Retreat to cash

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marge-g
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Retreat to cash

Postby marge-g » Tue Nov 22, 2016 10:26 am

Markets do not like uncertainty, and it would appear that with the new president, 2017 will bring a period of uncertainty on some major issues.

I DO NOT intend this post to elicit a political debate or name-calling contest. I have no leanings one way or the other with respect to political parties or platforms. Please refrain from that debate here.

I have been seriously considering getting out of the equity and bond markets and retreating to cash during the next year. Essentially betting that returns will be negative or less than 1%. I doubt that the sky will fall, but I would not be surprised to see political uncertainty or unrest spook the markets, resulting is a period of decline.

I’m a long time investor and have never been scared off before, staying invested through multiple crashes and recoveries. [OT comment removed by moderator prudent] My experience is simply that uncertainty unsettles the markets and leads to steep declines.

Discussion? (Again, please refrain from political statements)

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Tycoon
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Re: Retreat to cash

Postby Tycoon » Tue Nov 22, 2016 10:32 am

I think you're letting emotions control your thoughts.
C'est la vie

msk
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Re: Retreat to cash

Postby msk » Tue Nov 22, 2016 10:33 am

In Efficient Markets all knowledge is already priced in. What matters is whether you believe that the market is reasonably efficient :confused

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ruralavalon
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Re: Retreat to cash

Postby ruralavalon » Tue Nov 22, 2016 10:33 am

In my opinion this is a very bad idea.
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bigred77
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Re: Retreat to cash

Postby bigred77 » Tue Nov 22, 2016 10:33 am

marge-g wrote:Markets do not like uncertainty, and it would appear that with the new president, 2017 will bring a period of uncertainty on some major issues.

I DO NOT intend this post to elicit a political debate or name-calling contest. I have no leanings one way or the other with respect to political parties or platforms. Please refrain from that debate here.

I have been seriously considering getting out of the equity and bond markets and retreating to cash during the next year. Essentially betting that returns will be negative or less than 1%. I doubt that the sky will fall, but I would not be surprised to see political uncertainty or unrest spook the markets, resulting is a period of decline.

I’m a long time investor and have never been scared off before, staying invested through multiple crashes and recoveries. [OT comment removed by moderator prudent] My experience is simply that uncertainty unsettles the markets and leads to steep declines.

Discussion? (Again, please refrain from political statements)


If you've invested through periods of uncertainty before, why is now different?

southbay
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Re: Retreat to cash

Postby southbay » Tue Nov 22, 2016 10:36 am

Stay invested for the long term and quit checking the markets. Go for a walk and turn off the news.

why3not
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Re: Retreat to cash

Postby why3not » Tue Nov 22, 2016 10:39 am

It could be the right move, it could be the wrong move. I can't predict the future. If I could, I would market time and be so wealthy as to not worry about any of this.

malabargold
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Re: Retreat to cash

Postby malabargold » Tue Nov 22, 2016 10:39 am

[quote="marge-g"]Markets do not like uncertainty, and it would appear that with the new president, 2017 will bring a period of uncertainty on some major issues . . .

I’m a long time investor and have never been scared off before . . .


You demur several times that this isn't a political thread,
But the premise of your question begs to differ!

user5027
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Re: Retreat to cash

Postby user5027 » Tue Nov 22, 2016 10:43 am

My investing horizon is well beyond what you are talking about.

Nummerkins
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Re: Retreat to cash

Postby Nummerkins » Tue Nov 22, 2016 10:47 am

The Dow, NASDAQ, S&P 500 and Russell 2000 closed at all-time highs yesterday and you want to move to cash?

STAY THE COURSE!

Youngblood
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Re: Retreat to cash

Postby Youngblood » Tue Nov 22, 2016 10:49 am

There is the theory of efficient markets but there is also behavioral finance.

Sometimes (perhaps most of the time) humans are led by emotions.

When that happens in the financial world assets can be mispriced.

YB
"I made my money by selling too soon." | Bernard M. Baruch

goingup
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Re: Retreat to cash

Postby goingup » Tue Nov 22, 2016 10:50 am

It's not different this time. You're different this time. :D

I think you've got to understand your fear and take a measured approach to feeling more secure. Could you take 5% of your portfolio and tuck it into CDs and feel more protected? Impulsive actions with large swaths of your portfolio is big trouble.

LRonHalfelven
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Re: Retreat to cash

Postby LRonHalfelven » Tue Nov 22, 2016 10:51 am

The surprising part is the implication that we've been in a period of certainty up to now. Why am I always the last to hear about these things?
"If you change your strategy frequently you don't really have one." --Garry Kasparov

Prudence
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Re: Retreat to cash

Postby Prudence » Tue Nov 22, 2016 11:06 am

marge-g wrote:Markets do not like uncertainty, and it would appear that with the new president, 2017 will bring a period of uncertainty on some major issues.

I DO NOT intend this post to elicit a political debate or name-calling contest. I have no leanings one way or the other with respect to political parties or platforms. Please refrain from that debate here.

I have been seriously considering getting out of the equity and bond markets and retreating to cash during the next year. Essentially betting that returns will be negative or less than 1%. I doubt that the sky will fall, but I would not be surprised to see political uncertainty or unrest spook the markets, resulting is a period of decline.

I’m a long time investor and have never been scared off before, staying invested through multiple crashes and recoveries. [OT comment removed by moderator prudent] My experience is simply that uncertainty unsettles the markets and leads to steep declines.

Discussion? (Again, please refrain from political statements)


On the whole, this is a rational approach, given your concerns, except for your one year time horizon. In a year, the markets could be at the same levels as they are now with essentially the same fundamental issues and concerns in place (i.e. not addressed). With your strategy, you avoid significant downside risk without giving up much upside, IMO. For the record, I am retired and don't have much exposure to bonds and equities.

SQRT
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Re: Retreat to cash

Postby SQRT » Tue Nov 22, 2016 11:11 am

Get a grip. When would you get back in? If I had gone to cash every time there was some uncertainly, I'd still be working.

bloom2708
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Re: Retreat to cash

Postby bloom2708 » Tue Nov 22, 2016 11:13 am

Sometimes just typing up your thoughts in a post and hearing some anti-confirmation is enough.

When all else fails, repeat the saying "Don't just do something...stand there."

If your plan was ok before xyz, it is ok after xyz.

marge-g
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Re: Retreat to cash

Postby marge-g » Tue Nov 22, 2016 11:14 am

Good discussion, thanks.

More feedback:

Bigred77 – read my post – I never said that I ignored “uncertainty” in the past. I never had any indication that past crashes were coming, thus I rode them out. This time I see potential uncertainty and possibility to protect against a significant decline.

I’m not a market timer and well understand the fallacy of that approach.

Nummerkins – do you believe that the markets being at all time highs are an indication that this forecasts that future and thus one should get or stay in? Should one wait to sell at a low?

An all-cash position risks only loss of potential gains above 1%, while protecting against any loss should markets perform below that. Little downside risk.

Clearly an all-cash position is not a good long-term strategy. Is is also not a position that one gets locked into. The market can always be re-entered. If I’m sitting here a year from now and proven wrong, all I have lost is whatever gain the market realized, which not that much, historically. Either way, I sleep better :)

Expected value = (probability of a gain) X (percent of gain) – (probability of loss) X (percent of loss)

I’m simply feeling that probability of a loss due to political turmoil is greater than probability of a gain – all during the next year of political change.

I understand and subscribe to the “stay invested for the long term” mantra. I’m retired and financially set for life, with little to gain and much to lose.

What I was wondering, and seem to have found out, is how many others have thoughts about political chance causing market uncertainty.

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David Jay
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Re: Retreat to cash

Postby David Jay » Tue Nov 22, 2016 11:18 am

LRonHalfelven wrote:...we've been in a period of certainty...


That's true - the past is always reasonably certain.
"Prediction is very difficult, especially about the future" Neils Bohr

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David Jay
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Re: Retreat to cash

Postby David Jay » Tue Nov 22, 2016 11:20 am

SQRT wrote:When would you get back in?


THAT, Detective, is the right question.

[edit] Market timing requires a re-entry strategy. If you don't have a specific re-entry strategy then you shouldn't be pulling out.
Last edited by David Jay on Tue Nov 22, 2016 11:21 am, edited 1 time in total.
"Prediction is very difficult, especially about the future" Neils Bohr

malabargold
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Re: Retreat to cash

Postby malabargold » Tue Nov 22, 2016 11:20 am

David Jay wrote:
LRonHalfelven wrote:...we've been in a period of certainty...


That's true - the past is always reasonably certain.



I take it you are not a fan of Leopold Von Ranke?

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David Jay
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Re: Retreat to cash

Postby David Jay » Tue Nov 22, 2016 11:23 am

malabargold wrote:
David Jay wrote:
LRonHalfelven wrote:...we've been in a period of certainty...


That's true - the past is always reasonably certain.



I take it you are not a fan of Leopold Von Ranke?


That's why I said "reasonably" - for instance - I am 100% confident that the DOW, SP500 and Nasdaq all made new highs yesterday.
"Prediction is very difficult, especially about the future" Neils Bohr

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ruralavalon
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Re: Retreat to cash

Postby ruralavalon » Tue Nov 22, 2016 11:25 am

marge-g wrote: . . . . .
An all-cash position risks only loss of potential gains above 1%, . . . . .
. . . . . .
I understand and subscribe to the “stay invested for the long term” mantra. I’m retired and financially set for life, with little to gain and much to lose.

An all-cash position almost certainly guarantees negative real return net of inflation.

What is your current asset allocation?

What is your age?

What is your withdrawal rate from your portfolio?
Last edited by ruralavalon on Tue Nov 22, 2016 11:27 am, edited 2 times in total.
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Sbashore
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Re: Retreat to cash

Postby Sbashore » Tue Nov 22, 2016 11:26 am

Your own words "essentially betting" sums up what you're doing. You're changing from a long term investor to a speculator. Not a great idea in my opinion.
Steve | Semper Fi

marge-g
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Re: Retreat to cash

Postby marge-g » Tue Nov 22, 2016 11:28 am

David Jay wrote:
SQRT wrote:When would you get back in?


THAT, Detective, is the right question.

[edit] Market timing requires a re-entry strategy. If you don't have a specific re-entry strategy then you shouldn't be pulling out.


No, it's simple.

If you're in and uncomfortable - get out. Otherwise stay in.

If you're out and uncomfortable - get in. Otherwise stay out.

qwertyjazz
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Re: Retreat to cash

Postby qwertyjazz » Tue Nov 22, 2016 11:30 am

The key question is when is this time different and if cash why dollars. The Soviet revolution was different. The Great Depression was different. The problem is that 2008 could have been but was not. There are more times that turn out to not be different than are. The question is one of diversification and risk management. I have been struggling with this too. Gold is complicated with potentially high transaction costs. Cash has risks of inflation which might also be in the future.
So stay the course unless you are rich enough to take a huge loss and buy a house in every country on the globe or maybe diamonds
G.E. Box "All models are wrong, but some are useful."

bberris
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Re: Retreat to cash

Postby bberris » Tue Nov 22, 2016 11:33 am

Maybe you could find another outlet for your political expression that would not sabotage your future.

magneto
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Re: Retreat to cash

Postby magneto » Tue Nov 22, 2016 11:35 am

Essentially what we may be talking about here is market direction or market valuations?

Direction is sought by momentum (aka trend) followers.
An uncomfortable place to be when mean reversion takes over!

Valuation criteria can be conflicting and confusing, and long-term drifting.

Is there an Investment Plan?
Is the Stock Allocation uncomfortably large?

A Well Balanced Portfolio should enable the investor to take rebalancing advantage of any Stock weakness with equanimity.
There are at least four income producing Asset Classes which might be incorporated into such a portfolio.
To thus make sure EVENTS are taken in their stride and hence do not interfere with long-term goals.
'There is a tide in the affairs of men ...', Brutus (Market Timer)

an_asker
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Re: Retreat to cash

Postby an_asker » Tue Nov 22, 2016 11:39 am

marge-g wrote:Markets do not like uncertainty, and it would appear that with the new president, 2017 will bring a period of uncertainty on some major issues.

I DO NOT intend this post to elicit a political debate or name-calling contest. I have no leanings one way or the other with respect to political parties or platforms. Please refrain from that debate here.

I have been seriously considering getting out of the equity and bond markets and retreating to cash during the next year. Essentially betting that returns will be negative or less than 1%. I doubt that the sky will fall, but I would not be surprised to see political uncertainty or unrest spook the markets, resulting is a period of decline.

I’m a long time investor and have never been scared off before, staying invested through multiple crashes and recoveries.[OT comment removed by moderator prudent] My experience is simply that uncertainty unsettles the markets and leads to steep declines.

Discussion? (Again, please refrain from political statements)

*in before the lock* :-)

You are betting that returns will be negative or less than 1%. That is sufficient to spook you. Then, how come you stayed "invested in the market through multiple crashes and recoveries"? Is it because you were working back then and have now retired?

Artisan
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Re: Retreat to cash

Postby Artisan » Tue Nov 22, 2016 11:41 am

Despite your qualification it sounds like market timing to me. You are leaving now because you expect the markets to go down. You plan to reenter in 1 year when the markets will be poised to go up.

Why the period of one year? Is something going to happen in a year? If the market drops 20% will you be so keen then to reinvest? How do you know it won't go down another 20%? Do you feel the uncertainty will be over in a year? What other things will happen in the next 12 months that may change that uncertainty?

I think that based on what you say, a wiser course might be to reassess your asset allocation and increase your fixed percentage and reduce your stock fund percentage.

livesoft
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Re: Retreat to cash

Postby livesoft » Tue Nov 22, 2016 11:48 am

marge-g wrote:I have been seriously considering getting out of the equity and bond markets and retreating to cash during the next year. )

I love, Love, LOVE to read statements like that. That's a signal to me that the markets will be going up very nicely. Thank you!

There haven't been many statements like that in a while, but there have been quite a few just this week.

More to the point: There will be a great sucking sound as all the world's money comes into the USA.
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rbaldini
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Re: Retreat to cash

Postby rbaldini » Tue Nov 22, 2016 11:55 am

The Efficient Marketician would say that the "market already knows all of this", so has "already priced it in".

But who cares about theory. We have something much more exciting: an actual prediction, posted on a public forum for all the world to see. "Essentially betting that returns will be negative or less than 1%." Let's check back on Nov 22, 2017, and see whether marge-g is right. (Mind you, there is some ambiguity here. Will the total stock market return <1%? Or bonds and stocks? Or some mix of them?)

In the meantime, I'll be investing.
Last edited by rbaldini on Tue Nov 22, 2016 11:56 am, edited 1 time in total.

btenny
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Re: Retreat to cash

Postby btenny » Tue Nov 22, 2016 11:56 am

The only reason I know to go to cash is if your are planning a major revision to your asset allocation. Have you reached your number? Are you near retirement age? Are you planning to early retire? If the answer to these question is no then I think you need to stay the course. Markets recover and continue to go up over the long term.

Good Luck.

Polymath
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Re: Retreat to cash

Postby Polymath » Tue Nov 22, 2016 12:03 pm

My gut reaction is "don't do it", for all the usual BH reasons.
However you didn't share much details regarding your situation.
FWIW, being 10+ years away from retirement - I just completed full funding my back door roth yesterday.

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Watty
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Re: Retreat to cash

Postby Watty » Tue Nov 22, 2016 12:15 pm

Diversification is likely a better tactic against uncertainty than putting all your assets into cash.

The problem is that you could be completely right about stocks and bonds doing badly, but is is also possible that cash would do even worse. Or you could be wrong about the stocks and bonds but cash could do badly.

The dollar is at a high compared to many currencies right now and inflation is very low. One possible scenario is a dropping dollar and high inflation. Even TIPS would be highly taxed in a taxable account and unless you own individual TIPS bonds that you will hold to maturity then higher interest rates could also cause TIPS mutual funds to drop in value.

munemaker
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Re: Retreat to cash

Postby munemaker » Tue Nov 22, 2016 12:21 pm

Going to cash would be timing the market. Don't time the market! Stay invested according to your plan.

livesoft
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Re: Retreat to cash

Postby livesoft » Tue Nov 22, 2016 12:23 pm

Here is something else for the OP to consider:

What if you are wrong?

One should have a plan that works whether one is wrong or right.
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ram
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Re: Retreat to cash

Postby ram » Tue Nov 22, 2016 12:28 pm

Your plan of action for the next year is appropriate for your beliefs of the next year. Please give a thought to your plan in case of various scenarios 1 year from now. (Market up/ down/ steady).

I do not share your beliefs. My best guess is the market will go up by 8% in next 12 months. That's my default belief for any future 12 months.

I think there is some data showing that markets usually do well in the first year of a new presidency. ( I haven't checked)

I am in the process of gradually increasing my bond allocation as I get nearer to retirement. (This is part of my written plan.)

I may accelerate it a little bit due to the highs attained yesterday. (lock in the gains). This will be a little bit of market timing, but that's OK in my book.
Ram

johnz1001
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Re: Retreat to cash

Postby johnz1001 » Tue Nov 22, 2016 12:32 pm

Let me assume the premise of your concern -- this is a marked period of potentially significant change in the US and globally and markets will be a stir. People have criticized this premise not wrongly based on all the other crazy things that have happened to roil markets. Nonetheless, let's assume it.

Why not take 5 years of needed income and put that in cash like instruments and put the rest in whatever stock/bond percentage suits you with reasonable rebalancing bands? This way you have the comfort of knowing you're protected (I just used 5 years; it could be whatever amount of time you want) but still you're in the market and rebalancing as needed. This would be a middle ground, IMO, since your concerns are as much psychologically based as based on what has occurred in markets historically.

I've seen a lot of posts that indicate your psychological disposition is important (whether you can sleep at night, as one noted poster has said many times). So I'm suggesting to ask yourself, what will assuage your anxiety but also keep you in the market as you've been for so long?

Afty
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Re: Retreat to cash

Postby Afty » Tue Nov 22, 2016 12:34 pm

Have you seen all the similar Bogleheads threads from the past? In pretty much every single one, going to cash was the wrong decision. Every one of those other posters felt the same way you do now. This time is not different. Stay the course.

U.S. stocks in free fall
going to cash (2015)
Decided to try timing the market. 100% short on 9/17/15
Porter Stansbury advising going to 100% cash (2013)
PIMCO says individuals should be in cash (2011)

Gropes & Ray
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Re: Retreat to cash

Postby Gropes & Ray » Tue Nov 22, 2016 12:39 pm

This sounds like your asset allocation no longer matches your appetite for risk. A change in your AA can be reasonable, but consider it carefully and recognize that very few people are best suited to a 0% equity position.

Grt2bOutdoors
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Re: Retreat to cash

Postby Grt2bOutdoors » Tue Nov 22, 2016 12:40 pm

Monies needed in 5 years or less do not belong in the securities markets.
Invest based on your need, ability and willingness to do so.

All other reasons, discussions, etc. are pretty much mute after that. If you need the cash, take it. If you don't have a need, nor the ability or the willingness, then do not invest.
"Luck is not a strategy" Asking Portfolio Questions

Miriam2
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Re: Retreat to cash

Postby Miriam2 » Tue Nov 22, 2016 12:40 pm

Here is what Vanguard recently wrote about the topic of the new future:

"Market volatility and your portfolio"
https://investor.vanguard.com/investing ... volatility

Grt2bOutdoors
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Re: Retreat to cash

Postby Grt2bOutdoors » Tue Nov 22, 2016 12:41 pm

livesoft wrote:
marge-g wrote:I have been seriously considering getting out of the equity and bond markets and retreating to cash during the next year. )

I love, Love, LOVE to read statements like that. That's a signal to me that the markets will be going up very nicely. Thank you!

There haven't been many statements like that in a while, but there have been quite a few just this week.

More to the point: There will be a great sucking sound as all the world's money comes into the USA.


Does that include the 50% equity position you hold in International/Emerging Markets? :)
"Luck is not a strategy" Asking Portfolio Questions

bigred77
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Re: Retreat to cash

Postby bigred77 » Tue Nov 22, 2016 12:45 pm

marge-g wrote:
David Jay wrote:
SQRT wrote:When would you get back in?


THAT, Detective, is the right question.

[edit] Market timing requires a re-entry strategy. If you don't have a specific re-entry strategy then you shouldn't be pulling out.


No, it's simple.

If you're in and uncomfortable - get out. Otherwise stay in.

If you're out and uncomfortable - get in. Otherwise stay out.


OP,

I don't want to sound harsh but this would be considered a very bad strategy by the overwhelming majority of investors on this board. This is the worst form of market timing, making drastic Asset Allocation changes based on "gut feeling".

I think you might benefit from reading through the wiki a little bit more and consider permanently decreasing your equity allocation if it causes you anxiety. Heck now would be a great time to consider that change as equities are at a high point. Find an allocation you are comfortable holding through upswings and downswings and then forget about trying to determine if the market is poised for a large drop in value or a large jump in value. You will be far better off.

Ivygirl
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Re: Retreat to cash

Postby Ivygirl » Tue Nov 22, 2016 12:47 pm

"Markets do not like uncertainty" - I'm not sure that's true. I think businesses hate uncertainty. They like to make plans and carry them out without politicians joggling their elbows. But the markets often love uncertainty. When things are moving fluidly and fast, many believe there is opportunity, and they're willing to bet their dollars to back their judgments.

It's like the very early lesson you are supposed to learn, when investing in individual stocks: just because a company is a good healthy business, does not mean it is a good stock for making money on.

Markets operate on both greed and fear. Maybe you only see fear next year? I see some greed too. In fact I think I'm feeling a little... :wink: I would not retreat from the markets (stock or bond) unless I had a serious reason independent of my feeling for how other investors will feel next year. That would be too big a bet on a matter so unknowable.

qwertyjazz
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Re: Retreat to cash

Postby qwertyjazz » Tue Nov 22, 2016 12:55 pm

Let's imagine there was enough signals to increase the chance of a financial meltdown to 1%. 99 out of 100 times it would be wrong. It would be worth insuring against though if the insurance were cheap enough and feasible (not sure on either account for anyone worth less than 100 mill) - most Boglehead threads would tell you it is crazy and pull up a history of it not being true in simmilar risk situations
Until that one time...
I buy health insurance for rare events.
I am not agreeing with going to cash for a year as that is probably a poor insurance risk premium tradeoff. But that is the framework I am starting to use myself. I see no other option than stay the course, but that does not equate to a certainty in it.
G.E. Box "All models are wrong, but some are useful."

boglephreak
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Re: Retreat to cash

Postby boglephreak » Tue Nov 22, 2016 1:06 pm

people have already addressed the market timing issue. what i would like to know is why one year? [OT comment removed by moderator prudent]

livesoft
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Re: Retreat to cash

Postby livesoft » Tue Nov 22, 2016 1:07 pm

Grt2bOutdoors wrote:Does that include the 50% equity position you hold in International/Emerging Markets? :)

Yes. I think if oil does alright, then EM will alright.
Last edited by livesoft on Tue Nov 22, 2016 1:25 pm, edited 1 time in total.
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Blender
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Re: Retreat to cash

Postby Blender » Tue Nov 22, 2016 1:09 pm

marge-g wrote:
David Jay wrote:
SQRT wrote:When would you get back in?


THAT, Detective, is the right question.

[edit] Market timing requires a re-entry strategy. If you don't have a specific re-entry strategy then you shouldn't be pulling out.


No, it's simple.

If you're in and uncomfortable - get out. Otherwise stay in.

If you're out and uncomfortable - get in. Otherwise stay out.


Will you be comfortable enough to get back in over the course of the next year if the market is up 3%? What if it's up 5%? What if the market goes up 10% over the next year will you then be comfortable enough to get back in? Or will you think that it's had a heck of a run, it has to pull back some, and further wait on the sidelines as it continues to go up 15, 20%?

Basing investment decisions on emotions and "comfort" is not a good idea. For example I've learned over the years when things are at the point where it hurts so bad that all you want to do is sell and get out is really the time you should be going all in. Emotions will betray you in the markets.

I don't invest based on comfort, I invest based on whether I can live with the results.

blinx77
Posts: 151
Joined: Sat Jan 07, 2012 11:23 am

Re: Retreat to cash

Postby blinx77 » Tue Nov 22, 2016 1:11 pm

If you are not comfortable with your equity allocation, I would suggest considering a permanent shift towards a higher percentage of bonds (possibly even short-term bonds if it helps you sleep at night).

Do not swing wildly from 90-100% equity to 90-100% cash. If you are not comfortable where you are, I would simply suggest permanently shifting your asset allocation by 10%. So if you are 80% in equities, drop to 70%. Make this a permanent change. Maybe you will sleep better after that.

Many folks recommend shifting to a more conservative allocation as you get older anyways, so maybe you are due for this change anyways.


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