Sitting on cash....Waiting for a crash

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

Postby zuma » Thu Mar 09, 2017 12:34 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.

The point is that no one can predict what will happen in the next two years. You are imagining one possible future scenario (among many) to justify holding cash, but it's not a compelling argument.

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

Postby fantasytensai » Thu Mar 09, 2017 12:41 pm

zuma wrote:
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.

The point is that no one can predict what will happen in the next two years. You are imagining one possible future scenario (among many) to justify holding cash, but it's not a compelling argument.


I mean, I'm a Boglehead so I obviously don't buy into what I am arguing for. I was just making you guys see how some people think, and how it can look reasonable on paper.

The easiest to spot flaw with that logic is the fact that a) the market may never get back to $45 once it has hit $59; and that b) even if it does, it takes a smarter man than I to be able to recognize it when it happens.

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

Postby herpfinance » Thu Mar 09, 2017 12:47 pm

Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves


If you're sitting in cash, your expected return is going to be lower than holding a healthy dose of stocks.

Even Warren Buffett thinks that stocks are cheap compared to bonds.

http://nordic.businessinsider.com/warre ... ?r=US&IR=T
"The intelligent investor is a realist who sells to optimists and buys from pessimists" - Benjamin Graham

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

Postby EyeYield » Thu Mar 09, 2017 12:53 pm

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?

Here's the good news, if I'm reading your post correctly. You haven't panic sold and are "going all cash" as many others have done recently, you are just putting money, that you would usually invest, into a savings account for 3-5 years. That gives you plenty of time to think about the answers you've received here and I suspect that you will reconsider your thinking in a time frame of closer to 3-5 weeks or months.

Here's the bad news. You have failed to define a plan, other than "some kind of dip in the market" What kind?
To have a plan you must define your kind.
When the market dips x%, you will do what?.

I suspect that once you play around with math and percentages, as we all have done at one time or another, you will begin to see how futile it is to define an exact kind of dip. So go ahead and stash some cash for a little bit, if it makes you feel better, but use the time to define a real plan, a long term plan, not just a short term dip plan. If sitting on cash allows you to come up with a better long term plan, it will turn out to be a good short term investment strategy.
"The stock market is a giant distraction from the business of investing." - Jack Bogle

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

Postby Chuck » Thu Mar 09, 2017 12:58 pm

When we look at stock prices, we're just comparing one type of asset, US Federal Reserve Notes, to another asset, publicly traded businesses.

When I get jittery, I just think about whether I'd rather have "some debt paper" or "a share of all productive business in the US (or world)." Somehow, that makes me feel better about the latter. Obviously, you have to be playing the long game.

(Over the last 100 years, Federal Reserve Notes have lost 95% of their purchasing power. The DJIA with dividends reinvested, adjusted for inflation, gained 70,000% or so.)

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

Postby itstoomuch » Thu Mar 09, 2017 1:09 pm

^PkCrafter, said it very well.

Accumulating and securing cash for a Seattle, retirement home. We are in a race to build up the down payment from removing monies from IRA into ROTHs and taxable, building funds from trading, and not losing. We are 85% cash in Discretionary since Feb 28. FR is very secure and is excessive. 66/69yo. :greedy

Whatever happens, own the decision. :annoyed

YMMV :sharebeer
4 buckets: SS+pension; GLWB VA & FI, by time & amounts laddered; Discretionary; Rental. Do OK on 2 buckets. LTCi. Own, not asset. Marginal 25%. Early SS. FundingRatio (FR) >1.1 Age 66/69

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

Postby Earl Lemongrab » Thu Mar 09, 2017 1:54 pm

Absent taxes, there's no difference between holding cash and not buying stocks, and selling stocks you already have. My tax-advantaged accounts have approximately 380k in stock funds at this time. So no, I am not selling all of those holding in cash.

You have to ask yourself what your plan will be if you don't get a "crash" within a relatively short time frame. What will you do if stocks continue up, or grind horizontally for a year or so?

Do you feel that you have some special insight that the rest of the investors don't? The reason for the admonition against market timing is that there's no clear evidence that it's successful for almost anyone. Everyone else has the same information you do, and many have much more.
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HomerJ
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Re: Sitting on cash....Waiting for a crash

Postby HomerJ » Thu Mar 09, 2017 1:58 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.


What happens if the market rises 50% or 100% before crashing 25%?

In 1996, the market had the highest PE ever seen since 1929. It was obviously overvalued. Shiller himself predicted 0% real 10-year returns. Greenspan made his "irrational exuberance" speech.

And then the market more than doubled again from 1996 to 2000, and even at the bottom in 2002-2003, the market was NEVER cheaper than it was in 1996.

1996 was one of the most overvalued moments in history at the time and stocks have never been cheaper since. Wrap your head around that.

Doom&Gloom
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Re: Sitting on cash....Waiting for a crash

Postby Doom&Gloom » Thu Mar 09, 2017 2:16 pm

The last time I had a noticeable portion of my portfolio in cash was when I was addicted to financial porn. That was an expensive addiction.

I wish I had that to do over again :oops:

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

Postby Chuck » Thu Mar 09, 2017 2:32 pm

You could always hedge with options.

A September SPX 2125 put is $37-ish. That's about 1.5% to insure against a >10% loss in the next 6 months.

Then again, if you make a habit out of it, buying puts all the time, it's like giving up the dividends completely. (This is how those equity index CDs or whatever they're called work.)

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

Postby juliewongferra » Thu Mar 09, 2017 3:08 pm

I'm not sure if OP is still reading--s/he posted the opening question and never came back!--but here's a gentler way of thinking about it, especially for lurkers who may be silently nodding at OP's post. BHs always say that your allocation should be whatever allows you to sleep at night. So if the stock market is making you nervous, if it's been making you nervous the past 8 years, then sit on as much cash as it takes to make you feel comfortable. Good luck and G*d bless.

There are innumerable threads, usually arguing for holding bond funds, stating that you should not put too much equity without being comfortable with the risk of losing 50%. So this is a real possibility. (Loss of 50% would actually qualify as a "crash"!)

IF you are not comfortable with losing 50% of your money (even if it may be likely to recover over the next 30 years), then don't put 100% in equities.

IF you are not comfortable with losing 25% of your money (even if it may be likely to recover over the next 30 years), then don't put 50% in equities.

And so on.

The "sleep easy" allocation usually refers to allocation mix (stocks/bonds/real estate/etc), not the market (stock/bond) conditions. But it's no less true for market conditions; if you're kept up late at night worrying about your investments, the money you save will be spent on antacids and sleep aids and treating your ulcer. Get your mix of money to a place, either long term or tactically, where you can sleep easy.

cheers!
jwf

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

Postby Lord Snow » Thu Mar 09, 2017 3:36 pm

Shiller himself predicted 0% real 10-year returns. Greenspan made his "irrational exuberance" speech.


Ironically, he was almost right - the stock market had a 0% return over 12 years if you measure from 1997 to the low of 2009.

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

Postby Grt2bOutdoors » Thu Mar 09, 2017 4:16 pm

International has under performed Domestic - take your cash, put 25% in International, 25% in Domestic, 50% in fixed income. Cash yields zero.
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GoldenFinch
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Re: Sitting on cash....Waiting for a crash

Postby GoldenFinch » Thu Mar 09, 2017 5:38 pm

powermega wrote: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.


I know someone in their mid thirties who went to cash in their 401k at a little market peak in August 2014. Since then all their monthly investments and company matches have gone into a zero interest money market in the plan. They didn't get back in last February or during Brexit. They are just waiting. The market has gone up twenty percent. They didn't even get dividends.

I vote for having an automatic investment plan and ignoring the markets.

Some behaviors end up looking silly in retrospect. Better to follow a plan and focus on other things.

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

Postby llessac15 » Thu Mar 09, 2017 6:45 pm

OP here. Thanks for all the replies. I love reading these threads. I sit here imagining all of you as these bearded bald guys smoking a pipe and wearing a cardigan just waiting to thump your wisdom upon us youngsters. Sorry to all the ladies on here, I don't have a good image of what you look like. I'm sure you're lovely.

Anyway, to answer some of the questions directed at me, here goes. I have essentially two different investment accounts. One is my 401k which is 60% stocks, 20% REIT, 20% bonds. This is my 'don't touch until RMDs come around' account. That's like 33 years from now. I kind of include my 2 little Roth accounts with my 401k. Hoping to hand those to the kiddos when I kick the bucket. Both Roth's are 100% Vanguard Energy Fund that I converted back in early 2016 when oil tanked. My Roth's are my fun money to play for silly market timing.

The other account is my taxable account with 75% stocks and 25% bonds. Every quarter I put 25% of my net income in my taxable account as the above mentioned AA. I wanna be able to retire in 13 years (50 y/o) using this account.

I'm not sitting on any cash right now, other than a savings account with 6 months expenses. I once took the cash I had saved to buy my wife a new suburban and put it all in the market back when it dipped around early Fall 2015. She wasn't happy about that and didn't like my reasoning of "stocks are on sale!"

Anyway, I guess all of you have convinced me to just keep on with my current financial plan following my current AA. Thanks everyone!

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

Postby Sandtrap » Thu Mar 09, 2017 7:00 pm

Doom&Gloom wrote:The last time I had a noticeable portion of my portfolio in cash was when I was addicted to financial porn. That was an expensive addiction.

I wish I had that to do over again :oops:

Newbie question:
Define "financial porn" and how is that an "expensive addiction". :?:
Can "sitting in cash and waiting for a crash" be a result of "financial porn". :?:
thanks for the help.

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

Postby David Jay » Thu Mar 09, 2017 7:27 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.


Sure he could win, but only against the odds. Like putting all your money on a 50:1 shot in the third race.

The key word from your question is: "pragmatically"

The problem with market timing is that no one can do it reliably. The classic Bogle quote is about market timing: "I don't know anyone or know anyone who knows anyone who can do it consistently." (paraphrase)
"Prediction is very difficult, especially about the future" Niels Bohr

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

Postby David Jay » Thu Mar 09, 2017 7:34 pm

Sandtrap wrote:
Doom&Gloom wrote:The last time I had a noticeable portion of my portfolio in cash was when I was addicted to financial porn. That was an expensive addiction.

I wish I had that to do over again :oops:

Newbie question:
Define "financial porn" and how is that an "expensive addiction". :?:
Can "sitting in cash and waiting for a crash" be a result of "financial porn". :?:
thanks for the help.


Financial porn is the entire financial news industry - print, radio and TV. They need headlines and need you to keep coming back for more.

So yes, watching Al-Arian on CNBC say that a crash in 2016 is 90% certain could cause some people to go to cash.

[edit] it is only expensive if you think there is any value in their prognostications. If you watch Squawkbox as entertainment as I did when I was living overseas (with limited English channels), then it is not expensive.
Last edited by David Jay on Mon Mar 13, 2017 8:40 am, edited 1 time in total.
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Re: Sitting on cash....Waiting for a crash

Postby JimDx1 » Thu Mar 09, 2017 7:35 pm

Good Question.
I'm 59 1/2. Two months from retirement and 100% in a stable value fund, since Sept. 2016. as I prepare my move into retirement. Hindsight is 20/20 but I was expecting just the opposite of what the market is doing.
A big crash 10% +/- would be timely, but more realistically $ cost averaging is the approach I may take to get reallocated to a 50%/50% +/- stocks/bonds (about 50% of my retirement income will be from a pension) and I'm going to leave 2 yrs income in cash and the rest invested Stocks/Bonds.
Lesson learned don't try to time the market.

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

Postby Doom&Gloom » Thu Mar 09, 2017 7:44 pm

Sandtrap wrote:
Doom&Gloom wrote:The last time I had a noticeable portion of my portfolio in cash was when I was addicted to financial porn. That was an expensive addiction.

I wish I had that to do over again :oops:

Newbie question:
Define "financial porn" and how is that an "expensive addiction". :?:
Can "sitting in cash and waiting for a crash" be a result of "financial porn". :?:
thanks for the help.


Financial porn imo is all the tv business shows, magazines, and newspapers for the masses. There were many times that what I heard was "go to cash," "remain in cash," "keep your powder dry," etc. I seemed to listen to those admonitions more frequently than some other bits of advice that they were happy to issue daily. I didn't get my moniker by accident :(

I would have been far better off today if I had had an appropriate stock/bond AA and stuck to it. Prolonged periods of holding relatively large percentages of cash almost certainly cost me money. I didn't lose money by holding cash, but I sure missed out on some gains.

addendum: Well said, David!

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

Postby GoldenFinch » Thu Mar 09, 2017 7:54 pm

llessac15 wrote:OP here. Thanks for all the replies. I love reading these threads. I sit here imagining all of you as these bearded bald guys smoking a pipe and wearing a cardigan just waiting to thump your wisdom upon us youngsters. Sorry to all the ladies on here, I don't have a good image of what you look like. I'm sure you're lovely
:shock: :(

43andcounting
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Re: Sitting on cash....Waiting for a crash

Postby 43andcounting » Thu Mar 09, 2017 8:18 pm

First timer, please take easy on me.

I totally love the BH approach on staying the course and regret not finding the one true religion for investing 20 years ago.

most arguments for staying the course seem based on statistical analysis and the conclusion that you can never time the all-mighty market.

Ignoring statistics is a sin. But assuming that averages and standard deviations describe each typical day is also a sin.

What happened to market fundamentals ? Demographic and macroeconomic trends ? Money supply and demand ? War or peace ?

Saying that none of this really matters (just stay the course) seems similar to saying that PE of 1 vs 100 does not matter, that chance of market with PE 1 going up is the same as chance of PE 100 going up. I get the problem of never knowing when it will turn. But I also see how probabilities may be skewed.

For the record, I am 43 and staying about 70 in equities, 10 bonds, and the rest in CDs.

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

Postby Grt2bOutdoors » Thu Mar 09, 2017 8:30 pm

43andcounting wrote:First timer, please take easy on me.

I totally love the BH approach on staying the course and regret not finding the one true religion for investing 20 years ago.

most arguments for staying the course seem based on statistical analysis and the conclusion that you can never time the all-mighty market.

Ignoring statistics is a sin. But assuming that averages and standard deviations describe each typical day is also a sin.

What happened to market fundamentals ? Demographic and macroeconomic trends ? Money supply and demand ? War or peace ?

Saying that none of this really matters (just stay the course) seems similar to saying that PE of 1 vs 100 does not matter, that chance of market with PE 1 going up is the same as chance of PE 100 going up. I get the problem of never knowing when it will turn. But I also see how probabilities may be skewed.

For the record, I am 43 and staying about 70 in equities, 10 bonds, and the rest in CDs.


http://pages.stern.nyu.edu/~adamodar/Ne ... retSP.html <------- See this chart, returns during times of low p/e, high p/e, a great depression, one world war, numerous military conflicts, market fundamentals run amiss, great market fundamentals, great economy, great demographics, war and peace. So what? It's futile to guess which way its going to go, many a fortune could have been made and many a fortune has been lost trying to time the market. Forget it, the few who peg it right are no different than a lottery winner, they got lucky.
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The Wizard
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Re: Sitting on cash....Waiting for a crash

Postby The Wizard » Thu Mar 09, 2017 9:21 pm

43andcounting wrote:...Ignoring statistics is a sin. But assuming that averages and standard deviations describe each typical day is also a sin.

What happened to market fundamentals ? Demographic and macroeconomic trends ? Money supply and demand ? War or peace ?

They are not sins.
We are dealing with random variables here, but with a long term upward trend.
And especially when dealing with the broad market, not individual stocks.
Simplicity tends to beat complexity in this game, however counterintuitive that may seem...
Attempted new signature...

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

Postby anonyvestor » Thu Mar 09, 2017 10:11 pm

I understand your sentiment, but you might consider:

1. When the market drops, there will be plenty of cause for market fear, if not outright panic. If you are fearful now, how confident can you be that you will be bold then? Meanwhile, your cash stockpile may grow with additional savings, further fueling anxiety. I worry you may find yourself sitting out of the market indefinitely, while inflations whittles away at your savings.

2. While we could debate the statistical values of any of the following approaches, I suspect a broad based equity portfolio, with a conservative fixed income allocation, and an extended dollar cost averaging investment horizon, might prevent you from jumping in and out of the market, and also prevent you from sitting on the sidelines indefinitely.

I shared your concerns as I gradually invested oversize cash holdings some time ago. It is now a relief to have done so, even if there may be losses right around the corner.

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

Postby Sandtrap » Thu Mar 09, 2017 10:22 pm

GoldenFinch wrote:
llessac15 wrote:OP here. Thanks for all the replies. I love reading these threads. I sit here imagining all of you as these bearded bald guys smoking a pipe and wearing a cardigan just waiting to thump your wisdom upon us youngsters. Sorry to all the ladies on here, I don't have a good image of what you look like. I'm sure you're lovely
:shock: :(

Suspender snapping. Head nods. Rustling of the daily "Bogle" financials. . . . . .distant chatter of a ticker machine as it dispels coded paper tape.
. . . . . (overheard)
"It is rather likely that if one is invested in a balanced portfolio of proper allocation in which at any moment in time either of its internal elements are dutifully rising or falling in value. . . . there would be no point in waiting for a crash except to capitalize on such an event. . . . . "
Last edited by Sandtrap on Thu Mar 09, 2017 10:27 pm, edited 2 times in total.

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

Postby HomerJ » Thu Mar 09, 2017 10:24 pm

Lord Snow wrote:
Shiller himself predicted 0% real 10-year returns. Greenspan made his "irrational exuberance" speech.


Ironically, he was almost right - the stock market had a 0% return over 12 years if you measure from 1997 to the low of 2009.


Or he was ridiculously wrong, since stocks returned 6% real from 1996-2006.

But both statements are true. This should warn us to carefully consider declarative statements about returns (including mine) since start and end points make such a HUGE difference. Very easy to manipulate data to fit your narrative.

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

Postby sperry8 » Thu Mar 09, 2017 11:05 pm

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 timeline is 20 years... and you are worried about the market being high right now? There has never been a 20 year period where stocks were down. So why are you searching for one? Just get in and stay in if your time horizon is that long.
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Re: Sitting on cash....Waiting for a crash

Postby freebeer » Thu Mar 09, 2017 11:45 pm

juliewongferra wrote:...
IF you are not comfortable with losing 50% of your money (even if it may be likely to recover over the next 30 years), then don't put 100% in equities.

IF you are not comfortable with losing 25% of your money (even if it may be likely to recover over the next 30 years), then don't put 50% in equities.

And so on...


But you must also realize there are consequences to choices including the choice to put less in equities.

I am not "comfortable" with losing more than 25% of my money but nor am I "comfortable" having to spend less now / work more later / be at risk of inflation making my savings worth less. So I invest and stay the course. Because evidence indicates that the total return of a significant portion of the portfolio in equities (something between 50% and 100%) will be higher (so it's not just that it will "recover" from the loss but it will end up doing better... as those who've stayed the course through and since the 2007-2009 crash have now seen demonstrated in action).

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

Postby CULater » Fri Mar 10, 2017 12:00 am

I keep thinking about the 1990s during the great runup in stock prices. I ask myself how anybody could have continued to hold high equity allocations. I'm sure the same pro and con discussions were going on and many were deciding there was no way to foretell what was going to happen, stay in, stick with the plan, etc. Then the thing tanked and all the second-guessing began. I guess I was lucky. Stocks scared the shell out of me at the time, I thought the whole thing was nuts and that people who were buying and holding were nuts, and so I just sat on the sidelines. Turned out that my multi-year portfolio return was just as good as if I had done something and I didn't have to ride the roller coaster. Of course, in those days you could actually earn a little bit on money market funds, which was where I was hiding out. These days there's no place to hide, so the choice seems a lot harder. But there never was a guarantee that giving your money to someone else in the hope they'd give you more back (aka "investing"), was actually a good idea was there? We're just a bunch of spoiled brats who may have to learn that "investing" might actually be a chimera and that the only way to end up with something at the end of the day is to save as much as possible and assume nothing. My guess is that at least 80% of my retirement nestegg consists of money I saved and the rest represents "investment" returns. And I'm doing OK. Not everybody has to play the game...

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

Postby ruralavalon » Fri Mar 10, 2017 8:55 am

Welcome to the forum :) .

43andcounting wrote:First timer, please take easy on me.

I totally love the BH approach on staying the course and regret not finding the one true religion for investing 20 years ago.

most arguments for staying the course seem based on statistical analysis and the conclusion that you can never time the all-mighty market.

Ignoring statistics is a sin. But assuming that averages and standard deviations describe each typical day is also a sin.

Not a sin, ignoring basic arithmetic is just foolish.


43andcounting wrote:What happened to market fundamentals ? Demographic and macroeconomic trends ? Money supply and demand ? War or peace ?

Saying that none of this really matters (just stay the course) seems similar to saying that PE of 1 vs 100 does not matter, that chance of market with PE 1 going up is the same as chance of PE 100 going up. I get the problem of never knowing when it will turn. But I also see how probabilities may be skewed.

Knowing those types of numbers for fundamentals and trends doesn't help in predicting the time of market moves.

"Everyone" has been predicting the certainty of increasing interest rates (and a drop in bond prices) since 2009, and suggesting using short-term bond funds as a hedge against the drop in bond prices. Everyone who used that strategy has lost 8 years worth of the higher returns available from using intermediate-term bond funds.


43andcounting wrote:For the record, I am 43 and staying about 70 in equities, 10 bonds, and the rest in CDs.

That asset allocation, 70/30, is within the range range of what is reasonable at age 43, in my opinion.
Last edited by ruralavalon on Fri Mar 10, 2017 10:13 am, edited 1 time in total.
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mortfree
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Re: Sitting on cash....Waiting for a crash

Postby mortfree » Fri Mar 10, 2017 9:36 am

Rats - looks like the market is peaking yet again :oops:

how will someone ever time this??

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

Postby Index Fan » Fri Mar 10, 2017 11:56 am

The market can remain irrational longer than you can remain solvent.

50/50 AA, not worrying about it.
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Re: Sitting on cash....Waiting for a crash

Postby Vanguard Fan 1367 » Fri Mar 10, 2017 11:58 am

mortfree wrote:Rats - looks like the market is peaking yet again :oops:

how will someone ever time this??



I spent a dollar on Peter Lynch's book: "One Up on Wall Street." He gave some great stock picking tips and I certainly received many times my investment in the garage sale book, but life really began for me in the investment world when I found Bogle's Books. You can certainly look for a stock that might have some potential but I appreciate the no market timing wisdom of Bogle. I also enjoy not worrying about my 5 stocks that Lynch recommends you might consider buying.

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

Postby Morik » Fri Mar 10, 2017 12:21 pm

Index Fan wrote:The market can remain irrational longer than you can remain solvent.


This, essentially.

1. It is really hard to be correct about the market currently being irrational. (Generally only in hindsight.)

2. Even if you are correct, getting the timing down is very hard. E.g., the 2008 crash was predicted by Michael Burry (see the movie "The Big Short"). He noticed the instability of the housing market in 2005 (according to Wikipedia) and if you watch the movie, he almost goes broke trying to take advantage of it.
He essentially shorts the housing market, but the market kept this instability for years! He kept losing more and more money as the bubble kept expanding.

In the case of the OP, I am assuming OP is not as talented in big picture financial market analysis as Michael Burry. But even if OP was that talented, identifying an instability in the market is not sufficient! If you want to take advantage of it you need to also time it correctly! If you think you can, well, good luck.

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

Postby ThisDinosaur » Fri Mar 10, 2017 2:19 pm

http://www.schwab.com/public/schwab/nn/ ... iming-Work
Image
Perfect market timing, even during two of the worst crashes in US history, barely outperformed buy and hold. Even investing at the worst possible times outperformed sitting on cash.
If you're worried about valuations (as I am) I would suggest buying more fairly valued indexes.

http://www.starcapital.de/research/stockmarketvaluation

I'm buying more Developed and Emerging Markets for now. When VTSAX inevitably drops (as it always does eventually) then I can DCA in. But I'm definitely not just sitting on cash.

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

Postby malabargold » Fri Mar 10, 2017 2:28 pm

You really don't seem to have the mindset to be a successful
long term stock investor.
You are going to be chasing your tail,
a behavioral pattern that will lock in sub par performance.

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

Postby jayhawkerbeef » Fri Mar 10, 2017 4:44 pm

People lately have been touting Buffet's challenge with hedge fund - below is the annual BRK letter if you like.

http://www.berkshirehathaway.com/letters/2016ltr.pdf

To save you time. Page 21. 2008 resulted in a -37% loss vs gain to date of 85.4%, and then ask if waiting is a good idea.

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

Postby Woodshark » Fri Mar 10, 2017 6:20 pm

To the OP, I'm not in the exact same situation but I do understand the hesitation. We sold our primary home over a year ago, retired, and moved into our vacation home. The proceeds from the sale amounted to about a 20% (potential) bump to our investable assets. However, we knew that we wanted to do an expansion and lots of upgrades to our vacation home so I just put all of the $$ from the sale into a money market account. As it turns out we will end up using about 50% of the proceeds towards the improvements and upgrades. The other 50% I was hesitant to invest, since the market is where it is. After some deliberation, we decided it would stay in the MM account and would be use as a drawdown source for the next few years of retirement. Thus leaving our original 60/40 portfolio untouched and immune to early black swans.

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

Postby chrisjul » Fri Mar 10, 2017 9:28 pm

I tend to agree with Wm Bernstein....."when you have already won the game, why continue to play"

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

Postby 2Birds1Stone » Sat Mar 11, 2017 1:41 pm

Some great advice in this thread regarding your desired AA

Sitting on cash is a fools game. You are highly unlikely to time any dip perfectly.

Who knows, the market could run up another 10, 20, 50% before pulling back significantly enough for you to feel comfortable "buying the dip"

Even if you "buy the dip", usually the markets best returns are immediately after a crash. You will most likely miss the bottom and come out behind a sound DCA of your investments over the next 5-7 years.

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

Postby ofcmetz » Mon Mar 13, 2017 8:09 am

David Scubadiver wrote:
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.


If I'm 50% fixed income and 50% stocks in retirement and draw something from social security and a pension then I have well over ten years expenses in fixed income. I can withdraw from my stocks in most years but could ride out a crash or a correction by withdrawing from the fixed income portion of my portfolio plus using some of the stock dividends.

If I'm accumulating like right now then I can have a much higher portion allocated to stocks as I keep a cash savings account for emergencies. Point is either way you have some time if the market goes down.
Never underestimate the power of the force of low cost index funds.

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

Postby ruralavalon » Mon Mar 13, 2017 9:16 am

llessac15 wrote:OP here. Thanks for all the replies. I love reading these threads. I sit here imagining all of you as these bearded bald guys smoking a pipe and wearing a cardigan just waiting to thump your wisdom upon us youngsters. Sorry to all the ladies on here, I don't have a good image of what you look like. I'm sure you're lovely.

Anyway, to answer some of the questions directed at me, here goes. I have essentially two different investment accounts. One is my 401k which is 60% stocks, 20% REIT, 20% bonds. This is my 'don't touch until RMDs come around' account. That's like 33 years from now. I kind of include my 2 little Roth accounts with my 401k. Hoping to hand those to the kiddos when I kick the bucket. Both Roth's are 100% Vanguard Energy Fund that I converted back in early 2016 when oil tanked. My Roth's are my fun money to play for silly market timing.

The other account is my taxable account with 75% stocks and 25% bonds. Every quarter I put 25% of my net income in my taxable account as the above mentioned AA. I wanna be able to retire in 13 years (50 y/o) using this account.

I'm not sitting on any cash right now, other than a savings account with 6 months expenses. I once took the cash I had saved to buy my wife a new suburban and put it all in the market back when it dipped around early Fall 2015. She wasn't happy about that and didn't like my reasoning of "stocks are on sale!"

Anyway, I guess all of you have convinced me to just keep on with my current financial plan following my current AA. Thanks everyone!

I am glad you have decided to stay the course, and not do anything drastic.

The earliest investing lessons I learned were to stay invested, and to keep contributing no matter what the market did.
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Re: Sitting on cash....Waiting for a crash

Postby nedsaid » Mon Mar 13, 2017 10:51 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?


During bull markets, stocks always look expensive. When stock market valuations are low, that is because of a gusher of really bad news that never seems to stop and a market that seems to have no bottom. In these situations, conditions appear to be "too risky" for many people to invest. Too risky or too expensive, it never seems like a good time to invest.

I saw a recent article about Warren Buffett and his opinion that stocks were relatively cheap. He said one factor is that interest rates are so low and a stock investor has to take this into consideration. He is in there buying right now.

My own feeling is that both stocks and bonds are expensive but not irrationally so. Bonds have been in a bull market from 1982 until about maybe 2013. Since 2013, bonds have bounced around a bit. We have had a bull market in stocks since 2009. Would you expect stocks and bonds to be dirt cheap in this environment? Aren't bull markets the reason you invest in the first place?

It sounds to me that you are keeping what you have and are thinking about a "dry powder" strategy of having cash available for market dips. That is not irrational. If you are waiting for a crash, you might be waiting for a long time.

What most Bogleheads would tell you is to examine your asset allocation first. You might be uncomfortable because your portfolio might be invested too aggressively. This might be a good opportunity for you to rebalance from stocks to bonds if you haven't done so already. If you take a bit off the top and take that to cash, it won't be the end of the world. Better to "panic" at market highs than after the market has crashed. At most, your changes in asset allocation should five percent or maybe even ten percent of your portfolio.

I am not seeing extremes in market valuations or in investor sentiment. This is not the mania of the late 1990's. No reason to make dramatic changes.
A fool and his money are good for business.

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

Postby llessac15 » Mon Mar 13, 2017 10:27 pm

nedsaid wrote:It sounds to me that you are keeping what you have and are thinking about a "dry powder" strategy of having cash available for market dips. That is not irrational. If you are waiting for a crash, you might be waiting for a long time


You are correct with the "dry powder" comment. I'm not looking to take any money out of my accounts or even change my AA. I'm just considering if I should sit on any new money for now and wait to invest it after a large dip in the market. I'm not smart enough to TRULY consider this but I thought it would be good to hear others thoughts. I wanted to see if anyone else is holding some money in cash right now since CAPE and such valuations are so high and interest rates are so low.

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

Postby BW1985 » Mon Mar 13, 2017 10:49 pm

llessac15 wrote:
nedsaid wrote:It sounds to me that you are keeping what you have and are thinking about a "dry powder" strategy of having cash available for market dips. That is not irrational. If you are waiting for a crash, you might be waiting for a long time


You are correct with the "dry powder" comment. I'm not looking to take any money out of my accounts or even change my AA. I'm just considering if I should sit on any new money for now and wait to invest it after a large dip in the market. I'm not smart enough to TRULY consider this but I thought it would be good to hear others thoughts. I wanted to see if anyone else is holding some money in cash right now since CAPE and such valuations are so high and interest rates are so low.


Some people such as myself don't automatically invest in taxable on a regular schedule. Every so often when the checking or savings reaches X amount, when we get around to it, or when there's a drop, we buy. That kinda fits in with what you're asking.

The other thing is an extra large emergency fund in cash which I also hold. You could also count some of this as dry powder because it could be reduced and then invested.
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

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

Postby Earl Lemongrab » Mon Mar 13, 2017 11:04 pm

In short, no don't keep cash for that. As I said, there is little difference between hoarding new cash and selling stocks. Either increases your fixed income and reduces your stocks. Changing your allocation in response to what you think the market will do is market timing, pure and simple. That's whether you call it "accumulating dry powder" or "strategic allocation" or anything else.

One should have an overall allocation that you are comfortable with. When stocks drop significantly, you move money out of bonds into stocks via rebalancing.
This week's fortune cookie: "You will enjoy doing something spontaneous this weekend." Apparently that meant working on a dead PC, but I didn't enjoy that much.

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

Postby stemikger » Tue Mar 14, 2017 8:52 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

When all else fails, listen to Toons!

To the OP, where do you think the market will be in 15 to 20 years. Invest for the long term and the rest will take care of itself.
Press on Regardless!!! | Holding the Balanced Index Fund through thick and thin!!

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

Postby keith6014 » Sun Mar 19, 2017 9:15 am

chicagoan23 wrote:
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?


Because I didn't have any bonds to start with. My intention is when there is a downturn in the market I will tilt back to equities. Sort of having cash on the side.

klw084
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Re: Sitting on cash....Waiting for a crash

Postby klw084 » Sun Mar 19, 2017 10:12 am

For the past several years, I've been using a Value Averaging approach (look it up if you want). I've read the arguments for and against it and I've decided that it makes sense to me and it is something I will stick with.

Previously, since the market didn't really move much (maybe 2014-2015), I was "underwater" and as a result whatever money i saved I threw into the stock market, basically making this strategy similar to a dollar cost averaging approach and because of that, I never had to second guess myself.

With the recent run-up in the market in 2016 and particularly the run-up since the election, I find myself "above water" for the first time and as a result, have been mostly diverting my money into cash.

It's funny because I now have somewhat of an opposite problem than most other people. My strategy is telling me to sit in cash when my instinct is to invest it as I have been dutifully doing all these years. I will stick with this chosen strategy though.

As for whether or not the stock market is overvalued, one seemingly logical explanation for their current prices that I have heard would be if stocks can truly be valued on their P/E ratios, then with the supposed substantial corporate tax cuts that are incoming due to the new administration, corporate earnings/profits should substantially increase. If that is the case, the P/E ratios should come down significantly in the future. Perhaps the market is anticipating that and as a result, there has been a run-up of late. A very simple explanation of course, but not an unreasonable one in my opinion.


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