Invest cash in conservative manner until next recession

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Topic Author
ebeb
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Joined: Sat Dec 23, 2017 2:18 pm

Invest cash in conservative manner until next recession

Post by ebeb » Fri Nov 29, 2019 12:19 pm

Hello Experts,

Assuming I have about $1mil sitting in cash in savings accounts giving 2.00% apy, I would like to wait until the next recession (hard to say when but will happen :o ) to invest in something like Vanguard500index fund at a good buying price. In the meantime what may be a way I can get a little better return (more than 2%)without getting hit by a sudden stock crash while preserving the principal. I think even AAA bonds are not safe in recessions as in 2008. Yes I am quite low risk at present. Thanks for any suggestions! :confused

Explorer
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Re: Invest cash in conservative manner until next recession

Post by Explorer » Fri Nov 29, 2019 12:22 pm

Your money is in the best possible place for the scenario you describe - just hang in there.

chessknt
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Re: Invest cash in conservative manner until next recession

Post by chessknt » Fri Nov 29, 2019 12:26 pm

ebeb wrote:
Fri Nov 29, 2019 12:19 pm
Hello Experts,

Assuming I have about $1mil sitting in cash in savings accounts giving 2.00% apy, I would like to wait until the next recession (hard to say when but will happen :o ) to invest in something like Vanguard500index fund at a good buying price. In the meantime what may be a way I can get a little better return (more than 2%)without getting hit by a sudden stock crash while preserving the principal. I think even AAA bonds are not safe in recessions as in 2008. Yes I am quite low risk at present. Thanks for any suggestions! :confused
There is no higher yield vehicle that fits your parameters. Make sure the cash is split in to portions small enough to meet fdic insurance limits. If you are going to market time you might want to specify a priori a parameter where you will move in to the market

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Wiggums
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Re: Invest cash in conservative manner until next recession

Post by Wiggums » Fri Nov 29, 2019 12:48 pm

Not a good idea.

Even if a recession comes, it will be after the market has run up 30-40 percent. It would be better to invest to you asset allocation.

esteen
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Re: Invest cash in conservative manner until next recession

Post by esteen » Fri Nov 29, 2019 12:52 pm

chessknt wrote:
Fri Nov 29, 2019 12:26 pm
ebeb wrote:
Fri Nov 29, 2019 12:19 pm
Hello Experts,

Assuming I have about $1mil sitting in cash in savings accounts giving 2.00% apy, I would like to wait until the next recession (hard to say when but will happen :o ) to invest in something like Vanguard500index fund at a good buying price.
If you are going to market time you might want to specify a priori a parameter where you will move in to the market
For your strategy, I think this part is key. What buying price is good enough? Will you actually pull the trigger when it has declined, or wait on the sidelines thinking it will decline further (which a whole lot of ppl did in the last recession)? Will you pull the trigger too early and be disappointed? These are all difficulties for a market timer.

I personally would not market time, but to each their own :beer

Topic Author
ebeb
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Re: Invest cash in conservative manner until next recession

Post by ebeb » Fri Nov 29, 2019 1:08 pm

Thanks for the insights! I made some good returns from the 2008 downturn but only regret is I didnt put enough. :oops: , I am trying to get as many other ideas from experienced folks on this site to see what to do at present.

MathIsMyWayr
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Re: Invest cash in conservative manner until next recession

Post by MathIsMyWayr » Fri Nov 29, 2019 1:15 pm

ebeb wrote:
Fri Nov 29, 2019 1:08 pm
Thanks for the insights! I made some good returns from the 2008 downturn but only regret is I didnt put enough. :oops: , I am trying to get as many other ideas from experienced folks on this site to see what to do at present.
Those successful experienced folks are too busy making easy money while flying in private jets to visit this site.

Gill
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Re: Invest cash in conservative manner until next recession

Post by Gill » Fri Nov 29, 2019 1:27 pm

ebeb wrote:
Fri Nov 29, 2019 12:19 pm
...at a good buying price.
This will almost certainly be the fatal flaw in your plan
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

Dontridetheindexdown
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Re: Invest cash in conservative manner until next recession

Post by Dontridetheindexdown » Fri Nov 29, 2019 1:37 pm

We use Vanguard Treasury Money Market VUSXX.

VUSXX returns about 10% more than savings accounts.

Also, VUSXX dividends are not subject to state income tax, so it returns an additional 5.75% for us.

It is not FDIC insured, so there are no account limits to consider.

I believe U.S. Treasuries are the safest available place for cash.

HomeStretch
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Re: Invest cash in conservative manner until next recession

Post by HomeStretch » Fri Nov 29, 2019 1:43 pm

That is a lot of cash to hold. Depending on your tax rate, your after-tax returns on invested cash may be less than inflation. Consider, if you don’t already, holding at least 40% of your portfolio in diversified low-cost equities to keep up with inflation.

Topic Author
ebeb
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Re: Invest cash in conservative manner until next recession

Post by ebeb » Fri Nov 29, 2019 1:53 pm

Dontridetheindexdown wrote:
Fri Nov 29, 2019 1:37 pm
We use Vanguard Treasury Money Market VUSXX.
Looks like a good choice, YTD is 1.98% bit more than what I get in the savings a/c. But still trying to see if anything better. I will be moving into something like VFINX but just not sure when to do.

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whodidntante
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Re: Invest cash in conservative manner until next recession

Post by whodidntante » Fri Nov 29, 2019 1:55 pm

Wiggums wrote:
Fri Nov 29, 2019 12:48 pm
Not a good idea.

Even if a recession comes, it will be after the market has run up 30-40 percent. It would be better to invest to you asset allocation.
Wiggums has made a prediction! :happy

kaseg
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Re: Invest cash in conservative manner until next recession

Post by kaseg » Fri Nov 29, 2019 2:03 pm

I'm curious if the stock market dip at the end of 2018 (which didnt occur during a recession) was enough for you to pull the trigger on moving into the market. If so, you'd be up 25-30+% to date, depending on how close to the bottom you decided to buy in. If you weren't able to call that bottom, I'm not sure why you'd be able to call the next one.

Personally, I cant call those changes, so I don't bother market timing.

MotoTrojan
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Re: Invest cash in conservative manner until next recession

Post by MotoTrojan » Fri Nov 29, 2019 2:07 pm

Let's imagine instead of this situation, you have $1M accumulated in a 401k over the last 20 years which is currently all invested in the S&P500, with the vast majority of it being investment gains. Would you move that to cash? If the answer is no, then I do not understand why you wouldn't invest this money now in one swift lump sum. These situations are entirely equivalent logically, with the only difference being emotions.

I would pick an asset allocation you are comfortable with, invest it on Monday, and research tax-loss harvesting so you can take advantage of any equity declines. Some people have been sitting in cash since 2011 and are now much less wealthy because of it.

krb
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Re: Invest cash in conservative manner until next recession

Post by krb » Fri Nov 29, 2019 2:08 pm

Wiggums wrote:
Fri Nov 29, 2019 12:48 pm
Not a good idea.

Even if a recession comes, it will be after the market has run up 30-40 percent. It would be better to invest to you asset allocation.
Hi. I read that more money has been lost waiting for a bear market than has been lost in a bear market. Under Obama I had a bunch of money to invest. I felt his policies were antibusiness and the market was overvalued and waited and waited and waited for a crash. I probably missed 3 years of a bull market because of it and regret it. At least three years. The market generally goes up. If it were me I would put it all in VTSAX now. HOWEVER - equities are ONLY for money you don't need now. You have to assume it will go down 30 or 40%, then back up. If you need the money in under 15-20 years your exposure to equities should be limited. Make sure you can stomach the volatility of stocks. If you need the money in under 15 years or if you don't stomach volatility you should decrease stock allocation.

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sperry8
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Re: Invest cash in conservative manner until next recession

Post by sperry8 » Fri Nov 29, 2019 2:09 pm

ebeb wrote:
Fri Nov 29, 2019 12:19 pm
Hello Experts,

Assuming I have about $1mil sitting in cash in savings accounts giving 2.00% apy, I would like to wait until the next recession (hard to say when but will happen :o ) to invest in something like Vanguard500index fund at a good buying price. In the meantime what may be a way I can get a little better return (more than 2%)without getting hit by a sudden stock crash while preserving the principal. I think even AAA bonds are not safe in recessions as in 2008. Yes I am quite low risk at present. Thanks for any suggestions! :confused
What % of your total assets does this $1 mil represent? If it's 100%, you are unlikely to be able to "time" the recession properly. Imagine if you held this $1 million in a savings account as of Jan 1 2019 (just 11 months ago). You'd have already missed out on an ~25% gain. Now if the next recession comes, imagine the market drops 33%... you've netted just 8% and took a lot of risk. What risk? The risk that the recession doesn't come next year and stocks do not drop. You also earn dividends along the way.

Another question is... when do you need to spend this $1 mil? Imagine you don't need it for 20 years... then this is a great buying point. If you need it in 3-5 years, then this money shouldn't be in the market at any price.

Take a look at this article and what some have lost calling or waiting for the next drop. https://www.marketwatch.com/story/heres ... 2019-11-13

It just can't be timed and doesn't make sense to try (with 100% of your portfolio). Set your AA properly and then you can use the cash portion to buy in low (if that ever happens)
Last edited by sperry8 on Fri Nov 29, 2019 2:12 pm, edited 1 time in total.
BH contest results: 2018: #150 of 493 | 2017: #516 of 647 | 2016: #121 of 610 | 2015: #18 of 552 | 2014: #225 of 503 | 2013: #383 of 433 | 2012: #366 of 410 | 2011: #113 of 369 | 2010: #53 of 282

krb
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Re: Invest cash in conservative manner until next recession

Post by krb » Fri Nov 29, 2019 2:12 pm

MotoTrojan wrote:
Fri Nov 29, 2019 2:07 pm
Let's imagine instead of this situation, you have $1M accumulated in a 401k over the last 20 years which is currently all invested in the S&P500, with the vast majority of it being investment gains. Would you move that to cash? If the answer is no, then I do not understand why you wouldn't invest this money now in one swift lump sum. These situations are entirely equivalent logically, with the only difference being emotions.

I would pick an asset allocation you are comfortable with, invest it on Monday, and research tax-loss harvesting so you can take advantage of any equity declines. Some people have been sitting in cash since 2011 and are now much less wealthy because of it.
I have another thought ...
Let's say over the last 15 years it was all in SP500. It is now 2 million. Now the market crashes 30%. It is now worth 1.4 M. Would you be happier in that scenario or if you were in cash and it were worth 1.1M. I am probably the most aggressive guy on this chat page though.

krb
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Re: Invest cash in conservative manner until next recession

Post by krb » Fri Nov 29, 2019 2:12 pm

sperry8 wrote:
Fri Nov 29, 2019 2:09 pm
ebeb wrote:
Fri Nov 29, 2019 12:19 pm
Hello Experts,

Assuming I have about $1mil sitting in cash in savings accounts giving 2.00% apy, I would like to wait until the next recession (hard to say when but will happen :o ) to invest in something like Vanguard500index fund at a good buying price. In the meantime what may be a way I can get a little better return (more than 2%)without getting hit by a sudden stock crash while preserving the principal. I think even AAA bonds are not safe in recessions as in 2008. Yes I am quite low risk at present. Thanks for any suggestions! :confused
What % of your total assets does this $1 mil represent? If it's 100%, you are unlikely to be able to "time" the recession properly. Imagine if you held this $1 million in a savings account as of Jan 1 2019 (just 11 months ago). You'd have already missed out on an ~25% gain. Now if the next recession comes, imagine the market drops 33%... you've netted just 8% and took a lot of risk. What risk? The risk that the recession doesn't come next year and stocks do not drop. You also earn dividends along the way.

Another question is... when do you need to spend this $1 mil? Imagine you don't need it for 20 years... then this is a great buying point. If you need it in 3-5 years, then this money shouldn't be in the market at any price.
+1

retired@50
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Re: Invest cash in conservative manner until next recession

Post by retired@50 » Fri Nov 29, 2019 2:13 pm

ebeb wrote:
Fri Nov 29, 2019 12:19 pm
invest in something like Vanguard500index fund at a good buying price.
This reminds me of a line Richard Dreyfus used in the movie "Tin Men". It was about aluminum siding salesmen in the 1950s who were very image conscious, so they all drove Cadillac automobiles.

Dreyfus is at the car dealer, and asks how much the car is... then the dealer says "What do you want to pay for the car?".

Dreyfus says "A dollar and a half"

Figuring out a good price for the Vanguard 500 Index could be equally challenging... Somewhere between a dollar and a half, and it's current market price... Best of luck to you...

rasta
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Re: Invest cash in conservative manner until next recession

Post by rasta » Fri Nov 29, 2019 2:25 pm

if you want to wait for a better entry price you might as well get paid to do it by selling cash secured puts.

CRTR
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Re: Invest cash in conservative manner until next recession

Post by CRTR » Fri Nov 29, 2019 2:33 pm

historically, "recessions" have very little, if any, predictable effect on market performance. Why do you think things will be different with the next recession?

https://awealthofcommonsense.com/2015/0 ... ecessions/

MotoTrojan
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Re: Invest cash in conservative manner until next recession

Post by MotoTrojan » Fri Nov 29, 2019 2:34 pm

krb wrote:
Fri Nov 29, 2019 2:12 pm
MotoTrojan wrote:
Fri Nov 29, 2019 2:07 pm
Let's imagine instead of this situation, you have $1M accumulated in a 401k over the last 20 years which is currently all invested in the S&P500, with the vast majority of it being investment gains. Would you move that to cash? If the answer is no, then I do not understand why you wouldn't invest this money now in one swift lump sum. These situations are entirely equivalent logically, with the only difference being emotions.

I would pick an asset allocation you are comfortable with, invest it on Monday, and research tax-loss harvesting so you can take advantage of any equity declines. Some people have been sitting in cash since 2011 and are now much less wealthy because of it.
I have another thought ...
Let's say over the last 15 years it was all in SP500. It is now 2 million. Now the market crashes 30%. It is now worth 1.4 M. Would you be happier in that scenario or if you were in cash and it were worth 1.1M. I am probably the most aggressive guy on this chat page though.
Yup equally valid but the OP can't change what they did in the past. I am looking at equivalent decisions that would need to be made today to show them the fallacy of being more nervous about "new" money without "paper-gains".

lakpr
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Re: Invest cash in conservative manner until next recession

Post by lakpr » Fri Nov 29, 2019 2:40 pm

ebeb wrote:
Fri Nov 29, 2019 12:19 pm
Hello Experts,

Assuming I have about $1mil sitting in cash in savings accounts giving 2.00% apy, I would like to wait until the next recession (hard to say when but will happen :o ) to invest in something like Vanguard500index fund at a good buying price. In the meantime what may be a way I can get a little better return (more than 2%)without getting hit by a sudden stock crash while preserving the principal. I think even AAA bonds are not safe in recessions as in 2008. Yes I am quite low risk at present. Thanks for any suggestions! :confused
Reminds me of the famous quote from Peter Lynch (ex-manager of Fidelity's Magellan fund): "There is more money lost on the side lines waiting for stock market crash, than actually lost in the market crashes themselves" ....

I would put it all in at 50:50 which is quite conservative. Whichever way the market turns, you will always be half-right!!

krb
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Re: Invest cash in conservative manner until next recession

Post by krb » Fri Nov 29, 2019 2:59 pm

MotoTrojan wrote:
Fri Nov 29, 2019 2:34 pm
krb wrote:
Fri Nov 29, 2019 2:12 pm
MotoTrojan wrote:
Fri Nov 29, 2019 2:07 pm
Let's imagine instead of this situation, you have $1M accumulated in a 401k over the last 20 years which is currently all invested in the S&P500, with the vast majority of it being investment gains. Would you move that to cash? If the answer is no, then I do not understand why you wouldn't invest this money now in one swift lump sum. These situations are entirely equivalent logically, with the only difference being emotions.

I would pick an asset allocation you are comfortable with, invest it on Monday, and research tax-loss harvesting so you can take advantage of any equity declines. Some people have been sitting in cash since 2011 and are now much less wealthy because of it.
I have another thought ...
Let's say over the last 15 years it was all in SP500. It is now 2 million. Now the market crashes 30%. It is now worth 1.4 M. Would you be happier in that scenario or if you were in cash and it were worth 1.1M. I am probably the most aggressive guy on this chat page though.
Yup equally valid but the OP can't change what they did in the past. I am looking at equivalent decisions that would need to be made today to show them the fallacy of being more nervous about "new" money without "paper-gains".
Understood. You can't go backwards. So look forward. Let's say you stay in cash until there's a crash and there's small decreases 10% occasionally and you don't jump in because it's not a real big crash. So you hold on to cash for 10 years. If you put it in SP500 or similar, assume historical about 7% ROI, should double in ten years (Rule of 72). So don't think about yesterday. Think about tomorrow. I'd put it all in VTSAX today IF YOU DON"T NEED IT FOR 20 YEARS! If you need it under 20 years, use proper AA.

Topic Author
ebeb
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Re: Invest cash in conservative manner until next recession

Post by ebeb » Fri Nov 29, 2019 3:03 pm

This is way more info/advice than I expected to "digest" over this Thanksgiving weekend :sharebeer . Also to add a reason for being extra conservative is that I think between $2.5-3M would be enough to live off the investments which may be reachable in the next few years but if the $1M which came off some real-estate sales etc. gets hit pretty bad in a recession it would take a lot longer to reach that level again. 10years wait to recover is ok but 20years hard to say!

MotoTrojan
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Re: Invest cash in conservative manner until next recession

Post by MotoTrojan » Fri Nov 29, 2019 4:51 pm

ebeb wrote:
Fri Nov 29, 2019 3:03 pm
This is way more info/advice than I expected to "digest" over this Thanksgiving weekend :sharebeer . Also to add a reason for being extra conservative is that I think between $2.5-3M would be enough to live off the investments which may be reachable in the next few years but if the $1M which came off some real-estate sales etc. gets hit pretty bad in a recession it would take a lot longer to reach that level again. 10years wait to recover is ok but 20years hard to say!
Sounds like 100% equity is an inappropriate allocation for you, even after a crash. If you have other means to make the remaining $1-2M in a few years, then put this in a CD or a modest equity allocation.

You’re making a mistake but I don’t think we can convince you otherwise. Valuations really aren’t that lofty. It’s just as likely that we get a decade of 3-4% returns that bring valuations below the historical norm as it is that we crash and bounce back.

krb
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Re: Invest cash in conservative manner until next recession

Post by krb » Fri Nov 29, 2019 5:34 pm

MotoTrojan wrote:
Fri Nov 29, 2019 4:51 pm
ebeb wrote:
Fri Nov 29, 2019 3:03 pm
This is way more info/advice than I expected to "digest" over this Thanksgiving weekend :sharebeer . Also to add a reason for being extra conservative is that I think between $2.5-3M would be enough to live off the investments which may be reachable in the next few years but if the $1M which came off some real-estate sales etc. gets hit pretty bad in a recession it would take a lot longer to reach that level again. 10years wait to recover is ok but 20years hard to say!
Sounds like 100% equity is an inappropriate allocation for you, even after a crash. If you have other means to make the remaining $1-2M in a few years, then put this in a CD or a modest equity allocation.

You’re making a mistake but I don’t think we can convince you otherwise. Valuations really aren’t that lofty. It’s just as likely that we get a decade of 3-4% returns that bring valuations below the historical norm as it is that we crash and bounce back.
Although SO FAR the market has always bounced back after a crash 100 percent of the time if you give it enough time. Could be as long as 20 years though so depends on your risk tolerance and time available. Most people here are conservative and sufficiently risk averse that 90-10 is inappropriate. Depends on risk tolerance and time before you need the funds. Don’t forget about the risk of insufficiently aggressive investment and what inflation does too.

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midareff
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Re: Invest cash in conservative manner until next recession

Post by midareff » Fri Nov 29, 2019 5:39 pm

Explorer wrote:
Fri Nov 29, 2019 12:22 pm
Your money is in the best possible place for the scenario you describe - just hang in there.
Folks have been saying that for the last or 9 years while the S&P rose 50%. To use an old stale phrase time in market is more important than timing the market.. what's your time horizon. If more than ten years I'd say jump in.

mortfree
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Re: Invest cash in conservative manner until next recession

Post by mortfree » Fri Nov 29, 2019 5:40 pm

I skimmed through and only saw one mention of FDIC.

Is your money currently safe in the savings account and meeting the FDIC limits*?

Or is this not a real concern?

*250k single account or 500k joint account for FDIC if I remember correctly.

Also I thought the market was going to crash in 2014 but I still lumped sum in a Roth account (into stocks). And here we are now in 2019/2020.

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ebeb
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Re: Invest cash in conservative manner until next recession

Post by ebeb » Fri Nov 29, 2019 6:05 pm

mortfree wrote:
Fri Nov 29, 2019 5:40 pm
I skimmed through and only saw one mention of FDIC.

Is your money currently safe in the savings account and meeting the FDIC limits*?

Or is this not a real concern?

*250k single account or 500k joint account for FDIC if I remember correctly.

Also I thought the market was going to crash in 2014 but I still lumped sum in a Roth account (into stocks). And here we are now in 2019/2020.
Yes 250k max in single account. 2019/2020 is 10yrs since 2008 is what gets bit scary :shock:

krb
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Re: Invest cash in conservative manner until next recession

Post by krb » Fri Nov 29, 2019 6:19 pm

ebeb wrote:
Fri Nov 29, 2019 6:05 pm
mortfree wrote:
Fri Nov 29, 2019 5:40 pm
I skimmed through and only saw one mention of FDIC.

Is your money currently safe in the savings account and meeting the FDIC limits*?

Or is this not a real concern?

*250k single account or 500k joint account for FDIC if I remember correctly.

Also I thought the market was going to crash in 2014 but I still lumped sum in a Roth account (into stocks). And here we are now in 2019/2020.
Yes 250k max in single account. 2019/2020 is 10yrs since 2008 is what gets bit scary :shock:
When the market crashes-and it will - you will just be sad for about five years and then it will be bad and even higher than it was before. Again I’ve been historically to my understanding there is never been a 20 year. In the history of the stock market measuring anyone point compared to any other point where the market was not higher than it was 20 years previously. So is long as your window is say 10 or 15 or 20 years but your money is very safe.

MotoTrojan
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Re: Invest cash in conservative manner until next recession

Post by MotoTrojan » Fri Nov 29, 2019 6:22 pm

krb wrote:
Fri Nov 29, 2019 5:34 pm
MotoTrojan wrote:
Fri Nov 29, 2019 4:51 pm
ebeb wrote:
Fri Nov 29, 2019 3:03 pm
This is way more info/advice than I expected to "digest" over this Thanksgiving weekend :sharebeer . Also to add a reason for being extra conservative is that I think between $2.5-3M would be enough to live off the investments which may be reachable in the next few years but if the $1M which came off some real-estate sales etc. gets hit pretty bad in a recession it would take a lot longer to reach that level again. 10years wait to recover is ok but 20years hard to say!
Sounds like 100% equity is an inappropriate allocation for you, even after a crash. If you have other means to make the remaining $1-2M in a few years, then put this in a CD or a modest equity allocation.

You’re making a mistake but I don’t think we can convince you otherwise. Valuations really aren’t that lofty. It’s just as likely that we get a decade of 3-4% returns that bring valuations below the historical norm as it is that we crash and bounce back.
Although SO FAR the market has always bounced back after a crash 100 percent of the time if you give it enough time. Could be as long as 20 years though so depends on your risk tolerance and time available. Most people here are conservative and sufficiently risk averse that 90-10 is inappropriate. Depends on risk tolerance and time before you need the funds. Don’t forget about the risk of insufficiently aggressive investment and what inflation does too.
That doesn’t mean it will crash though, so sitting in cash waiting is a guaranteed loss in EXPECTED return. FWIW my portfolio is considerably riskier than a 100% global or broad-US equity allocation.

hudson
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Re: Invest cash in conservative manner until next recession

Post by hudson » Fri Nov 29, 2019 6:27 pm

ebeb,
If munis work in your situation???

VWIUX...Vang. Intermed. Muni is an option; more risk; more return.
BMBIX...Baird's Intermed Muni...safer than VWIUX...almost as safe as treasuries.
Look at the distribution yield history of both.

Topic Author
ebeb
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Re: Invest cash in conservative manner until next recession

Post by ebeb » Fri Nov 29, 2019 6:40 pm

hudson wrote:
Fri Nov 29, 2019 6:27 pm
ebeb,
If munis work in your situation???

VWIUX...Vang. Intermed. Muni is an option; more risk; more return.
BMBIX...Baird's Intermed Muni...safer than VWIUX...almost as safe as treasuries.
Look at the distribution yield history of both.
Thanks for the info, will look at this, downside risk is less:
Inter-Term Tax-Exempt Adm
Fund Inception Date 2/12/2001

High High Date Low Low Date
$14.64 07/06/2016 $12.11 10/16/2008

marcopolo
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Re: Invest cash in conservative manner until next recession

Post by marcopolo » Fri Nov 29, 2019 6:47 pm

ebeb wrote:
Fri Nov 29, 2019 12:19 pm
Hello Experts,

Assuming I have about $1mil sitting in cash in savings accounts giving 2.00% apy, I would like to wait until the next recession (hard to say when but will happen :o ) to invest in something like Vanguard500index fund at a good buying price. In the meantime what may be a way I can get a little better return (more than 2%)without getting hit by a sudden stock crash while preserving the principal. I think even AAA bonds are not safe in recessions as in 2008. Yes I am quite low risk at present. Thanks for any suggestions! :confused

it seems odd that during the depths of the 2008/2009 recession I don't recall that many people talking about how they were finally able deploy the dry powder they had been saving just for a crash like this. If anything, most of the chatter was quite to opposite. Maybe you will behave differently.
Once in a while you get shown the light, in the strangest of places if you look at it right.

krb
Posts: 181
Joined: Tue Nov 19, 2019 1:30 pm

Re: Invest cash in conservative manner until next recession

Post by krb » Fri Nov 29, 2019 6:48 pm

marcopolo wrote:
Fri Nov 29, 2019 6:47 pm
ebeb wrote:
Fri Nov 29, 2019 12:19 pm
Hello Experts,

Assuming I have about $1mil sitting in cash in savings accounts giving 2.00% apy, I would like to wait until the next recession (hard to say when but will happen :o ) to invest in something like Vanguard500index fund at a good buying price. In the meantime what may be a way I can get a little better return (more than 2%)without getting hit by a sudden stock crash while preserving the principal. I think even AAA bonds are not safe in recessions as in 2008. Yes I am quite low risk at present. Thanks for any suggestions! :confused

it seems odd that during the depths of the 2008/2009 recession I don't recall that many people talking about how they were finally able deploy the dry powder they had been saving just for a crash like this. If anything, most of the chatter was quite to opposite. Maybe you will behave differently.
True. Interesting way to think about it.

krb
Posts: 181
Joined: Tue Nov 19, 2019 1:30 pm

Re: Invest cash in conservative manner until next recession

Post by krb » Fri Nov 29, 2019 6:53 pm

MotoTrojan wrote:
Fri Nov 29, 2019 6:22 pm
krb wrote:
Fri Nov 29, 2019 5:34 pm
MotoTrojan wrote:
Fri Nov 29, 2019 4:51 pm
ebeb wrote:
Fri Nov 29, 2019 3:03 pm
This is way more info/advice than I expected to "digest" over this Thanksgiving weekend :sharebeer . Also to add a reason for being extra conservative is that I think between $2.5-3M would be enough to live off the investments which may be reachable in the next few years but if the $1M which came off some real-estate sales etc. gets hit pretty bad in a recession it would take a lot longer to reach that level again. 10years wait to recover is ok but 20years hard to say!
Sounds like 100% equity is an inappropriate allocation for you, even after a crash. If you have other means to make the remaining $1-2M in a few years, then put this in a CD or a modest equity allocation.

You’re making a mistake but I don’t think we can convince you otherwise. Valuations really aren’t that lofty. It’s just as likely that we get a decade of 3-4% returns that bring valuations below the historical norm as it is that we crash and bounce back.
Although SO FAR the market has always bounced back after a crash 100 percent of the time if you give it enough time. Could be as long as 20 years though so depends on your risk tolerance and time available. Most people here are conservative and sufficiently risk averse that 90-10 is inappropriate. Depends on risk tolerance and time before you need the funds. Don’t forget about the risk of insufficiently aggressive investment and what inflation does too.
That doesn’t mean it will crash though, so sitting in cash waiting is a guaranteed loss in EXPECTED return. FWIW my portfolio is considerably riskier than a 100% global or broad-US equity allocation.
I bet most people would say there is close to a 100% certainty the market will crash. The question is how much and when. It dropped 10% more than once last few years and was no big whoop. I'm 100% confident there will be a big crash. I don't know if it's 20 or 30 or 40%. And I don't know when. No one does. I do know that over long periods of time it has never been negative. And in most years it is positive. So then the question the OP should have is how many years of gains is he willing to forgo to miss the next bear. Since no one knows when the bear ends you are for sure not getting your money at the lowest price. The odds are that you will end up wealthier not timing the market but putting all your money in now. Statistically I THINK that's safe to say. The problem becomes behavior. If OP is going to freak out when it drops 20% and sell at the low he's better off staying away from equities, at least to any significant percent.

https://www.youtube.com/watch?v=3WkpQ4PpId4

Charlie Munger - some guy I saw on the internet - said this... "if you are not willing to react with equanimity to a market price decline of 50% 2 or 3 times a century, you are not fit to be a common shareholder and you deserve the mediocre result you are going to get"

I don't know him but he looks like a guy who knows something.

MotoTrojan
Posts: 6807
Joined: Wed Feb 01, 2017 8:39 pm

Re: Invest cash in conservative manner until next recession

Post by MotoTrojan » Fri Nov 29, 2019 7:11 pm

krb wrote:
Fri Nov 29, 2019 6:53 pm
MotoTrojan wrote:
Fri Nov 29, 2019 6:22 pm
krb wrote:
Fri Nov 29, 2019 5:34 pm
MotoTrojan wrote:
Fri Nov 29, 2019 4:51 pm
ebeb wrote:
Fri Nov 29, 2019 3:03 pm
This is way more info/advice than I expected to "digest" over this Thanksgiving weekend :sharebeer . Also to add a reason for being extra conservative is that I think between $2.5-3M would be enough to live off the investments which may be reachable in the next few years but if the $1M which came off some real-estate sales etc. gets hit pretty bad in a recession it would take a lot longer to reach that level again. 10years wait to recover is ok but 20years hard to say!
Sounds like 100% equity is an inappropriate allocation for you, even after a crash. If you have other means to make the remaining $1-2M in a few years, then put this in a CD or a modest equity allocation.

You’re making a mistake but I don’t think we can convince you otherwise. Valuations really aren’t that lofty. It’s just as likely that we get a decade of 3-4% returns that bring valuations below the historical norm as it is that we crash and bounce back.
Although SO FAR the market has always bounced back after a crash 100 percent of the time if you give it enough time. Could be as long as 20 years though so depends on your risk tolerance and time available. Most people here are conservative and sufficiently risk averse that 90-10 is inappropriate. Depends on risk tolerance and time before you need the funds. Don’t forget about the risk of insufficiently aggressive investment and what inflation does too.
That doesn’t mean it will crash though, so sitting in cash waiting is a guaranteed loss in EXPECTED return. FWIW my portfolio is considerably riskier than a 100% global or broad-US equity allocation.
I bet most people would say there is close to a 100% certainty the market will crash. The question is how much and when. It dropped 10% more than once last few years and was no big whoop. I'm 100% confident there will be a big crash. I don't know if it's 20 or 30 or 40%. And I don't know when. No one does. I do know that over long periods of time it has never been negative. And in most years it is positive. So then the question the OP should have is how many years of gains is he willing to forgo to miss the next bear. Since no one knows when the bear ends you are for sure not getting your money at the lowest price. The odds are that you will end up wealthier not timing the market but putting all your money in now. Statistically I THINK that's safe to say. The problem becomes behavior. If OP is going to freak out when it drops 20% and sell at the low he's better off staying away from equities, at least to any significant percent.

https://www.youtube.com/watch?v=3WkpQ4PpId4

Charlie Munger - some guy I saw on the internet - said this... "if you are not willing to react with equanimity to a market price decline of 50% 2 or 3 times a century, you are not fit to be a common shareholder and you deserve the mediocre result you are going to get"

I don't know him but he looks like a guy who knows something.
Nice quote there. Hope that was sarcasm about it just being some guy on the internet ;).

hudson
Posts: 2042
Joined: Fri Apr 06, 2007 9:15 am

Re: Invest cash in conservative manner until next recession

Post by hudson » Fri Nov 29, 2019 7:33 pm

ebeb wrote:
Fri Nov 29, 2019 6:40 pm
Thanks for the info, will look at this, downside risk is less:
Inter-Term Tax-Exempt Adm
Fund Inception Date 2/12/2001

High High Date Low Low Date
$14.64 07/06/2016 $12.11 10/16/2008
For what it's worth when purchasing fixed income, I don't look at the net asset value highs and lows.
I want intermediate and high AAA/AA/A holdings. I also look at the expense ratio, SEC Yield, and the distribution yield.
Your current holdings look pretty safe....but if you are holding in a taxable account, you have to pay taxes.
I could be wrong, but I don't think highs and lows give useful information.

tibbitts
Posts: 9368
Joined: Tue Feb 27, 2007 6:50 pm

Re: Invest cash in conservative manner until next recession

Post by tibbitts » Fri Nov 29, 2019 7:51 pm

ebeb wrote:
Fri Nov 29, 2019 1:53 pm
Dontridetheindexdown wrote:
Fri Nov 29, 2019 1:37 pm
We use Vanguard Treasury Money Market VUSXX.
Looks like a good choice, YTD is 1.98% bit more than what I get in the savings a/c. But still trying to see if anything better. I will be moving into something like VFINX but just not sure when to do.
Few things in life matter less, or are less of an indication of what yield to expect in the future, than YTD yield on a money market fund.

Gatto Bialetti
Posts: 18
Joined: Fri Sep 06, 2019 4:45 pm

Re: Invest cash in conservative manner until next recession

Post by Gatto Bialetti » Fri Nov 29, 2019 8:10 pm

Dontridetheindexdown wrote:
Fri Nov 29, 2019 1:37 pm
We use Vanguard Treasury Money Market VUSXX.

VUSXX returns about 10% more than savings accounts.

Also, VUSXX dividends are not subject to state income tax, so it returns an additional 5.75% for us.
The prospectus isn't specific about this point. Are they tax exempt in California, anyone know?

RogerR
Posts: 29
Joined: Thu Sep 05, 2019 3:30 am

Re: Invest cash in conservative manner until next recession

Post by RogerR » Fri Nov 29, 2019 8:27 pm

ebeb wrote:
Fri Nov 29, 2019 12:19 pm
Hello Experts,

Assuming I have about $1mil sitting in cash in savings accounts giving 2.00% apy, I would like to wait until the next recession (hard to say when but will happen :o ) to invest in something like Vanguard500index fund at a good buying price. In the meantime what may be a way I can get a little better return (more than 2%)without getting hit by a sudden stock crash while preserving the principal. I think even AAA bonds are not safe in recessions as in 2008. Yes I am quite low risk at present. Thanks for any suggestions! :confused
Timing the market doesn't work, evidence is overwhelming.
I would go with 50/50 Stocks/Bonds (eg. VOO, VTI, IVV / BND, BSV or AGG).
When stocks go up you feel good because you are in the market, when they go down you should feel good because you buy later at cheaper price by rebalancing once or twice a year at predetermined dates. This is a no regret move and works like a charm.

Topic Author
ebeb
Posts: 18
Joined: Sat Dec 23, 2017 2:18 pm

Re: Invest cash in conservative manner until next recession

Post by ebeb » Fri Nov 29, 2019 9:22 pm

RogerR wrote:
Fri Nov 29, 2019 8:27 pm
ebeb wrote:
Fri Nov 29, 2019 12:19 pm
Hello Experts,

Assuming I have about $1mil sitting in cash in savings accounts giving 2.00% apy, I would like to wait until the next recession (hard to say when but will happen :o ) to invest in something like Vanguard500index fund at a good buying price. In the meantime what may be a way I can get a little better return (more than 2%)without getting hit by a sudden stock crash while preserving the principal. I think even AAA bonds are not safe in recessions as in 2008. Yes I am quite low risk at present. Thanks for any suggestions! :confused
Timing the market doesn't work, evidence is overwhelming.
I would go with 50/50 Stocks/Bonds (eg. VOO, VTI, IVV / BND, BSV or AGG).
When stocks go up you feel good because you are in the market, when they go down you should feel good because you buy later at cheaper price by rebalancing once or twice a year at predetermined dates. This is a no regret move and works like a charm.
This is good practical advice, since its the longest it has gone since 1929 between two recessions, just need to be bit conservative to avoid losing a bunch soon.

User avatar
arcticpineapplecorp.
Posts: 4511
Joined: Tue Mar 06, 2012 9:22 pm

Re: Invest cash in conservative manner until next recession

Post by arcticpineapplecorp. » Fri Nov 29, 2019 10:56 pm

ebeb wrote:
Fri Nov 29, 2019 12:19 pm
Hello Experts,

Assuming I have about $1mil sitting in cash in savings accounts giving 2.00% apy, I would like to wait until the next recession (hard to say when but will happen :o ) to invest in something like Vanguard500index fund at a good buying price. In the meantime what may be a way I can get a little better return (more than 2%)without getting hit by a sudden stock crash while preserving the principal. I think even AAA bonds are not safe in recessions as in 2008. Yes I am quite low risk at present. Thanks for any suggestions! :confused
what do you consider a "good buying price"?

whatevery you think that is, wait for it to come.

if it does come, tell us how long you had to wait for it.

if it doesn't come, tell us how long you waited for it before giving up on a "good buying price".

if you're low risk, why are you seeking higher returns? You know that risk and return are inextricably linked right? That means the more return you want, the more risk you have to take. If you're not interested in risk, then you have to settle for lower returns. That's how it works. Thinking you can have higher returns with less risk doesn't make it so.
ebeb wrote:
Fri Nov 29, 2019 12:19 pm
I think even AAA bonds are not safe in recessions as in 2008. Yes I am quite low risk at present. Thanks for any suggestions! :confused
Look at the picture below. The blue line was what happened in 2008 to total stock market index fund and the green line is what happened to total bond index fund in 2008. What were you saying about AAA bonds not being safe in recessions as in 2008? Stocks fell 37% but bonds went up 5.14% in 2008.

Image

source:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
ebeb wrote:
Fri Nov 29, 2019 12:19 pm
Thanks for the insights! I made some good returns from the 2008 downturn but only regret is I didnt put enough. :oops: , I am trying to get as many other ideas from experienced folks on this site to see what to do at present.
2008? The real bargains were in March of 2009 (stocks were down 52%):

Image

source: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

Larry2623
Posts: 61
Joined: Sat Jul 15, 2017 9:23 pm

Re: Invest cash in conservative manner until next recession

Post by Larry2623 » Fri Nov 29, 2019 11:22 pm

Yes imagine you were smart enough to hold out until say 10/27/2008 to invest your million after that huge drop and market was starting to pop some and 5 months later at the bottom you were down to about 700k. Yes we all know how it turned out but some people sold at that 700k because the pain was just too much...if we just knew when it was the real bottom!

retired@50
Posts: 614
Joined: Tue Oct 01, 2019 2:36 pm

Re: Invest cash in conservative manner until next recession

Post by retired@50 » Sat Nov 30, 2019 12:54 am

Gatto Bialetti wrote:
Fri Nov 29, 2019 8:10 pm
Dontridetheindexdown wrote:
Fri Nov 29, 2019 1:37 pm
We use Vanguard Treasury Money Market VUSXX.

VUSXX returns about 10% more than savings accounts.

Also, VUSXX dividends are not subject to state income tax, so it returns an additional 5.75% for us.
The prospectus isn't specific about this point. Are they tax exempt in California, anyone know?
Yes, to the question about CA.

From the Vanguard document entitled "U.S. Government Obligations Information".
**This fund meets the threshold requirements for California, Connecticut, and New York, which require that 50% of the fund’s assets
at each quarter-end within the tax year consist of U.S. government obligations.


Regards,

smectym
Posts: 610
Joined: Thu May 26, 2011 5:07 pm

Re: Invest cash in conservative manner until next recession

Post by smectym » Sat Nov 30, 2019 1:03 am

Dontridetheindexdown wrote:
Fri Nov 29, 2019 1:37 pm
We use Vanguard Treasury Money Market VUSXX.

VUSXX returns about 10% more than savings accounts.

Also, VUSXX dividends are not subject to state income tax, so it returns an additional 5.75% for us.

It is not FDIC insured, so there are no account limits to consider.

I believe U.S. Treasuries are the safest available place for cash.
Must agree with DontRide. VUSXX is the money market fund of choice—and unlike Vanguard Prime (in normal times a very safe and well-run fund), not subject to mandatory gates or fees in the event of another liquidity lockdown. If you don’t have $50,000 for a cash allocation, use VFMXX. I also use Treasury Direct

motorcyclesarecool
Posts: 785
Joined: Sun Dec 14, 2014 7:39 am

Re: Invest cash in conservative manner until next recession

Post by motorcyclesarecool » Sat Nov 30, 2019 1:09 am

May I suggest using Fidelity Cash Management account? They work with several banks to ensure your entire million would have FDIC insurance. And you could deploy your cash easily if/when the time comes that you decide to buy. Super conservative in case next downturn results in mass bank failures. If you want to goose your returns but remain overall conservative until then, you could put 10% each in FZROX and FUMBX, and choose not to reinvest the dividends / interest / cap gains.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

smectym
Posts: 610
Joined: Thu May 26, 2011 5:07 pm

Re: Invest cash in conservative manner until next recession

Post by smectym » Sat Nov 30, 2019 1:22 am

tibbitts wrote:
Fri Nov 29, 2019 7:51 pm
ebeb wrote:
Fri Nov 29, 2019 1:53 pm
Dontridetheindexdown wrote:
Fri Nov 29, 2019 1:37 pm
We use Vanguard Treasury Money Market VUSXX.
Looks like a good choice, YTD is 1.98% bit more than what I get in the savings a/c. But still trying to see if anything better. I will be moving into something like VFINX but just not sure when to do.
Few things in life matter less, or are less of an indication of what yield to expect in the future, than YTD yield on a money market fund.
tibbitts, an amusing, lapidary witticism. But the moment does come when “few things in life matter more” than that ones assets be safely allocated to a money market fund impervious to market crashes or NAV attrition. VUSXX probably comes closest to that ideal. And once you’re discussing that sort of investment, it’s not unreasonable to gloat a little if, as a bonus, its yield turns out to be competitive.

You do make your point. But the zinger “Few things in life matter less than...” can be plausibly followed by almost any topic, obsession, occupation, etc. taken in isolation and deprived of context. Most things in life matter only in context, as part of a complex web of interconnected relations. Somewhere in there, perhaps even the current yield on VUSXX finds its humble but essential place.

hudson
Posts: 2042
Joined: Fri Apr 06, 2007 9:15 am

Re: Invest cash in conservative manner until next recession

Post by hudson » Sat Nov 30, 2019 7:41 am

arcticpineapplecorp. wrote:
Fri Nov 29, 2019 10:56 pm
Nice charts! I'd forgotten that total bond ruled in 2008.
I don't know about them being AAA, but that doesn't change anything.

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