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

[JackoC]

I would go back and look at your financial plan. What does your plan say to do whenever you believe you can predict the future?

Who cares what happens in the next hour, day, week, month, or year? They could announce a cure tomorrow and the SPX could shoot right back up to over 3,000 very quickly. I would advise that you stick to your financial plan.

Or they could not announce a cure and it could shoot up to 3,000 anyway.

Good one, always fun picking over past even semi-predictions. Note: I could also easily have said something like that in late March. I would also have thought a stock comeback as big as we've had since then would depend on better news on the medical front than has been the case. But I would credit myself with admitting I had no idea where the stock market would be by early June, and no reason to think I had any special insight into whether 'the market is too optimistic given the grim reality' which a small legion of (now less vocal) posters were saying back then. Realizing our ignorance about the future and general lack of ability to see it any better than the market does, which isn't to say the market somehow sees it clearly either, is the key.

Of course the market still could be 'too optimistic'. And besides the future twists and turns of COVID v the economy, some new serious crisis could emerge that's only indirectly related, or even not related, but piled on top of the challenges of COVID. As always. I'm not a big one for drawing strong lessons from 'history' (when that really means a statistically insignificant number of non-overlapping 20-30 yr periods in just one country, as in 'the Great Depression is the worst that could ever happen, which it's not). But I think a broader consensus can form around the obvious fact that we don't know, and if your financial survival actually depends on evaluating current events and guessing future ones, wrt to asset vales, better than the market does, you're probably toast.

[Robot Monster]

I just skimmed many of the answers and I didn't see any from the person who poised the question on what they decided to do. Maybe he/she hasn't decided yet in which case a great buying opportunity was missed.

I should talk. I am sitting on about 2 million more in cash than I would like. Not because I market timed ( well, maybe a little ) but because I sold out of individual stock positions with the intention of adding to my portfolio of index funds. Only I didn't.

It's devilish hard to pull the trigger when the market keeps going up and up and you are on the side. I hope the questioner has had a better experience than I have.

With $2M in cash, there's really no need to invest in stocks anymore. You could comfortably stick it in a TIPS ladder and be happy. Alternatively, you could also go 100% stocks on the assumption that a 50% crash still leaves you a millionaire. Possessing that level of assets buys you an awful lot of freedom to manage your money however you wish and still be fine no matter what happens.

For everyone else, risk is something you have to live with, and it turns out that a great many people really didn't know what their true risk tolerance was. It's why on the rare occasions someone asks me what their AA should be, I typically recommend 60/40 even though I personally plan to remain at 90/10 for some time yet. I know through experience that I can tolerate such risks, but most people can't.

$2m is a $60-80k/ yr withdrawal rate. That may be more than enough..... or may be nowhere near the individual's goal.

We have no idea the individual's circumstance..... that would be nowhere near my end goal to where I'd stuff it in negative yielding TIPS

Curious...how did you calculate "$2m is a $60-80k/ yr withdrawal rate" without knowing the person's age? Without taking into account inflation and assuming no yield, isn't a $60k withdrawal rate for $2 mil good for 33 years (cuz 2mil/60k=33.33)? If we're allowing the person to live to 100, then the person is 67? (Of course, we're not taking into account the negative yields on TIPS, nor taxes).

[ValuationsMatter]

Curious...how did you calculate "$2m is a $60-80k/ yr withdrawal rate" without knowing the person's age? Without taking into account inflation and assuming no yield, isn't a $60k withdrawal rate for $2 mil good for 33 years (cuz 2mil/60k=33.33)? If we're allowing the person to live to 100, then the person is 67? (Of course, we're not taking into account the negative yields on TIPS, nor taxes).

Because 3-4% is a very sensible starting withdrawal rate backed up by mounds of research & accepted in common knowledge.

[rascott]

I just skimmed many of the answers and I didn't see any from the person who poised the question on what they decided to do. Maybe he/she hasn't decided yet in which case a great buying opportunity was missed.

I should talk. I am sitting on about 2 million more in cash than I would like. Not because I market timed ( well, maybe a little ) but because I sold out of individual stock positions with the intention of adding to my portfolio of index funds. Only I didn't.

It's devilish hard to pull the trigger when the market keeps going up and up and you are on the side. I hope the questioner has had a better experience than I have.

With $2M in cash, there's really no need to invest in stocks anymore. You could comfortably stick it in a TIPS ladder and be happy. Alternatively, you could also go 100% stocks on the assumption that a 50% crash still leaves you a millionaire. Possessing that level of assets buys you an awful lot of freedom to manage your money however you wish and still be fine no matter what happens.

For everyone else, risk is something you have to live with, and it turns out that a great many people really didn't know what their true risk tolerance was. It's why on the rare occasions someone asks me what their AA should be, I typically recommend 60/40 even though I personally plan to remain at 90/10 for some time yet. I know through experience that I can tolerate such risks, but most people can't.

$2m is a $60-80k/ yr withdrawal rate. That may be more than enough..... or may be nowhere near the individual's goal.

We have no idea the individual's circumstance..... that would be nowhere near my end goal to where I'd stuff it in negative yielding TIPS

Curious...how did you calculate "$2m is a $60-80k/ yr withdrawal rate" without knowing the person's age? Without taking into account inflation and assuming no yield, isn't a $60k withdrawal rate for $2 mil good for 33 years (cuz 2mil/60k=33.33)? If we're allowing the person to live to 100, then the person is 67? (Of course, we're not taking into account the negative yields on TIPS, nor taxes).

Yeah... that would be the rate on a balanced portfolio.... certainly not an all TIPS portfolio.

[Independent George]

I just skimmed many of the answers and I didn't see any from the person who poised the question on what they decided to do. Maybe he/she hasn't decided yet in which case a great buying opportunity was missed.

I should talk. I am sitting on about 2 million more in cash than I would like. Not because I market timed ( well, maybe a little ) but because I sold out of individual stock positions with the intention of adding to my portfolio of index funds. Only I didn't.

It's devilish hard to pull the trigger when the market keeps going up and up and you are on the side. I hope the questioner has had a better experience than I have.

With $2M in cash, there's really no need to invest in stocks anymore. You could comfortably stick it in a TIPS ladder and be happy. Alternatively, you could also go 100% stocks on the assumption that a 50% crash still leaves you a millionaire. Possessing that level of assets buys you an awful lot of freedom to manage your money however you wish and still be fine no matter what happens.

For everyone else, risk is something you have to live with, and it turns out that a great many people really didn't know what their true risk tolerance was. It's why on the rare occasions someone asks me what their AA should be, I typically recommend 60/40 even though I personally plan to remain at 90/10 for some time yet. I know through experience that I can tolerate such risks, but most people can't.

$2m is a $60-80k/ yr withdrawal rate. That may be more than enough..... or may be nowhere near the individual's goal.

We have no idea the individual's circumstance..... that would be nowhere near my end goal to where I'd stuff it in negative yielding TIPS

Curious...how did you calculate "$2m is a $60-80k/ yr withdrawal rate" without knowing the person's age? Without taking into account inflation and assuming no yield, isn't a $60k withdrawal rate for $2 mil good for 33 years (cuz 2mil/60k=33.33)? If we're allowing the person to live to 100, then the person is 67? (Of course, we're not taking into account the negative yields on TIPS, nor taxes).

Yeah... that would be the rate on a balanced portfolio.... certainly not an all TIPS portfolio.

But it's also operating on the assumption that you're living entirely on the $2M with no other income for the rest of your life, which seems unlikely. No, a 30 year-old with 2M in TIPS couldn't live off of it in perpetuity - but they could easily hold it in reserve until retirement while not saving another dime over the next 40 years.

Obviously, that is not something I would recommend (nor is it likely for someone who accumulated $2M in the first place) - but it is feasible because you'd already have $2M in assets. That's my point - we can debate the merits of tweaking savings and consumption in an infinite number of ways, but once you reach a certain critical mass, it's all kind of moot. It's enough money that you'll be fine whether you go super-conservative or super-aggressive (without leverage); everything in between is just about preferences. Precisely where that critical mass is will differ for everyone, but I feel pretty comfortable saying that $2M should be sufficient.

[empiricist]

But I would credit myself with admitting I had no idea where the stock market would be by early June, and no reason to think I had any special insight into whether 'the market is too optimistic given the grim reality' which a small legion of (now less vocal) posters were saying back then.

I just noticed I missed out on new posts in this thread, and wanted to check in to keep up with the theme of "checking up on how people's predictions and actions went". I strongly still believe "the market is too optimistic given the grim reality"; being clear that the grim reality that I believe in is not the COVID deaths directly (though that is certainly grim also), but the ramifications that are still working their way through the economy and financial system.

I am indeed grateful that I largely kept my allocation intact, only buying puts with a relatively small portion of my assets. I think the market is completely divorced from fundamentals; unfortunately of the several hypotheses I have for why this is, I'm not confident any particular one is correct. I absolutely still believe we are in for serious economic issues, though I'm certainly less confident that the stock market will reflect that. If anything, that gives me more concern. Fortunately my reputation has survived intact; despite changing my own allocation and buying some puts, when friends and family came to me for advice, my strong recommendation was "stay the course" and "don't try to time the market". Perhaps this is my lesson in humility and not thinking I can outsmart the market. On the other hand, I still have a few more months until my puts expire...

Just for future reflection, some of my hypotheses on this market rally, not ordered by likelihood (trying to create an extensive list, I won't necessarily defend any of these if challenged):

• The market thinks that interest rates will never normalize (and if anything, go negative), and so as a result more money is flowing into equities
• Money pouring into equities due to fears of (hyper)inflation
• Fears of the long term solvency of multiple major governments (and a disbelief in the ability of their central banks to absorb all the debt), leading to preferential owning of equities over cash or bonds issued by those governments
• Capitalism is dead, the Fed will prop up any too large to fail business, moral hazard -> infinity, market valuations have no more real meaning, welcome to corporate socialism
• brrr
• A surge in retail investors
• The current events will lead to more consolidation of large businesses control of the market as small ones go out of business -> more profit for corporations
• The market is forward looking, and we're going to have a sudden and complete recovery from ~20% total unemployment without any long term economic ramifications and I'm completely wrong about everything.

[ValuationsMatter]

Yep, same boat, here.

[climber2020]

I bookmarked this thread sometime around April. Wanted to check in and see how this endeavor is going and what actions took place over the course of the last several months.

[Triple digit golfer]

The first reply in this thread was all that was needed.

The S&P 500 is up 49.6% since this post.

[rockstar]

These are interesting to watch.

[HomerJ]

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.

Where's my beer!?

[nigel_ht]

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.

Where's my beer!?

Did you actually bet?

[HomerJ]

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.

Where's my beer!?

Did you actually bet?

Shhh... Maybe he'll think I did....

[dogagility]

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.

Where's my beer!?

Did you actually bet?

Shhh... Maybe he'll think I did....

Ymmm... beer...