Is cash trash or king? Market timing

[mbk734]

Do you tend to agree with #1 or #2?

1. Cash is trash and you should be fully invested at all times. Market timing is difficult. Buy and hold forever.
vs
2. Cash is king when a buying opportunity arises. Market timing is a valuable strategy. Buy low and sell high.

Also, do you believe in lump sum investing or dollar cost averaging?

I ask because I may consider moving bonds to stocks when the market is down and vice versa when the market goes up.

[ResearchMed]

Yes, definitely

And to BOTH question topics!

RM

[Taylor Larimore]

mbk:

I have learned (the hard way) that market timing is unlikely to be successful. This is what has provided us with a comfortable retirement:

The Bogleheads Investment Philosophy

Best wishes.
Taylor

[John3754]

This is like going to "dogaficionado.com" and asking "Which makes a better pet, a cat or a dog?".

[Barefootgirl]

A fish.


BFG

[Peter Foley]

I am much more inclined to agree with the multiple statements in #1 than in #2.

If there were a "great buying opportunity" and you had no cash, you could always buy some equities on margin in a taxable account. So there is a way around the first statement in #2. I find the first statement in #1 to be false as well - there is both the need for an emergency fund and for a risk free source for annual retirement withdrawals.

I believe in dollar cost averaging because of the psychological benefit, not the investment (return) benefit. I also distinguish between dollar cost averaging (lump sum) and periodical investing (e.g., monthly contributions to a retirement fund).

[Leeraar]

Also, do you believe in lump sum investing or dollar cost averaging?

That's exactly the problem. It is not a belief, it is not a religion.

The arithmetic of DCA is pretty simple. Understand what it is, then decide what to do. "Belief" is irrelevant.

Man, oh man. Getting a rise out of me on the topic of DCA is as easy as fishing with dynamite, isn't it?

L.

[Ged]

I ask because I may consider moving bonds to stocks when the market is down and vice versa when the market goes up.

Please explain "down" and "up".

[TheTimeLord]

Do people here consider market valuation and market timining the same thing? Otherwise I think the choices are incomplete.

[BolderBoy]

I ask because I may consider moving bonds to stocks when the market is down and vice versa when the market goes up.

Then I hope you moved from bonds to stocks on Friday. Or do you know something about Monday that none of the rest of us do?

[robertalpert]

I ask because I may consider moving bonds to stocks when the market is down and vice versa when the market goes up.

What is it that will inform you in advance of market tops and bottoms?

[JoMoney]

I'm still not really clear on what is considered "market timing" and what sort of changes are not. Sometimes I think that "I know when I see it", but really I have some unresolved dissonance. I'm quick to call people who trade on technical indicators and momentum as "market timers", but I'm partial to certain "fundamental" valuation metrics and their related "stories". I question "efficient markets", "risk premiums", and more. Their are various "stories" that are contrived by Wall Street, and sometimes built out of my own rationalizations that can be quite persuasive. But I also realize (and have experienced) that the more decisions I make, the more opportunities I have to be wrong. As far as the stock market is concerned (real estate too), deciding to sell with the pretense that the price is too high and someone will sell it back to me later at a lower price hasn't served me well. I've had several reoccurring themes of selling just before prices go much higher, prices never going back to terms I'm more comfortable with, and making lots of frustrating decisions that ultimately accounted to nothing. I'm convinced my best strategy is to "stay the course", "buy and hold", and do my best to avoid the siren song of thinking I can out-guess the market.

[Leeraar]

I'm still not really clear on what is considered "market timing" and what sort of changes are not. Sometimes I think that "I know when I see it", but really I have some unresolved dissonance. I'm quick to call people who trade on technical indicators and momentum as "market timers", but I'm partial to certain "fundamental" valuation metrics and their related "stories". I question "efficient markets", "risk premiums", and more. Their are various "stories" that are contrived by Wall Street, and sometimes built out of my own rationalizations that can be quite persuasive. But I also realize (and have experienced) that the more decisions I make, the more opportunities I have to be wrong. As far as the stock market is concerned (real estate too), deciding to sell with the pretense that the price is too high and someone will sell it back to me later at a lower price hasn't served me well. I've had several reoccurring themes of selling just before prices go much higher, prices never going back to terms I'm more comfortable with, and making lots of frustrating decisions that ultimately accounted to nothing. I'm convinced my best strategy is to "stay the course", "buy and hold", and do my best to avoid the siren song of thinking I can out-guess the market.

Well, suppose you have money available to invest next Wednesday, but not before. If you do not invest it on Wednesday you are either a market timer or a procrastinator.

If your decision to invest (or not) has anything to do with market prices, you are a timer.

L.

[lazyday]

Do you tend to agree with #1 or #2?

Agreement or belief can be a continuum. Not Yes or No, but a grey area inbetween.

Some books like W Bernstein's Four Pillars of Investing and some of Bogle's books discuss how we might gently change our allocation when markets move to extremes. With warnings about the dangers.

[Call_Me_Op]

Do you tend to agree with #1 or #2?

1. Cash is trash and you should be fully invested at all times. Market timing is difficult. Buy and hold forever.
vs
2. Cash is king when a buying opportunity arises. Market timing is a valuable strategy. Buy low and sell high.

Neither. Cash is part of my AA, used for paying taxes (in taxable) and rebalancing.

[Taylor Larimore]

Bogleheads:

This is my favorite definition of "market-timing":

Portfolio changes based on market forecasts.

Best wishes.
Taylor

[TheTimeLord]

Bogleheads:

This is my favorite definition of "market-timing":

Portfolio changes based on market forecasts.

Best wishes.
Taylor

So this would differ from portfolio changes because of market valuations? Just trying to make sure I understand.

[Professor Emeritus]

Also, do you believe in lump sum investing or dollar cost averaging?

That's exactly the problem. It is not a belief, it is not a religion.

The arithmetic of DCA is pretty simple. Understand what it is, then decide what to do. "Belief" is irrelevant.

Man, oh man. Getting a rise out of me on the topic of DCA is as easy as fishing with dynamite, isn't it?

L.

Add "building equity" and I'm right there with you

[Professor Emeritus]

I ask because I may consider moving bonds to stocks when the market is down and vice versa when the market goes up.

was there a sale on crystal balls on EBAY and I wasn't watching?

[Professor Emeritus]

I ask because I may consider moving bonds to stocks when the market is down and vice versa when the market goes up.

was there a sale on crystal balls on EBAY and I wasn't watching?

[TheTimeLord]

Also, do you believe in lump sum investing or dollar cost averaging?

That's exactly the problem. It is not a belief, it is not a religion.

The arithmetic of DCA is pretty simple. Understand what it is, then decide what to do. "Belief" is irrelevant.

Man, oh man. Getting a rise out of me on the topic of DCA is as easy as fishing with dynamite, isn't it?

L.

I think one of the issues I never see discussed with Lump Sum vs DCA is while Lump Sum produces better results in about 2 out of 3 cases it also produces the maximum lose potential. So I would suggest depending on your motivation capital appreciation vs. capital preservation the choice could vary.

[mbk734]

I ask because I may consider moving bonds to stocks when the market is down and vice versa when the market goes up.

was there a sale on crystal balls on EBAY and I wasn't watching?

I used to call Miss Cleo for stock picks but she was shut down for fraud

[cfs]

Leaders, good morning/afternoon/evening

Thanks for asking, and keep the good questions coming. On a serious note, and in reference to moving bonds to stocks when the market is down and vice versa when the market goes up: excellent idea. However, the reality is that the chance of winning this Wall Street Casino game is very low; you win by NOT playing this game. My recommendation is to stay invested, IF you want, you can do a balancing act by ADDING part of your cash reserves to the asset class going down in the past couple of months and not in the past couple of days. Moving from asset class to asset class based on the market ups and downs is nothing new, some gurus have tries to use this strategy, but it could be detrimental to your portfolio's health. Bottom line, this is a dangerous game to play, and you win by not participating.

Thanks for reading.

[Leeraar]

I think one of the issues I never see discussed with Lump Sum vs DCA is while Lump Sum produces better results in about 2 out of 3 cases it also produces the maximum lose potential. So I would suggest depending on your motivation capital appreciation vs. capital preservation the choice could vary.

It has been discussed.

L.

[goblue100]

I ask because I may consider moving bonds to stocks when the market is down and vice versa when the market goes up.

If you have a fixed asset allocation and maintain it, this happens automatically, no real timing necessary.

[Leeraar]

I think one of the issues I never see discussed with Lump Sum vs DCA is while Lump Sum produces better results in about 2 out of 3 cases it also produces the maximum lose potential.

Let me try a little explanation, without turning this into another DCA thread.

So I would suggest depending on your motivation capital appreciation vs. capital preservation the choice could vary.

Isn't that setting your Asset Allocation? If you are risk averse you should perhaps lower your allocation to equities?

If you DCA, you are delaying the investment of some of your available funds. The uninvested funds are not at risk for a decline in equities, but they are also not able to participate in any gain. DCA or not, you can always lower your equity risk by not investing. In fact, you can make this risk zero: Invest nothing, wait out your DCA period, and then invest 100% at the end.

If you Lump Sum, you pay the price at the beginning. If you DCA, you pay an average price over the DCA period. Lump Sum wins if the initial price is lower that the average price over the following DCA period. Historically, that is true about 70% of the time.

Note this: If the price trend is down, not investing beats DCA.

One final point: If you DCA, you start out with 0% invested, and ramp up to 100% invested. Over the DCA period you are, on average, about 50% invested. Because you are not fully invested, DCA reduces your risk.

However, the academics point out that over the last half of the DCA period, you have more than 50% at risk. So, DCA is a "non-optimal" way to reduce risk. A better way is simply to invest 50% and be done.

L.

[Taylor Larimore]

Bogleheads:

This is my favorite definition of "market-timing":

Portfolio changes based on market forecasts.

Best wishes.
Taylor

So this would differ from portfolio changes because of market valuations? Just trying to make sure I understand.

StarbuxInvestor:

In my view, "portfolio changes because of market valuations" IS market-timing.

Best wishes.
Taylor

[leonard]

Do you tend to agree with #1 or #2?

1. Cash is trash and you should be fully invested at all times. Market timing is difficult. Buy and hold forever.
vs
2. Cash is king when a buying opportunity arises. Market timing is a valuable strategy. Buy low and sell high.

Also, do you believe in lump sum investing or dollar cost averaging?

I ask because I may consider moving bonds to stocks when the market is down and vice versa when the market goes up.

Are you asking if bogleheads support market timing?

[Levett]

Having some cash is never trash. Period.

Lev

[Middle]

I think the pithy wall street sayings can only take you so far and once you dig deeper often don't work for your personal situation.

[papito23]

It's not always a simple matter of being fully invested or holding a ton of cash, waiting for a crash. It helps if your future goals are flexible. I made a bunch of money in Nov/Dec last year and am sitting on it. Technically, I suppose I should load up my IRA ASAP since I already have an e-fund. 5 years of a rising market made me pause. But I am also looking at buying a house, and moving to a 2-car household. Much is contingent on the job situation after graduation. So I sit here with cash, waiting to dump a bunch into a new car and/or go towards home equity. But if we see a ~15%+ before then, I might just put some of that into stocks and borrow a little more on the house and/or get a used car instead. You can also decide to use $XXXX each year to either paying down the mortgage or buying more stocks, depending on valuations. Do I expect to make out like a bandit? Not at all.

Someone will point out that that is a form of leverage (even though, strictly speaking, I'm not borrowing money to directly invest in the stock market). So are the vast majority of home owners I suppose, who went into debt for a house. A slippery slope perhaps. But there world is not 100% market timing or 100% automatic fully vested. A flexible middle works for me.