Sitting on cash....Waiting for a crash

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llessac15
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Sitting on cash....Waiting for a crash

Post by llessac15 » Wed Mar 08, 2017 11:24 pm

Is there any Bogleheads out there that has decided to hold onto cash right now since valuations are so high and interest rates are so low? I know that the 'Bogle' answer is to stay the course and just keep eating my allocation plan for breakfast. But it just feels so foolish right now to put money into such an inflated market or to expects bonds to produce anything to write home about.

I'm in my late 30's and have at least 15-20 years until I retire. I'm considering putting any new investment money into my savings account for the next 3-5 years until I see some kind of dip in the market. I know it's market timing, but I'm tired of buying expensive stocks via my index funds. Anyone else drinking that my same kool-aid?

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k66
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Re: Sitting on cash....Waiting for a crash

Post by k66 » Wed Mar 08, 2017 11:37 pm

You are asking BH-types if they are openly supporting or practicing market timing?

I won't suspect that you get many yeas.

Staying the course means staying the course all the time, not just when you think it may be OK to do so.

Stay the course.
LOSER of the Boglehead Contest 2015 | lang may yer lum reek

AlohaJoe
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Re: Sitting on cash....Waiting for a crash

Post by AlohaJoe » Wed Mar 08, 2017 11:49 pm

There have been several posts from other people who have admitted they are also scared and sitting on cash.

Now that you know that...how does it affect what you do?

TomCat96
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Re: Sitting on cash....Waiting for a crash

Post by TomCat96 » Wed Mar 08, 2017 11:52 pm

I'm 36, holding 100% equities at the moment. If anyone stands to lose big from a crash it's me.
But in all honesty, I feel fine at the moment. I'm not going to say that you should too. When it comes to finding the right asset allocation that allows one to stay the course, let each be convinced in his own mind.

I am convinced in my mind that staying the course is the right thing to do because of my own research and backtesting.
You already know the drill, you've seen plenty of posts on the topic, you know the boglehead doctrine. Why not figure out if sitting on the sidelines waiting for cash is a good idea by backtesting a little.

A few weeks ago I posted about the dot com bubble and nasdaq. In the 4th year following the crash of 1987 in 1991, the NASDAQ started hitting record highs. Never in the history of nasdaq had it shot up so high and so quickly. from 400 points to 500 to 600, sometimes the span of months. One could have sold then on the same rationale that the Nasdaq should crash. Instead it increased to 5000 over the next 9 years before bursting in 2000. Yes the bubble did burst, but it took a whole decade, and never dropped below 300% above those "elevated valuations" in 1991.

The literature on why simply remaining in the market staying the course is the best strategy is rather extensive. It has been shown on more than one occasion that if one had missed the top 45 days of gains since the 1960, one's market performance over the entire 50+ year period would actually be negative. The market's growth is spikey. Most of the time, it doesn't do much of anything. It drifts somewhat aimlessly. But when the market does grow however, the gains are decisive in a short periods. The graphs hide that fact pretty well. But if you look closely enough, it's there.

What that means is it's ok for one to be in the market when it crashes. But the absolute cardinal sin that cannot be forgiven is if you miss out on when the market grows. Because the decisive growth of the market occurs in such short time frames, you cannot afford to be out of the market...pretty much ever.

Another salient fact that has been mentioned a few times is that the market tends to stay within a small range of it's record high around 1/3 of the time.
That makes sense doesn't it? If the market is actually supposed to make you money in the long run, then it has to spent at least a fair amount of time in the state of being called "near record highs"

All this is to say, "a high valuation" is not, nor can it alone be, sufficient basis to be out of the market. But like I said, let each be convinced in his own mind. If you are uncomfortable with being in the market, it means you haven't found your proper asset allocation yet.

fundseeker
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Re: Sitting on cash....Waiting for a crash

Post by fundseeker » Thu Mar 09, 2017 12:05 am

You're expecting your crash to be three to five years away? If you'd had that mindset three to five years ago, you'd be hating yourself now. But, I am with you in that I expect a large dip (though in the near future, not years away). And, the only move I made was to have my TSP contributions only go into the G Fund until that time comes, so I am not buying stock in my TSP right now. If I was thinking the crash was years away, I would not have made any adjustments and would have stayed the course.

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ofcmetz
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Re: Sitting on cash....Waiting for a crash

Post by ofcmetz » Thu Mar 09, 2017 12:06 am

I'm 37. Wife is 40.

We are 70% equities, 10% TIAA Real Estate fund, and 20% fixed income.

Bonds pay higher interest today than they did last year. Did you know they would drop in value then? Next year they may pay less interest and be up in value. Do you think that will happen?

In 2016, stocks went down about 10% early in the year. Did you know that it was a good time to buy then? In late 2011 did you realize it was a good time to buy? I remember feeling pretty good about my investments in 2007. Turns out I should of been selling.

I know now that I had no idea during all these times of what was about to happen. It's so much easier to set an asset allocation and rebalance when things get off kilter. Marking timing is about as effective as trying to beat the house when gambling in casino. A few people can do it and make a profit, but are you one of them?

You will end up richer if you control the important things like your investment costs and savings rate. Best of luck OP.
Never underestimate the power of the force of low cost index funds.

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ofcmetz
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Re: Sitting on cash....Waiting for a crash

Post by ofcmetz » Thu Mar 09, 2017 12:11 am

I'all add that money you need in less than 10ish years shouldn't be in stocks right now anyway. If it's money you don't need now them let it ride and keep adding to it.
Never underestimate the power of the force of low cost index funds.

lack_ey
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Re: Sitting on cash....Waiting for a crash

Post by lack_ey » Thu Mar 09, 2017 12:24 am

What do you think is the probability that bonds get significantly cheaper in the next few years (let's say 3), like the 10-year Treasury going to 4.5%? Today it hit 2.57%. Likewise, what do you think is the probability that US stocks get significantly cheaper in the next 3 years, say the S&P 500 getting to a CAPE (Shiller PE) of 21 from today's 29.1?

What do you think about international stocks?

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Re: Sitting on cash....Waiting for a crash

Post by dumbbunny » Thu Mar 09, 2017 12:30 am

llessac15 wrote:I'm considering putting any new investment money into my savings account for the next 3-5 years until I see some kind of dip in the market. I know it's market timing, but I'm tired of buying expensive stocks via my index funds. Anyone else drinking that my same kool-aid?


What's does your IPS say to do in times like this? No, I'd prefer a whiskey and ginger ale.

I see you joined in January 2014. Were you buying "expensive" stocks then? If so, how have they done for you. And what was your IPS then?
“It’s the curse of old men to realize that in the end we control nothing." "Homeland" episode, "Gerontion"

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Re: Sitting on cash....Waiting for a crash

Post by AlohaJoe » Thu Mar 09, 2017 12:35 am

ofcmetz wrote:In 2016, stocks went down about 10% early in the year. Did you know that it was a good time to buy then?


You make a good point. (Though stocks were down more than 10%.)

There was a crash in 2016 but apparently it wasn't good enough for the OP.

S&P 500 -15% (Median stock -25%, nearly 80% of S&P 500 stocks were below their 200-day moving average.)
Russell 2000 -27%
Japanese Stocks -29%
Dow Jones Transportation Average -32%
Emerging Market stocks -40%
Chinese stocks -49%
Small Cap Biotech -51%
Oil -76%
NYSE new 52-week lows were at their highest point since November 2008


If the OP didn't act on the crash of 2016 then they are unlikely to be skilled enough to act appropriately during any future crash either.

Ari
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Re: Sitting on cash....Waiting for a crash

Post by Ari » Thu Mar 09, 2017 1:57 am

llessac15 wrote:Anyone else drinking that my same kool-aid?

Haha no. I'm 100% stocks. I also don't think valuations are that high. Looking at market valuations, most countries seem to be between 10-15, a few above and a few below. Only four countries are really high (US, Ireland, Japan and Denmark). And those four countries are not a huge part of my portfolio (probably around 25%?). Why would I sit on cash when there are so many markets with low valuations?
All in, all the time.

sambb
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Re: Sitting on cash....Waiting for a crash

Post by sambb » Thu Mar 09, 2017 2:33 am

For the OP: Nothing wrong with rebalancing to a lower allocation if you arent comfortable with current values.

SGM
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Re: Sitting on cash....Waiting for a crash

Post by SGM » Thu Mar 09, 2017 2:37 am

Staying out of the market is a sure way to miss the updrafts. My advice is to stay invested in the market. DW is not very interested in investing, but she has found it incredulous that a supposedly well educated individual told all the fellow volunteers recently that she put everything in her 401k into cash about 3 months ago. Unfortunately the individual missed a nice run up. The market can always wait a lot longer than you can or it can surprise you on the up or down side. I don't believe all the reasons given for the ups and downs by the financial media. There is a lot of randomness and emotion in the market. Keep investing with every paycheck.

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aegis965
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Re: Sitting on cash....Waiting for a crash

Post by aegis965 » Thu Mar 09, 2017 2:56 am

How about using TSMOM as a downside protection strategy?
http://blog.alphaarchitect.com/2015/08/ ... strategies
"Value investing is at its core the marriage of a contrarian streak and a calculator." —Seth Klarman

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randomizer
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Re: Sitting on cash....Waiting for a crash

Post by randomizer » Thu Mar 09, 2017 4:10 am

I guess I am lucky because I have never been even remotely tempted to market time. The very first time I heard the BH argument, I just thought "yes!"

I wonder, however, if I had this opposite mindset, how many BH books I'd have to read to rewire my brain.

Stormbringer
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Re: Sitting on cash....Waiting for a crash

Post by Stormbringer » Thu Mar 09, 2017 4:27 am

llessac15 wrote:it just feels so foolish right now to put money into such an inflated market or to expects bonds to produce anything to write home about.

The problem is that the crash may not come for a long time, or may not come at all. In 1996 Greenspan gave his "irrational exuberance" speech, and the market continued to go up for four more years. Another possibility is a market that plateaus and stays flat for many years until earnings catch up, and then continues upwards.

Also, you have the problem of knowing when to get back into the market. After a 10% decline? 20%? 30%?

Lastly, there is a cost to being in cash. Inflation robs you of about 2% per year, plus you forego the profits the underlying businesses are earning. That may be fine if the crash comes soon, but if you have to wait 3-4 years it really adds up.
"Compound interest is the most powerful force in the universe." - Albert Einstein

radagast
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Re: Sitting on cash....Waiting for a crash

Post by radagast » Thu Mar 09, 2017 4:32 am

There are other things you could do besides staying in cash or buying bonds or equities.

You could buy a house, for example.

grettman
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Re: Sitting on cash....Waiting for a crash

Post by grettman » Thu Mar 09, 2017 5:12 am

I am 46.

15 or so years from retirement.

91% equities 9% CDs.

I will be full bore equities for several more years.

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Toons
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Re: Sitting on cash....Waiting for a crash

Post by Toons » Thu Mar 09, 2017 5:55 am

No way,
Market levels have nothing to do with it.
The clock is ticking,
The compounding machine never sleeps.
Put the money to work ASAP :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

David Scubadiver
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Re: Sitting on cash....Waiting for a crash

Post by David Scubadiver » Thu Mar 09, 2017 6:13 am

ofcmetz wrote:I'all add that money you need in less than 10ish years shouldn't be in stocks right now anyway. If it's money you don't need now them let it ride and keep adding to it.
So, should those who are living off of their portfolio have 10 years of expenses allocated to cash? Or does it all go to bonds? Seems like a lot.
Last edited by David Scubadiver on Thu Mar 09, 2017 7:01 am, edited 1 time in total.

keith6014
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Re: Sitting on cash....Waiting for a crash

Post by keith6014 » Thu Mar 09, 2017 6:24 am

i was 100% equities then for my 401k I started to do 100% Total Bond. Age 35. Good time to start into bonds as I expect rates to rise and especially if you don't have any in your portfolio. I plan is after a downturn I will go long equities and possibly tilt bond to large cap. Yeah, I market time.

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Tyrobi
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Re: Sitting on cash....Waiting for a crash

Post by Tyrobi » Thu Mar 09, 2017 6:42 am

llessac15 wrote:I'm in my late 30's and have at least 15-20 years until I retire. I'm considering putting any new investment money into my savings account for the next 3-5 years until I see some kind of dip in the market. I know it's market timing, but I'm tired of buying expensive stocks via my index funds. Anyone else drinking that my same kool-aid?


You'll second guess yourself on when to jump back in the market, unless you're the special one that can predict the future.

Keep life simple by developing your own investment policy statement and just pour your money according to your allocation.

By the way my neighbor, a very close friend, is also holding cash and sitting on the sideline since the stock is way high for him. I don't think I can convince him otherwise, but it's his money.

Good luck with whatever you plan.
Three-fund portfolio | "Simplicity is the master key to financial success." John C. Bogle

selters
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Re: Sitting on cash....Waiting for a crash

Post by selters » Thu Mar 09, 2017 6:47 am

llessac15 wrote:Is there any Bogleheads out there that has decided to hold onto cash right now since valuations are so high and interest rates are so low? I know that the 'Bogle' answer is to stay the course and just keep eating my allocation plan for breakfast. But it just feels so foolish right now to put money into such an inflated market or to expects bonds to produce anything to write home about.

I'm in my late 30's and have at least 15-20 years until I retire. I'm considering putting any new investment money into my savings account for the next 3-5 years until I see some kind of dip in the market. I know it's market timing, but I'm tired of buying expensive stocks via my index funds. Anyone else drinking that my same kool-aid?


What's your asset allocation right now? 100% cash and 0% stocks?

John Bogle has stated that if lowering your allocation to stocks by 10% or 15% makes you feel better, then go ahead. But don't expect to be rewarded for such a move, because there is a great chance that your timing is wrong.

You should also have a plan for when, if ever, you will increase your stock allocation again. Will it be based on price or valuation? If you go for valuation, which valuation measure will be your guide? P/E, P/E10 or P/B? Or some combination?

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Re: Sitting on cash....Waiting for a crash

Post by bottlecap » Thu Mar 09, 2017 7:44 am

There are millions of investors like you. That's why the average return for investors in the S&P 500 is something on the order of a quarter of the index's total return.

Why not dollar cost average back in over 5 years? It will help you overcome your skittishness and perhaps allow you to capture some market gains while minimizing your risk.

Something tells me that you will need to come up with AA first.

But I guarantee you that if you get a big drop, you will not get in. You will be too scared of a further drop. The market never looks safe except in hindsight.

JT

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Re: Sitting on cash....Waiting for a crash

Post by ddurrett896 » Thu Mar 09, 2017 7:51 am

llessac15 wrote:such an inflated market


Just remember, people said this exact thing in 2012, 2013, 2014, 2015 and last year.

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Re: Sitting on cash....Waiting for a crash

Post by dkturner » Thu Mar 09, 2017 8:07 am

llessac15 wrote:I'm in my late 30's and have at least 15-20 years until I retire. I'm considering putting any new investment money into my savings account for the next 3-5 years until I see some kind of dip in the market.


With an asset allocation "plan" like yours you might want to consider working another 25-30 years before retiring. :(

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Re: Sitting on cash....Waiting for a crash

Post by onourway » Thu Mar 09, 2017 8:07 am

Staying the course is important, as by doing so it doesn't matter if sometimes you buy at high prices By buying month in and month out year after year you are also buying at low prices and average prices and overall your return will come out above average. Your method *might* net you a higher return for a portion of savings IF you happen to time things very nicely on both the way out AND on the way back in. If you miss either of those points, sometimes by as little as a couple of days, you will do significantly worse if you had just 'stayed the course.'

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Re: Sitting on cash....Waiting for a crash

Post by ks289 » Thu Mar 09, 2017 8:08 am

Are you still 80:20 stocks:bonds?

If you are uncomfortable losing perhaps 40% of your money in the upcoming crash, then it may be reasonable to rethink your asset allocation and risk tolerance moving forward. It is MUCH better to decide on this now versus at the market bottom. As long as you are not truly market timing (jumping in and out, making multiple changes to AA), it would seem prudent to reassess your comfort zone.

I had 70:30 (age early 30's) going into 2007-2009 which was quite unpleasant but I sustained it on the way down (and back up). Now about 10 years later I am in my early 40's at 60:40 and planning on keeping that constant.

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Re: Sitting on cash....Waiting for a crash

Post by ruralavalon » Thu Mar 09, 2017 8:20 am

llessac15 wrote:Is there any Bogleheads out there that has decided to hold onto cash right now since valuations are so high and interest rates are so low? I know that the 'Bogle' answer is to stay the course and just keep eating my allocation plan for breakfast. But it just feels so foolish right now to put money into such an inflated market or to expects bonds to produce anything to write home about.

I'm in my late 30's and have at least 15-20 years until I retire. I'm considering putting any new investment money into my savings account for the next 3-5 years until I see some kind of dip in the market. I know it's market timing, but I'm tired of buying expensive stocks via my index funds. Anyone else drinking that my same kool-aid?

This is a bad idea in my opinion.
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Da5id
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Re: Sitting on cash....Waiting for a crash

Post by Da5id » Thu Mar 09, 2017 8:23 am

llessac15 wrote:Is there any Bogleheads out there that has decided to hold onto cash right now since valuations are so high and interest rates are so low? I know that the 'Bogle' answer is to stay the course and just keep eating my allocation plan for breakfast. But it just feels so foolish right now to put money into such an inflated market or to expects bonds to produce anything to write home about.

I'm in my late 30's and have at least 15-20 years until I retire. I'm considering putting any new investment money into my savings account for the next 3-5 years until I see some kind of dip in the market. I know it's market timing, but I'm tired of buying expensive stocks via my index funds. Anyone else drinking that my same kool-aid?


One of the nice things about having some bonds in your asset allocation is that you are locking in stock gains as you go. So for the (aging) bull market that we are now in, you'd periodically be selling some stocks and adding to your bond allocation to reflect the fact that your stocks are growing faster than your bonds over that 8 year stretch. That rebalancing takes a bit of a sting out of the inevitable stock pullback/"correction", though of course bonds can always fall too. Everyone knows the next correction is coming, there always will be a next correction. We just don't know when it will be, how deep it will be, how rapidly it will recover, etc. Trying to time it historically has been a fool's game. If you are planning to do so, well, exactly when will you buy back in? When it falls 10%? 20%? But what if the scenario is that the market doesn't fall 10 or 20% any time soon, but rather just enters a period of slow growth. You'll never buy back in?

That said, if you asked my opinion, stocks are a bit on the pricey side. But then, the alternatives are currently poor. But I'm not doing anything based on that opinion at all. I recently did change my asset allocation (permanently) due to reaching a milestone and deciding I could take some money off the table, but that isn't with the intention of later raising my stock allocation when the market is cheaper.
Last edited by Da5id on Thu Mar 09, 2017 9:07 am, edited 1 time in total.

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Re: Sitting on cash....Waiting for a crash

Post by oldcomputerguy » Thu Mar 09, 2017 8:26 am

I am sitting on some cash (and short-term bonds) right now, but it's because I've reached a specific point in my long-term plan where I needed some cash for specific expenses coming up in the near future. Other than that, no, I'm not holding any cash in any of my investment accounts, certainly not in response to whatever the market is doing.
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Re: Sitting on cash....Waiting for a crash

Post by tibbitts » Thu Mar 09, 2017 8:57 am

llessac15 wrote:Is there any Bogleheads out there that has decided to hold onto cash right now since valuations are so high and interest rates are so low? I know that the 'Bogle' answer is to stay the course and just keep eating my allocation plan for breakfast. But it just feels so foolish right now to put money into such an inflated market or to expects bonds to produce anything to write home about.

I'm in my late 30's and have at least 15-20 years until I retire. I'm considering putting any new investment money into my savings account for the next 3-5 years until I see some kind of dip in the market. I know it's market timing, but I'm tired of buying expensive stocks via my index funds. Anyone else drinking that my same kool-aid?

Your strategy will only have a reasonable chance (and probably still not a good chance) of succeeding if you go by metrics and not by "feel." So, decide on what metric(s) you want and understand that if you don't see those metrics, you can't buy in. Even if that's for the rest of your life.

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Re: Sitting on cash....Waiting for a crash

Post by zuma » Thu Mar 09, 2017 9:05 am

Even though I feel like a significant market correction is imminent, no one really knows when it will happen or how severe it will be. We've decided to avoid any attempts at timing the market. The key is to find the appropriate asset allocation that matches your risk tolerance. For us it's a balanced 60/40. When I first started investing, this approach was not intuitive at all, but the Boglehead philosophy eventually made sense. If there's a 50% drop in equities tomorrow, I won't be too worried about it because we feel comfortable with our overall AA.

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Re: Sitting on cash....Waiting for a crash

Post by The Wizard » Thu Mar 09, 2017 9:24 am

bottlecap wrote:
...But I guarantee you that if you get a big drop, you will not get in. You will be too scared of a further drop. The market never looks safe except in hindsight.

JT

I tend to agree with this.
How many market timers actually moved big back into stocks back in March, 2009, +/- a month?
Most people were rather scared back then...
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Re: Sitting on cash....Waiting for a crash

Post by Sandtrap » Thu Mar 09, 2017 9:30 am

Toons wrote:No way,
Market levels have nothing to do with it.
The clock is ticking,
The compounding machine never sleeps.
Put the money to work ASAP :happy

+1
Spoke to a doctor yesterday. He has been sitting on a lot of cash for 2 years waiting for the market to drop. Ouch!
I have to wade into the pond slowly because it fits DW and I and our IPS. But it's wading in vs sitting. IMHO once sitting things out it gets easier to continue to sit things out, high or low. Everyone's different. Sleep factor is the most important thing AFAIK.
Actionably, an option is to enter back in the market in small increments under the disclaimer of "dollar cost averaging".

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Re: Sitting on cash....Waiting for a crash

Post by stlrick » Thu Mar 09, 2017 9:31 am

tibbitts wrote:
llessac15 wrote:Is there any Bogleheads out there that has decided to hold onto cash right now since valuations are so high and interest rates are so low? I know that the 'Bogle' answer is to stay the course and just keep eating my allocation plan for breakfast. But it just feels so foolish right now to put money into such an inflated market or to expects bonds to produce anything to write home about.

I'm in my late 30's and have at least 15-20 years until I retire. I'm considering putting any new investment money into my savings account for the next 3-5 years until I see some kind of dip in the market. I know it's market timing, but I'm tired of buying expensive stocks via my index funds. Anyone else drinking that my same kool-aid?

Your strategy will only have a reasonable chance (and probably still not a good chance) of succeeding if you go by metrics and not by "feel." So, decide on what metric(s) you want and understand that if you don't see those metrics, you can't buy in. Even if that's for the rest of your life.


Here's my argument that this exchange hits the target. I am "drinking the kool-aid" but doing it on the basis of metrics. The argument that the market cannot be timed, and therefore, that we should stay the course, is not self-evident. It is based on the historical record. Another argument strongly supported by the historical record is that while the market cannot be timed in the relatively (2-3 year) short term, "valuations matter," and are the strongest indication of expected returns over 10 or more years.

There is a good strong historical record indicating that the odds are quite high that dollars invested in US equities in a market with the current metrics will have a poor return over 10-15 years. If one is saving for retirement that is 10-15 or more years away, how do you decide which historical evidence to prioritize? My decision - I am not going to cash, and as of yet, I am not taking profits that move me outside of my target asset allocation, but I am not buying US equities with my monthly retirement contribution. I see new money in US equities as being like getting caught up in a bidding war at an auction.

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oldzey
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Re: Sitting on cash....Waiting for a crash

Post by oldzey » Thu Mar 09, 2017 9:46 am

Stay the course and stick to your good plan, as you've (hopefully) laid out in your IPS. :sharebeer
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Re: Sitting on cash....Waiting for a crash

Post by juliewongferra » Thu Mar 09, 2017 10:05 am

llessac15 wrote:Is there any Bogleheads out there that has decided to hold onto cash right now since valuations are so high and interest rates are so low?


Okay let's play your game. How do you define crash? 5%? 10%? 15%? 20%? 50%? If there's a "correction" (10%) do you continue to wait for a crash? (The word "crash" is overused and misused in the world, including this posting board, I feel.)

And if the stock market is in a freefall, down 15% in only week, are you going to be brave enough to invest at that time? Or will you fear that momentum will take it down to 25% or 30%, and continue sitting out as the "correction" never becomes a "crash" and instead prices come back to previous levels?

Unlike a lot of people on the board, I'm kind of okay with people holding cash in fear of a correction/crash/buying opportunity. (The third one is why some people hold a modest amount of cash as "dry powder" instead of being all in.) Who am I to judge? But even if you want to sit on cash as a strategy, you should build the definition of what you consider a "crash" into your IPS so you will act accordingly.

Good luck whatever you decide!

cheers,
jwf

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Re: Sitting on cash....Waiting for a crash

Post by supertreat » Thu Mar 09, 2017 10:13 am

It's a losing strategy. If you're worried about your level of risk simply decrease your equity allocation.
Assets - Liabilities = Equity + (Income - Expenses)

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Re: Sitting on cash....Waiting for a crash

Post by pkcrafter » Thu Mar 09, 2017 10:19 am

I think you've been pounded on enough, but I just wanted to try a different approach. So what if the market goes down? Your own strategy says it's going to go back up. The problem is if you are going to jump in and out you'll never get the timing right each time and in 25 years your total will be less than if you just continued to invest and ignore the markets gyrations. Volatility risk is only relevant when you are close to needing the money.

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When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: Sitting on cash....Waiting for a crash

Post by zuma » Thu Mar 09, 2017 10:26 am

juliewongferra wrote:And if the stock market is in a freefall, down 15% in only week, are you going to be brave enough to invest at that time? Or will you fear that momentum will take it down to 25% or 30%, and continue sitting out as the "correction" never becomes a "crash" and instead prices come back to previous levels?

Unlike a lot of people on the board, I'm kind of okay with people holding cash in fear of a correction/crash/buying opportunity. (The third one is why some people hold a modest amount of cash as "dry powder" instead of being all in.) Who am I to judge? But even if you want to sit on cash as a strategy, you should build the definition of what you consider a "crash" into your IPS so you will act accordingly.

This seems like good advice. Similar to committing to a rebalancing threshold if you're a stay-the-course investor.

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Re: Sitting on cash....Waiting for a crash

Post by Tamalak » Thu Mar 09, 2017 11:14 am

Valuations being high doesn't necessarily mean overvalued. It just means people are optimistic about future earnings. If that optimism is justified, stocks are fairly or even undervalued.

I am not a boglehead zealout but I don't see a clear sell signal here. Yes, the bull run has been quite long but there has been substantial good news to back it.

I would pull out (not put it into cash, but rather conservative investments) if I felt we were getting to euphoric levels, where everyone leaves fear and sense by the wayside. I'm not getting this impression right now. There is a starting to be a whiff of it (retail investors jumping in) but not enough to justify sitting in cash.

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Re: Sitting on cash....Waiting for a crash

Post by fantasytensai » Thu Mar 09, 2017 11:17 am

I hate to play the devil's advocate here, but what is pragmatically wrong with waiting for a crash?

For the sake of simplicity let's say that all the funds will be in VTSAX, which currently stands at $59.16. Let's say llessac15 holds to his cash and miss out on the market rise, and the market rises 10% within the next two years to ~$65. Then the market crashes 25% to ~$45, then llessac15 enters the market, what is wrong with that? You know, aside from the fact that hindsight is 20/20 :P.

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Re: Sitting on cash....Waiting for a crash

Post by flamesabers » Thu Mar 09, 2017 11:24 am

Inaction (not investing your money) has its own consequences, namely inflation. At the end of the day I don't think there is much difference between preserving the nominal value of your money but losing your purchasing power, and having to deal with some of your investments losing some of its value some of the time. In either situation, you're worse off. However, I think the certainty of continuing inflation is much higher than the probability of you losing money on all of your investments all of the time.

Yes, you can potentially make money by trying to time the market, but you could also try to make money by gambling at a casino. As others have said, investing isn't about waiting for the right moment to jump in or jump out of the stock market, but rather developing an asset allocation you're comfortable with and sticking to it. While we would all like to get rich quickly and painlessly, it's just not practical.

At the very least I would suggest putting your new investment money in conservative funds that will likely do better than savings accounts like CDs or saving bonds.

fantasytensai wrote:I hate to play the devil's advocate here, but what is pragmatically wrong with waiting for a crash?

For the sake of simplicity let's say that all the funds will be in VTSAX, which currently stands at $59.16. Let's say llessac15 holds to his cash and miss out on the market rise, and the market rises 10% within the next two years to ~$65. Then the market crashes 25% to ~$45, then llessac15 enters the market, what is wrong with that? You know, aside from the fact that hindsight is 20/20 :P.


I think the argument against market timing is that it is not sustainable because you can't know ahead of time when the market has hit rock bottom or when the market has reached its peak. I think analogies can be made between market timing and gambling. Sure, you might get good gains from the casino once or twice, but I don't think gambling or market timing is a good strategy to becoming wealthy. Sooner or later you're bound to lose all your gains and maybe even more. What then? Do you continue to time the market or do you go back to investing for the long-term?

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Re: Sitting on cash....Waiting for a crash

Post by chicagoan23 » Thu Mar 09, 2017 11:31 am

keith6014 wrote:i was 100% equities then for my 401k I started to do 100% Total Bond. Age 35. Good time to start into bonds as I expect rates to rise and especially if you don't have any in your portfolio. I plan is after a downturn I will go long equities and possibly tilt bond to large cap. Yeah, I market time.


Why would you put 100% into bonds now if you are expecting rates to rise?

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Re: Sitting on cash....Waiting for a crash

Post by powermega » Thu Mar 09, 2017 11:32 am

I think my brother has spent the last 8 years waiting for "the crash". It's one thing to make a mistake like this with your own retirement money. Unfortunately, he's convinced his son (early 30s) to do the same. It's sad.
Even a stopped clock is right twice a day.

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Re: Sitting on cash....Waiting for a crash

Post by BW1985 » Thu Mar 09, 2017 12:11 pm

fantasytensai wrote:I hate to play the devil's advocate here, but what is pragmatically wrong with waiting for a crash?

For the sake of simplicity let's say that all the funds will be in VTSAX, which currently stands at $59.16. Let's say llessac15 holds to his cash and miss out on the market rise, and the market rises 10% within the next two years to ~$65. Then the market crashes 25% to ~$45, then llessac15 enters the market, what is wrong with that? You know, aside from the fact that hindsight is 20/20 :P.


It's already been explained several times. What if it rises 25% and then drops 10%?
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Re: Sitting on cash....Waiting for a crash

Post by Vanguard Fan 1367 » Thu Mar 09, 2017 12:15 pm

randomizer wrote:I guess I am lucky because I have never been even remotely tempted to market time. The very first time I heard the BH argument, I just thought "yes!"

I wonder, however, if I had this opposite mindset, how many BH books I'd have to read to rewire my brain.


Talk about investment return!! The return on my 22 dollar Kindle purchase of "The John Bogle Reader" has been fabulous!! That is one book that is a collection of his books and changed my mind about market timing.

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Re: Sitting on cash....Waiting for a crash

Post by fantasytensai » Thu Mar 09, 2017 12:22 pm

BW1985 wrote:
fantasytensai wrote:I hate to play the devil's advocate here, but what is pragmatically wrong with waiting for a crash?

For the sake of simplicity let's say that all the funds will be in VTSAX, which currently stands at $59.16. Let's say llessac15 holds to his cash and miss out on the market rise, and the market rises 10% within the next two years to ~$65. Then the market crashes 25% to ~$45, then llessac15 enters the market, what is wrong with that? You know, aside from the fact that hindsight is 20/20 :P.


It's already been explained several times. What if it rises 25% and then drops 10%?


Then it's not a crash.

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Re: Sitting on cash....Waiting for a crash

Post by CantPassAgain » Thu Mar 09, 2017 12:31 pm

fantasytensai wrote:
BW1985 wrote:
fantasytensai wrote:I hate to play the devil's advocate here, but what is pragmatically wrong with waiting for a crash?

For the sake of simplicity let's say that all the funds will be in VTSAX, which currently stands at $59.16. Let's say llessac15 holds to his cash and miss out on the market rise, and the market rises 10% within the next two years to ~$65. Then the market crashes 25% to ~$45, then llessac15 enters the market, what is wrong with that? You know, aside from the fact that hindsight is 20/20 :P.


It's already been explained several times. What if it rises 25% and then drops 10%?


Then it's not a crash.


Ha! And.....if it don't go up, don't buy it! :twisted:

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