100% in bond to wait for market crash?

[HenrysPlan2]

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

Hi Paul, we just put $550k in stock market last month with $420k in vanguard total market, $80k total international, $50k vanguard intermediate tax exempt bond. We do have about $600k in the bank which we are not sure what to do yet. Also going to have about $700k next spring when sell out rental home. Not sure what fund to buy since it will be in taxable. I do love the idea that if I have more bond fund and transfer over to stock if there's a sizable crash

[avalpert]

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.

But it is important to understand why the value goes down and weigh which risks you are more prepared to take. The reason the value of a bond goes down when interest rates go up is because you can now get a higher guaranteed return with a different bond - but if the guaranteed return you are getting is high enough for your needs that might not be a risk you care about.

The distinction between funds and bonds here is a distraction from the risks - you could find a defined-maturity bond fund if you like and if we are talking about Treasuries then owning individual bonds for a given duration is fairly easy. If we are talking about targeting exposure to a constant level of duration (which is what you get in most bond funds) then you need to determine whether the duration risk is something you are willing to take.

[minesweep]

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.

See my reply at the following link. From there you can access the individual links to the topics shown below

Should we wait before buying in

May, 2013:
Anyone still waiting for a market dip before investing?

November, 2013:
Advice: Should I invest when Stocks are at all time high

May, 2014:
Wait to invest since stocks are high?

March, 2015:
Wise move to move some $ to cash before bear market?

May, 2015:
move to cash for upcoming bear market?

January, 2016:
Why buy now, why not wait until the market really crashes??

July, 2016:
Investing at stock market highs

[H-Town]

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.

Absolutely! If you're afraid of losing your hard earned money, do not put money in the stock market.

If you decide to market timing, good luck! Many have tried and few succeeded. But if you must, please keep your records and share with us.

[HenrysPlan2]

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.

Absolutely! If you're afraid of losing your hard earned money, do not put money in the stock market.

If you decide to market timing, good luck! Many have tried and few succeeded. But if you must, please keep your records and share with us.

Just added another $50k to Total stock index. but still don't know what I am doing.

[HenrysPlan2]

very interesting to have another info on the current P/E which is 86.9% higher than historical mean and expected negative 2.5% annual return..

Shiller P/E: 31.4 ( %)
Shiller P/E is 86.9% higher than the historical mean of 16.8
Implied future annual return: -2.5%
Historical low: 4.8
Historical high: 44.2
S&P 500: 2550.93
Regular P/E: 25 (historical mean: 16)


https://www.gurufocus.com/shiller-PE.php

[AnalogKid22]

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.

Absolutely! If you're afraid of losing your hard earned money, do not put money in the stock market.

If you decide to market timing, good luck! Many have tried and few succeeded. But if you must, please keep your records and share with us.

Just added another $50k to Total stock index. but still don't know what I am doing.

I just invested another 5K in VTSAX!

[pkcrafter]

From a post above:

Henry2

Hi Paul, we just put $550k in stock market last month with $420k in vanguard total market, $80k total international, $50k vanguard intermediate tax exempt bond. We do have about $600k in the bank which we are not sure what to do yet. Also going to have about $700k next spring when sell out rental home. Not sure what fund to buy since it will be in taxable. I do love the idea that if I have more bond fund and transfer over to stock if there's a sizable crash

From Pg 1.

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? By "that" I mean just put 500k into equities.

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.

Twice you have said you just put 550K (500k) into the stock market. My question is, if you just put this money into the market, why did you since you are worried about the market. Is this something like buyer's remorse?

[inbox788]

Just added another $50k to Total stock index. but still don't know what I am doing.

Don't worry. That's the beauty of index investing. You don't have to know anything to be average. Some of the folks who "know what they're doing" will wind up doing worse.

Prepare for one of 3 things to happen between now and spring.
1) Market keeps going up, which means your decision today was a good one.
2) No change in market, so pretty much same decision with funds you use in spring.
3) Market dips, so you now buy more shares with the cash you have coming.

Hold it long enough and in all likelihood, the market will go higher than now or spring.

[EddyB]

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.

See my reply at the following link. From there you can access the individual links to the topics shown below

Should we wait before buying in

May, 2013:
Anyone still waiting for a market dip before investing?

November, 2013:
Advice: Should I invest when Stocks are at all time high

May, 2014:
Wait to invest since stocks are high?

March, 2015:
Wise move to move some $ to cash before bear market?

May, 2015:
move to cash for upcoming bear market?

January, 2016:
Why buy now, why not wait until the market really crashes??

July, 2016:
Investing at stock market highs

Nice collection. And yet, I'm confident that when the next stock crash occurs, there will be a decent number of people claiming it was obvious.

[H-Town]

Just added another $50k to Total stock index. but still don't know what I am doing.

Don't worry. That's the beauty of index investing. You don't have to know anything to be average. Some of the folks who "know what they're doing" will wind up doing worse.

I agree. That's why I prefer using the term "saving" rather than "investing". Keep saving in index funds, you'll join the 1% group. I can't promise it'll be quick, but you make certain that you'll get there.

[JBTX]

Henry,

I'm late to this party and I am sure you have received a lot of good advice.

As to your original post, not even some of the more notable active/conservative fund managers have zero percent in stocks.

If you are really interested or concerned with valuations, you may find some of Grantham's information interesting.

https://www.gmo.com/

Read his quarterly newsletters. They can get a bit wonky but I find them interesting.

They have done a lot of research on bubbles. Over the years, he has been pretty good at identifying when stocks are overvalued, but often is very early, many years earlier than the bubble bursts. While he thinks they are overvalued, he is very hesitant to declare when the quasi bubble could burst, and says it could be many years down the road due to various macroeconomic factors.

In their "unconstrained" fund, they have about 40% in stocks, although most of that is in international and emerging markets.

http://portfolios.morningstar.com/fund/ ... ture=en_US

The point is not to advocate his investment style ( I don't explicitly follow it), but to indicate he is a guy who tends to be much more bearish than average and still has some money in stocks for the long term.

A fund I recently put money in given the high valuations of the market, and wanting to be somewhat more defensive in my 50's, is Vanguard Wellesley Income.

viewtopic.php?t=209617

It is an active fund, and best in retirement accounts, but its expenses are almost as low as many index funds. It is only about 1/3 in stocks, but its historical returns have been close to the S&P, and is a lot less volatile than the S&P.

[HenrysPlan2]

Just added another $50k to Total stock index. but still don't know what I am doing.

Don't worry. That's the beauty of index investing. You don't have to know anything to be average. Some of the folks who "know what they're doing" will wind up doing worse.

Prepare for one of 3 things to happen between now and spring.
1) Market keeps going up, which means your decision today was a good one.
2) No change in market, so pretty much same decision with funds you use in spring.
3) Market dips, so you now buy more shares with the cash you have coming.

Hold it long enough and in all likelihood, the market will go higher than now or spring.

Thanks, after I posted this thread. I spent a bunch time searching the old posts in 2007 and early 2008. I do see people saw the 2008 crash coming she pulled out of stock even a bunch people denounced it against bogelheads rules. Those guys did very good if they put back just 50% to stock even when with 30% decline(does not need to be at the bottom of 50%). I still believe when the time there's too much risk and should pull out the market which I still plan to do if the market (Dow) keep Rising to 30000. All assets are overvalued now, a crash will come when it get too expensive.

[HenrysPlan2]

Henry,

I'm late to this party and I am sure you have received a lot of good advice.

As to your original post, not even some of the more notable active/conservative fund managers have zero percent in stocks.

If you are really interested or concerned with valuations, you may find some of Grantham's information interesting.

https://www.gmo.com/

Read his quarterly newsletters. They can get a bit wonky but I find them interesting.

They have done a lot of research on bubbles. Over the years, he has been pretty good at identifying when stocks are overvalued, but often is very early, many years earlier than the bubble bursts. While he thinks they are overvalued, he is very hesitant to declare when the quasi bubble could burst, and says it could be many years down the road due to various macroeconomic factors.

In their "unconstrained" fund, they have about 40% in stocks, although most of that is in international and emerging markets.

http://portfolios.morningstar.com/fund/ ... ture=en_US

The point is not to advocate his investment style ( I don't explicitly follow it), but to indicate he is a guy who tends to be much more bearish than average and still has some money in stocks for the long term.

A fund I recently put money in given the high valuations of the market, and wanting to be somewhat more defensive in my 50's, is Vanguard Wellesley Income.

viewtopic.php?t=209617

It is an active fund, and best in retirement accounts, but its expenses are almost as low as many index funds. It is only about 1/3 in stocks, but its historical returns have been close to the S&P, and is a lot less volatile than the S&P.

Thanks JB, I believe the stock is overvalued, but it's not to the point that it's about to crash especially tax cut is coming. I hsve 95% stock now excluding cash, I will continue to monitor and see if I want to put the rest of the fund to stock or bond. Stock just like a rental property, over a very long period of time the value will increase. A rental property collects rent, a stock collect divedends. However a rental home needs active management. Over a long time they would both likely be good investment. It's painful to have the fund in the bank, thinking to put them in stock and decrease the AA when it gets more risky. In 2008, there's a risk of the subprime loans and over leveraged. I don't see any of those rosy factors now except for higher than normal valuations

[JBTX]

Henry,

I'm late to this party and I am sure you have received a lot of good advice.

As to your original post, not even some of the more notable active/conservative fund managers have zero percent in stocks.

If you are really interested or concerned with valuations, you may find some of Grantham's information interesting.

https://www.gmo.com/

Read his quarterly newsletters. They can get a bit wonky but I find them interesting.

They have done a lot of research on bubbles. Over the years, he has been pretty good at identifying when stocks are overvalued, but often is very early, many years earlier than the bubble bursts. While he thinks they are overvalued, he is very hesitant to declare when the quasi bubble could burst, and says it could be many years down the road due to various macroeconomic factors.

In their "unconstrained" fund, they have about 40% in stocks, although most of that is in international and emerging markets.

http://portfolios.morningstar.com/fund/ ... ture=en_US

The point is not to advocate his investment style ( I don't explicitly follow it), but to indicate he is a guy who tends to be much more bearish than average and still has some money in stocks for the long term.

A fund I recently put money in given the high valuations of the market, and wanting to be somewhat more defensive in my 50's, is Vanguard Wellesley Income.

viewtopic.php?t=209617

It is an active fund, and best in retirement accounts, but its expenses are almost as low as many index funds. It is only about 1/3 in stocks, but its historical returns have been close to the S&P, and is a lot less volatile than the S&P.

Thanks JB, I believe the stock is overvalued, but it's not to the point that it's about to crash especially tax cut is coming. I hsve 95% stock now excluding cash, I will continue to monitor and see if I want to put the rest of the fund to stock or bond. Stock just like a rental property, over a very long period of time the value will increase. A rental property collects rent, a stock collect divedends. However a rental home needs active management. Over a long time they would both likely be good investment. It's painful to have the fund in the bank, thinking to put them in stock and decrease the AA when it gets more risky. In 2008, there's a risk of the subprime loans and over leveraged. I don't see any of those rosy factors now except for higher than normal valuations

I’m about 60% stock but I’m 54.

[inbox788]

Thanks JB, I believe the stock is overvalued, but it's not to the point that it's about to crash especially tax cut is coming. I hsve 95% stock now excluding cash, I will continue to monitor and see if I want to put the rest of the fund to stock or bond. Stock just like a rental property, over a very long period of time the value will increase. A rental property collects rent, a stock collect divedends. However a rental home needs active management. Over a long time they would both likely be good investment. It's painful to have the fund in the bank, thinking to put them in stock and decrease the AA when it gets more risky. In 2008, there's a risk of the subprime loans and over leveraged. I don't see any of those rosy factors now except for higher than normal valuations

Overvalued not a well defined term. P/E is higher than average or near all time highs is more objective and sometimes used as overvalued. If you believe in an average P/E and reversion to the mean (i.e. a company's earnings determines its worth), there are 2 ways for the P/E to return to normal. Price can fall (crash), or earnings can rise. Price can stay high or P/E above normal levels for a long time. Sometimes a crash bring it below average, while other times, earnings slowly catch up and slowly grind down the P/E to more normal levels. So while recently earnings have not kept up with rising stock prices, they are still rising and if they can maintain that growth, can support current pricing levels.

[EddyB]

Just added another $50k to Total stock index. but still don't know what I am doing.

Don't worry. That's the beauty of index investing. You don't have to know anything to be average. Some of the folks who "know what they're doing" will wind up doing worse.

Prepare for one of 3 things to happen between now and spring.
1) Market keeps going up, which means your decision today was a good one.
2) No change in market, so pretty much same decision with funds you use in spring.
3) Market dips, so you now buy more shares with the cash you have coming.

Hold it long enough and in all likelihood, the market will go higher than now or spring.

Thanks, after I posted this thread. I spent a bunch time searching the old posts in 2007 and early 2008. I do see people saw the 2008 crash coming she pulled out of stock even a bunch people denounced it against bogelheads rules. Those guys did very good if they put back just 50% to stock even when with 30% decline(does not need to be at the bottom of 50%). I still believe when the time there's too much risk and should pull out the market which I still plan to do if the market (Dow) keep Rising to 30000. All assets are overvalued now, a crash will come when it get too expensive.

Did you find any times when people "saw a crash coming," but it didn't happen? Minesweep gave you some examples.

How can you differentiate those posts from the ones about the 2008 crash, other than in retrospect?

[WhiteMaxima]

Bond might crash also if FED reduce balance sheet and raise short term inerest rate. I would put in a short term bond or FDIC insured CD for the moment and watch. I am now 50/50.

[KlangFool]

Folks and OP,

Your choice is not limited to 100% stock or 100% bond. It is people like you that should invest in one of those all-in-one funds.

https://investor.vanguard.com/mutual-fu ... #/?lang=en

Pick your AA and buy one of those funds. You do not have to worry about whether stock or bond is overpriced. You buy both of them all the time.

KlangFool

[Dandy]

It is usually not good to be 100% in or out of equities. I will agree with you that the market seem high and note that I have felt that for quite awhile. I focus on trying to maintain my allocation at a moderate level and rebalance when necessary.

[David Scubadiver]

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.

You could certainly do this. But, if the [municipal bond] market crashes, you will sorely regret it.

[HenrysPlan2]

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.

You could certainly do this. But, if the [municipal bond] market crashes, you will sorely regret it.

That's true, I saw one of the poster moved all the funds to 5 years CD which have 3% return. The problem is I don't want to be in CD for 5 years. Also the market looks like still have room to grow and not to the point aboutvto crash yet. I am still 95% to 97% stock, but I have some cash in checking account.

[arcticpineapplecorp.]

That's true, I saw one of the poster moved all the funds to 5 years CD which have 3% return. The problem is I don't want to be in CD for 5 years. Also the market looks like still have room to grow and not to the point aboutvto crash yet. I am still 95% to 97% stock, but I have some cash in checking account.

What is the point at which the market is "about to crash"? What does that look like exactly? Interested to know how you know this, what it looks like and why you don't own an island if you have that kind of prescience. Will you please ring the bell for the rest of us when the time comes?

If you can see what the point is when the market is about to crash, do you plan on shorting the market before that? If not, why not?

Can you also spot the point at which the market is about to go up (at the end of a down market)? If not, why not?

[mikeyzito22]

Total BND up 11.61% I year data.

[whodidntante]

Total BND up 11.61% I year data.

Cool.

Please post next year's returns for the same. Now if possible.

[mikeyzito22]

Total BND up 11.61% I year data.

Cool.

Please post next year's returns for the same. Now if possible.

I do think what I was saying is that total intermediate bonds in any given year are no guarantee, but money markets and cash equivalents continue to pale in comparison to actual returns of a total bond fund over time.

[mikeyzito22]

Total BND up 11.61% I year data.

Cool.

Please post next year's returns for the same. Now if possible.

I do think what I was saying is that total intermediate bonds in any given year are no guarantee, but money markets and cash equivalents continue to pale in comparison to actual returns of a total bond fund over time. Oh and I forgot to say, Malkovich Malkovich Malkovich.

[MotoTrojan]

P/E is not high at all but even if it were, that doesn't mean prices will come down, it could simply mean that earnings will grow more quickly than prices to bring it back into balance.

Why not just invest more in International or small-value? P/E's there are low. Small-value is historically low relative to large-growth.