I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

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willthrill81
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by willthrill81 »

Tyler Aspect wrote: Sun Aug 11, 2019 7:42 pm
BlueOrange10 wrote: Sun Aug 11, 2019 1:56 pm People often forget that if the market drops 50%, it needs to go up 100% to recover.
Is it true that the market need to apply a greater force for a 100% recovery than a 50% drop? Consider the case of a doubling versus halving. Doubling can be considered as multiplying by 2, while halving can be considered as dividing by 2. Doubling is the inverse of halving with the same factor of 2 being involved.

(12.3 * 2) / 2 = 12.3
(12.3 / 2) * 2 = 12.3

It does not matter if you doubling first then halving second, or halving first then doubling second. You come back to the original figure. Same amount of "force" either way.
You're referring to the multiplicative law (i.e. the order of the multipliers doesn't matter). I believe that's a separate issue from the "-50% needs +100% to break-even" one. It certainly seems that it takes more time for the market to double than to halve.
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bltn
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by bltn »

TheBogleWay wrote: Sun Aug 11, 2019 4:52 am
msk wrote: Sun Aug 11, 2019 3:13 am I am 100% stocks at age 75. I have dabbled in stocks since the early 1980s and have NEVER bought bonds. During ALL that time stocks have NEVER looked cheap. They always looked over-priced. Check the P/E ratios in the early days of Microsoft, Apple or even Amazon today. I disagree that after a 60% fall (e.g. the Nasdaq fiasco in the dot.com bust) stocks looked cheap. They did NOT! There is NEVER anything that tells you they are about to bounce back and that the fall will not continue towards 80% or 90%. Get used to it. Stocks will always look expensive for the rest of your life. The most useful lesson I learned over the decades was simply to hold on. The markets are driven by fear and greed. But the fear spreads like wildfire and market drops always go to irrational lows. Unfortunately the greed drives us into irrational exuberance. Even at absurdly high highs, 50% of the market are buyers and 50% sellers. And our greed is always telling us that we are missing out. Fear always wins in the end. At highs, fear against missing out. At lows, fear of being sucked into a deeper abyss. Diversify, Buy and Hold; forever. My greed and 4 decades of dabbling tells me to avoid bonds. I am not THAT fearful :annoyed
I needed to hear this, that's great advice. Thanks for sending it my way, I'll remember that wisdom. Weird that they never feel cheap!
Very interesting perspective from msk. Most will not have the nerve to hang on to a 95-100% stock allocation in a severe market correction.
If you re going to keep 95% of your investments in stocks, consider accumulating a contingency fund of 2 years expenses. That emergency fund might make it easier to sleep at night.
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by guyinlaw »

make_a_better_world wrote: Sat Aug 10, 2019 11:14 pm
Personally I am taking my own amateur version of Ray Dalio's All-Weather fund approach where you have different asset classes with different degrees of correlation.
Isn't the Dalio all weather portfolio 30% stock, 60% bonds and rest in gold/commodities? With bonds stuck in low interest rate for >10 years, would he still recommend such a high percentage in bonds?

https://www.listenmoneymatters.com/ray- ... portfolio/
Time is your friend; impulse is your enemy. - John C. Bogle
LoveVermont
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by LoveVermont »

You’re essentially all stocks right now. Given your age, and assuming you are investing for retirement sometime in your 60s, you will (probably) have better long-term returns the higher your stock allocation. That said, stocks can drop very far, very fast and take a long time to recover. The S&P 500 was essentially flat during the first decade of this century, as an example. Personally, I follow Ben Graham‘s admonition to never hold less than 25% nor more than 75% in stocks. Since this is the bogleheads forum, it’s probably worth quoting Jack Bogle who said on a number of occasions, “If you’re 100% in anything, you’re going to have a long hard investing life.“
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HomerJ
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by HomerJ »

BlueOrange10 wrote: Sun Aug 11, 2019 3:49 pm
willthrill81 wrote: Sun Aug 11, 2019 3:45 pm Of course you can calculate the average length of time between recessions, but that doesn't mean that that average period is predictive of anything at all. Many academic studies have been done regarding this topic, and the consistent conclusion has been that the length of the time since the last recession is not even a statistically significant predictor, a very low standard, of the next recession.
I'm a statistics guy, so there is information to be gleaned from any data set. I think it is silly to say we know absolutely nothing about when the next recession could occur.
If you are really a statistics guys you understand how useless a very small sample is, right?
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by Indemnity007 »

In a similar age bracket. 29, single and no kids. 95 % equities/ETFs + 5% cash and don't plan to re-allocate.

In the long run (30+ year horizon) what does re-allocating to BND over the next few years achieve? Other than minimal improvement in capital preservation when things get ugly on a MACRO basis.

If shifting to a more conservative risk tolerance over the next couple years yields an emotional benefit, then there's an argument I suppose. I'm just not there.

I'll continue to spend and save well within my annual cash flow (200K salary). This is my hedge when the market and economy get bearish as long as I can just stay away from the new BMW M5s. :D
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Ben Mathew
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by Ben Mathew »

Yes, reducing stock allocations based on economic indicators would be timing.

Note also that even if we are overdue for a downturn, that would not be reason to move out of stocks. Since the economic indicators you are seeing is public information, stock prices should already reflect that. Markets can be wrong, but to capitalize on that, you would have to know something that others don't.

At your age, I would recommend a 100% allocation to stocks unless you are very conservative, or planning to retire soon.
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CnC
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by CnC »

Sometimes after reading threads like this it makes me concerned about the echo chamber and dogma here on these boards.


Everyone here is so afraid of the sacrilege that is market timing that they can't seem to think straight.

It is perfectly reasonable to adjust the AA you had at 21 after a 10 year bull market. Anyone who says otherwise is only fooling themselves. Anyone who doesn't have ice water in their veins should not be 95/5 at this point in time.


Can you miss out on 0.5% growth going forward. Yes you can. That is an extremely low price to pay to give yourself 20% insulation to a market drop and panic selling as well as 20% dry powder if you don't panic during the next crash.
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by rbaldini »

TheBogleWay wrote: Sat Aug 10, 2019 8:36 pm as you're all seeing, there are indicators that say we're overdue for a downturn.
This sentence suggests that it is market timing: you are doing it because you have a vague inkling about changes in future returns.

That being said, if you’ve thought about it and truly think that 95% stock exposes you to too much risk, then you should decrease stock exposure. It’s more about assessing your own ability to take risk, not about anticipating a dip.
Nowizard
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by Nowizard »

Ask if your risk tolerance has changed in a broader sense rather than based on your/others short-term market predictions. For example, would you go back to 95% stocks if market predictions were more bullish? If so, then you are market-timing, something you can do based on your choices even though not generally recommended, of course.

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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by wolf359 »

CnC wrote: Mon Aug 12, 2019 7:47 am Sometimes after reading threads like this it makes me concerned about the echo chamber and dogma here on these boards.


Everyone here is so afraid of the sacrilege that is market timing that they can't seem to think straight.

It is perfectly reasonable to adjust the AA you had at 21 after a 10 year bull market. Anyone who says otherwise is only fooling themselves. Anyone who doesn't have ice water in their veins should not be 95/5 at this point in time.


Can you miss out on 0.5% growth going forward. Yes you can. That is an extremely low price to pay to give yourself 20% insulation to a market drop and panic selling as well as 20% dry powder if you don't panic during the next crash.
+1

Getting out of the market based on a fear that it is going to go down is the very definition of market timing. But that's missing the point. You don't really know if you're right or wrong. Every time you feel this strongly about the market, write it down, with the date, and what your specific prediction is, as well as what your action should be. Write down the arguments behind your prediction. Keep it in an investment journal so you can track your predictions over time.

You will discover pretty quickly if your instincts are right or wrong over time. Doing this exercise, I discovered I'm sometimes right and sometimes wrong.

Whether or not to change your asset allocation is a different story. If you've never been through a bear market, then you have no idea what your true risk tolerance is. On the other hand, you also have nearly a million in assets. How would you feel about an extended slide in which you lost over $500,000 in the next 2-3 years? As the losses are grinding on month after month, would you be questioning your strategy as you lost over a decade's worth of effort, or would you be excited to be able to invest more at the market lows?

Now that you have significant assets, should you have a more conservative AA? How far away is your retirement goal? If you have years to go, you might stay aggressive.

Making AA changes while the market is high is better than making them after the market has tanked, and you are locking in your losses. It's always prudent to be prepared for a market downturn. Make sure your emergency fund is fully funded. And make sure your Asset Allocation is correct.
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by dh »

guyinlaw wrote: Sun Aug 11, 2019 3:22 pm Jack Bogle himself says he sold his stocks in year 2000 because valuations did not make any sense to him in those years. :shock:

https://youtu.be/k6ra5POdsYg

Minute 2:57
"I said, you know... with bonds yielding around 7% today, stocks yielding around 1%... stock market being at that point closer to 40 times earnings than 30, I think it's impossible that in next decade stocks will outperform bonds"

Minute 3:46
"I was in the process of reducing my equity position, that's normal abot 70/75%... to about 30/25%, and I did that"

I copied this from a old post on this forum.
Thanks for sharing this. In addition to his wit, knowledge, and intelligence, Jack Bogle was an honest humble man. It is a sign of my aging, but I forgot that bond yields were 7% at that time. His move to 25% equities made sense given his failing health and bond yields. Everyone needs to find the asset allocation that fits for them. Good luck to all! :sharebeer
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by JoMoney »

I think it would be "timing" (not that timing is immoral or illegal or anything) if your expectation is to buy back the stocks you sold at a lower price in the future. If you're merely realizing that you want to lower your risk profile/exposure to stocks, the time to do that is before a crash.... just don't expect that it's something that will garner you higher returns.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by Fallible »

I believe what the OP has told us thus far is a good example of the difference between market timing and risk tolerance:

_If the OP is talking about what the market is doing because he is concerned he may have too much risk and is considering lowering it, it’s about risk tolerance, about trying to get in line with his own tolerance for risk.

_If the OP is talking about what the market is doing because he wants to make a prediction about what it will do and then invest accordingly, he would be market timing with the aim to make more money, to even increase risk.

This OP has mentioned his concern about what the market is doing, about not having experience in a recession, and about lowering his risk. That’s about recognizing his tolerance for risk, not unlike the top investing pros do. Too often, just expressing interest in or concern about what the market might do will prompt the market timing label, when what is important is the reason for the interest or concern.
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by ruralavalon »

CnC wrote: Mon Aug 12, 2019 7:47 am Sometimes after reading threads like this it makes me concerned about the echo chamber and dogma here on these boards.


Everyone here is so afraid of the sacrilege that is market timing that they can't seem to think straight.

It is perfectly reasonable to adjust the AA you had at 21 after a 10 year bull market. Anyone who says otherwise is only fooling themselves. Anyone who doesn't have ice water in their veins should not be 95/5 at this point in time.


Can you miss out on 0.5% growth going forward. Yes you can. That is an extremely low price to pay to give yourself 20% insulation to a market drop and panic selling as well as 20% dry powder if you don't panic during the next crash.

Being 10 years older is a good reason to revisit the asset allocation decision.

Having a larger portfolio, significant more assets to protect, is also a good reason to revisit the asset allocation decision.
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by CnC »

ruralavalon wrote: Mon Aug 12, 2019 11:31 am

Being 10 years older is a good reason to revisit the asset allocation decision.

Having a larger portfolio, significant more assets to protect, is also a good reason to revisit the asset allocation decision.

Exactly, while I agree in premise with the Bogle philosophy. It seems that so many people here are afraid of being branded market timers they actually avoid intelligent decisions so the can say they don't time the market.


Selling half your stocks today because they are high in hopes of buying them all back in 6 months is market timing and foolish.

Realizing that you now have 750k invested and that stocks are near an all time high and that you haven't been through a real crash and deciding to sell a quarter of your stocks to adjust your AA to 75/25 is not market timing. It just a common sense thing to do.

Will it give you the best possible outcome, no probably not but it should help to stop you from doing something very stupid like panic selling.

If we see a 30% crash and you feel like investing that 25% you have in bonds back in the market go ahead. Good job timing the market, but above all it looks like your can stomach losses and can hold a mainly stock portfolio.
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willthrill81
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by willthrill81 »

CnC wrote: Mon Aug 12, 2019 11:54 amRealizing that you now have 750k invested and that stocks are near an all time high and that you haven't been through a real crash and deciding to sell a quarter of your stocks to adjust your AA to 75/25 is not market timing. It just a common sense thing to do.

Will it give you the best possible outcome, no probably not but it should help to stop you from doing something very stupid like panic selling.
Adjusting your AA on the basis of anticipated movements in the market (i.e. 'stocks are at/near all time highs, ergo they're set to crash') is market timing, but in the instance you describe and the OP's, the motivation to reduce long-term risk, which is not market timing, may be the bigger driver of the decision. And I agree that investors should not fear the 'market timing' brand as much as they do.
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Re: I'm 31, and 95% stocks. Given economy indicators, would moving 20-30% to BND be "timing"?

Post by make_a_better_world »

guyinlaw wrote: Sun Aug 11, 2019 9:01 pm
make_a_better_world wrote: Sat Aug 10, 2019 11:14 pm
Personally I am taking my own amateur version of Ray Dalio's All-Weather fund approach where you have different asset classes with different degrees of correlation.
Isn't the Dalio all weather portfolio 30% stock, 60% bonds and rest in gold/commodities? With bonds stuck in low interest rate for >10 years, would he still recommend such a high percentage in bonds?

https://www.listenmoneymatters.com/ray- ... portfolio/
From what I've read from Dalio in his book called Principles, no Bridgewater fund is ever fixed in time and there is no one great best investment. The general point, however, is to be invested in multiple asset classes that are not strongly correlated with one another. If you're interested:
https://www.youtube.com/watch?v=Nu4lHaSh7D4
https://www.bridgewater.com/research-li ... -strategy/
https://www.bridgewater.com/research-li ... sk-parity/
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