Wise move to move some $ to cash before bear market?

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riptide
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Wise move to move some $ to cash before bear market?

Post by riptide » Thu Mar 26, 2015 10:01 am

I just read an article that described how to prepare for a bear market and listed the history of the previous bear markets over time. Since we are at an all time high , a bear market is coming , nobody knows when. The author suggested taking 20%- 30 % and putting it in cash to hold and buy in the bear market, instead of losing 20-30%. This sounds like a good plan, as a bear market is coming sometime in the future.... Is this a sound plan? I'm about to do it.
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Re: Wise move to move some $ to cash before bear market?

Post by JohnnyFive » Thu Mar 26, 2015 10:08 am

Here we go again.

A bear market is, in fact coming, but when it's coming is the question none of us can answer. Is it coming tomorrow? Next week? Or 10 years from now? Don't try to time the market. Stay the course.

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Re: Wise move to move some $ to cash before bear market?

Post by zaboomafoozarg » Thu Mar 26, 2015 10:11 am

What if you had done this on January 1, 2013?

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Re: Wise move to move some $ to cash before bear market?

Post by mptfan » Thu Mar 26, 2015 10:16 am

riptide wrote:I just read an article that described how to prepare for a bear market and listed the history of the previous bear markets over time. Since we are at an all time high , a bear market is coming , nobody knows when. The author suggested taking 20%- 30 % and putting it in cash to hold and buy in the bear market, instead of losing 20-30%. This sounds like a good plan, as a bear market is coming sometime in the future.... Is this a sound plan? I'm about to do it.
When is it ever NOT true that a bear market is coming sometime in the future? By the way, how does the author of the article that you read define "bear market?" How do you define it?
Last edited by mptfan on Thu Mar 26, 2015 10:17 am, edited 2 times in total.

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Re: Wise move to move some $ to cash before bear market?

Post by Wellfleet » Thu Mar 26, 2015 10:16 am

Riptide, I looked at some of your previous posts and you appear be a 70/30 AA and note that market timing is not for you. Why would this potential event be an exception?

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Re: Wise move to move some $ to cash before bear market?

Post by riptide » Thu Mar 26, 2015 10:19 am

I knew I would get these responses. Market timing. But, it sure seems if somebody took out 30% and put it in cash at the right time, he would be sitting pretty.
I know, at the right time...
Brokerage account 70/30 | VG total Market 40% | VG total Intl 11% | VG small cap value 12% | VG Reit index 7% | VG Total Bond 30% | TSP Account 75/25 | C Fund 45%, S 15%, I 15%, G 25% | EE Bonds=Emergency Fund

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Re: Wise move to move some $ to cash before bear market?

Post by mptfan » Thu Mar 26, 2015 10:25 am

riptide wrote:I knew I would get these responses. Market timing. But, it sure seems if somebody took out 30% and put it in cash at the right time, he would be sitting pretty.
I know, at the right time...
Think about it...the author of that article says that a bear market is coming...isn't that always the case? Is he or she really telling you anything that you didn't already know?

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Re: Wise move to move some $ to cash before bear market?

Post by itstoomuch » Thu Mar 26, 2015 10:27 am

How close are you to retirement/withdrawals ?
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riptide
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Re: Wise move to move some $ to cash before bear market?

Post by riptide » Thu Mar 26, 2015 10:31 am

itstoomuch wrote:How close are you to retirement/withdrawals ?
I'm 13-15 years from retirement needing the cash...
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Re: Wise move to move some $ to cash before bear market?

Post by cheese_breath » Thu Mar 26, 2015 10:32 am

riptide wrote:I knew I would get these responses. Market timing. But, it sure seems if somebody took out 30% and put it in cash at the right time, he would be sitting pretty.
I know, at the right time...
Why just 30%? Why not move everything into cash "at the right time''?
The surest way to know the future is when it becomes the past.

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Re: Wise move to move some $ to cash before bear market?

Post by bilperk » Thu Mar 26, 2015 10:34 am

Riptide,

I see nothing necessarily wrong with what you are suggesting. I say this because you seem to be showing signs of someone who is over allocated to equities; more than your true risk tolerance. I agree with you that now is the time to examine that, and if you find it to be true, then cut back. But if you do that, you need to understand that it should be permanent.
Bill

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Re: Wise move to move some $ to cash before bear market?

Post by Leeraar » Thu Mar 26, 2015 10:37 am

riptide wrote:I knew I would get these responses. Market timing. But, it sure seems if somebody took out 30% and put it in cash at the right time, he would be sitting pretty.
I know, at the right time...
Yes, of course. You should ALWAYS sell the week before a bear market begins. And then, buy when it ends. :P

Actually, it's not nearly as bad as you think. Recent studies have shown that if you bought only at (relative) market peaks over the past 25 years, you will have done quite fine. Also, if you wait for "dips" you will be worse off than just investing a fixed periodic amount.

Remember, you have to make two correct decisions: When to sell, when to buy. I have a friend who sold out in the 2008 crash and has still not bought back in. He thinks the market is "too high".

L.
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Re: Wise move to move some $ to cash before bear market?

Post by 2Birds1Stone » Thu Mar 26, 2015 10:42 am

"2009 25.94%
2010 14.82%
2011 2.10%
2012 15.89%
2013 32.15%
2014 13.48%

With numbers like that in our recent history, anything above zero is a blessing. Returns have been so stellar that simple reversion to the mean would suggest we're due for a down year. "

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Re: Wise move to move some $ to cash before bear market?

Post by parsi1 » Thu Mar 26, 2015 10:46 am

What I have done in the past that seems to be beneficial is to increase your 401K contribution when there is a market correction and then reset is back when the market starts rising. I couldn’t do it too long because of the expenses but for just a couple of month maybe.
I will do the same when the bear market in here and there is a correction.

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Re: Wise move to move some $ to cash before bear market?

Post by Doc » Thu Mar 26, 2015 10:52 am

Leeraar wrote:Yes, of course. You should ALWAYS sell the week before a bear market begins. And then, buy when it ends. :P
That is really not that hard to do in fact.
DEFINITION OF 'BEAR MARKET'
A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20\% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market
http://www.investopedia.com/terms/b/bearmarket.asp

But by then it's too late.

One week before the bear cometh the market has already been tanking for 7 weeks. :twisted:
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Re: Wise move to move some $ to cash before bear market?

Post by SpringMan » Thu Mar 26, 2015 11:03 am

Use bond funds to rebalance into stocks if a bear market occurs, no need to hold a lot of cash IMO.
Best Wishes, SpringMan

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Re: Wise move to move some $ to cash before bear market?

Post by ogd » Thu Mar 26, 2015 11:13 am

The author of that piece should consider starting a tactical allocation fund, which aims to do precisely this. Then -- crucially, with an audited performance record, as opposed to periodic articles -- he can join the ranks of those consistently underperforming simple balanced funds through moves like this.

The vast majority of professional fund managers who try to time the market through asset allocation underperform. This tells you that it's at least hard, if not impossible.

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Re: Wise move to move some $ to cash before bear market?

Post by goingup » Thu Mar 26, 2015 11:16 am

Riptide-
In reading a number of your posts over the past months I would say you are a rather anxious investor. The "noise" that is ever present in the media affects your comfort level. That's an important thing to know about yourself. As Bilperk suggested upthread, you may have to dial back equities to reach a threshold AA you can successfully maintain. When experts here say that one must "stay the course" in order to be a successful investor they really mean it! Jumping in and out of the market usually does not improve one's returns. It most often leads to regret and more anxiety.

I suggest you give great consideration to making any changes in your portfolio. Really think it through. If you still want to make a change, be deliberate about it and commit yourself to the new allocation.

It may be heresy to suggest this, but just possibly you don't have the temperament for DIY investing. Have you considered turning this over to an FA? Vanguard's service costs .30 AUM. Might be something for you to consider.

Best wishes,
goingup

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Re: Wise move to move some $ to cash before bear market?

Post by JonnyDVM » Thu Mar 26, 2015 11:18 am

riptide wrote:I knew I would get these responses. Market timing. But, it sure seems if somebody took out 30% and put it in cash at the right time, he would be sitting pretty.
I know, at the right time...
Some posters were talking about doing this when the market was at 15,000. Those guys that actually did are surely kicking themselves. I wouldn't do it now either. Just keep the right asset allocation in bonds so you can funnel money from bonds into equities when the market finally does go splat.
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

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Re: Wise move to move some $ to cash before bear market?

Post by joebh » Thu Mar 26, 2015 11:22 am

riptide wrote:a bear market is coming sometime in the future...
This statement has always been true, and will always be true.
The only question is - so what? Should you act on that truism, or stay the course?
And if you choose to act on it today, why won't you do the same again tomorrow, and the day after, and the day after that?

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Re: Wise move to move some $ to cash before bear market?

Post by IlliniDave » Thu Mar 26, 2015 11:33 am

riptide wrote:I just read an article that described how to prepare for a bear market and listed the history of the previous bear markets over time. Since we are at an all time high , a bear market is coming , nobody knows when. The author suggested taking 20%- 30 % and putting it in cash to hold and buy in the bear market, instead of losing 20-30%. This sounds like a good plan, as a bear market is coming sometime in the future.... Is this a sound plan? I'm about to do it.
It depends. If you move to cash and the 30% bear market doesn't come until after a market rise of another 50% you wind up behind even if you can time the bottom perfectly. If you mistime the bottom you make out even worse. If the bear is only 10% or 20% you make out worse. If you time it perfectly and the bear is 40% you can come out ahead. You take on risk to make the move, the price for the potential reward.
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Re: Wise move to move some $ to cash before bear market?

Post by sambb » Thu Mar 26, 2015 11:36 am

nothing wrong with market timing - as long as you are right. I don't think i will be right at it. Maybe it will work for you. If it does, then we are all stupid to dissuade you. I just can't personally time the market. Wish I could. Stay the course.

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Re: Wise move to move some $ to cash before bear market?

Post by YDNAL » Thu Mar 26, 2015 12:03 pm

riptide wrote:I just read an article that described how to prepare for a bear market and listed the history of the previous bear markets over time. Since we are at an all time high , a bear market is coming , nobody knows when. The author suggested taking 20%- 30 % and putting it in cash to hold and buy in the bear market, instead of losing 20-30%. This sounds like a good plan, as a bear market is coming sometime in the future.... Is this a sound plan? I'm about to do it.
Riptide,

1. Since bear markets do come "sometime in the future" -- are you prepared to put 20-30% in Cash *perpetually* while waiting?

2. Then, ask yourself the reason that you invest in Equities -- in the first place -- and the reason you chose [whatever] exposure to Equities. If there is no rhyme or reason for your exposure, then ABSOLUTELY invest the money in something else.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Re: Wise move to move some $ to cash before bear market?

Post by downshiftme » Thu Mar 26, 2015 12:16 pm

Is this a new article by this author, perhaps a product of original research that this particular time is an especially good time to make such a tactical reallocation to cash. Or is this a rehash of a similar article the author wrote six months ago, and also a year ago, and also 18 months ago. How did those prognostications work out?

The most likely scenario, is that this author is trying to fill column inches with anything that people will click. Fear sells. Thinking that a dangerous drop in prices is coming just because markets are at new highs is well debunked and yet endlessly attractive to people who see it written by a quasi-authoritative source.

Reduce your risk exposure if you are indeed uncomfortable with your equity allocation at these levels, but try not to be seduced into believing that you are making a brilliant market timing move, even if you get lucky this time.

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Re: Wise move to move some $ to cash before bear market?

Post by dh » Thu Mar 26, 2015 12:27 pm

Riptide, I would encourage you to reread BillPerk's post. Examine your plan to exchange 20%-30% of your equities to cash. If you want to decrease equities and increase a cash position to reach a desired asset allocation, do it! Like the rest of us you have had tremendous gains over the last few years. However, if you are doing it because you are trusting an author who is predicting a crash, I would seriously reconsider that plan. Find that allocation that you can stay with regardless of what the market does. Best wishes. :sharebeer

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Re: Wise move to move some $ to cash before bear market?

Post by DaftInvestor » Thu Mar 26, 2015 12:28 pm

riptide wrote:I just read an article that described how to prepare for a bear market and listed the history of the previous bear markets over time. Since we are at an all time high , a bear market is coming , nobody knows when. The author suggested taking 20%- 30 % and putting it in cash to hold and buy in the bear market, instead of losing 20-30%. This sounds like a good plan, as a bear market is coming sometime in the future.... Is this a sound plan? I'm about to do it.
...and if the Bear Market doesn't come for another 2 years how will you feel about losing the gain you would have gotten if you stuck with your AA?
Agree with others that are implying that folks that think like this may have the wrong AA.

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Re: Wise move to move some $ to cash before bear market?

Post by The Wizard » Thu Mar 26, 2015 12:35 pm

cheese_breath wrote:
riptide wrote:I knew I would get these responses. Market timing. But, it sure seems if somebody took out 30% and put it in cash at the right time, he would be sitting pretty.
I know, at the right time...
Why just 30%? Why not move everything into cash "at the right time''?
Because that would be blatant Market Timing, not more reasoned Tactical Asset Allocation...
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Re: Wise move to move some $ to cash before bear market?

Post by Clearly_Irrational » Thu Mar 26, 2015 12:36 pm

riptide wrote:I just read an article that described how to prepare for a bear market and listed the history of the previous bear markets over time. Since we are at an all time high , a bear market is coming , nobody knows when. The author suggested taking 20%- 30 % and putting it in cash to hold and buy in the bear market, instead of losing 20-30%. This sounds like a good plan, as a bear market is coming sometime in the future.... Is this a sound plan? I'm about to do it.
A bear market is always coming, the problem is if you move your money out early you might miss out on gains that could leave you worse off than if you did nothing. Both from a theory perspective and from my own research and experience you can't dodge most market downturns because the indicators you'd need to use have too much lag to them. By the time you've figured out something is going wrong it's too late to do anything useful. There may, perhaps, be a small exception for asset bubbles caused by excessively loose monetary policy. (examples: 1929, 2001, 2008) If that is true (and that is by no means certain) then lets look at how things are going now to see if the timing is right to make a decision. Let's check out the necessary pre-conditions:

1) The Federal Reserve has been heavily intervening in the market. Check.
2) The market appears to be at historically high valuations (as gauged by PE10). Check.
3) Our market crash indicator is showing that something bad may be about to happen. Not yet.

Here's the detailed version:

Technicals
-----------------
1) We're near the bottom of the bollinger band but haven't touched
2) Volume is up today, something may be changing
3) Japanese candle pattern suggest a retracement soon
4) We're above the 200 day SMV, no need to panic
5) MACD divergence is narrow but widening
6) Chaikin Money flow is negative and dropping
7) RSI is low but not oversold
8) P&F chart still has a bullish target
9) Prices are at the lower channel line, there may be a triple top or rising wedge pattern forming

Really short term, we may experience a rise in prices this afternoon or tomorrow. Short term we're probably looking at a jagged rise up to the bollinger band midline at least. Both the triple top and rising wedge pattern are negative signals so medium term we could be looking at a more significant breakdown in prices. Overall signal strength is mediocre at best, prediction confidence isn't particularly high though at least it's not mixed.

Macros
------------
1) Fed is accommodative but neutral, green light
2) US Leading indicators are positive, green light
3) FRED recession probability is only 0.98, green light
4) CFNAI-MA3 is -0.08, green light (it doesn't go yellow until a much lower reading)
5) Schiller PE10 is 27.02, yellow light (it's been there for a while though)
6) No yield curve inversion, green light
7) Dividend cuts are high, red light (that's mostly in the fracking industry though, it might be a false signal)
8) North American rail traffic is up 2%
9) Market is still rational on a price dividend ratio, no new trend established
10) NBER business cycle data suggests we're still within the bounds for a normal length upcycle
11) Housing affordability is now worse than during the previous bubble (median new home sale price vs. median household income, though that's somewhat distorted due to the used market and slow wage growth)
12) Baltic dry index is low but rising (The low reading is probably due to excess ship construction)

Overall I don't see any reason to change course. Even if we believe that we can very rarely intervene actively (which is controversial) now doesn't appear to be the right time. My advice is to continue buying and holding as normal.

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Re: Wise move to move some $ to cash before bear market?

Post by rob » Thu Mar 26, 2015 12:39 pm

Maybe it's time to look at whether your allocation is really the right allocation. No one wins the timing game but if your not prepared to ignore a xx% dip then now is a better time to make that call then after the fact... but then don't pretend you can buy back in or whatever other nonsense they go on with. Pick the right allocation in the firt place and then stop listening if that's what you have to do.
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Re: Wise move to move some $ to cash before bear market?

Post by Clearly_Irrational » Thu Mar 26, 2015 12:41 pm

The Wizard wrote:Because that would be blatant Market Timing, not more reasoned Tactical Asset Allocation...
If we're talking moving to cash I think I'd call that market timing even at 30%. If he's talking about just being nervous with his current risk level and changing his stock/bond ratio to something more comfortable, say 50/50 instead of 70/30, that's probably tactical asset allocation (if he intends to move back to a riskier posture later).

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Re: Wise move to move some $ to cash before bear market?

Post by livesoft » Thu Mar 26, 2015 12:41 pm

There is no reason to go to cash at some random point before a bear market. One loses too much money waiting for such a bear market to happen.

Better is to simply have an allocation to fixed income to use to buy equities whenever one needs to. For instance, I have about 33% to 35% of my portfolio in bond funds. If stocks drop and a bear market happens, then I will simply sell some bond fund shares and buy equities. I don't see any reason to go to cash since I can buy equity funds with cash raised later by selling bond funds.

Also, I don't have to make any predictions about a bear market or the price of equities or even the timing of all this. I am 100% guaranteed to be able to buy equity funds when they are a lower percentage of my portfolio after they have dropped in value. 100% guaranteed with no guess work and no predicting the future.
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Re: Wise move to move some $ to cash before bear market?

Post by Khanmots » Thu Mar 26, 2015 1:16 pm

What everyone else has said.

And... if this author was such a good predictor of market movements, why is he writing for a living? Why hasn't he put his skill to use, made his fortune, and be currently hanging out on a beach somewhere with a large number of beauties of the appropriate sex?

Maybe it's because he's getting paid to speculate... and his predictive abilities are no better than anyone else?

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Re: Wise move to move some $ to cash before bear market?

Post by The Wizard » Thu Mar 26, 2015 1:26 pm

Clearly_Irrational wrote:
The Wizard wrote:Because that would be blatant Market Timing, not more reasoned Tactical Asset Allocation...
If we're talking moving to cash I think I'd call that market timing even at 30%. If he's talking about just being nervous with his current risk level and changing his stock/bond ratio to something more comfortable, say 50/50 instead of 70/30, that's probably tactical asset allocation (if he intends to move back to a riskier posture later).
Yes, good points.
It's possible to have an Investment Policy Statement that allows one's AA to vary acceptably within certain ranges.
In my case, at age 65, I'm nominally 50/50, but with an OK stock percentage between 45% and 55%.
So if I was worried about an imminent stock market crash, I could pull back (from 53% presently) to 45% stocks and still not violate my plan, I suppose.
But I'd probably want to add some hysteresis in there, to avoid buying more stocks until stock percentage got down to maybe 40% of total.
Just some thoughts on the matter...
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Re: Wise move to move some $ to cash before bear market?

Post by Stonebr » Thu Mar 26, 2015 1:28 pm

I will go against what everyone else is saying and tell you to go ahead. Either way you will probably be okay -- at the very worst it will be a learning experience. Do you have a plan for when you will buy back in?
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear

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Re: Wise move to move some $ to cash before bear market?

Post by Maynard F. Speer » Thu Mar 26, 2015 1:37 pm

I'd say when valuations are high, it's sensible to have more in cash, foreign equities, alternatives or real assets ..

If you want a crude timing mechanism, just look at when the S&P 500 has passed below the SMA 300 on the first day of the month (or any day of the month, just stick to one day to look, to avoid too many potential false signals)

Image
https://www.portfoliovisualizer.com/tes ... ming-model

Very debatable topic - my perspective is I'll buy-and-hold anything under or at its average long-term value .. With anything riding on expensive valuations, I'll only hold while it's still rising ... Most of the worst market days occur when the index is under the SMA 300

EDIT: Buy again when it crosses above the SMA 300 .. Ideally with low valuations too .. Or stay in foreign equities/alternatives
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

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Re: Wise move to move some $ to cash before bear market?

Post by niceguy7376 » Thu Mar 26, 2015 1:40 pm

Riptide,
Is it 30% of my stock index portfolio that I need to move to cash or total portfolio? Will bonds also fall in bear market?
Please do let me know when you are taking action so that I can do the same. I will be waiting for your instructions.

I dont want to be washed away in the soon to be coming force of a riptide.

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Re: Wise move to move some $ to cash before bear market?

Post by riptide » Thu Mar 26, 2015 1:41 pm

goingup wrote:Riptide-
In reading a number of your posts over the past months I would say you are a rather anxious investor. The "noise" that is ever present in the media affects your comfort level. That's an important thing to know about yourself. As Bilperk suggested upthread, you may have to dial back equities to reach a threshold AA you can successfully maintain. When experts here say that one must "stay the course" in order to be a successful investor they really mean it! Jumping in and out of the market usually does not improve one's returns. It most often leads to regret and more anxiety.

I suggest you give great consideration to making any changes in your portfolio. Really think it through. If you still want to make a change, be deliberate about it and commit yourself to the new allocation.

It may be heresy to suggest this, but just possibly you don't have the temperament for DIY investing. Have you considered turning this over to an FA? Vanguard's service costs .30 AUM. Might be something for you to consider.

Best wishes,
goingup


Thank you for the post. I do believe I am better suited to having an advisor. I just don't think I am that good at managing my own inheritance. I become to anxious and have sold low before and got burned with a loss in 2008. I think I will look at transferring my index funds to Vanguard so I can have some guidance and feel more at peace with it. I could also possibly change from 70/30 to 65/35 and feel a bit better.
Brokerage account 70/30 | VG total Market 40% | VG total Intl 11% | VG small cap value 12% | VG Reit index 7% | VG Total Bond 30% | TSP Account 75/25 | C Fund 45%, S 15%, I 15%, G 25% | EE Bonds=Emergency Fund

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riptide
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Re: Wise move to move some $ to cash before bear market?

Post by riptide » Thu Mar 26, 2015 1:47 pm

Thank you all for the helpful posts. It seems I would be best taking a few steps:
1.Moving my index funds to Vanguard so I may get some guidance / advice (it is over $200,000)
2. Possibly moving to a 65/35 AA for my peace and less anxiety

I know far to little to attempt to time the market after reading all the posts.
Brokerage account 70/30 | VG total Market 40% | VG total Intl 11% | VG small cap value 12% | VG Reit index 7% | VG Total Bond 30% | TSP Account 75/25 | C Fund 45%, S 15%, I 15%, G 25% | EE Bonds=Emergency Fund

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riptide
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Re: Wise move to move some $ to cash before bear market?

Post by riptide » Thu Mar 26, 2015 1:48 pm

niceguy7376 wrote:Riptide,
Is it 30% of my stock index portfolio that I need to move to cash or total portfolio? Will bonds also fall in bear market?
Please do let me know when you are taking action so that I can do the same. I will be waiting for your instructions.

I dont want to be washed away in the soon to be coming force of a riptide.
My instructions for you are :
1. make sure your Asset Allocation is where you are comfortable
2. exchange bonds for stocks when the market dips and tanks
Brokerage account 70/30 | VG total Market 40% | VG total Intl 11% | VG small cap value 12% | VG Reit index 7% | VG Total Bond 30% | TSP Account 75/25 | C Fund 45%, S 15%, I 15%, G 25% | EE Bonds=Emergency Fund

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TomatoTomahto
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Re: Wise move to move some $ to cash before bear market?

Post by TomatoTomahto » Thu Mar 26, 2015 1:58 pm

riptide wrote:2. Possibly moving to a 65/35 AA for my peace and less anxiety
I'm gliding (slowly) to 50/50. I'm currently at 55/45.

A consideration in your AA is your need, ability, and willingness to take risk. In my case, I don't have the need, so I limit the aggressiveness of the AA. If you wonder about your "staying the course," consider being even higher in non-equities than 65/45. You might only partly benefit from equities growth in the future, but you will feel better, and you won't be as likely to make a mistake when the (inevitable) bear market arrives.

Good luck.

Ps. You say the money is inherited. That might be the case, but after everything has settled, you should think of it as your money. Don't treat it differently than any other money.

magneto
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Re: Wise move to move some $ to cash before bear market?

Post by magneto » Thu Mar 26, 2015 2:00 pm

Seems OP you could certainly be a candidate for having at least some cash allocation in the AA at all times, if volatility averse.
Valuation-wise Bonds do seem to be in a bubble, Stocks expensive but nowhere near the levels of say 1999, so a dollop of cash would stabilise the portfolio if bonds and stocks happen to fall together as has been suggested. Have been consistently wrong about bonds for a number of years now, so maybe ignore this view? :happy
We are certainly cash heavy since presently in this unusual climate, too many investors/monies seem to be chasing too few assets. But then we are prepared to live with the cash drag (in low inflation conditions), and will merely shrug if bonds in particular do well from hereon.
Maybe look at cash as a kind of insurance?
'There is a tide in the affairs of men ...', Brutus (Market Timer)

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Clearly_Irrational
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Re: Wise move to move some $ to cash before bear market?

Post by Clearly_Irrational » Thu Mar 26, 2015 2:10 pm

riptide wrote:2. Possibly moving to a 65/35 AA for my peace and less anxiety
That seems wise. If you're stressed now you're going to totally freak when things really start happening. Personally I'd say even 65/35 might be too aggressive for you but that's just off the cuff, you'll need to do some more soul searching before deciding on an AA you handle through a 50% market drop (which are pretty common).

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Re: Wise move to move some $ to cash before bear market?

Post by cheese_breath » Thu Mar 26, 2015 2:46 pm

The Wizard wrote:
cheese_breath wrote:
riptide wrote:I knew I would get these responses. Market timing. But, it sure seems if somebody took out 30% and put it in cash at the right time, he would be sitting pretty.
I know, at the right time...
Why just 30%? Why not move everything into cash "at the right time''?
Because that would be blatant Market Timing, not more reasoned Tactical Asset Allocation...
You say tomato I say tomahto
The surest way to know the future is when it becomes the past.

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Re: Wise move to move some $ to cash before bear market?

Post by asif408 » Thu Mar 26, 2015 2:57 pm

OP,

I don't know if this will help you but it helped me. If you haven't tried it already go here: https://www.portfoliovisualizer.com/backtest-portfolio and input your current portfolio (or a similar one going back to at least 2000 or so). Look back during the really bad stock years (2000-2002, 2008) and look at the monthly returns and balances. I think this gives a better feel of the possible short term returns during bad times for your current portfolio. It helped me immensely seeing different allocations and their draw downs over several months. I knew after seeing how a 100% stock portfolio performed in 2000-2002 and 2008 I probably wouldn't be comfortable with it. My limit is about 70/30 for risk tolerance. Play around with the allocations and see if you can find one that meets your "equipoise" point, as Dr. Bernstein calls it.

garlandwhizzer
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Re: Wise move to move some $ to cash before bear market?

Post by garlandwhizzer » Thu Mar 26, 2015 6:29 pm

The historical record suggests that no one can consistently and reliably predict beforehand when a bull market in going to begin or end and likewise for bear markets. If prognosticators make enough picks, someone gets it right occasionally but that is very much like the fact that a broken watch is accurate twice every day. This move of 20% into equities might turn out to be right, but it is just as likely that it will turn out to be wrong. If there were some magician who actually had this skill at picking market entry and exit points beforehand, it is likely that he wouldn't go around trumpeting his insight to the market as a whole but rather act on it quietly in order to maximize his gain. It's the same question you should ask a broker who gives you a hot tip. If it's such a sure fire winner why is he telling you about it? Why not leverage up and gorge on the secret sauce all by himself before the market gets wind of it and the alpha gets overgrazed? My advice is pay no attention to the market noise from financial barkers. The very few people who actually know what they're doing (like Buffett) announce changes in their portfolio after those changes are fully accomplished as quietly as possible rather than trumpeting their insight or lack of it beforehand.

If you are uncomfortable with your high level of equity exposure, by all means reduce it to your comfort zone and put the money in less volatile safer assets. But I would be very dubious about the reliability of some "expert" who has picked this moment as the magic for a market timing move with such a substantial portion of your portfolio.

It is likely in my opinion that we will at some point in the not too distant future have an long overdue market correction of modest proportions, but not the start of a new secular bear market where equities go on fire sale. My opinion on this, like all others, is not to be counted on. My advice is to find an asset allocation between equities, cash, and bonds, that allows you to sleep at night and don't change your safe versus volatile mixture without a very good reason.

Garland Whizzer

CoAndy
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Re: Wise move to move some $ to cash before bear market?

Post by CoAndy » Thu Mar 26, 2015 6:39 pm

OP, I thought like you back in 2001 and 2008. I did what you are thinking of doing. Both times I paid the price. Please learn from my expensive mistakes. Don't do it.

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Re: Wise move to move some $ to cash before bear market?

Post by ShiftF5 » Thu Mar 26, 2015 8:17 pm

cheese_breath wrote:
riptide wrote:I knew I would get these responses. Market timing. But, it sure seems if somebody took out 30% and put it in cash at the right time, he would be sitting pretty.
I know, at the right time...
Why just 30%? Why not move everything into cash "at the right time''?
Now...now...no fanning the flames of temptation. :happy

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k66
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Re: Wise move to move some $ to cash before bear market?

Post by k66 » Thu Mar 26, 2015 8:46 pm

Riptide--I started my BH-style investing almost exactly 5 years ago (April 2010). Almost the day after I switched my portfolio to index-based investments, the market blew out the better part of 20% (SP500 from 1220 down to 1020). It really made me think twice about what I had done and if I wasn't going to get beat up by staying "in"... but I also recognized that this was part of the test and needed to remain resolute. I did stay in and paid off handsomely--as we all know, the SP is now touching 2100. Part of the confidence at that time came from recently seeing the wreckage of 2008/09 and how even in that disaster, the best plan was to "stay the course".
LOSER of the Boglehead Contest 2015 | lang may yer lum reek

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Kevin M
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Re: Wise move to move some $ to cash before bear market?

Post by Kevin M » Thu Mar 26, 2015 9:10 pm

Based on your posts in this thread, it sounds like your willingness to take risk may be too low to justify a 70/30 portfolio. The comment about bailing out in 2008 supports this. Perhaps you would be better off with something like 50/50, with the intention of increasing your allocation to stocks if the market drops by a certain percentage. This has been referred to as "overbalancing". Forum member tfb published a series of blog posts about doing exactly this during 2008. Here is the first one: Embrace the Bear Market with Overbalancing. He also published subsequent posts about it, which you may find interesting.

If you find that with a smaller allocation to stocks you are able to not only rebalance back to that allocation when the stock market really tanks, but actually increase your stock allocation, that will demonstrate that you have increased your willingness to take risk to the point that justifies the higher stock allocation.

If you think you might bail out of your 70/30 allocation next time the market drops 20%, 30%, 40% or more, then I would say now is a good time to reduce your stock allocation. From a behavioral perspective, I'd rather sell stocks after they've gone up a lot, like the last six years, than after they've gone down a lot, like in 2008. It sounds like maybe you have been doing the opposite.

I don't think there's anything wrong with keeping part of your fixed income in cash if you want--especially if you put it in a savings account earning 1%, a 5-year CD earning 2.25% with an early withdrawal penalty of six months of interest, or a stable value fund earning 2%-3% in a 401k or 529 plan. After all, a 3-year Treasury is only yielding about 1% now, and most people would call that a bond. Why turn up our noses at 1% cash with less interest-rate risk than a 3-year bond?

So if you put all this together, you could move 20% of your portfolio from stocks to high-yielding cash, and maintain a 50/30/20 stock/bond/cash portfolio until the next big downturn, at which point you could rebalance or overbalance from cash into stocks. I wouldn't do it because of what someone is predicting, but rather because it seems more suitable for you based on your risk tolerance.

Kevin
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Re: Wise move to move some $ to cash before bear market?

Post by KyleAAA » Thu Mar 26, 2015 9:14 pm

Sure, a bear market is coming sometime in the future but the market could triple before that happens. If you're uncomfortable with the prospect of losing 20-30% of your portfolio, you're investing beyond your risk tolerance.

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