What to do with cash now

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skor99
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What to do with cash now

Post by skor99 » Wed Jan 24, 2018 5:22 pm

I am invested about 60 % in stocks ( 13% international), 15% bonds and about 25% in cash. Some of the cash is in bank accounts that I keep as emergency funds etc. but am wondering what to do with the rest sitting in my brokerage accounts , both regular and retirement.
With the market at all time highs and seemingly overvalued, I am not sure what to do. I would like to reduce my cash holdings to 10% overall and allocate to stocks or bonds . Is there any sector worth putting new money in currently ? Anybody else in the same boat ?

Anon1234
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Re: What to do with cash now

Post by Anon1234 » Wed Jan 24, 2018 5:31 pm

As our mentor says "stay the course" If your IPS says 25% cash, then stay 25% cash. If it says 10% cash, then invest the other 15% in whatever the IPS says. If you don't have an IPS, you should write out your asset allocation, and sign it. Then you will have a course upon which to stay. It is very important to make that commitment to yourself. When downturns come you need to be committed in order to avoid mistakes and rash investment changes.

https://www.bogleheads.org/wiki/Investm ... _statement

skor99
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Re: What to do with cash now

Post by skor99 » Wed Jan 24, 2018 5:35 pm

But the question is where to put money now with stocks overvalued and bonds risky with rising investment rates ?

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F150HD
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Re: What to do with cash now

Post by F150HD » Wed Jan 24, 2018 5:36 pm

are you 21 years old or 71?

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aj76er
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Re: What to do with cash now

Post by aj76er » Wed Jan 24, 2018 5:38 pm

It sounds like you want to take 15% of your cash and buy bonds. Short to intermediate bond funds don't fluctuate that much relative to stocks, so you can generally just buy them whenever and not worry too much about NAV dropping (or gaining).

If your cash is in taxable, and your bonds are in tax-sheltered, then simply buy stocks in taxable and sell stocks in tax-sheltered (to buy bonds there). In this manner, you haven't actually bought any additional stocks when viewd from the perspective of the whole portfolio (i.e. you should still be holding 60% stocks, but just more are in taxable).

Going from 60/15/25 to 60/30/10 (stocks/bonds/cash) doesn't make too much of a difference since stocks generally drive the return of the portfolio.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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Phineas J. Whoopee
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Re: What to do with cash now

Post by Phineas J. Whoopee » Wed Jan 24, 2018 7:22 pm

skor99 wrote:
Wed Jan 24, 2018 5:35 pm
But the question is where to put money now with stocks overvalued and bonds risky with rising investment rates ?
Unless you have special knowledge, all the other investors know stock valuations, short-term interest rates as influenced by the Fed, and intermediate- and long-term bond yields as well as you do. That is not to say all investors agree with each other about the conclusions to make based on the information, nor is it to say every investor is exactly the same as the overall world average investor.

Somebody will earn a profit, somebody will incur a loss, and in aggregate the investors will receive the market return, because there is no return to be had other than the market return, and there is nobody for it to go to other than the market participants.

The reason I post all this is to point out that a long-term investing and financial plan is less dependent on conditions today, and more dependent on conditions in the future which are unknown and unknowable.

There is no reason to expect any stock market sector to have higher or lower returns than any other, although of course in the fullness of time they will turn out to have had different returns.

You don't say where you are in your investing career, but for many people the bulk of the savings and investments are in the future, and therefore are far more important than what you do with what you have today. If new savings substantially exceeds reasonable expected returns for today, focus on the more important new savings part and not so much on the less important near future return part. Neither you nor anybody else can know the future anyway, until it becomes the past by which time it is too late to act on.

I hope that's helpful.

PJW

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climber2020
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Re: What to do with cash now

Post by climber2020 » Wed Jan 24, 2018 7:22 pm

skor99 wrote:
Wed Jan 24, 2018 5:22 pm
With the market at all time highs and seemingly overvalued
People have been saying this for at least 5 years.

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Alexa9
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Re: What to do with cash now

Post by Alexa9 » Wed Jan 24, 2018 7:23 pm

I would park it in CD's if you are worried. Safe and better than nothing. Although bonds are likely a better choice.

boglewill34
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Re: What to do with cash now

Post by boglewill34 » Wed Jan 24, 2018 8:01 pm

International equities are less frothy and you are on the light side there. That would be a place to deploy some cash.

onourway
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Re: What to do with cash now

Post by onourway » Wed Jan 24, 2018 8:55 pm

skor99 wrote:
Wed Jan 24, 2018 5:35 pm
But the question is where to put money now with stocks overvalued and bonds risky with rising investment rates ?
Anon1234 answered your question.

Do you have an IPS? If so, it should dictate where your investments should be held. If not, you need to make one. Then invest according to that statement, not current market conditions.

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randomizer
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Re: What to do with cash now

Post by randomizer » Wed Jan 24, 2018 9:46 pm

Sounds like 60:40 is comfortable for you, so switch the cash to bonds and forget about it.
87.5:12.5, EM tilt — HODL the course!

mega317
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Re: What to do with cash now

Post by mega317 » Wed Jan 24, 2018 10:26 pm

Phineas J. Whoopee wrote:
Wed Jan 24, 2018 7:22 pm
The reason I post all this is to point out that a long-term investing and financial plan is less dependent on conditions today, and more dependent on conditions in the future which are unknown and unknowable.
This is one of the best sentences I have ever read on this forum.

magicrat
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Re: What to do with cash now

Post by magicrat » Wed Jan 24, 2018 10:29 pm

skor99 wrote:
Wed Jan 24, 2018 5:35 pm
But the question is where to put money now with stocks overvalued and bonds risky with rising investment rates ?
If you're not going to invest your cash into stocks and bonds because they are overvalued and risky, why aren't you considering selling your existing stock and bond holdings?

TonyDAntonio
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Re: What to do with cash now

Post by TonyDAntonio » Wed Jan 24, 2018 10:29 pm

I'm 58 and retired. I've been slowly selling equities and now have 23% in cash like investments. I plan on spending some or all of this money. I guess if the market crashes enough (not sure how much that would be) I'd put some back in the market.

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Phineas J. Whoopee
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Re: What to do with cash now

Post by Phineas J. Whoopee » Thu Jan 25, 2018 6:07 pm

mega317 wrote:
Wed Jan 24, 2018 10:26 pm
Phineas J. Whoopee wrote:
Wed Jan 24, 2018 7:22 pm
The reason I post all this is to point out that a long-term investing and financial plan is less dependent on conditions today, and more dependent on conditions in the future which are unknown and unknowable.
This is one of the best sentences I have ever read on this forum.
Thank you for your kind words.

PJW

Anon1234
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Re: What to do with cash now

Post by Anon1234 » Fri Jan 26, 2018 10:24 am

skor99 wrote:
Wed Jan 24, 2018 5:35 pm
But the question is where to put money now with stocks overvalued and bonds risky with rising investment rates ?
I struggle with your question because it requesting a prediction based on current valuations. But for me, a boglehead, I don't believe predictions like that can be made, at least not accuratly and reliably. So I would be doing you a disservice if I adviced you to act on your intuition that "stocks seem overvalued" or "interest rates are rising." I recommend you choose an asset allocation you can live with in good times and bad, with rising rates and falling rates and "overvalued" and "undervalued" stocks. Committing to one plan for decades is the key to getting a market return. Predicitons based on "now" aka current valuations aka emotion will lead you down the path of behavioral mistakes (eg buying high and selling low).
Phineas J. Whoopee wrote:
Wed Jan 24, 2018 7:22 pm
skor99 wrote:
Wed Jan 24, 2018 5:35 pm
But the question is where to put money now with stocks overvalued and bonds risky with rising investment rates ?
Unless you have special knowledge, all the other investors know stock valuations, short-term interest rates as influenced by the Fed, and intermediate- and long-term bond yields as well as you do. That is not to say all investors agree with each other about the conclusions to make based on the information, nor is it to say every investor is exactly the same as the overall world average investor.

Somebody will earn a profit, somebody will incur a loss, and in aggregate the investors will receive the market return, because there is no return to be had other than the market return, and there is nobody for it to go to other than the market participants.

The reason I post all this is to point out that a long-term investing and financial plan is less dependent on conditions today, and more dependent on conditions in the future which are unknown and unknowable.

There is no reason to expect any stock market sector to have higher or lower returns than any other, although of course in the fullness of time they will turn out to have had different returns.


-snip-
Excellent. Bold/highlight is mine.

pascalwager
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Re: What to do with cash now

Post by pascalwager » Fri Jan 26, 2018 12:19 pm

magicrat wrote:
Wed Jan 24, 2018 10:29 pm
skor99 wrote:
Wed Jan 24, 2018 5:35 pm
But the question is where to put money now with stocks overvalued and bonds risky with rising investment rates ?
If you're not going to invest your cash into stocks and bonds because they are overvalued and risky, why aren't you considering selling your existing stock and bond holdings?
Existing, perhaps much older, stocks may have been purchased at a much lower price and might still provide a positive return after a market correction compared to current purchases. Authors (Bernstein, Swedroe) advise considering valuations before investing. Time horizon might be the deciding factor.
Preferred AA: Total US and foreign stock markets and short-term Treasury fixed income

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Phineas J. Whoopee
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Re: What to do with cash now

Post by Phineas J. Whoopee » Fri Jan 26, 2018 4:58 pm

Anon1234 wrote:
Fri Jan 26, 2018 10:24 am
...
Excellent. Bold/highlight is mine.
Thank you for your kind words.

PJW

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Phineas J. Whoopee
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Re: What to do with cash now

Post by Phineas J. Whoopee » Fri Jan 26, 2018 5:03 pm

pascalwager wrote:
Fri Jan 26, 2018 12:19 pm
...
Existing, perhaps much older, stocks may have been purchased at a much lower price and might still provide a positive return after a market correction compared to current purchases. Authors (Bernstein, Swedroe) advise considering valuations before investing. Time horizon might be the deciding factor.
Today's investing question is what to do today, not what happened in the past. If I have an investment worth $10,000 today, it doesn't matter whether I made it yesterday or decades ago, nor what its returns might have been. What matters is its value now and its suitability for me now.

I agree there may be tax considerations if one has unrealized capital gains.

PJW

Dandy
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Re: What to do with cash now

Post by Dandy » Sat Jan 27, 2018 8:24 am

I believe I saw that some equity funds are up more than 7% in January -- and there are a few more days left. Could it go a lot higher -- sure. So do bubbles until they burst. I would try to have equity exposure on the low side of your accepted range and enjoy a bit more cash as part of your fixed income. Near or in retirement I might be even a bit more conservative.

Over reacting can be a problem so can blindly following "stay the course".

Mr. Bogle has said when the market is extremely overvalued you should adjust your equity exposure. He did that rather drastically in the past. Is the market extremely overvalued? Tax cuts have spurred a lot of excitement, company earnings should be enhanced going forward so you may be leaving money on the table. Ah, too bad we can't know the future.

Stormbringer
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Re: What to do with cash now

Post by Stormbringer » Sat Jan 27, 2018 8:47 am

Alexa9 wrote:
Wed Jan 24, 2018 7:23 pm
I would park it in CD's if you are worried. Safe and better than nothing. Although bonds are likely a better choice.
Bonds are not necessarily better:

10-year treasury: 2.66%
10-year Vanguard brokered CD: 2.8%
"Compound interest is the most powerful force in the universe." - Albert Einstein

me112964
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Re: What to do with cash now

Post by me112964 » Sat Jan 27, 2018 9:06 am

I am in a similar situation and would agree with paying off the mortgage. That’s 2.8 % savings/earnings right away. A 10 year CD wil match that but you will have the money you would have tied up in mortgage payments now available for investing the bogle head way. Slow and steady.

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yukonjack
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Re: What to do with cash now

Post by yukonjack » Sat Jan 27, 2018 9:43 am

Phineas J. Whoopee wrote:
Wed Jan 24, 2018 7:22 pm
skor99 wrote:
Wed Jan 24, 2018 5:35 pm
But the question is where to put money now with stocks overvalued and bonds risky with rising investment rates ?
Unless you have special knowledge, all the other investors know stock valuations, short-term interest rates as influenced by the Fed, and intermediate- and long-term bond yields as well as you do. That is not to say all investors agree with each other about the conclusions to make based on the information, nor is it to say every investor is exactly the same as the overall world average investor.

Somebody will earn a profit, somebody will incur a loss, and in aggregate the investors will receive the market return, because there is no return to be had other than the market return, and there is nobody for it to go to other than the market participants.

The reason I post all this is to point out that a long-term investing and financial plan is less dependent on conditions today, and more dependent on conditions in the future which are unknown and unknowable.

There is no reason to expect any stock market sector to have higher or lower returns than any other, although of course in the fullness of time they will turn out to have had different returns.

You don't say where you are in your investing career, but for many people the bulk of the savings and investments are in the future, and therefore are far more important than what you do with what you have today. If new savings substantially exceeds reasonable expected returns for today, focus on the more important new savings part and not so much on the less important near future return part. Neither you nor anybody else can know the future anyway, until it becomes the past by which time it is too late to act on.

I hope that's helpful.

PJW
This is an extremely meaningful post as at least for me it emphasizes the importance of thinking about the future returns of money that is invested today. So often I get hung up on what I think the short term return will be rather than thinking about what the return will be in 10, 15 or 20 years, when I actually need the money. I appreciate the insight PJW.

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F150HD
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Re: What to do with cash now

Post by F150HD » Sat Jan 27, 2018 9:46 am

Alexa9 wrote:
Wed Jan 24, 2018 7:23 pm
I would park it in CD's if you are worried. Safe and better than nothing. Although bonds are likely a better choice.
In a potentially rising interest rate environment....how does that work? seems like there's still risk involved locking up funds for X years in Y CDs as rates rise. Can use shorter duration CDs but from my reading, most pay the same as a plain savings account at say Ally.

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Toons
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Re: What to do with cash now

Post by Toons » Sat Jan 27, 2018 9:50 am

Stick To Your
"Knitting"=Asset Allocation










:moneybag
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

Youngblood
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Re: What to do with cash now

Post by Youngblood » Sat Jan 27, 2018 10:09 am

Two year treasuries yield abt 2.1 % and in two years you can decide again. Perhaps buy a set amount every month with your cash.
"I made my money by selling too soon." | Bernard M. Baruch

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Alexa9
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Re: What to do with cash now

Post by Alexa9 » Sat Jan 27, 2018 10:16 am

F150HD wrote:
Sat Jan 27, 2018 9:46 am
Alexa9 wrote:
Wed Jan 24, 2018 7:23 pm
I would park it in CD's if you are worried. Safe and better than nothing. Although bonds are likely a better choice.
In a potentially rising interest rate environment....how does that work? seems like there's still risk involved locking up funds for X years in Y CDs as rates rise. Can use shorter duration CDs but from my reading, most pay the same as a plain savings account at say Ally.
Use a CD Ladder. You can also use no penalty CD's.

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Phineas J. Whoopee
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Re: What to do with cash now

Post by Phineas J. Whoopee » Sat Jan 27, 2018 2:01 pm

yukonjack wrote:
Sat Jan 27, 2018 9:43 am
...
This is an extremely meaningful post as at least for me it emphasizes the importance of thinking about the future returns of money that is invested today. So often I get hung up on what I think the short term return will be rather than thinking about what the return will be in 10, 15 or 20 years, when I actually need the money. I appreciate the insight PJW.
Thank you for your kind words.

PJW

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