If I want to have a safe portfolio in case of...

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Mrxyz
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If I want to have a safe portfolio in case of...

Post by Mrxyz »

Lets assume, I know of an upcoming event which may affect stocks and cause them to decline significantly. Humor me please, and accept this as a possibility which (at least to me) is real. I know I sound like a crazy person but.......

Currently very happy with 3 fund portfolio with no EF, with net worth around 2 M.

What can I change with my portfolio to make it safe ( or safer) in case of an upcoming stock downfall.

Can I just place all bond funds? or is there something else which is better........

Thanks
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Tycoon
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Re: If I want to have a safe portfolio in case of...

Post by Tycoon »

Mrxyz wrote:Lets assume, I know of an upcoming event which may affect stocks and cause them to decline significantly. Humor me please, and accept this as a possibility which (at least to me) is real. I know I sound like a crazy person but.......

Currently very happy with 3 fund portfolio with no EF, with net worth around 2 M.

What can I change with my portfolio to make it safe ( or safer) in case of an upcoming stock downfall.

Can I just place all bond funds? or is there something else which is better........

Thanks
If you know with certainty short the market and get rich.

Good luck.
Emotionless, prognostication free investing. Ignoring the noise and economists since 1979. Getting rich off of "smart people's" behavioral mistakes.
Lobster
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Re: If I want to have a safe portfolio in case of...

Post by Lobster »

Mrxyz wrote: What can I change with my portfolio to make it safe
I agree with Tycoon, if you know the future then it will be easy to make a fortune. For the rest of us, we need an asset allocation that reflects our willingness, need, and ability to take risk. Increase your bond allocation until you can sleep well at night.

Investors significantly underperform the market return because they make frequent changes to their portfolio. There is a negative correlation between market returns and frequency of trading. Pick an AA that works for you and stay the course. Oh, and watch out for those cap gains taxes if you decide to sell appreciated assets.

Good luck :sharebeer
Submit to the relentless rules of humble arithmetic and avoid the tyranny of compounding costs.
avalpert
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Re: If I want to have a safe portfolio in case of...

Post by avalpert »

Yes, massively short the market but cover your tracks enough so you don't get suspected of insider trading...
venkman
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Re: If I want to have a safe portfolio in case of...

Post by venkman »

Mrxyz wrote:Lets assume, I know of an upcoming event which may affect stocks and cause them to decline significantly.
I would worry more about all the upcoming events you DON'T know about that might cause stocks to decline significantly....

But if you're happy with your net worth now, you can certainly go 100% bonds. Depending on your tax situation, you can probably keep up with inflation.
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Nate79
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Re: If I want to have a safe portfolio in case of...

Post by Nate79 »

Any chance you will let us know ahead of time about this event?
aspiringlawyer
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Re: If I want to have a safe portfolio in case of...

Post by aspiringlawyer »

I say keep the three fund just change up the allocation. Then when the "big event" you know about happens, you'll only lose a bit.
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Mrxyz
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Re: If I want to have a safe portfolio in case of...

Post by Mrxyz »

Nate79 wrote:Any chance you will let us know ahead of time about this event?
LOL, nice one!
Oh, how I wish I can see the future etc etc..........
Again, I am not crazy and definitely not a market timer but I am not sure if I can tell anything on this forum. I can send you a pm though. I am so happy with 3 fund portfolio that I want to keep with it without any tilting or any re-balancing unless its totally out of proportion. I want to keep it simple.
Thanks for making me laugh.
HAL 9000
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Re: If I want to have a safe portfolio in case of...

Post by HAL 9000 »

Diversity. I don' t know how this would work but there are other investments besides 3 fund stock and bonds you could buy like: precious metals, a rental property, art, get a farm, livestock, home improvements, solar panels, a truck for your farm, cryptocurrency, PFF, international bonds, tax liens, etc.
johnra
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Re: If I want to have a safe portfolio in case of...

Post by johnra »

Go into cash, wait your chance, then come back in.
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Mrxyz
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Re: If I want to have a safe portfolio in case of...

Post by Mrxyz »

johnra wrote:Go into cash, wait your chance, then come back in.
So cash is better/safer than all bonds?
Selling to get cash will trigger taxes also.
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Clever_Username
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Re: If I want to have a safe portfolio in case of...

Post by Clever_Username »

Mrxyz wrote:
johnra wrote:Go into cash, wait your chance, then come back in.
So cash is better/safer than all bonds?
Selling to get cash will trigger taxes also.
So will selling to get to bonds, assuming we're talking about the non-tax-advantaged portion of your portfolio.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.
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FIREchief
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Re: If I want to have a safe portfolio in case of...

Post by FIREchief »

Mrxyz wrote: Oh, how I wish I can see the future etc etc..........
Careful with that one. You might see the buying opportunity of the century, but also see that you won't live to enjoy the windfall. :oops:
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Raybo
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Re: If I want to have a safe portfolio in case of...

Post by Raybo »

Assuming the three funds portfolio you have includes bonds, you simply have to rebalance into stocks from bonds when the market event you foresee happens. You don't state your current AA. If you want more "dry powder," sell some stocks and buy bonds/cash in preparation for the "event."

I'm not sure I understand your logic. If you aren't comfortable with your AA, because you see it as too risky given events you foresee, you should change your AA.

Whatever happens, your investments have to be deployed in a way that stops you from panic selling. If you can't stay the course, as you seem to imply you are willing to do, you are in a bad spot no matters what happens.
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.
lazydavid
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Re: If I want to have a safe portfolio in case of...

Post by lazydavid »

If it's a guarantee, sell everything and put it in SPXU (Proshares UltraPro Short S&P500) or a similar 3x inverse index ETF. This will give you returns equal to 3x daily losses in the S&P. But be VERY VERY sure before you do this, because it will also give you losses of 3x the daily gains of the index. It's lost almost 25% of its value since January 1, 2017.

Or, come to terms with the fact that you DON'T know anything about the market that isn't already priced in, and set your AA according to your risk tolerance.
UncleBen
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Re: If I want to have a safe portfolio in case of...

Post by UncleBen »

1.Protect what you have. 2. Profit from the fall.

Put $1m in CD's.
Put $1m in safe deposit.

Or short sell the market.
Write a book on "The Upcoming Stock Downfall", get on the TV book tour circuit to boost sales.
After the downfall, write a book and do TV book tour promoting your book on "how I knew the market was going to fall and how you can predict it too". That should add a few million to your portfolio :D .
Longdog
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Re: If I want to have a safe portfolio in case of...

Post by Longdog »

Sounds to me like the subtext of your question is that you are not comfortable with your current asset allocation-particularly your exposure to equities. This, however, conflicts with your statement that you are comfortable with your 3-fund portfolio.
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Re: If I want to have a safe portfolio in case of...

Post by Dottie57 »

Longdog wrote:Sounds to me like the subtext of your question is that you are not comfortable with your current asset allocation-particularly your exposure to equities. This, however, conflicts with your statement that you are comfortable with your 3-fund portfolio.
+1. Since I will retire on 0-5 years, I have 5 years expenses in cds. No need to sell equities when they are down.
dbr
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Re: If I want to have a safe portfolio in case of...

Post by dbr »

Mrxyz wrote:Lets assume, I know of an upcoming event which may affect stocks and cause them to decline significantly. Humor me please, and accept this as a possibility which (at least to me) is real. I know I sound like a crazy person but.......

Currently very happy with 3 fund portfolio with no EF, with net worth around 2 M.

What can I change with my portfolio to make it safe ( or safer) in case of an upcoming stock downfall.

Obviously don't own stocks.

Can I just place all bond funds? or is there something else which is better........

There are investments that have higher return and risk more like stocks that aren't stocks. You could use your capital to go into the business of owning and operating rental real estate. I am not sure how much real estate risk is correlated with stock risk. That might be a problem. Note your specific words in comparison to bonds are "better" not "safer." Better means being able to get some return as well as being "safe" in some meaning of the word.

Also, how old are you? Are you already retired. You could take most of the money and find an inflation indexed single premium annuity. Or, if you want to permanently bail out of stocks, build a TIPS ladder to last you the next 30 years or so.

Warning: These suggestions are intentionally provocative.


Thanks
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goingup
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Re: If I want to have a safe portfolio in case of...

Post by goingup »

Mrxyz wrote:I know I sound like a crazy person but.......
Well...yes. :D
The usual advice for someone feeling as you do is to examine your jitters. Are you having an uncharacteristic moment of panic due to macro environment factors? Maybe you're at a point in your investing life where you can dial back risk and adjust your AA to hold more bonds/cash?

It's a bad move to think you can move back and forth between the sidelines and the Market to your advantage.
alex_686
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Re: If I want to have a safe portfolio in case of...

Post by alex_686 »

I am against marketing timing but I will take your post seriously. Here is a question. How confident are you that you are right and the market is wrong? I assume you are confident but not 100% sure. I would point you to the Black - Litterman model. You can input the market's expectations, your expectations, and how confident you are. It will then spit out a optimal portfolio.

A warning, the model is very good but the math behind it complex. Wiki has a good article but I will point you to the source.

http://www.blacklitterman.org/
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
retiredjg
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Re: If I want to have a safe portfolio in case of...

Post by retiredjg »

If I knew with certainty that the market was about to crash, I'd reduce my stock holding to something like 35% or 40%. I would not leave the 3 fund portfolio if that portfolio suited me.

Even when you do know something with a high probability of certainty, what actually happens is often different from what you expected. I'm saying the event does happen, but not like you thought it would. So basing actions on what you expect, even if the event happens, is a good way to be wrong. I would not put my portfolio in that position.

Set up a portfolio for both good times and bad times and stay the course in both good times and bad times.
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Mrxyz
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Re: If I want to have a safe portfolio in case of...

Post by Mrxyz »

retiredjg wrote:If I knew with certainty that the market was about to crash, I'd reduce my stock holding to something like 35% or 40%. I would not leave the 3 fund portfolio if that portfolio suited me.

Even when you do know something with a high probability of certainty, what actually happens is often different from what you expected. I'm saying the event does happen, but not like you thought it would. So basing actions on what you expect, even if the event happens, is a good way to be wrong. I would not put my portfolio in that position.

Set up a portfolio for both good times and bad times and stay the course in both good times and bad times.
FIREchief wrote:
Mrxyz wrote: Oh, how I wish I can see the future etc etc..........
Careful with that one. You might see the buying opportunity of the century, but also see that you won't live to enjoy the windfall. :oops:
So, I am more interested in making sure I don't go through a bad downturn rather than earn a windfall.
Raybo wrote:Assuming the three funds portfolio you have includes bonds, you simply have to rebalance into stocks from bonds when the market event you foresee happens. You don't state your current AA. If you want more "dry powder," sell some stocks and buy bonds/cash in preparation for the "event."

I'm not sure I understand your logic. If you aren't comfortable with your AA, because you see it as too risky given events you foresee, you should change your AA.

Whatever happens, your investments have to be deployed in a way that stops you from panic selling. If you can't stay the course, as you seem to imply you are willing to do, you are in a bad spot no matters what happens.
My AA is 60/40, S/B, your suggestions makes a lot of sense- I think I am more scared than realistic and probably need more bonds
Longdog wrote:Sounds to me like the subtext of your question is that you are not comfortable with your current asset allocation-particularly your exposure to equities. This, however, conflicts with your statement that you are comfortable with your 3-fund portfolio.
.
I am reading my questions and yes, I do sound crazy! Yes, I think I need to increase my bond allocation.
goingup wrote:
Mrxyz wrote:I know I sound like a crazy person but.......
Well...yes. :D
The usual advice for someone feeling as you do is to examine your jitters. Are you having an uncharacteristic moment of panic due to macro environment factors? Maybe you're at a point in your investing life where you can dial back risk and adjust your AA to hold more bonds/cash?

It's a bad move to think you can move back and forth between the sidelines and the Market to your advantage.
I agree that moving back and forth makes no sense and is market timing to some extent.
retiredjg wrote:If I knew with certainty that the market was about to crash, I'd reduce my stock holding to something like 35% or 40%. I would not leave the 3 fund portfolio if that portfolio suited me.

Even when you do know something with a high probability of certainty, what actually happens is often different from what you expected. I'm saying the event does happen, but not like you thought it would. So basing actions on what you expect, even if the event happens, is a good way to be wrong. I would not put my portfolio in that position.

Set up a portfolio for both good times and bad times and stay the course in both good times and bad times.
retiredjg - Hi - you have helped me with lots of questions over many years. Good to hear from you again!

I like your last line - set up portfolio to both good and bad times!
retiredjg
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Re: If I want to have a safe portfolio in case of...

Post by retiredjg »

Mrxyz, thanks for the kind words. I'm happy to help. :happy

Your last reply to multiple people sounds like you have come to grips with the fact that there WILL BE A CRASH (at some unknown time). Perhaps you now have a new way of seeing what that actually means and how it may make you feel.

It appears that you now know that you are not comfortable with the stock to bond ratio you have now. Maybe it is more correct to say that you've realized you will not be comfortable with it in a crash.

Either way, if those things are true, you need to change your portfolio now to something you are willing to go through a crash with. Then leave it alone. That is not market timing.

If you try to move your stock ratio up and down with the market, there is about a 99% chance it will cost you money in the long run. That is market timing. Just don't do it

Assuming you fit this model, you would not look for a fair weather spouse would you? Or would you look for someone you can get through tough times with? I'd be looking for someone I can live with all the time, even when times are tough and the gushy feelings seem to have disappeared.

I feel the same about my portfolio. It may not be as wonderful as I'd like during the good times (20% returns!), but I'm confident I'll be OK with it when the bad times come.


If 60% stocks is starting to feel like the wrong place to be, how can we help you figure out the right place to be?
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