads wiki there is a lot of good advice about investing in inexpensive index funds, using asset categories allocated to give you the best crack at achieving your investing goals.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.
Tetramolta
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Re: As of 12/26, should I be in cash?

Post by Tetramolta »

I think the question is frighteningly basic for someone who is apparently mostly in stocks at an age near retirement. If you decide to place your savings into the stock market, you should be willing to accept the risk that it might decrease substantially in the short to medium term. That's because stock fluctuations are frequent and normal. It's very important to be aware of the "buy high sell low" phenomenon that is often driven by greed and fear, and which can really harm your earnings.

The question of whether to move investments into cash depends on the situation. Do you need cash? If you have short term needs, you might consider taking a loss on your investments in order to make ends meet. For most other purposes, no it's not a good strategy. Cash loses value to inflation. Cash loses out on market increases. But more importantly, consider why you want to sell. Is it because you think you have some insight into the direction of the market? I doubt most anyone who invested at the highs of 2018 thought, "this price is probably going to tank before the end of the year." Either you're playing the market or you're investing long term. Most people who play the market get burned. Most people who switch between strategies based on recent market trends buy high and sell low out of fear. If you're investing long term, and you have truly considered the impact of market risk on your day to day life, you should not be following your investments daily or more than necessary in order to execute your strategy. The practice of checking to see if you're up or down a given day is counterproductive to long-term investment.
smectym
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Re: As of 12/26, should I be in cash?

Post by smectym »

Tetramolta wrote: Tue Dec 25, 2018 11:05 pm I think the question is frighteningly basic for someone who is apparently mostly in stocks at an age near retirement. If you decide to place your savings into the stock market, you should be willing to accept the risk that it might decrease substantially in the short to medium term. That's because stock fluctuations are frequent and normal. It's very important to be aware of the "buy high sell low" phenomenon that is often driven by greed and fear, and which can really harm your earnings.

Agree with tetramolta except that in his wise counsel, “You should be willing to except the risk that [savings invested in equities] might decrease substantially in the short to medium term” he forgot to add “or even in the long term.”

Agree strongly with posters above that OP should reconsider any reliance on IBD methodology.

As to the role of cash in the portfolio, it’s not all black and white. Cash does play some positive role in many portfolios. It dampens portfolio volatility, which is a good thing. That means it helps some investors sleep at night, which is a second good thing? Cash can be relied upon not to decrease in value even when the bonds in ones portfolio are going down; that’s another good thing. Right now interest rates are higher than they had been for many years; that’s a fourth good thing.

True, when equity markets are rising,The portion of one’s portfolio in cash doesn’t participate in the stock price advance. That’s not good.

But on the other hand, when stock prices are falling, the portion of one’s portfolio in cash doesn’t participate in the stock price decline. That is a good thing.

For older investors, for retired investors, for risk-averse investors, and for those investors who have either legal or moral fiduciary responsibilities to loved ones or others, a responsible allocation to cash is not only permissible, but in some cases the only correct course of action. The idea that any mention of a significant portfolio allocation to cash should be frowned upon with the especially intimidating “Boglehead Frown Face” is misguided.

Smectym
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CaliJim
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Re: As of 12/26, should I be in cash?

Post by CaliJim »

strongu wrote: Tue Dec 25, 2018 8:45 pm Hello all - I'm a newbie here. I've been using the IBD system, not religiously, for about seven years. I'm 64 years old, and my IRA lost 50% of value during the last recession. Now it's down 22% since August. I'm not a wealthy guy, and I am alarmed about the past two days on the stock market. I should have a healthy chunk in bonds at my age, but I don't. I don't think the economy is headed in a good direction currently. IBD would have me in all cash right now, looking for good stuff to buy if things begin to turn around. I'm ready to cash out today(temporarily), but suspect that the market may go up temporarily on Wednesday the 26th. I'd hate to miss out on that, but I also am not interested in losing much more of my hard-earned cash. Any thoughts from more experienced investors? Thanks, and Merry Christmas!
No

You shoukd be maybe 40% in broad stock market index funds and 60% in medium term bond index funds.

Have you cancelled your IBD subscription yet? That would be the first thing to do. Stock newsletters are worthless and you have found out the hard way how dangerous to your financial well being they can be. Stock picking has been time and time again shown by academics to be a lossing game. Read the bogleheads getting started books. See the book list in the wiki pages on this site. Also....Look into Mark hulbert’s analysis of various newsletters. Good luck to you and happy holidays.
Last edited by CaliJim on Thu Dec 27, 2018 11:55 pm, edited 1 time in total.
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ruralavalon
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Re: As of 12/26, should I be in cash?

Post by ruralavalon »

Welcome to the forum :)
strongu wrote: Tue Dec 25, 2018 8:45 pm Hello all - I'm a newbie here. I've been using the IBD system, not religiously, for about seven years. I'm 64 years old, and my IRA lost 50% of value during the last recession. Now it's down 22% since August. I'm not a wealthy guy, and I am alarmed about the past two days on the stock market. I should have a healthy chunk in bonds at my age, but I don't. I don't think the economy is headed in a good direction currently. IBD would have me in all cash right now, looking for good stuff to buy if things begin to turn around. I'm ready to cash out today(temporarily), but suspect that the market may go up temporarily on Wednesday the 26th. I'd hate to miss out on that, but I also am not interested in losing much more of my hard-earned cash. Any thoughts from more experienced investors? Thanks, and Merry Christmas!
I am age 73, retired, no pension or annuity, 50% in stock index funds, 50% in an intermediate-term bond index fund.

I am not going to cash. I think going to cash is a bad idea.

If you go to cash then you have to guess when it has become a good time to get back in the market. But no matter when you face that question you will never know whether waiting till the next day, or the next week, the next month, or even the next year might be a bette to reinvest. It's almost certain you will miss out on the market recovery.

Here are some action steps for you to consider.

A) For now do nothing. educate yourself first. Here is a wiki article you could read to start educating yourself: "Bogleheads® investment philosophy. For a quick overview of investing basics for the new person read Dr. Bernstein's short book, "If You Can". I suggest reading one or two books on general investing. Wiki article, "Books: recommendations and reviews";

B) Decide on a desired asset allocation (a stock/bond mix to use). At age 64 you should indeed have a "healthy chunk" in bonds or other fixed income investments. Do some reading about asset allocation:
1) Graph, "An Efficient Frontier: the power of diversification".
2) the wiki articles Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk", and
3) the wiki article "Asset allocation".

I suggest around 40% in bonds or other fixed income. Here are two good articles on the classic 60/40 stock/bond allocation by Peter Bernstein, Bloomberg Personal Finance (2002), "The 60/40 Solution", and by Rick Ferri, etf.com (2/25/15), "Wisdom Of 60/40 Portfolios Timeless"".

C) Once you have educated yourself and made a plan, then change to a new set of investments.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
delamer
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Re: As of 12/26, should I be in cash?

Post by delamer »

I am your age and my retirement portfolio — all index funds — is down about 13% from its peak in late September. I am invested about 70% stocks and 30% bonds/cash.

So my conclusion is that ypur portfolio is much riskier than mine and/or that you have been picking individual stocks. I’ve never heard of IBD.

I highly recommend that you read this section of the Boglehead wiki for recommendations on a buy-and-hold portfolio consisting of index funds: https://www.bogleheads.org/wiki/Lazy_portfolios

Find one that matches your risk tolerance and implement it.

There also is a Suggested Reading section on this site that would help you.

Good luck.
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Re: As of 12/26, should I be in cash?

Post by Clever_Username »

strongu wrote: Tue Dec 25, 2018 8:45 pm I'm ready to cash out today(temporarily), but suspect that the market may go up temporarily on Wednesday the 26th. I'd hate to miss out on that, but I also am not interested in losing much more of my hard-earned cash. Any thoughts from more experienced investors?
If you're having trouble sleeping, then yes, you should, as you said, have a healthy bond allocation.

I hope you didn't miss out on today. Market is up nicely for the day.
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sixtyforty
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Re: As of 12/26, should I be in cash?

Post by sixtyforty »

I'm familiar with IBD and CANSLIM. The method they use for determining when to get out and get back in, can end up whipsawing you with losses. If you are in individuals stocks, I would consider moving to cash. Then read up info here on investing in broad based indexes etc. A broad based index will eventually come back. Individuals stocks may never come back. If you are in a broad based index and are unable to sleep at night, then consider moving a portion to cash/bonds. Sell down to your sleep point.

Congratulations on finding this forum !
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SmileyFace
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Re: As of 12/26, should I be in cash?

Post by SmileyFace »

IBD goes against Boglehead philosophy so you won't get much support for it here.

I'm not sure why you think the economy is not headed in a good direction - its doing quite well - business is booming.
Trader Joe
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Re: As of 12/26, should I be in cash?

Post by Trader Joe »

strongu wrote: Tue Dec 25, 2018 8:45 pm Hello all - I'm a newbie here. I've been using the IBD system, not religiously, for about seven years. I'm 64 years old, and my IRA lost 50% of value during the last recession. Now it's down 22% since August. I'm not a wealthy guy, and I am alarmed about the past two days on the stock market. I should have a healthy chunk in bonds at my age, but I don't. I don't think the economy is headed in a good direction currently. IBD would have me in all cash right now, looking for good stuff to buy if things begin to turn around. I'm ready to cash out today(temporarily), but suspect that the market may go up temporarily on Wednesday the 26th. I'd hate to miss out on that, but I also am not interested in losing much more of my hard-earned cash. Any thoughts from more experienced investors? Thanks, and Merry Christmas!
No you should not be in cash. Stay the course.
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whodidntante
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Re: As of 12/26, should I be in cash?

Post by whodidntante »

Is the IBD system a trend following system? If that's what you are doing, then you should do it. But it doesn't really seem like you are doing anything with conviction. SMA would have had you out of the market some time ago, so you may be doing the strongu non-system. Trend following needs to be systematic to work as intended, and may still lose compared to a buy and rebalance Bogleheads approach.
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