100% in bond to wait for market crash?

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flyingaway
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Re: 100% in bond to wait for market crash?

Post by flyingaway » Tue Oct 10, 2017 9:13 am

I guess that the real reason is that you think there will come a crash soon and you will be able to buy back with all the bond money.

To tell you the truth, I have the same feeling. The trouble is that I do not know when the crash will come, and if it comes, I do not know when to jump in.

If you have no intention to get back to stocks, then you should go to bond 100%.

What I am doing is: When the stocks hit new highs, I buy some bonds. Another reason for me to buy bonds, I reached Financial Independence a few months ago, my desire to take risk has been reduced a little bit.

KyleAAA
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Re: 100% in bond to wait for market crash?

Post by KyleAAA » Tue Oct 10, 2017 9:18 am

I see no evidence of a stock bubble or an impending recession. Growth has been slow but steady and if anything the next year or two is looking up vs the recent past. Fundamentals are strong. That said, I still have 30% of my portfolio in bonds and plan to stay that way. Market timing doesn't work. The problems with comparing historical PE ratios is that the definition of E has changed substantially over the years, even from 2000. A PE of 20 just doesn't mean now what it meant in 2000, much less in 1929.

protagonist
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Re: 100% in bond to wait for market crash?

Post by protagonist » Tue Oct 10, 2017 9:29 am

HenrysPlan2 wrote:
Mon Oct 09, 2017 6:09 pm
Since the stock market value most expensive except year 2000 . Also since the bond having roughly 2.3% return, please convince me not to collect 2.3% in bond and wait for stock correction. I dont to want to see my hard earned money to sink.
And what if, instead, with interest rates near historic lows, interest rates rise dramatically and bonds get slammed instead?

If you are very risk averse, I would suggest that CDs (preferably with generous EWPs ) are safer than stocks or bonds , and with some research you should be able to find ones that offer at least 2.3% returns (or certainly close) .

Plus how is "waiting for a stock correction" going to help? Just as you never know how much more a bubble will inflate before it pops, when stocks "correct", you never know how much lower they will go, or when (or even if) they will bounce back.

I think a balanced portfolio is one's best bet, because the future is, well, the future. If you are willing to settle for pre-tax returns in that neighborhood and your priority is to avoid risk and worry to the best of your ability, I would definitely choose CDs (and I-bonds) over corporate bonds. The worst thing you can do is react due to panic.

fipt2030
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Re: 100% in bond to wait for market crash?

Post by fipt2030 » Tue Oct 10, 2017 10:15 am

protagonist wrote:
Tue Oct 10, 2017 9:29 am
[quote=HenrysPlan2 post_id=3566193 time=1507590555 user_id=114907

And what if, instead, with interest rates near historic lows, interest rates rise dramatically and bonds get slammed instead?

If you are very risk averse, I would suggest that CDs (preferably with generous EWPs ) are safer than stocks or bonds , and with some research you should be able to find ones that offer at least 2.3% returns (or certainly close) .

Plus how is "waiting for a stock correction" going to help? Just as you never know how much more a bubble will inflate before it pops, when stocks "correct", you never know how much lower they will go, or when (or even if) they will bounce back.

I think a balanced portfolio is one's best bet, because the future is, well, the future. If you are willing to settle for pre-tax returns in that neighborhood and your priority is to avoid risk and worry to the best of your ability, I would definitely choose CDs (and I-bonds) over corporate bonds. The worst thing you can do is react due to panic.

That's my fear, Bonds are not entirely "safe" with
Increasing interest rates
I am O.K with less than 3 % return till things settle more in my head than Market, can you you suggest any such investments

Moving forward, I am going to buy I Bond and EE bond to maximum allowed amount

HenrysPlan2
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Re: 100% in bond to wait for market crash?

Post by HenrysPlan2 » Tue Oct 10, 2017 11:19 am

fipt2030 wrote:
Tue Oct 10, 2017 5:10 am
My AA calls for 70/30, Bonds/stocks

Interest rates are gonna go up, I am not ready to lose my principal when it happens and Just can't seem to jump in now
Did you invested all $2m for sold of business? With 70% I bond and 43 years old?

fipt2030
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Re: 100% in bond to wait for market crash?

Post by fipt2030 » Tue Oct 10, 2017 11:35 am

That money was never invested, sold my business and has been saving for past 5-7 years, that money was never in the market( used to hold it just in case if I need it for capital infusion for business, got a good offer sold the business)

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TheTimeLord
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Re: 100% in bond to wait for market crash?

Post by TheTimeLord » Tue Oct 10, 2017 11:41 am

HenrysPlan2 wrote:
Mon Oct 09, 2017 6:09 pm
Since the stock market value most expensive except year 2000 ( p/e https://www.quandl.com/data/MULTPL/SHIL ... o-by-Month ). Also since the bond having roughly 2.3% return, please convince me not to collect 2.3% in bond and wait for stock correction. I dont to want to see my hard earned money to sink. We just started putting roughly $500k to taxable account last month that I am thinking to move it to intermediate tax exempt bond. If the money was appreciated from the stock, I would feel more comfortable leaving it there in stock. Thanks in advance.

However it's confused me that if the expected tax cut will have any affect on the market.
Am I the only one more afraid of the Bond Bubble than the Stock Bubble? This is why I am more in CDs with terms from 1 month to 5 years than Bonds.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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randomizer
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Re: 100% in bond to wait for market crash?

Post by randomizer » Tue Oct 10, 2017 11:50 am

HenrysPlan2 wrote:
Mon Oct 09, 2017 6:09 pm
Since the stock market value most expensive except year 2000 ( p/e https://www.quandl.com/data/MULTPL/SHIL ... o-by-Month ). Also since the bond having roughly 2.3% return, please convince me not to collect 2.3% in bond and wait for stock correction.
Read The Boglehead's Guide To Investing, and if that doesn't convince you, things aren't looking good for you. There are plenty of other books you could read listed on the wiki, but not sure how much good they'll do for you if the simplest, most distilled version of the argument doesn't convince you.
75:25 AA / Expected retirement: 2097

HenrysPlan2
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Re: 100% in bond to wait for market crash?

Post by HenrysPlan2 » Tue Oct 10, 2017 12:09 pm

What do you guys also think a long term rental home would also have very good return say 30 years. We currently still have 4 rental homes which we try to keep 3 for long term(20 plus years) and selling one next year.

TN_Boy
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Re: 100% in bond to wait for market crash?

Post by TN_Boy » Tue Oct 10, 2017 12:48 pm

TheTimeLord wrote:
Tue Oct 10, 2017 11:41 am
HenrysPlan2 wrote:
Mon Oct 09, 2017 6:09 pm
Since the stock market value most expensive except year 2000 ( p/e https://www.quandl.com/data/MULTPL/SHIL ... o-by-Month ). Also since the bond having roughly 2.3% return, please convince me not to collect 2.3% in bond and wait for stock correction. I dont to want to see my hard earned money to sink. We just started putting roughly $500k to taxable account last month that I am thinking to move it to intermediate tax exempt bond. If the money was appreciated from the stock, I would feel more comfortable leaving it there in stock. Thanks in advance.

However it's confused me that if the expected tax cut will have any affect on the market.
Am I the only one more afraid of the Bond Bubble than the Stock Bubble? This is why I am more in CDs with terms from 1 month to 5 years than Bonds.
I don't think CDs are a bad idea instead of bonds, but given the relative magnitude of a bond market "crash" (assuming high-quality intermediate term bonds like what you see in total bond market) versus a stock market crash, I'm a lot more afraid of stock market "bubbles" than bond "bubbles."

There have been a number of threads here on the bond market "bubble" and reading them should ease any fears. I don't lose sleep over things like a 5% loss. But entertainments like 2008 in the stock market get my attention.

People have been talking about a "bond bubble" for literally years now. The five year growth of BND (total bond market ETF) is 2% per year (per morningstar), and that included a 2.1% loss in 2013. Are quality bonds returning very much? No, they are somewhat dismal, fortunately inflation has been muted. But the next time the stock market crashes, they will look a lot better.

onourway
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Re: 100% in bond to wait for market crash?

Post by onourway » Tue Oct 10, 2017 12:55 pm

To me it sounds like you haven't clearly defined the purpose for this chunk of money, hence your reluctance to keep it invested. If you were truly committed to remaining invested for the long-term - at least 10 years, preferably more - what would it matter if the value temporarily dips along the way? It sounds as if you still consider these funds as cash that you want available to spend at a moment's notice. If so, then keeping them as 100% cash is the appropriate choice. If that's not what you really feel, then define specific goal(s) for these funds and invest appropriately to meet them. Then tune out the noise and enjoy life.

HenrysPlan2
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Re: 100% in bond to wait for market crash?

Post by HenrysPlan2 » Tue Oct 10, 2017 1:12 pm

onourway wrote:
Tue Oct 10, 2017 12:55 pm
To me it sounds like you haven't clearly defined the purpose for this chunk of money, hence your reluctance to keep it invested. If you were truly committed to remaining invested for the long-term - at least 10 years, preferably more - what would it matter if the value temporarily dips along the way? It sounds as if you still consider these funds as cash that you want available to spend at a moment's notice. If so, then keeping them as 100% cash is the appropriate choice. If that's not what you really feel, then define specific goal(s) for these funds and invest appropriately to meet them. Then tune out the noise and enjoy life.
My goal is to grow the fund as much as I could. I do not need the fund as my primary home paid off and have stable job.

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Ged
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Re: 100% in bond to wait for market crash?

Post by Ged » Tue Oct 10, 2017 1:14 pm

The problem with the market timing approach is that you have to be right TWICE.

So you sell out now and two years from now the market, after going up 7% per year has a typical recession drop of 25%. Do you buy back in then or wait for another 25% drop?

What if it then bounces up 10% after the 25% drop putting it at where it is today? Do you buy then? Or wait some more?

This is the thing I faced in 2008. I sold out in 2007, but could not figure out when to get back in. I ended up making a bit but not what I would have if I could have timed the bottom.

In my experience it is MUCH HARDER to figure out when to get back in than it is to realize things are too high and sell. A big drop is scary and buying in after the drop takes real cojones. Lots of people were so scared by the drop they didn't buy back in until well after the market recovered.

It's much easier and it's more likely you will come out ahead if you stay the course.

onourway
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Re: 100% in bond to wait for market crash?

Post by onourway » Tue Oct 10, 2017 1:22 pm

HenrysPlan2 wrote:
Tue Oct 10, 2017 1:12 pm
My goal is to grow the fund as much as I could. I do not need the fund as my primary home paid off and have stable job.
That's a pretty fuzzy goal, which I think accounts for some of your uncertainty here. Without a firm goal in mind your only real objective is to 'have more' but growing you assets always requires a timeline and a risk calculation (ie. do you want to have more tomorrow, next year, 5 years, or 30 years from now?) Deciding when you will need the funds and approximately how much you would be satisfied with allows you to calculate the risk you are willing (or need) to take.

Once your plans firm up it will become much easier to figure out what the right answer is.

fipt2030
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Re: 100% in bond to wait for market crash?

Post by fipt2030 » Tue Oct 10, 2017 1:26 pm

That chunk of money is earmarked for retirement ( 15-20 years) from now
I am very risk averse, can't afford mentally to lose even 5-10%, will split my future savings (15 yrs or do) 50/50 Bonds and equities, no complaints with being in the market there

This money, even if it grows to 50% in 15-20 years, I am O.K, by that time tax deferred and other taxable investments fund (starting this year) should hit 20 year expense worth.

I want capital preservation with this big chunk

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TheTimeLord
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Re: 100% in bond to wait for market crash?

Post by TheTimeLord » Tue Oct 10, 2017 1:31 pm

TN_Boy wrote:
Tue Oct 10, 2017 12:48 pm
TheTimeLord wrote:
Tue Oct 10, 2017 11:41 am
HenrysPlan2 wrote:
Mon Oct 09, 2017 6:09 pm
Since the stock market value most expensive except year 2000 ( p/e https://www.quandl.com/data/MULTPL/SHIL ... o-by-Month ). Also since the bond having roughly 2.3% return, please convince me not to collect 2.3% in bond and wait for stock correction. I dont to want to see my hard earned money to sink. We just started putting roughly $500k to taxable account last month that I am thinking to move it to intermediate tax exempt bond. If the money was appreciated from the stock, I would feel more comfortable leaving it there in stock. Thanks in advance.

However it's confused me that if the expected tax cut will have any affect on the market.
Am I the only one more afraid of the Bond Bubble than the Stock Bubble? This is why I am more in CDs with terms from 1 month to 5 years than Bonds.
I don't think CDs are a bad idea instead of bonds, but given the relative magnitude of a bond market "crash" (assuming high-quality intermediate term bonds like what you see in total bond market) versus a stock market crash, I'm a lot more afraid of stock market "bubbles" than bond "bubbles."

There have been a number of threads here on the bond market "bubble" and reading them should ease any fears. I don't lose sleep over things like a 5% loss. But entertainments like 2008 in the stock market get my attention.

People have been talking about a "bond bubble" for literally years now. The five year growth of BND (total bond market ETF) is 2% per year (per morningstar), and that included a 2.1% loss in 2013. Are quality bonds returning very much? No, they are somewhat dismal, fortunately inflation has been muted. But the next time the stock market crashes, they will look a lot better.
I expect volatility in stocks, a range of 15-20% in a given year would be normal imho. Long term negative returns in bonds (normalization) would be very disconcerting to me.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

HenrysPlan2
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Re: 100% in bond to wait for market crash?

Post by HenrysPlan2 » Tue Oct 10, 2017 1:47 pm

Ged wrote:
Tue Oct 10, 2017 1:14 pm
The problem with the market timing approach is that you have to be right TWICE.

So you sell out now and two years from now the market, after going up 7% per year has a typical recession drop of 25%. Do you buy back in then or wait for another 25% drop?

What if it then bounces up 10% after the 25% drop putting it at where it is today? Do you buy then? Or wait some more?

This is the thing I faced in 2008. I sold out in 2007, but could not figure out when to get back in. I ended up making a bit but not what I would have if I could have timed the bottom.

In my experience it is MUCH HARDER to figure out when to get back in than it is to realize things are too high and sell. A big drop is scary and buying in after the drop takes real cojones. Lots of people were so scared by the drop they didn't buy back in until well after the market recovered.

It's much easier and it's more likely you will come out ahead if you stay the course.
hi Ged, thanks for the advise. Do you mind to tell us what made you sold out in 2007? that sounds like a very smart move. was it due to the housing market weakening? 2007 is very hard to predict the crash since everything looked good except the housing market. Also I think you don't have to times it right both times, for example if you sold in 2017, you can buy back half when the market drop 25%, another half when the market drop 35% and that surely better than stay with the crash. The guys here kind of convinced me to leave the $500k as is in total stock fund for now. I am thinking to buy some total international fund, sometimes US crashed other part of the world still holding well like 2008 the chinese stock still strong.

WhiteMaxima
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Re: 100% in bond to wait for market crash?

Post by WhiteMaxima » Tue Oct 10, 2017 2:24 pm

Why do you thing Bond won't crash? If the company (or even a country) is bankrupt, the bond will lose value. Bond has bubble also because of low interest.

lotusflower
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Re: 100% in bond to wait for market crash?

Post by lotusflower » Tue Oct 10, 2017 2:29 pm

HenrysPlan2 wrote:
Tue Oct 10, 2017 1:47 pm
Ged wrote:
Tue Oct 10, 2017 1:14 pm
The problem with the market timing approach is that you have to be right TWICE.
...
In my experience it is MUCH HARDER to figure out when to get back in than it is to realize things are too high and sell. A big drop is scary and buying in after the drop takes real cojones. Lots of people were so scared by the drop they didn't buy back in until well after the market recovered.
hi Ged, thanks for the advise. Do you mind to tell us what made you sold out in 2007? that sounds like a very smart move. was it due to the housing market weakening? 2007 is very hard to predict the crash since everything looked good except the housing market. Also I think you don't have to times it right both times, for example if you sold in 2017, you can buy back half when the market drop 25%, another half when the market drop 35% and that surely better than stay with the crash. The guys here kind of convinced me to leave the $500k as is in total stock fund for now. I am thinking to buy some total international fund, sometimes US crashed other part of the world still holding well like 2008 the chinese stock still strong.
Despite my somewhat sarcastic post earlier, I don't think this is so crazy. BUT it's easy to sit here and say you'll do this, and another thing to actually have the nerve to pull the trigger on your brilliant strategy when the cable news is blaring about economic collapse (which they certainly will be at that point).

Plus what if the correction is only 17%, and then it recovers and keeps going for another couple of years, are you going to sit out that whole time? Are you going to change your strategy on the fly? If that's possible then you are admitting that you don't really have a strategy, and you are just going to rely on your gut feel. If you don't believe everyone else when they say that is harder than it seems, then I'm not sure how much help this board can be.

Still I hope it works out and we would love to hear your results in a few years when this may all shake out.

HenrysPlan2
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Re: 100% in bond to wait for market crash?

Post by HenrysPlan2 » Tue Oct 10, 2017 2:34 pm

WhiteMaxima wrote:
Tue Oct 10, 2017 2:24 pm
Why do you thing Bond won't crash? If the company (or even a country) is bankrupt, the bond will lose value. Bond has bubble also because of low interest.
I think the intermediate tax exempt bond mostly with city and county bond, not so much cooperate bond? Also feels much safer as 2008 crash the bond did well?

onourway
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Re: 100% in bond to wait for market crash?

Post by onourway » Tue Oct 10, 2017 2:38 pm

HenrysPlan2 wrote:
Tue Oct 10, 2017 2:34 pm
I think the intermediate tax exempt bond mostly with city and county bond, not so much cooperate bond? Also feels much safer as 2008 crash the bond did well?
Plenty of municipalities have defaulted on bonds. Look at Puerto Rico today.

Do you think the next crash will look the same as 2008?

flyingaway
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Re: 100% in bond to wait for market crash?

Post by flyingaway » Tue Oct 10, 2017 2:44 pm

HenrysPlan2 wrote:
Tue Oct 10, 2017 1:47 pm
Ged wrote:
Tue Oct 10, 2017 1:14 pm
The problem with the market timing approach is that you have to be right TWICE.

So you sell out now and two years from now the market, after going up 7% per year has a typical recession drop of 25%. Do you buy back in then or wait for another 25% drop?

What if it then bounces up 10% after the 25% drop putting it at where it is today? Do you buy then? Or wait some more?

This is the thing I faced in 2008. I sold out in 2007, but could not figure out when to get back in. I ended up making a bit but not what I would have if I could have timed the bottom.

In my experience it is MUCH HARDER to figure out when to get back in than it is to realize things are too high and sell. A big drop is scary and buying in after the drop takes real cojones. Lots of people were so scared by the drop they didn't buy back in until well after the market recovered.

It's much easier and it's more likely you will come out ahead if you stay the course.
hi Ged, thanks for the advise. Do you mind to tell us what made you sold out in 2007? that sounds like a very smart move. was it due to the housing market weakening? 2007 is very hard to predict the crash since everything looked good except the housing market. Also I think you don't have to times it right both times, for example if you sold in 2017, you can buy back half when the market drop 25%, another half when the market drop 35% and that surely better than stay with the crash. The guys here kind of convinced me to leave the $500k as is in total stock fund for now. I am thinking to buy some total international fund, sometimes US crashed other part of the world still holding well like 2008 the chinese stock still strong.
I think the Chinese stocks have not recovered yet.

TN_Boy
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Re: 100% in bond to wait for market crash?

Post by TN_Boy » Tue Oct 10, 2017 4:26 pm

TheTimeLord wrote:
Tue Oct 10, 2017 1:31 pm
TN_Boy wrote:
Tue Oct 10, 2017 12:48 pm
TheTimeLord wrote:
Tue Oct 10, 2017 11:41 am
HenrysPlan2 wrote:
Mon Oct 09, 2017 6:09 pm
Since the stock market value most expensive except year 2000 ( p/e https://www.quandl.com/data/MULTPL/SHIL ... o-by-Month ). Also since the bond having roughly 2.3% return, please convince me not to collect 2.3% in bond and wait for stock correction. I dont to want to see my hard earned money to sink. We just started putting roughly $500k to taxable account last month that I am thinking to move it to intermediate tax exempt bond. If the money was appreciated from the stock, I would feel more comfortable leaving it there in stock. Thanks in advance.

However it's confused me that if the expected tax cut will have any affect on the market.
Am I the only one more afraid of the Bond Bubble than the Stock Bubble? This is why I am more in CDs with terms from 1 month to 5 years than Bonds.
I don't think CDs are a bad idea instead of bonds, but given the relative magnitude of a bond market "crash" (assuming high-quality intermediate term bonds like what you see in total bond market) versus a stock market crash, I'm a lot more afraid of stock market "bubbles" than bond "bubbles."

There have been a number of threads here on the bond market "bubble" and reading them should ease any fears. I don't lose sleep over things like a 5% loss. But entertainments like 2008 in the stock market get my attention.

People have been talking about a "bond bubble" for literally years now. The five year growth of BND (total bond market ETF) is 2% per year (per morningstar), and that included a 2.1% loss in 2013. Are quality bonds returning very much? No, they are somewhat dismal, fortunately inflation has been muted. But the next time the stock market crashes, they will look a lot better.
I expect volatility in stocks, a range of 15-20% in a given year would be normal imho. Long term negative returns in bonds (normalization) would be very disconcerting to me.
Well, how disconcerted are you right now? I mentioned BND's growth above; after taxes and inflation that is probably a slight negative return over the last five years. I'm sad about that, but it's not a disaster, and those bonds still provide protection from stock market disaster. Five years is sort of medium term, though, not long term.

But I don't know what to do about that. CDs return better than similar duration treasuries, but still don't return much. This could go on for a while.

But we've seen this before, right? In the late sixties/seventies/early eighties bonds had very high nominal returns, but with high inflation, they did not have high real returns (can't recall for sure, probably negative for many bonds after taxes and inflation).

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TheTimeLord
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Re: 100% in bond to wait for market crash?

Post by TheTimeLord » Tue Oct 10, 2017 4:34 pm

TN_Boy wrote:
Tue Oct 10, 2017 4:26 pm
TheTimeLord wrote:
Tue Oct 10, 2017 1:31 pm
TN_Boy wrote:
Tue Oct 10, 2017 12:48 pm
TheTimeLord wrote:
Tue Oct 10, 2017 11:41 am
HenrysPlan2 wrote:
Mon Oct 09, 2017 6:09 pm
Since the stock market value most expensive except year 2000 ( p/e https://www.quandl.com/data/MULTPL/SHIL ... o-by-Month ). Also since the bond having roughly 2.3% return, please convince me not to collect 2.3% in bond and wait for stock correction. I dont to want to see my hard earned money to sink. We just started putting roughly $500k to taxable account last month that I am thinking to move it to intermediate tax exempt bond. If the money was appreciated from the stock, I would feel more comfortable leaving it there in stock. Thanks in advance.

However it's confused me that if the expected tax cut will have any affect on the market.
Am I the only one more afraid of the Bond Bubble than the Stock Bubble? This is why I am more in CDs with terms from 1 month to 5 years than Bonds.
I don't think CDs are a bad idea instead of bonds, but given the relative magnitude of a bond market "crash" (assuming high-quality intermediate term bonds like what you see in total bond market) versus a stock market crash, I'm a lot more afraid of stock market "bubbles" than bond "bubbles."

There have been a number of threads here on the bond market "bubble" and reading them should ease any fears. I don't lose sleep over things like a 5% loss. But entertainments like 2008 in the stock market get my attention.

People have been talking about a "bond bubble" for literally years now. The five year growth of BND (total bond market ETF) is 2% per year (per morningstar), and that included a 2.1% loss in 2013. Are quality bonds returning very much? No, they are somewhat dismal, fortunately inflation has been muted. But the next time the stock market crashes, they will look a lot better.
I expect volatility in stocks, a range of 15-20% in a given year would be normal imho. Long term negative returns in bonds (normalization) would be very disconcerting to me.
Well, how disconcerted are you right now? I mentioned BND's growth above; after taxes and inflation that is probably a slight negative return over the last five years. I'm sad about that, but it's not a disaster, and those bonds still provide protection from stock market disaster. Five years is sort of medium term, though, not long term.

But I don't know what to do about that. CDs return better than similar duration treasuries, but still don't return much. This could go on for a while.

But we've seen this before, right? In the late sixties/seventies/early eighties bonds had very high nominal returns, but with high inflation, they did not have high real returns (can't recall for sure, probably negative for many bonds after taxes and inflation).
Since I think I only have about a quarter of my Fixed Income in Bond Funds I am fine. But the difference between slightly negative and 2.3% is significant in my world.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

bayview
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Re: 100% in bond to wait for market crash?

Post by bayview » Tue Oct 10, 2017 4:43 pm

HenrysPlan2 wrote:
Tue Oct 10, 2017 3:16 am
All I was saying it is much more risky to put in stock now. You can treat it like a joke, but PE at 30 is real, how many times you see the market with P/E ratio 30? It's not about timing the market, it's about assess the risk. For example, you could kind of see the housing market about to crash with too many people getting Subprime mortgage they can't pay back.
My understanding (an uninformed one, to be sure) is that recent changes in accounting practices in the US are partly responsible for the higher P/E. In other words, 30 today isn't the same as 30 X number of years ago.

I used to always see this posted in the P/E wrangles. Can someone who understands these accounting changes and how they affect P/E please expand on this? I'm strictly an end-user when it comes to business.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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Re: 100% in bond to wait for market crash?

Post by pkcrafter » Tue Oct 10, 2017 4:58 pm

Henry wrote:
I was thinking a crash like 30% or 40% , but looks like it's not likely as the tax cut on its way. The fund was in the bank for a while before I put them in market. What do you guys think if AA 50/50 and transfer all 50% bond to stock if there's a crash? I am 40
NOOO! It's clear you are somewhat risk averse. You should never be even close to 100% stock. Settle on an asset allocation you can stick with and ride the market. If it's 50/50 that's OK. Playing peek-a-boo will cause you to end up with less $$. Don't try to outwit Ms Market.
We just started putting roughly $500k to taxable account last month that I am thinking to move it to intermediate tax exempt
bond.
Why did you do that now if you are so worried?

Paul
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.

kosomoto
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Re: 100% in bond to wait for market crash?

Post by kosomoto » Tue Oct 10, 2017 5:08 pm

All these bond worries make me wonder why people don't just use CDs? CDs are yielding over 2%, FDIC insured, and have no principal risk.

fipt2030
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Re: 100% in bond to wait for market crash?

Post by fipt2030 » Tue Oct 10, 2017 5:16 pm

Where do you get 2% in CD's ?

inbox788
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Re: 100% in bond to wait for market crash?

Post by inbox788 » Tue Oct 10, 2017 5:21 pm

fipt2030 wrote:
Tue Oct 10, 2017 5:16 pm
Where do you get 2% in CD's ?
https://ratebrain.com/5-year-cd

TN_Boy
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Re: 100% in bond to wait for market crash?

Post by TN_Boy » Tue Oct 10, 2017 5:29 pm

TheTimeLord wrote:
Tue Oct 10, 2017 4:34 pm
TN_Boy wrote:
Tue Oct 10, 2017 4:26 pm
TheTimeLord wrote:
Tue Oct 10, 2017 1:31 pm
TN_Boy wrote:
Tue Oct 10, 2017 12:48 pm
TheTimeLord wrote:
Tue Oct 10, 2017 11:41 am


Am I the only one more afraid of the Bond Bubble than the Stock Bubble? This is why I am more in CDs with terms from 1 month to 5 years than Bonds.
I don't think CDs are a bad idea instead of bonds, but given the relative magnitude of a bond market "crash" (assuming high-quality intermediate term bonds like what you see in total bond market) versus a stock market crash, I'm a lot more afraid of stock market "bubbles" than bond "bubbles."

There have been a number of threads here on the bond market "bubble" and reading them should ease any fears. I don't lose sleep over things like a 5% loss. But entertainments like 2008 in the stock market get my attention.

People have been talking about a "bond bubble" for literally years now. The five year growth of BND (total bond market ETF) is 2% per year (per morningstar), and that included a 2.1% loss in 2013. Are quality bonds returning very much? No, they are somewhat dismal, fortunately inflation has been muted. But the next time the stock market crashes, they will look a lot better.
I expect volatility in stocks, a range of 15-20% in a given year would be normal imho. Long term negative returns in bonds (normalization) would be very disconcerting to me.
Well, how disconcerted are you right now? I mentioned BND's growth above; after taxes and inflation that is probably a slight negative return over the last five years. I'm sad about that, but it's not a disaster, and those bonds still provide protection from stock market disaster. Five years is sort of medium term, though, not long term.

But I don't know what to do about that. CDs return better than similar duration treasuries, but still don't return much. This could go on for a while.

But we've seen this before, right? In the late sixties/seventies/early eighties bonds had very high nominal returns, but with high inflation, they did not have high real returns (can't recall for sure, probably negative for many bonds after taxes and inflation).
Since I think I only have about a quarter of my Fixed Income in Bond Funds I am fine. But the difference between slightly negative and 2.3% is significant in my world.
I'm sorry, I'm not following. I believe the 2.3% mentioned is a nominal return. Which is a flat to slightly negative return after taxes and inflation.

fipt2030
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Re: 100% in bond to wait for market crash?

Post by fipt2030 » Tue Oct 10, 2017 5:37 pm

inbox788 wrote:
Tue Oct 10, 2017 5:21 pm
fipt2030 wrote:
Tue Oct 10, 2017 5:16 pm
Where do you get 2% in CD's ?
https://ratebrain.com/5-year-cd
Thank you

HenrysPlan2
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Re: 100% in bond to wait for market crash?

Post by HenrysPlan2 » Tue Oct 10, 2017 5:52 pm

We just started putting roughly $500k to taxable account last month that I am thinking to move it to intermediate tax exempt
bond.
Why did you do that now if you are so worried?

Paul
[/quote]


I did nothing yet, leaving $500k in stock. However we still have about $600k in the bank and we are selling an investment property early next year and expecting another $700k or so. After reading some good posts here, I think I will leave the $500k in stock for now and wait to see. the probably with my cash in the bank earning nothing is painful too. I might be buying some bonds to make it 50/50 in taxable account.

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TheTimeLord
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Re: 100% in bond to wait for market crash?

Post by TheTimeLord » Tue Oct 10, 2017 7:37 pm

TN_Boy wrote:
Tue Oct 10, 2017 5:29 pm
TheTimeLord wrote:
Tue Oct 10, 2017 4:34 pm
TN_Boy wrote:
Tue Oct 10, 2017 4:26 pm
TheTimeLord wrote:
Tue Oct 10, 2017 1:31 pm
TN_Boy wrote:
Tue Oct 10, 2017 12:48 pm


I don't think CDs are a bad idea instead of bonds, but given the relative magnitude of a bond market "crash" (assuming high-quality intermediate term bonds like what you see in total bond market) versus a stock market crash, I'm a lot more afraid of stock market "bubbles" than bond "bubbles."

There have been a number of threads here on the bond market "bubble" and reading them should ease any fears. I don't lose sleep over things like a 5% loss. But entertainments like 2008 in the stock market get my attention.

People have been talking about a "bond bubble" for literally years now. The five year growth of BND (total bond market ETF) is 2% per year (per morningstar), and that included a 2.1% loss in 2013. Are quality bonds returning very much? No, they are somewhat dismal, fortunately inflation has been muted. But the next time the stock market crashes, they will look a lot better.
I expect volatility in stocks, a range of 15-20% in a given year would be normal imho. Long term negative returns in bonds (normalization) would be very disconcerting to me.
Well, how disconcerted are you right now? I mentioned BND's growth above; after taxes and inflation that is probably a slight negative return over the last five years. I'm sad about that, but it's not a disaster, and those bonds still provide protection from stock market disaster. Five years is sort of medium term, though, not long term.

But I don't know what to do about that. CDs return better than similar duration treasuries, but still don't return much. This could go on for a while.

But we've seen this before, right? In the late sixties/seventies/early eighties bonds had very high nominal returns, but with high inflation, they did not have high real returns (can't recall for sure, probably negative for many bonds after taxes and inflation).
Since I think I only have about a quarter of my Fixed Income in Bond Funds I am fine. But the difference between slightly negative and 2.3% is significant in my world.
I'm sorry, I'm not following. I believe the 2.3% mentioned is a nominal return. Which is a flat to slightly negative return after taxes and inflation.
Check the 1 year return on Total Bond.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: 100% in bond to wait for market crash?

Post by ThePrince » Tue Oct 10, 2017 7:43 pm

fipt2030 wrote:
Mon Oct 09, 2017 10:14 pm
I am in a similar boat, with sweat money in cash ( 13 yr expenses) in taxable account
Can't seem to pull the trigger

About 4 yr expenses worth, in tax deferred accounts, in bond funds

I am in early 40's
Doesn’t appear an early retirement is in your forecast with no exposure to stocks and most of your assets losing money to inflation.

fipt2030
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Re: 100% in bond to wait for market crash?

Post by fipt2030 » Tue Oct 10, 2017 8:04 pm

I admit, I am clueless with investments

Dottie57
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Re: 100% in bond to wait for market crash?

Post by Dottie57 » Tue Oct 10, 2017 8:05 pm

No. No. No.

I started investing in 1988 (about 6 months after oct 1987 crash). There have been lots of ups and downs. You simply persever and keep investing. It really does work. Can retire at 60 if I need to.

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arcticpineapplecorp.
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Re: 100% in bond to wait for market crash?

Post by arcticpineapplecorp. » Tue Oct 10, 2017 9:22 pm

OP try your hand at the following:

https://www.prudential.com/personal/ins ... ends-game/

If you can outsmart the market, then you don't need to ask us any questions. If you can't, decide on an allocation that matches your need to take risk, ability to take risk and willingness to take risk and stay the course. best of luck.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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TinkerPDX
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Re: 100% in bond to wait for market crash?

Post by TinkerPDX » Tue Oct 10, 2017 9:48 pm

HenrysPlan2 wrote:
Mon Oct 09, 2017 6:09 pm
Since the stock market value most expensive except year 2000 ( p/e https://www.quandl.com/data/MULTPL/SHIL ... o-by-Month ). Also since the bond having roughly 2.3% return, please convince me not to collect 2.3% in bond and wait for stock correction. I dont to want to see my hard earned money to sink. We just started putting roughly $500k to taxable account last month that I am thinking to move it to intermediate tax exempt bond. If the money was appreciated from the stock, I would feel more comfortable leaving it there in stock. Thanks in advance.

However it's confused me that if the expected tax cut will have any affect on the market.
The bond return isn't guaranteed, and all else equal, you're most likely to miss out on some gain in stocks. Someone probably posted this same question 30 days ago, as it comes up a lot.

Had you done this 30 days ago, you'd have missed a 3.62% increase in the S&P (4.74% in the DJI), and your bond value (assuming total bond) would have dropped 0.7%.

But by all means, if you know when the market is going to top and when the crash is coming, you should act on it! Good luck.

TN_Boy
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Re: 100% in bond to wait for market crash?

Post by TN_Boy » Tue Oct 10, 2017 9:53 pm

TheTimeLord wrote:
Tue Oct 10, 2017 7:37 pm
TN_Boy wrote:
Tue Oct 10, 2017 5:29 pm
TheTimeLord wrote:
Tue Oct 10, 2017 4:34 pm
TN_Boy wrote:
Tue Oct 10, 2017 4:26 pm
TheTimeLord wrote:
Tue Oct 10, 2017 1:31 pm


I expect volatility in stocks, a range of 15-20% in a given year would be normal imho. Long term negative returns in bonds (normalization) would be very disconcerting to me.
Well, how disconcerted are you right now? I mentioned BND's growth above; after taxes and inflation that is probably a slight negative return over the last five years. I'm sad about that, but it's not a disaster, and those bonds still provide protection from stock market disaster. Five years is sort of medium term, though, not long term.

But I don't know what to do about that. CDs return better than similar duration treasuries, but still don't return much. This could go on for a while.

But we've seen this before, right? In the late sixties/seventies/early eighties bonds had very high nominal returns, but with high inflation, they did not have high real returns (can't recall for sure, probably negative for many bonds after taxes and inflation).
Since I think I only have about a quarter of my Fixed Income in Bond Funds I am fine. But the difference between slightly negative and 2.3% is significant in my world.
I'm sorry, I'm not following. I believe the 2.3% mentioned is a nominal return. Which is a flat to slightly negative return after taxes and inflation.
Check the 1 year return on Total Bond.
Still not following. Check out the 3 and 5 year returns on total bond. Or look at the yield on 5 year treasuries (1.97% per fidelity). Or 5 year AAA corporate bonds (2.38% also per fidelity). Quality intermediate term bonds (and CDs) are right now poised to deliver after tax, after inflation returns of roughly 0.

Which is more or less what they've done for the last several years. Do you think otherwise? Am I missing the point you are making?

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TheTimeLord
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Re: 100% in bond to wait for market crash?

Post by TheTimeLord » Tue Oct 10, 2017 10:04 pm

TN_Boy wrote:
Tue Oct 10, 2017 9:53 pm
Still not following. Check out the 3 and 5 year returns on total bond. Or look at the yield on 5 year treasuries (1.97% per fidelity). Or 5 year AAA corporate bonds (2.38% also per fidelity). Quality intermediate term bonds (and CDs) are right now poised to deliver after tax, after inflation returns of roughly 0.

Which is more or less what they've done for the last several years. Do you think otherwise? Am I missing the point you are making?
3 and 5 year returns are not relevant, we are talking about a trend going forward. A few years ago bonds ended the first 30 year period where they outperformed stocks. The 1 year return may or may not illustrate the worm turning. Now yes, you could buy individual bonds and hold until maturity but in general most BH invest in bond funds instead of individual bonds. Even if you buy individual U.S. Treasuries, CDs should offer slightly higher returns. Personally I observe Treasury rates, not Corporate bonds. To each their own.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

avalpert
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Re: 100% in bond to wait for market crash?

Post by avalpert » Tue Oct 10, 2017 10:05 pm

TinkerPDX wrote:
Tue Oct 10, 2017 9:48 pm
HenrysPlan2 wrote:
Mon Oct 09, 2017 6:09 pm
Since the stock market value most expensive except year 2000 ( p/e https://www.quandl.com/data/MULTPL/SHIL ... o-by-Month ). Also since the bond having roughly 2.3% return, please convince me not to collect 2.3% in bond and wait for stock correction. I dont to want to see my hard earned money to sink. We just started putting roughly $500k to taxable account last month that I am thinking to move it to intermediate tax exempt bond. If the money was appreciated from the stock, I would feel more comfortable leaving it there in stock. Thanks in advance.

However it's confused me that if the expected tax cut will have any affect on the market.
The bond return isn't guaranteed, and all else equal, you're most likely to miss out on some gain in stocks.
That's not right - the bond returns are guaranteed (the guarantee is only as good as the entity making it, i.e. credit risk, but I'm assuming here we are talking about the US Government). That is what a bond is - you lend money in exchange for a guaranteed return. And if all else were equal you wouldn't miss out on gains in stocks you would expect the same return in stocks - but all else is not equal, stocks have more risk than bonds because they lack that guarantee of returns and in exchange for that lack of a guarantee an investor expects to earn a higher return.

If you don't want to risk not getting a guaranteed return, and can afford to receive the return offered on a bond for a given duration then you should be investing in bonds and not stocks. If, on the other hand, you need a higher return then you will have to take some risk to get it.

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HomerJ
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Re: 100% in bond to wait for market crash?

Post by HomerJ » Wed Oct 11, 2017 12:22 am

Sure, if you could just invest in stocks during the good times, and avoid stocks in the bad times, you'd make more.

But there are too many variables to make predicting the stock market possible. A single variable like PE ratio is not enough. PE ratios have been historically high since 1992. (Since 25 years is a big chunk of history now, the current PE ratios are becoming less and less "historically high" and more and more "historically normal").

But here's the thing.. The long-term stock market returns of 10% a year INCLUDE the crashes. Read that again. You didn't have to avoid the crashes to make a ton of money in the stock market in the past.

If the money is earmarked for retirement, long-term money, just buy and hold and stay the course.

Put some in bonds to help you sleep at night (I'm 50/50 stocks/bonds), and just leave it alone. Jumping in and out of the market, you are far more likely to under-perform the market than beat it.

Timing the market is hard. Here's an example. The Shiller PE10 ratio crossed 25 in 1996. The Shiller PE10 had never crossed 25 before that except in 1929.

A total signal to sell, right? The S&P 500 was in the low 600s in 1996. It more than doubled again to 1500 by 2000 before crashing back to the 800s. Anyone who got out in 1996 was never able to buy back in cheaper.

And today it's at 2550, more than 4x what it was in 1996. And that's just the price. You also got 2% dividends each year. $10,000 invested in 1996 is worth $64,000 today... 6.4x what you invested, or a 9.3% annualized return.

Buying in 1996, right when the PE10 ratio was the highest it had ever been since the Great Depression turned out to be great time to buy, not to sell.

Weird, right? Just set a conservative allocation (70/30 or 60/40 or 50/50 stocks/bonds), and stay the course. Slowly move more and more to bonds to protect your investments as you get closer to retirement.
Last edited by HomerJ on Wed Oct 11, 2017 12:32 am, edited 1 time in total.

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HomerJ
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Re: 100% in bond to wait for market crash?

Post by HomerJ » Wed Oct 11, 2017 12:31 am

One more note.

There WILL be a crash. It could indeed start tomorrow, or maybe not for another 5-10 years. No one knows.

But since it COULD happen tomorrow, you should set an AA (Asset Allocation) that you can hold through a crash.

That's why I'm 50/50.

Don't make huge bets with your money by going 100% stocks or 100% bonds. Just go 50/50. If stocks keep going up, you'll say "Awesome, I have some money in stocks!". If stocks crash, you can say "Well, at least 50% of my money is fairly safe, and I have plenty of time to wait for the stock market to recover!"

(If you don't have plenty of time for the stock market to recover, that's when you go with an even more conservative portfolio, like 30/70 stocks/bonds)

HenrysPlan2
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Re: 100% in bond to wait for market crash?

Post by HenrysPlan2 » Wed Oct 11, 2017 4:25 am

HomerJ wrote:
Wed Oct 11, 2017 12:22 am
Sure, if you could just invest in stocks during the good times, and avoid stocks in the bad times, you'd make more.

But there are too many variables to make predicting the stock market possible. A single variable like PE ratio is not enough. PE ratios have been historically high since 1992. (Since 25 years is a big chunk of history now, the current PE ratios are becoming less and less "historically high" and more and more "historically normal").

But here's the thing.. The long-term stock market returns of 10% a year INCLUDE the crashes. Read that again. You didn't have to avoid the crashes to make a ton of money in the stock market in the past.

If the money is earmarked for retirement, long-term money, just buy and hold and stay the course.

Put some in bonds to help you sleep at night (I'm 50/50 stocks/bonds), and just leave it alone. Jumping in and out of the market, you are far more likely to under-perform the market than beat it.

Timing the market is hard. Here's an example. The Shiller PE10 ratio crossed 25 in 1996. The Shiller PE10 had never crossed 25 before that except in 1929.

A total signal to sell, right? The S&P 500 was in the low 600s in 1996. It more than doubled again to 1500 by 2000 before crashing back to the 800s. Anyone who got out in 1996 was never able to buy back in cheaper.

And today it's at 2550, more than 4x what it was in 1996. And that's just the price. You also got 2% dividends each year. $10,000 invested in 1996 is worth $64,000 today... 6.4x what you invested, or a 9.3% annualized return.

Buying in 1996, right when the PE10 ratio was the highest it had ever been since the Great Depression turned out to be great time to buy, not to sell.

Weird, right? Just set a conservative allocation (70/30 or 60/40 or 50/50 stocks/bonds), and stay the course. Slowly move more and more to bonds to protect your investments as you get closer to retirement.
Very good post, feels more confident. What's your suggestion if that I already have $500k in stock a month ago and have $600k to invest now and $700k spring next year? We have high risk tolerance due to we also collect some rent and have $350k W2 income. Do we do 90/10 in taxable?

DanMahowny
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Re: 100% in bond to wait for market crash?

Post by DanMahowny » Wed Oct 11, 2017 5:36 am

There are only TWO types of investors:

1) Those that don't know where the market is going.
2) Those that don't know that they don't know.

Sadly, I may lean towards type 2. But I did well anyway because I'm a good saver.

TN_Boy
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Re: 100% in bond to wait for market crash?

Post by TN_Boy » Wed Oct 11, 2017 8:23 am

TheTimeLord wrote:
Tue Oct 10, 2017 10:04 pm
TN_Boy wrote:
Tue Oct 10, 2017 9:53 pm
Still not following. Check out the 3 and 5 year returns on total bond. Or look at the yield on 5 year treasuries (1.97% per fidelity). Or 5 year AAA corporate bonds (2.38% also per fidelity). Quality intermediate term bonds (and CDs) are right now poised to deliver after tax, after inflation returns of roughly 0.

Which is more or less what they've done for the last several years. Do you think otherwise? Am I missing the point you are making?
3 and 5 year returns are not relevant, we are talking about a trend going forward. A few years ago bonds ended the first 30 year period where they outperformed stocks. The 1 year return may or may not illustrate the worm turning. Now yes, you could buy individual bonds and hold until maturity but in general most BH invest in bond funds instead of individual bonds. Even if you buy individual U.S. Treasuries, CDs should offer slightly higher returns. Personally I observe Treasury rates, not Corporate bonds. To each their own.
This is a sort of side discussion and not totally relevant to the OP's question, so after this I'll just drop out. I can't figure out your position. Bonds/bond funds etc of high quality have had roughly 0 real returns over the last five years. YTD return is decent so far, but is no more an indication of "the worm turning" than a good year in the stock market would be for stock returns.

The yield on five year treasuries is under 2%; CDs and AAA corporates slightly higher. Considering inflation around 2%, this tells me the after tax, after inflation returns of intermediate duration bonds are likely to continue to be 0 for a while. (I thought I was merely repeating standard bond facts here, maybe one of the bond gurus on this board can correct me if I'm not understanding something).

protagonist
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Re: 100% in bond to wait for market crash?

Post by protagonist » Wed Oct 11, 2017 9:43 am

HenrysPlan2 wrote:
Wed Oct 11, 2017 4:25 am
HomerJ wrote:
Wed Oct 11, 2017 12:22 am
Sure, if you could just invest in stocks during the good times, and avoid stocks in the bad times, you'd make more.

But there are too many variables to make predicting the stock market possible. A single variable like PE ratio is not enough. PE ratios have been historically high since 1992. (Since 25 years is a big chunk of history now, the current PE ratios are becoming less and less "historically high" and more and more "historically normal").

But here's the thing.. The long-term stock market returns of 10% a year INCLUDE the crashes. Read that again. You didn't have to avoid the crashes to make a ton of money in the stock market in the past.

If the money is earmarked for retirement, long-term money, just buy and hold and stay the course.

Put some in bonds to help you sleep at night (I'm 50/50 stocks/bonds), and just leave it alone. Jumping in and out of the market, you are far more likely to under-perform the market than beat it.

Timing the market is hard. Here's an example. The Shiller PE10 ratio crossed 25 in 1996. The Shiller PE10 had never crossed 25 before that except in 1929.

A total signal to sell, right? The S&P 500 was in the low 600s in 1996. It more than doubled again to 1500 by 2000 before crashing back to the 800s. Anyone who got out in 1996 was never able to buy back in cheaper.

And today it's at 2550, more than 4x what it was in 1996. And that's just the price. You also got 2% dividends each year. $10,000 invested in 1996 is worth $64,000 today... 6.4x what you invested, or a 9.3% annualized return.

Buying in 1996, right when the PE10 ratio was the highest it had ever been since the Great Depression turned out to be great time to buy, not to sell.

Weird, right? Just set a conservative allocation (70/30 or 60/40 or 50/50 stocks/bonds), and stay the course. Slowly move more and more to bonds to protect your investments as you get closer to retirement.
Very good post, feels more confident. What's your suggestion if that I already have $500k in stock a month ago and have $600k to invest now and $700k spring next year? We have high risk tolerance due to we also collect some rent and have $350k W2 income. Do we do 90/10 in taxable?
Risk tolerance is a psychological construct. Think about it. If the stock market falls 50% next year and you are 90/10 your portfolio will lose 45% of its value. How do you think you will respond to that? And what if it keeps falling in following years? What if it falls 70 or 80% or more? How would you respond? Clearly you wouldn't be happy....nobody would. But would it cause you daily agita and ruin your life, or would you be nervous but take it in stride? Would you panic? These are questions you need to ask yourself when deciding on an asset allocation strategy. It's not an easy one to answer. After living through several minor and major corrections, bear markets, popped bubbles and a crash or two, you will begin to figure it out and get to know yourself. But for now you have to guess .

To quote Nisiprius:

nisiprius wrote: ↑Tue Oct 10, 2017 7:45 am
The dangerously intriguing thing about the stock market is the way in which it combines elements of gambling, fads, and rationality.
That says it all. And to a large extent, that is a big part of why most of us do it.

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Re: 100% in bond to wait for market crash?

Post by pkcrafter » Wed Oct 11, 2017 11:22 am

Henry, I guess I'm a bit confused by this:
I dont to want to see my hard earned money to sink. We just started putting roughly $500k to taxable account last month that I am thinking to move it to intermediate tax exempt bond. If the money was appreciated from the stock, I would feel more comfortable leaving it there in stock. Thanks in advance.

This implies that the 500k is in stock, but you also say you just started putting 500k to a taxable account last month. Where did the 500k come from and is it all now invested in stock?
I dont to want to see my hard earned money to sink.
Big telltail clue here.

What is your overall asset allocation right now, not counting assets other than invested money? The thing is you don't have a need to take high risk, and from what you've written here, you don't have the fortitude either. Also, you don't have clear goals using this definition of risk--

Risk is the possibility of not having the money to buy something important when you need it. So, it seems a lot of the money is simply discretionary. OK, so what you need to do first is decide on an overall asset allocation. I'll suggest between 40% and 60% equity overall. Yes, you have ability to take on more risk, but no need, and if you are going to worry about it, it's not worth the ride.

Using the risk definition above, don't confuse volatility with loss because volatility is the down and up movement of the market. Viewing the long term, volatility is an annoyance, but not a risk. It becomes a risk when the time for needing the money gets close. Volatility aside, the stock market does have risks--risks of actually losing your money permanently.

For taxable, you might consider Vanguard tax-managed balanced, 50/50.

Paul
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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Ged
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Re: 100% in bond to wait for market crash?

Post by Ged » Wed Oct 11, 2017 12:08 pm

HenrysPlan2 wrote:
Tue Oct 10, 2017 1:47 pm
hi Ged, thanks for the advise. Do you mind to tell us what made you sold out in 2007? that sounds like a very smart move. was it due to the housing market weakening?
In early 2007 when I sold the the housing market was not bad but had started going soft. The problem was that loans had started going bad and one of the mortgage companies had gone under. Since my father was following the mortgage market he was telling me that it was a house of cards due to all the bad loans being written.

At the same time there was a lot of press about 'irrational exuberance' and Schiller was predicting a collapse. That was enough for me.

Like I said, the problem is that you have to be right TWICE. That is a big issue in market timing.

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TinkerPDX
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Re: 100% in bond to wait for market crash?

Post by TinkerPDX » Wed Oct 11, 2017 12:15 pm

avalpert wrote:
Tue Oct 10, 2017 10:05 pm
TinkerPDX wrote:
Tue Oct 10, 2017 9:48 pm
HenrysPlan2 wrote:
Mon Oct 09, 2017 6:09 pm
Since the stock market value most expensive except year 2000 ( p/e https://www.quandl.com/data/MULTPL/SHIL ... o-by-Month ). Also since the bond having roughly 2.3% return, please convince me not to collect 2.3% in bond and wait for stock correction. I dont to want to see my hard earned money to sink. We just started putting roughly $500k to taxable account last month that I am thinking to move it to intermediate tax exempt bond. If the money was appreciated from the stock, I would feel more comfortable leaving it there in stock. Thanks in advance.

However it's confused me that if the expected tax cut will have any affect on the market.
The bond return isn't guaranteed, and all else equal, you're most likely to miss out on some gain in stocks.
That's not right - the bond returns are guaranteed (the guarantee is only as good as the entity making it, i.e. credit risk, but I'm assuming here we are talking about the US Government). That is what a bond is - you lend money in exchange for a guaranteed return. And if all else were equal you wouldn't miss out on gains in stocks you would expect the same return in stocks - but all else is not equal, stocks have more risk than bonds because they lack that guarantee of returns and in exchange for that lack of a guarantee an investor expects to earn a higher return.

If you don't want to risk not getting a guaranteed return, and can afford to receive the return offered on a bond for a given duration then you should be investing in bonds and not stocks. If, on the other hand, you need a higher return then you will have to take some risk to get it.
Yes, a *given* bond's return is guaranteed (to the extent of the guarantor). But a given return or even yield for a bond fund / total bond market is not. The point being, the value of bonds can actually go down, even if they are paying the same coupon through to maturity, as long as there is no default.

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