Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

[dbadalam]

I think the worst is probably already behind us. I don’t see why market would see see 2200 again. If new cases of virus slow down, deaths will start to slow, things will open back up with mass rehires. Only thing we have to worry about is a massive 2nd wave in the early summer, but humidity will probably help prevent or limit that.

[sycamore]

If you think the stock market is going down, it would be a bad bet to own it. The better bet would be to short sell it or sell puts against it.
...

Side question:
I'm not an options expert, but I thought you would buy a put if you think the underlying stock (or ETF) is going to drop. A form of insurance basically. So if you sell a put, doesn't that put you on the hook for buying the asset at a pre-determined price even if the market has priced it lower?

Yes, I suppose I framed that wrong / typeo... but you could also maybe make a unusual case for selling puts at a 1800 strike price... you'd earn some premium, and if it ended at a price above that it would expire worthless.. maybe you'd like to be a buyer at 1800 so you wouldn't mind earning the premium and then having them "put" to you to buy at the 1800 price.

Thanks for the reply. Options trading is intriguing... I'll likely never do it, but it helps understand how others can profit (or lose) from it.

[baritone]

PLEASE NOTE: Yes, this is market timing. I'm not looking for any reproach for trying to time the market. I think it's almost always a bad idea. But this virus representing a huge threat was obvious to many in early February, when we were at ATHs and the market was pricing in literally zero risk of what ended up happening. I think the market is still delusional about the extent of the risk (I don't believe that stocks have better prospects now than they did 16 months ago, when the SPX was 100 points lower than it is today), so I remain largely liquidated from my equity positions. I'm not looking for debate on this assumption, so please don't respond with "nobody knows nothin'," "stay the course," etc. Think of this as a thought experiment if you must.

I think when Easter weekend rolls around, and the US has over 20,000 dead, and we're still getting many thousands of new cases per day, there's no way America will be easing lock-downs and getting back to work. Trump will have to extend the lock-down, and the market will crater. There will be another big round of stimulus, at least another trillion. Or maybe he does lift the lock-down, and people go back to work, and cases and deaths skyrocket even higher as a result and we see six-figure death totals in May. Then upper-level management is too sick or dead to work in many companies, people still don't want to travel or go to restaurants or even go to work, and hospitals are overflowing with bodies. I think that will crater the stock market too. Maybe the Fed intervenes by buying stocks at that point, even if just under the guise of "providing liquidity."

The virus causing a recession well beyond prevailing estimates seems almost unavoidable to me, either via lock-down and/or mass illness and deaths. What I'm less sure about is the response of the Fed and congress to print and loan us out of it. I think they will do a lot, maybe six trillion in stimulus by the end of the year, and unprecedented Fed intervention. I hate to fight Trump and the Fed, but I think we see SPX 1800, and it takes us at least till this time next year to get the economy back on track—people having jobs to go to and money to spend again, supply chains sorted out, debt looking manageable.

I can't imagine interest rates get raised during any of this, but I'm not well-versed enough in bond dynamics to predict what happens to treasuries. I'm also unsure of the default risk to the corporate holdings of funds like BND (VBTLX) or BIV (VBILX). Has the Fed essentially insured those bonds at this point?

So anyway, can someone opine on where best to position cash if I believe the above to be true? I'm unsure if I should expect deflation (since no one has money to spend) or inflation (since the government is pouring trillions into the money system). My target allocation is probably like 90:10 in a sane world, but with this virus I'm about 20:10, with the other 70 in cash. I plan to start buying equities again once I think the market is becoming rational (I'd estimate about SPX 2000), but until then, where do I park my cash? Are bonds worth the risk? TIPS? Just keep it in cash for possibly months and risk an inflation scenario?

Thanks for any insight.

I've always been cynical about the human race due to it's talent for getting stuff DEAD WRONG. I am not optimistic about the next few months and I suspect (and will bet you a beer) that OP is largely correct. I haven't made a move yet with my investments, but I'm watching day-to-day wondering if/when to pull the trigger and which direction to fire. We're in our 70's and wife nearly blind. Hiding in the house. Zombies everywhere.

[HanSolo]

Why can't people just answer your actual question?

OK, I'll bite. Let's look at the OP's actual question:

So anyway, can someone opine on where best to position cash if I believe the above to be true?

Answer: Money market. At Vanguard, the Federal and Treasury money markets are OK (Treasury has $50K minimum deposit).

If you don't mind high-quality corporates, Prime money market and/or Ultra-Short-Term bond may be good. Prime holds things I don't understand ("repos", "yankee bonds", etc.)... as they say, don't invest in anything you don't understand... up to you. Ultra-Short-Term holds a lot of AAA bonds, and I'm fairly comfortable with those.

[ValuationsMatter]

doesn’t that assume the market fundamentals were already on shaky ground?

I trust CAPE, & Buffett Indicator more than most, but I do not believe in MEAN reversion. If you hold them in high esteem, then you would have questioned the market fundamentals as I did. It was also nice to see BRK holding $128 Billion with a "B", or north of 20% of their portfolio in cash. I know they need insurance reserves, but that's 6 times north of what Buffett has previously claimed to need.

TTM and even future P/Es were WAY above average. Every other other metric for valuation that I am comfortable with has been screaming overvaluation for quite some time. They reached what I define as extremes in 2018 and again in 2019. Both times, I pulled out preparing to await for the greater part of a decade, as necessary, the market's reversion or earnings|production growth (the denominator) to what I would consider 'reasonable' valuations. That implies subjectivity on my part, and you would be right to find some fault in my specific methodology. However, knowing nothing of COVID, and basing my concerns solely on the extremity of valuations, I DCAed out of the market last year until I was at 3/97, last year. I believe I have/had the stomach to sit out for a complete market cycle, if necessary. I was starting to look for rental real estate bargains to shore up long-term poor to nonexistent real market returns.

Valuations Matter!

[Enzo IX]

Balance in life, balance in portfolio construction.

It doesn't have to be one or the other, too much talk of all in or all out. The most important thing is follow your plan if you have one. Hedge your bet with balance.

[watchnerd]

...
I love all of the "nobody knows nothing" comments you are getting when in the very first line you ask to not be talked out of market timing. Why can't people just answer your actual question? ...

This is Bogleheads.
It's like going to a recovering alcoholics meeting to gather advice on how to get drunk. You might get some relevant info on how to do it, but you're not getting away without a few stories about how this will destroy your life.

This is so true and funny. Had me laughing.

Funny, but tragically sad and repetitious.

I'm throwing in the towel on these kind of threads.

I'm not cut out for missionary work.

[bigfry]

I would dollar cost average all my money in over the next 2-3 months because we are going to see a lot of volatility. And then I wouldn't do anything.

[scintillator]

So I don't really see any hot takes here on predictions of inflation versus deflation in a scenario of protracted recession with several injections of stimulus. I guess I'll just keep the money in my settlement fund until I start redeploying into stocks in the next 2–18 months.

As for people saying I should buy inverse ETFs or puts, or short the market some other way, I'm not doing that because I'm of course not sure I'm right. And I would get wiped out if there were a cure or some other bullish development. Taking my stock exposure down from 90% to 20% is a form of shorting the market. I considered buying puts instead of selling the underlying, but it didn't make a whole lot of sense because of tax considerations (and now volatility is super high, so puts are very expensive). So the way I'm betting on this decline is by dramatically reducing my AA. And it seems stupid to buy an inverse ETF and have to pay short-term cap gains and high fees and suffer beta slippage when I'm long the underlying index. If I wanted that more exposure I would just sell more of the underlying index.

Your hypothetical is one of extreme pessimism. At a mortality rate of 1%, which is a fair estimate for the disease, your estimate of 100k dead would require 10M infections. At present, there are only 680k infections worldwide. There are ~120k confirmed cases in the US. Unabated, the virus doubles every 4 days. It would have to double 6-7 times to get to that total count. That's almost another full month of unabated exponential growth. That will not happen.

I don't think the mortality rate is 1%. Korea has handled this better than any country with high infection rates and they're well over 1%. I think the death rate in the US should be over 2% even if hospitals don't get totally overwhelmed. Without adequate medical treatment, death rates should be well higher than 2%. I was only saying that we'll get to 100k dead in May if the lock-down is taken off at Easter like Trump announced last week. Even still, I think there's a good chance we get to 100k dead by the end of May even with an extended lock-down. I'll be sure to bump this in May if that happens. I think pretty much everyone in this thread fails to appreciate how virulent and deadly this virus is. Maybe we'll find an effective treatment; maybe the virus will mutate to something more benign; maybe I'm just wrong. But stating that 100k dead by the end of May "will not happen" could prove regrettable for you, and others in the market that share your certainty.

[HomerJ]

I haven't made a move yet with my investments, but I'm watching day-to-day wondering if/when to pull the trigger and which direction to fire. We're in our 70's and wife nearly blind. Hiding in the house. Zombies everywhere.

Why do you have to pull the trigger?

Once I'm in my 70s, I hope to never pull a trigger again (except for fun at the gun range).

You shouldn't need to make more money. You're already retired. You already determined a few years back that you had enough for the rest of your life. Why do you need to make moves?

[chicagoan23]

So I don't really see any hot takes here on predictions of inflation versus deflation in a scenario of protracted recession with several injections of stimulus. I guess I'll just keep the money in my settlement fund until I start redeploying into stocks in the next 2–18 months.

As for people saying I should buy inverse ETFs or puts, or short the market some other way, I'm not doing that because I'm of course not sure I'm right. And I would get wiped out if there were a cure or some other bullish development. Taking my stock exposure down from 90% to 20% is a form of shorting the market. I considered buying puts instead of selling the underlying, but it didn't make a whole lot of sense because of tax considerations (and now volatility is super high, so puts are very expensive). So the way I'm betting on this decline is by dramatically reducing my AA. And it seems stupid to buy an inverse ETF and have to pay short-term cap gains and high fees and suffer beta slippage when I'm long the underlying index. If I wanted that more exposure I would just sell more of the underlying index.

Your hypothetical is one of extreme pessimism. At a mortality rate of 1%, which is a fair estimate for the disease, your estimate of 100k dead would require 10M infections. At present, there are only 680k infections worldwide. There are ~120k confirmed cases in the US. Unabated, the virus doubles every 4 days. It would have to double 6-7 times to get to that total count. That's almost another full month of unabated exponential growth. That will not happen.

I don't think the mortality rate is 1%. Korea has handled this better than any country with high infection rates and they're well over 1%. I think the death rate in the US should be over 2% even if hospitals don't get totally overwhelmed. Without adequate medical treatment, death rates should be well higher than 2%. I was only saying that we'll get to 100k dead in May if the lock-down is taken off at Easter like Trump announced last week. Even still, I think there's a good chance we get to 100k dead by the end of May even with an extended lock-down. I'll be sure to bump this in May if that happens. I think pretty much everyone in this thread fails to appreciate how virulent and deadly this virus is. Maybe we'll find an effective treatment; maybe the virus will mutate to something more benign; maybe I'm just wrong. But stating that 100k dead by the end of May "will not happen" could prove regrettable for you, and others in the market that share your certainty.

Do you think this is the only time in history that we’ve seen 100,000 dead in three months due to an unexpected event? Maybe you’re young and are not a student of history.

No matter which bad things have happened, there is still a need for goods and services for the survivors. There will be output. Even if restaurants and concerts and airlines disappear for months or even years—there will still be output. Life will change drastically but there will be exchanges of goods and services, and by owning the producers of those goods and services you will share in the profits they generate.

And why do you think 1,800 is a magic number? That’s not that far off and we were there not that long ago....if this is a catastrophic event that is truly “different this time” then perhaps you should set your target lower? If it’s not different this time then you should be at your target allocation.

[Corsair]

One concern I have is since the Fed and Treasury have basically merged, and the President is basically now the new Fed Chairman they’ll start buying stocks and I’ll miss the lower buy-in...

I’m not certain well see 2200 or lower again now.

[SeeMoe]

I don’t plan on doing anything with our stash for a long time if my hunch is right that this depression will be a long, agonizing one with a lot of casualties along the way to recovery...Hope I’m wrong!
Moe...

[baritone]

I haven't made a move yet with my investments, but I'm watching day-to-day wondering if/when to pull the trigger and which direction to fire. We're in our 70's and wife nearly blind. Hiding in the house. Zombies everywhere.

Why do you have to pull the trigger?

Once I'm in my 70s, I hope to never pull a trigger again (except for fun at the gun range).

You shouldn't need to make more money. You're already retired. You already determined a few years back that you had enough for the rest of your life. Why do you need to make moves?

I don't really have to, thus I said "if/when". I'm just trying to preserve something for my progeny. And I should make sure I can always buy enough rounds when I go to the range. kidding. Anyway, I still offer to buy a beer for anyone who dares to bet me. I say things are going to get a LOT worse.

[DonIce]

So anyway, can someone opine on where best to position cash if I believe the above to be true?

If you truly and strongly believe that this is true, then the obvious choice is to act on your belief. Specifically, short the market with as much leverage as you can muster. Probably short sell SPX futures. If the S&P goes to 1800, that will give you the most profit.

If on the other hand you just have a hunch, best thing to do is to put your cash into the market at your desired AA while its still at somewhat of a discount compared to recent highs. That way you will reap the long term rewards when the market goes to new highs and the economy returns to normal.

[MoneyMarathon]

I plan to start buying equities again once I think the market is becoming rational (I'd estimate about SPX 2000), but until then, where do I park my cash?

Keep cash in something that bears interest at your brokerage, and keep selling puts on SPY at $200, until it fills or you get bored. How long out depends on whether you want to risk the market taking off without you. Maybe just the weekly expiring on Friday. That way you can reevaluate weekly. Think of it as a little like a limit order with a discount.

No, this is definitely not standard advice.

[RomeoMustDie]

We have a record drop in oil and travel-based stocks right now.

Bogle himself said 5% of the portfolio market timing is acceptable.

What is the best way to become rich from this?

[smectym]

Nobody knows nothin’. Stay the course.

You’re advocating that the poster remain out of the market.
Was that your intention?

Nobody knows nothin.

I love Mr. Bogle, and his anecdote where the "Nobody knows nothin" came from is a great little story...
.. but that phrase bugs the heck out of me...
"Nobody knows nothing" ... without context, could mean the set of people that "know nothing" contains nobody, therefore "everybody knows something".

The “nobody knows nothin” bit is part of the “Barking Dog Boglehead Toy” we see some of on the forum, where 3 word slogans seem to carry special potency. When any such slogan is used as a taunt, or an attempt to ridicule or shut down serious discussion, then that’s not great. But it can just be ignored

[watchnerd]

We have a record drop in oil and travel-based stocks right now.

Bogle himself said 5% of the portfolio market timing is acceptable.

What is the best way to become rich from this?

Be rich to start with.

5% isn't going to move the needle.

[RomeoMustDie]

We have a record drop in oil and travel-based stocks right now.

Bogle himself said 5% of the portfolio market timing is acceptable.

What is the best way to become rich from this?

Be rich to start with.

5% isn't going to move the needle.

Maybe not with the cruise industry soon to be penny stocks

[watchnerd]

We have a record drop in oil and travel-based stocks right now.

Bogle himself said 5% of the portfolio market timing is acceptable.

What is the best way to become rich from this?

Be rich to start with.

5% isn't going to move the needle.

Maybe not with the cruise industry soon to be penny stocks

So your plan is to hit the big time by buying up beaten down cruise stocks?

This sounds like a romantic comedy plot.

Captain Carnival

[scintillator]

If you truly and strongly believe that this is true, then the obvious choice is to act on your belief. Specifically, short the market with as much leverage as you can muster. Probably short sell SPX futures. If the S&P goes to 1800, that will give you the most profit.

If on the other hand you just have a hunch, best thing to do is to put your cash into the market at your desired AA while its still at somewhat of a discount compared to recent highs. That way you will reap the long term rewards when the market goes to new highs and the economy returns to normal.

So either short the market with as much leverage as possible, and go broke if I'm wrong or even if I'm just too early, or go 90% stocks as if nothing is abnormal. There's no strategy in between, I guess, like taking some risk off. Be reasonable. You should be careful posting this sort of simplistic advice that you took ten seconds thinking about, since at some point a poster may actually take it.

One concern I have is since the Fed and Treasury have basically merged, and the President is basically now the new Fed Chairman they’ll start buying stocks and I’ll miss the lower buy-in...

I’m not certain well see 2200 or lower again now.

This to me is the biggest risk of sitting on the sidelines. I feel pretty confident that the virus is much more deadly and contagious than the market is pricing in, and that the impact to unemployment, consumer spending, and supply chains is underappreciated. But I'm not at all confident that the Fed/Treasury/Trump triumvirate won't just run up a 10 trillion dollar deficit to buoy stocks to whatever price they deem necessary for re-election. And I don't know enough about macro economics to predict what will happen in that scenario.

[smectym]

If you truly and strongly believe that this is true, then the obvious choice is to act on your belief. Specifically, short the market with as much leverage as you can muster. Probably short sell SPX futures. If the S&P goes to 1800, that will give you the most profit.

If on the other hand you just have a hunch, best thing to do is to put your cash into the market at your desired AA while its still at somewhat of a discount compared to recent highs. That way you will reap the long term rewards when the market goes to new highs and the economy returns to normal.

So either short the market with as much leverage as possible, and go broke if I'm wrong or even if I'm just too early, or go 90% stocks as if nothing is abnormal. There's no strategy in between, I guess, like taking some risk off. Be reasonable. You should be careful posting this sort of simplistic advice that you took ten seconds thinking about, since at some point a poster may actually take it.

One concern I have is since the Fed and Treasury have basically merged, and the President is basically now the new Fed Chairman they’ll start buying stocks and I’ll miss the lower buy-in...

I’m not certain well see 2200 or lower again now.

This to me is the biggest risk of sitting on the sidelines. I feel pretty confident that the virus is much more deadly and contagious than the market is pricing in, and that the impact to unemployment, consumer spending, and supply chains is underappreciated. But I'm not at all confident that the Fed/Treasury/Trump triumvirate won't just run up a 10 trillion dollar deficit to buoy stocks to whatever price they deem necessary for re-election. And I don't know enough about macro economics to predict what will happen in that scenario.

I too have a lot of cash on the sidelines. I am just following this thread eager for some “actionable” bright ideas from you guys, and no doubt there will be some nuggets

[smectym]

We have a record drop in oil and travel-based stocks right now.

Bogle himself said 5% of the portfolio market timing is acceptable.

What is the best way to become rich from this?

An excellent question. XOM was at 80 something, now at 36 with maybe a 10% dividend...Exxon is loath to cut the div; however, perhaps they must? But it’s “jump ball” at this point.

[madbrain]

If I knew the S&P was going to 1800 I’d short it with 3X ETFs.

Those 3X inverse ETFs give you daily returns, not over a long period of time. They are meant to be held for a single day or less.
If you want to short without a margin account, you can buy put long dated options and hold on to them. But the premium is high, so you may not win. Nevertheless, I am doing a tiny bit of this.

[james22]

We have a record drop in oil and travel-based stocks right now.

Bogle himself said 5% of the portfolio market timing is acceptable.

What is the best way to become rich from this?

Be rich to start with.

5% isn't going to move the needle.

It was 15% TAA and 5% Funny Money.

20% will move the needle.

[DonIce]

So either short the market with as much leverage as possible, and go broke if I'm wrong or even if I'm just too early, or go 90% stocks as if nothing is abnormal. There's no strategy in between, I guess, like taking some risk off.

I don't think there is a reasonable strategy in between, no.

Either you know something about the future better than the rest of the world does, in which case you should make as big a bet as possible. People who had unique insights into the problems in the mortgage derivatives markets and were willing to make big bets based on that leading up to the 2008 crash made out like bandits.

Or, you don't have any unique insights, and should stick with your AA and be in the market. Your AA doesn't have to be 90/10. If you think that's too risky for you now, when the market is 25% off its highs, then it's always too risky for you. A market crash can happen at any time.

[megabad]

Seems like a simple question with a simple answer. You need a short term place to park money—stick it in a bank account or really big money market fund.

If you actually were worried about inflation and deflation over the long run (you aren’t if you are only planning out 12-18 months) then you would look at long term treasuries, TIPs and I bonds. None of these things are really relevant if you plan on the market getting back to normal in 12 months.

[HomerJ]

Just put the money into the market every month, buy and hold for the long-term and get rich slowly.

Quit thinking you can get rich quick.

"After years of disappointment with get rich quick schemes, I know I'm gonna get rich with this scheme. And quick"
-Homer J. Simpson

[ValuationsMatter]

Your hypothetical is one of extreme pessimism. At a mortality rate of 1%, which is a fair estimate for the disease, your estimate of 100k dead would require 10M infections. At present, there are only 680k infections worldwide. There are ~120k confirmed cases in the US. Unabated, the virus doubles every 4 days. It would have to double 6-7 times to get to that total count. That's almost another full month of unabated exponential growth. That will not happen.

I don't think the mortality rate is 1%. Korea has handled this better than any country with high infection rates and they're well over 1%. I think the death rate in the US should be over 2% even if hospitals don't get totally overwhelmed. Without adequate medical treatment, death rates should be well higher than 2%. I was only saying that we'll get to 100k dead in May if the lock-down is taken off at Easter like Trump announced last week. Even still, I think there's a good chance we get to 100k dead by the end of May even with an extended lock-down. I'll be sure to bump this in May if that happens. I think pretty much everyone in this thread fails to appreciate how virulent and deadly this virus is. Maybe we'll find an effective treatment; maybe the virus will mutate to something more benign; maybe I'm just wrong. But stating that 100k dead by the end of May "will not happen" could prove regrettable for you, and others in the market that share your certainty.

I'd love to respond to this, but I already did expound in this thread and was banned for a day over it. Obviously, they left my first message, your original post, and your opinion on it. So, I'm totally unclear on what our masters here will and won't let us say, even after re-rereading the rules they posted, and I think I'll just stick to talking around, instead of directly about, the underlying subject that has caused the disruption in our economies, politics, societies, and, of course, the markets worldwide.

[firebirdparts]

I think a situation like this calls for guesswork, and plenty of it. It's either that or some kind of market timing model. What other choices could there possibly be?

You sure can't go by the sort of stuff that people get banned for. That'd be nuts. If you don't believe me, arrange to read "The Economist" magazine, but read every issue six months late. It's good for laughs, but more important is to understand just what these people believe they can predict in the face of such overwhelming failure.

[chicagoan23]

My target allocation is probably like 90:10 in a sane world, but with this virus I'm about 20:10, with the other 70 in cash. I plan to start buying equities again once I think the market is becoming rational (I'd estimate about SPX 2000), but until then, where do I park my cash? Are bonds worth the risk? TIPS? Just keep it in cash for possibly months and risk an inflation scenario?

Thanks for any insight.

Here is the dilemma. Your analysis has locked you into waiting to see the S&P at 2,000 before you START going to your rational/sane allocation. But that requires a roughly 25% drop from today's closing price. Those typically only happen once a decade or so. Of course we just had such a drop, and we may still be in it. But we may not be, and if the market continues to move higher, then that target gets further and further away every day.

Just about every human in the world--including those with exponentially more money than you and those with exponentially more knowledge of the virus than you--is aware of the virus and the risks of further bad news. Everyone is also aware of what the Fed and Congress are doing now. What no one knows is how the stock market is going to react in the short-term (it's a good guess that in the long-term it will be higher than it is today).

You know that if you stay out of the market indefinitely, inflation will continue to eat away at your cash holdings. There's no escaping that. It is a certainty, even if there are short-term deflationary pressures. In order to build any type of wealth, you can't just stuff cash under the mattress. You either have to be a long-term investor or you have to have very high income and low expenses, for a long period of time.

Maybe you made a good call and sold everything in mid-February. Maybe you sold in early March and avoided the worst of the losses. Maybe you looked at the data on the virus and sold one week ago at the (recent) bottom. Regardless, you know you have to get back in, eventually.

But what happens if we never see 2,000? Do you change course and promise yourself that you will buy if we see a 10% decline from here (around 2,400)? Do you buy if it goes up another 10% from here (around 2,900)? Do you buy if we get back to all-time highs? When?!?!?

It's a question that keeps many people up at night, and it is unanswerable. That's why the advice here is to avoid the question entirely. Take the lumps of terrible markets, because at the end of the day you will win. That's been proven true time and time again.

Good luck to you in making your decision.

[JackoC]

Why can't people just answer your actual question?

OK, I'll bite. Let's look at the OP's actual question:

So anyway, can someone opine on where best to position cash if I believe the above to be true?

Answer: Money market. At Vanguard, the Federal and Treasury money markets are OK (Treasury has $50K minimum deposit).

If you don't mind high-quality corporates, Prime money market and/or Ultra-Short-Term bond may be good. Prime holds things I don't understand ("repos", "yankee bonds", etc.)... as they say, don't invest in anything you don't understand... up to you. Ultra-Short-Term holds a lot of AAA bonds, and I'm fairly comfortable with those.

An FDIC insured online savings account would be similarly safe as VMFXX or even VUSXX. And the yields on the best of those will probably hold above 1% (1.75% easy to get right now). Whereas VMFXX/VUSXX are only yielding anything on a backward looking basis, VUSXX in particular will soon yield about what T-bills yield, since it's 87% T-bills: nothing. It was the same in the several years after 2008-9. The really safe money funds yielded practically nothing, whereas the top few (not national avg) savings accounts were over 1%. In the last few years as Fed raised short rates significantly above zero, VMFXX/VUSXX tended to beat all but the very best bank account deals.

Again for all the debate some people want to have about it, I don't believe there's any unambiguous safety difference between VUSXX and an FDIC/NCUA insured bank account. VMFXX is arguably very slightly more risky than either of those, the biggest category being 'govt obligations' which means the short term debt of govt sponsored but generally non-gteed entities like the Federal Home Loan Banks and Fannie/Freddie. That category and repo's (essentially short term loans to non-govt entities collateralized by govt bonds) are the majority of VMFXX. But is the federal govt now in a mode/mood to pull the rug from under the non-gteed sponsored entities? Seems far fetched to me, almost as much as Congress reneging on the 'full faith and credit' commitment to the FDIC...or not paying off T-bills. Those are all basically still no credit risk IMO.

'Yankee/foreign' in VMMXX is short term USD debt of the US branches of foreign banks ('Yankee') or their parents ('foreign'). It's minor credit risk but I think can be distinguished from VMFXX/VUSXX/bank accounts.

I think savings accounts are preferred that is assuming the normal FDIC/NCUA insurance limit of $250k doesn't cramp the investor's style by forcing them to get loads of different bank accounts. If you have millions to park, the convenience of one MMF account might outweigh the lower yield.

I don't believe the stock market is predictable, but OP did ask to not question that premise.

[FoolMeOnce]

Isn't the answer obvious? If you believe we're headed for SPX 1800, wait until we get there and then buy.

Not that it is a smart decision. But if that is your belief, why are you even asking what to do?

[potatopancake]

CONFIRMED case fatality rate to-date. There are so many flaws in that statistic I don't know where to start. That's Total deaths/Total confirmed cases.

The correct way to calculate is total deaths/total completed cases (including all confirmed and unconfirmed real cases). That's nearly impossible to get at right now, because we don't know what proportion of cases go undetected.

Correct, and thank you for pointing that out.

I do want to emphasize that all of our modelling is based off of the numbers available. The seasonal flu has a stated CFR of 0.1%, with COVID-19 stated CFR around 2%. Certainly, there are unreported cases and asymptomatic cases of both the seasonal flu strains and coronavirus. In no way do these two viruses comparable in terms of morbidity and mortality.

[JackoC]

CONFIRMED case fatality rate to-date. There are so many flaws in that statistic I don't know where to start. That's Total deaths/Total confirmed cases.

The correct way to calculate is total deaths/total completed cases (including all confirmed and unconfirmed real cases). That's nearly impossible to get at right now, because we don't know what proportion of cases go undetected.

Correct, and thank you for pointing that out.

I do want to emphasize that all of our modelling is based off of the numbers available. The seasonal flu has a stated CFR of 0.1%, with COVID-19 stated CFR around 2%. Certainly, there are unreported cases and asymptomatic cases of both the seasonal flu strains and coronavirus. In no way do these two viruses comparable in terms of morbidity and mortality.

That's actually not 100% clear. An Op-ed piece by two Stanford medical school professors (not two random guys on the internet) in the WSJ several days ago posited that the ultimate coronavirus death rate could actually still be in the same range as annual flu. The number of undetected cases *could* be that big.

Not speaking to you directly, I think a lot of people take the approach 'let's take the relatively most widely believed or quoted info we have and assume it's fact for working purposes; I mean what else can we do?' But sometimes you just don't know even within a very wide range. Decision making then becomes very difficult, but you can't force relative certainty where in fact there's almost none. There is an albeit apparently minority view *among highly qualified observers* that many millions of people have (and/or have been exposed and developed antibodies to) this rather than the official case count of several 100k, making the death % to exposure perhaps not that far above a bad seasonal flu. Or, the more conventional wisdom could be true, actual cases are only somewhat (up to a few times, say) more numerous than the officially confirmed ones, and your statement will prove correct.

Also in the same way we have to assess actual impact of deaths to various causes (as uncomfortable at it is, and as rare as it is for public officials to openly discuss that, but such impacts are weighed all the time to make policy), if the accounts from Italy saying 2/3's of deaths *with* COVID were people with a preexisting condition making their life expectancy less than a year, that is ultimately highly significant too.

If it seems I'm actively arguing the counter to your point as 'the fact', I'm really not. I just believe it's more highly uncertain than you may believe.

[ValuationsMatter]

Spot on, Jacko. And, potato, you're probably right, too. I'd consider myself in your camp on the comparison to the normal flu, but I remain open-minded/beholden to the data.

[cableguy]

Have cash to pay your bills for next 24 months.
Stocks for long term still applies.
Rates will stay low forever (any of our lifetimes). BND, BIV, Money Market, CD's won't do much.
Maybe a bet on oil because its at historic lows and will most likely double in next 12 months.

[tibbitts]

I would re-evaluate my ability to predict the future.

[sjwoo]

That's actually not 100% clear. An Op-ed piece by two Stanford medical school professors (not two random guys on the internet) in the WSJ several days ago posited that the ultimate coronavirus death rate could actually still be in the same range as annual flu. The number of undetected cases *could* be that big.

Not speaking to you directly, I think a lot of people take the approach 'let's take the relatively most widely believed or quoted info we have and assume it's fact for working purposes; I mean what else can we do?' But sometimes you just don't know even within a very wide range. Decision making then becomes very difficult, but you can't force relative certainty where in fact there's almost none. There is an albeit apparently minority view *among highly qualified observers* that many millions of people have (and/or have been exposed and developed antibodies to) this rather than the official case count of several 100k, making the death % to exposure perhaps not that far above a bad seasonal flu. Or, the more conventional wisdom could be true, actual cases are only somewhat (up to a few times, say) more numerous than the officially confirmed ones, and your statement will prove correct.

Also in the same way we have to assess actual impact of deaths to various causes (as uncomfortable at it is, and as rare as it is for public officials to openly discuss that, but such impacts are weighed all the time to make policy), if the accounts from Italy saying 2/3's of deaths *with* COVID were people with a preexisting condition making their life expectancy less than a year, that is ultimately highly significant too.

If it seems I'm actively arguing the counter to your point as 'the fact', I'm really not. I just believe it's more highly uncertain than you may believe.

I agree with you -- a healthy dose of uncertainty is never a bad thing. I haven't read the WSJ article (and it's behind a paywall) -- but if the authors are saying the US COVID-19 death numbers ends up same as the annual flu death (between 24,000–62,000, which is actually one heck of a range), wouldn't that mean social distancing and hand washing did its work to reduce it?

Of course, the problem with any and all of this is that this is no science experiment -- there's no control group. We'll never know how things would've turned out if we didn't take any of our current measures.

Nothing makes sense right now -- we get almost 7 million unemployed and the market goes up. "Stay the course" has become a mantra just to keep myself sane.

[hoops777]

I think the worst is probably already behind us. I don’t see why market would see see 2200 again. If new cases of virus slow down, deaths will start to slow, things will open back up with mass rehires. Only thing we have to worry about is a massive 2nd wave in the early summer, but humidity will probably help prevent or limit that.
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[coupleofcents]

My first advice would be not to make any drastic changes or sells to your portfolio but since you have already:

Set a schedule like once a month, or even like SPX targets like 2500, 2250, 2000, 1800 etc and buy back in. Time is on your side. You are not going to time it perfectly.

Read https://awealthofcommonsense.com/2020/0 ... ket-crash/ and especially https://awealthofcommonsense.com/2020/0 ... ket-crash/.

I had 50K for a future rental investment that I decided to put to use in the market instead of leaving it in a savings account.I bought 45K worth so far at 20% down from high, 28%, 30%, and 35% down. I have one more 5K limit at 40% down from market highs. But this wasn't my retirement portfolio and was excess cash I had planned for a different use.

You're going to end up regretting it if the market never hits SPX 1800 and then you have to buy back at some point higher. Come up with a plan and stock to it. And please use your allocation. 90/10 sounds too high given your actions.

[hoops777]

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[Lee_WSP]

]

So either short the market with as much leverage as possible, and go broke if I'm wrong or even if I'm just too early, or go 90% stocks as if nothing is abnormal. There's no strategy in between, I guess, like taking some risk off. Be reasonable. You

The in between strategy is to DCA it in.

It gets a lot of flak, but only because it loses 2/3 of the time. This could be the 1/3 it wins. Either way, it's not a huge cost to DCA.

You could invest it all at 10/90 then add 5% to equities each month until you get to your desired AA.

[JackoC]

That's actually not 100% clear. An Op-ed piece by two Stanford medical school professors (not two random guys on the internet) in the WSJ several days ago posited that the ultimate coronavirus death rate could actually still be in the same range as annual flu. The number of undetected cases *could* be that big.

I agree with you -- a healthy dose of uncertainty is never a bad thing. I haven't read the WSJ article (and it's behind a paywall) -- but if the authors are saying the US COVID-19 death numbers ends up same as the annual flu death (between 24,000–62,000, which is actually one heck of a range), wouldn't that mean social distancing and hand washing did its work to reduce it?

Of course. I've seen some voices seeming to give the possibility of death rate or number being possibly (relatively) low to argue that the countermeasures taken are 'an overreaction'. But of course the countermeasures are an important part of the picture of where things might be headed. But I think we know that less well than some people think, with again a tendency to 'anchor' themselves to a consensus view when even the (reasonable expert) people holding that view present it as best guess, or sometimes worst case (sometimes very clearly labelled as such but that label is still ignored by many hearing it). I recall debates a few weeks back on another forum with some people insisting 1mil deaths in UK and 2 mil in US being taken as a given for a debate about trade offs of whether to allow that to happen quickly or slowly: but the number itself could not be challenged, it came from a model at a prestigious organization in the UK. But the source of that estimate has since said the death toll could be a few % of that in the UK (and presumably US). Which doesn't mean the first number was 'wrong' if interpreted as what it was, a possibility under certain assumptions, very uncertain assumptions the modelers never said were cast in stone. But a lot of ordinary people simply do not think probabilistically. They want to know 'OK, OK, but what is it really? if experts 'disagree' I'll have to decide which one of them is 'right''.

[empiricist]

I am just some random guy on the internet, and am only saying the following to give context to what I will say next, not to try and brag - none of you know me, so what would be the point of that?

I have been following the virus since early January. I warned my friends and family to expect a pandemic and to start preparing in late January when everyone else either didn't even know about the virus yet, or was still claiming "it's no worse than the flu". I bought PPE January 24th before it was all sold out because I was expecting it would sell out quickly as the virus spread. I sold out of some of my equities in mid February before the market started to drop when it was obvious to me there was going to be a pandemic and yet the market was humming along like normal. (Only some, because of the nagging Boglehead in the back of my head screaming "don't try to time the market!") I'm no genius or fortune teller - I think I was just willing to accept the evidence pointed towards things getting really bad when everyone else was trying to reassure themselves by downplaying the threat. If you aren't familiar with normalcy bias, read the Wikipedia article and ask yourself if you exhibited normalcy bias at all during this crisis.

This is my first time in years of investing to have actively changed my portfolio in response to what is happening in the world. (Well hey, the reason I'm here is that I'm a Boglehead, so I shouldn't be trying to time the market!) My point though, is that this was so obvious to me that I had to act, and I am glad that I did.

Why didn't people take the threat seriously sooner? I believe it was largely due to normalcy bias, and people afraid of what the evidence pointed towards, so they convince themselves that everything will be okay. I believe that process is happening again, but now not with COVID specifically (though it is happening there too), but with the economic fallout that will happen as a result of the shutdown. I'm expecting an event on the magnitude of the Great Depression - or worse.

Scintillator, what I plan to do to capitalize on this opportunity is to buy long dated deep OTM puts with a relatively small portion of my portfolio. My hope is that the puts will be long enough to get me past the "market staying irrational longer than I can stay solvent" period. The rest I'm keeping on course, in case I turn out to be wrong. (Or in case I'm not wrong, but the actions of the Fed actually lead to hyperinflation, in which case I would rather hold stocks than bonds/cash.) I'm currently 58% stock, 23% bonds, and the rest cash - some of which is going towards buying the puts. Before this I was 90/10. The only reason I haven't already bought the puts is that I'm waiting for Vanguard to approve option trading on my account! (I never had it before, because I don't normally believe in anything other than indexing!)

I recognize many people will read my comment and find it ridiculous - that's fine. Let's check in in 18 months!

Edit: Regarding the PPE, I didn't hoard it, I just bought what I thought would get me through a pandemic. And at the time I had assumed that hospitals would actually be able to source it for their employees, and it was just the general public who might not have access. I've since donated everything but a few masks which I will sanitize and reuse since we're better off with it in the hands of healthcare providers.

[hoops777]

I am just some random guy on the internet, and am only saying the following to give context to what I will say next, not to try and brag - none of you know me, so what would be the point of that?

I have been following the virus since early January. I warned my friends and family to expect a pandemic and to start preparing in late January when everyone else either didn't even know about the virus yet, or was still claiming "it's no worse than the flu". I bought PPE January 24th before it was all sold out because I was expecting it would sell out quickly as the virus spread. I sold out of some of my equities in mid February before the market started to drop when it was obvious to me there was going to be a pandemic and yet the market was humming along like normal. (Only some, because of the nagging Boglehead in the back of my head screaming "don't try to time the market!") I'm no genius or fortune teller - I think I was just willing to accept the evidence pointed towards things getting really bad when everyone else was trying to reassure themselves by downplaying the threat. If you aren't familiar with normalcy bias, read the Wikipedia article and ask yourself if you exhibited normalcy bias at all during this crises.

This is my first time in years of investing to have actively changed my portfolio in response to what is happening in the world. (Well hey, the reason I'm here is that I'm a Boglehead, so I shouldn't be trying to time the market!) My point though, is that this was so obvious to me that I had to act, and I am glad that I did.

Why didn't people take the threat seriously sooner? I believe it was largely due to normalcy bias, and people afraid of what the evidence pointed towards, so they convince themselves that everything will be okay. I believe that process is happening again, but now not with COVID specifically (though it is happening there too), but with the economic fallout that will happen as a result of the shutdown. I'm expecting an event on the magnitude of the Great Depression - or worse.

Scintillator, what I plan to do to capitalize on this opportunity is to buy long dated deep OTM puts with a relatively small portion of my portfolio. My hope is that the puts will be long enough to get me past the "market staying irrational longer than I can stay solvent" period. The rest I'm keeping on course, in case I turn out to be wrong. (Or in case I'm not wrong, but the actions of the Fed actually lead to hyperinflation, in which case I would rather hold stocks than bonds/cash.) I'm currently 58% stock, 23% bonds, and the rest cash - some of which is going towards buying the puts. Before this I was 90/10. The only reason I hadn't already bought the puts is that I'm waiting for Vanguard to approve option trading on my account! (I never had it before, because I don't normally believe in anything other than indexing!)

I recognize many people will read my comment and find it ridiculous - that's fine. Let's check in in 18 months!

I do not know about the puts and all but I respect your honesty and I believe you did what you said. Others have posted similar thoughts and of course been roasted for market timing. Please people do not go there on this thread. Thanks.

[CT-Scott]

I'm late to this thread, but hold similar opinions as the OP. On 2/27 we moved all of our retirement funds in our 401k accounts to the one Stable Value fund that was there. In our Roth IRA accounts (and some older/smaller side-business 401k accounts) we moved to a Money Market fund. After seeing the actions of the Fed and the Stimulus bills, I'm less confident about where things are headed, but still feel confident that I don't want to be in stocks for a while.

One suggestion not mentioned yet would be to read up on Harry Browne's Permanent Porfolio approach. In my case, I've since decided that maybe I am a market timer (on rare occasions, like this one), so I still don't want any of my money in stocks yet, but I am considering reallocating some to gold (more specifically, a gold stock inside of one of my 401k accounts where I'm able to buy any stock I want). I may also reallocate some to Treasuries, but I'm less confident about the pros/cons of that compared to our Stable Value funds.

Several people have suggested buying puts or shorting the market, and they typically suggest it sarcastically, but back when I made my move, I would have absolutely done that with *some* of the cash I had available outside of my 401k accounts. But I've never read up on that, so I was (and still am) completely ignorant about how that all works. Today, even though I'm less confident than I was before about what tomorrow brings, I would be willing to gamble $10K on something like that. Is that enough money to even see a big gain if I'm correct? If so, can someone link to a "Dummies guide to betting that stocks are going to fall further"? Or PM me.

[empiricist]

Today, even though I'm less confident than I was before about what tomorrow brings, I would be willing to gamble $10K on something like that. Is that enough money to even see a big gain if I'm correct?

Now that volatility is so high, options are more expensive, and the market would need to move further for you to make money. The amount you could make depends on just how much the market drops.

If you're going to do this, I would suggest buying puts rather than shorting, as the maximum you can lose is limited to your initial investment.

You want to Google and read about "options". Unfortunately I don't have a good reference to send to you, I've been learning about them myself the last few weeks. (And wishing that I had known more about them weeks ago when I was sure the sky was going to fall and the market was still rising... but that's what I get for not thinking it was worth learning about them, because why should a passive investor learn about options? )

[aiyuanuc]

Since not many have answered your actual question, I will.

If you believe SP500 is headed toward 1800, I mean, if you really believe that with all the arguments you have made, you should short the market. Probably SPXU with 3x effects. This can make you a fortune if you turn out to be right.

Go for it and don't let yourself regret when the market does crash.