Risk of being out of the market

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Stef
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Risk of being out of the market

Post by Stef »

I currently have to move some investments from from account to account without the option to just transfer the ETFs (no need to go into details why). Now I‘m again concerned about a possible loss due to being out of the market for x days. I already had similiar instances where I moved funds and had to be out of the market for up to one week. There are probably a couple of scenarios where you encounter this situation.

I know that the expected weekly return is somewhere around 0.15%. But real world markets aren‘t linear and there are many weeks where markets go up/down by 2-5%. So lets assume there is a scenario for being out of the market for saving 0.2%/year in fees. If you are unlucky, you‘ll end up not saving anything at all for 20 years. It won‘t even out as those instances of being out of the market for a couple of days are very rare. It‘s even worse if we are talking about 2-4 weeks. Especially during very volatile markets.

How do you manage this? Do you even consider this being a real risk?
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Re: Risk of being out of the market

Post by Gaston »

Stef wrote: Wed Mar 22, 2023 1:52 am I currently have to move some investments from from account to account without the option to just transfer the ETFs (no need to go into details why).
Completely off topic, but I noticed the 13.33% allocation to Switzerland in the signature section of your post. I assume these are Swiss equities? May I ask what the rational is for a high allocation to Switzerland? Perhaps you are Swiss and want to retain a higher allocation to your home country? Thx.
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Re: Risk of being out of the market

Post by nisiprius »

This is just a statement of what I personally have actually done. It's definitely not a recommendation, and it might also be some kind of behavioral error. But I find it hard to stomach the idea of gaining or losing as much as 1% on the breaks of what might happen in a single day. When I've been in situations like this, I've done it as several partial moves--e.g. four transfers, spaced a week apart, each of about ¼ of the total.
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Re: Risk of being out of the market

Post by student »

nisiprius wrote: Wed Mar 22, 2023 6:17 am This is just a statement of what I personally have actually done. It's definitely not a recommendation, and it might also be some kind of behavioral error. But I find it hard to stomach the idea of gaining or losing as much as 1% on the breaks of what might happen in a single day. When I've been in situations like this, I've done it as several partial moves--e.g. four transfers, spaced a week apart, each of about ¼ of the total.
+1. This is what I would do.
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Re: Risk of being out of the market

Post by Stinky »

I think that nisiprius has an excellent idea.

You can make the individual transfers larger or smaller, and the spacing between transfers shorter or longer, as you see fit.
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Re: Risk of being out of the market

Post by firebirdparts »

Stef wrote: Wed Mar 22, 2023 1:52 am How do you manage this? Do you even consider this being a real risk?
I can't go where your mind is at all. Not ever.

There are so many real problems to work on, and they're so much more interesting. Plus I waste money all the time. i went into a store that sold candy by the pound and bought a big bag of zots. How lame is that? pretty lame.
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David Jay
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Re: Risk of being out of the market

Post by David Jay »

Gaston wrote: Wed Mar 22, 2023 3:58 amPerhaps you are Swiss…?
Did you observe Stef’s avatar?
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Calvert
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Re: Risk of being out of the market

Post by Calvert »

I guess it depends on how much money and how long you are out of the market.

I have never done this and don't really have the kind of money or worries to bother, but you can "buy insurance" at a cost.
The protective call is a hedging strategy whereby the trader, who has an existing short position in the underlying security, buys call options to guard against a rise in the price of that security.
AKA ... the risk is being out of the market in cash is that the market goes up. You can buy call options (at a cost) for a small fraction of the price of the fund/etf you are moving.

I'm not recommending doing this ... but you could research it for fun.
Off the top of my head I would:
  • Use SPY calls because the prices/times would be decent due to lots of trading in these
  • Get the cash for the options in the "to" account so I can match what I am "insuring.", and sell the call once I get the main money back in the etf/fund
  • Buy the shortest expiration date as they will be cheaper ... but also buy dates that have volume.
  • I'd probably buy at or just below the price I "sold out"
What's the "guaranteed" cost/return on this ? Well, right now SPY calls (expiring on March 30) seem to be quoted at about $6 per $399 share of SPY. So that is a "fixed" loss of 6/399 = 1.5%. AKA if prices go up 2% you gain only 1/2% vs 2% without the calls. If prices go down 2% you again gain (2-1.5)=1/2% vs the full 2% without the calls. If prices stay the same, you lost 1.5% ... etc.

Again ... I'd probably never do this ... but find it informative to know what the "market" thinks about the risk as a comparison.
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Re: Risk of being out of the market

Post by Toons »

Volatility and Time are your allies when it comes to investing
Just invest every month autopilot if you can
If you have a 10 year time hoizon or more
Hopefully you will have more than several bear markets in which to invest dollars for more shares,
Though it is extremely challenging
Due your best to Ignore the Noise
Stay Invested
:mrgreen:
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Re: Risk of being out of the market

Post by little_star »

In addition to dividing your transfer into smaller chunks, you can change your allocations in other accounts to compensate. For example, if you have 100k with a desired AA of 70/30, you could transfer the 30k of bond funds, where the volatility is expected to be less, first. Once in the new account, exchange the bond funds for stock funds. Transfer another 30k from the first account (originally stock funds, now cash). When that transfer is complete, re-invest in stock funds. Transfer the remaining 40k. Reinvest appropriately to achieve your desired AA. By doing the transfer in pieces, and maintaining your stock allocation throughout, you will be less at risk to severe market changes during the transfers. Of course, the above works best if this is a tax-advantaged account, where you can buy and sell without tax consequences.
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Re: Risk of being out of the market

Post by livesoft »

If one can make partial transfers as already noted AND if one is not 100% equities, then doing a transfer can be easy.

Repeat until done:

1. Transfer existing cash allocation. In existing account: Sell some bond fund shares when bond funds are not volatile or they have popped. For instance, today the FOMC has a press conference and something will happen to bond fund shares later today, so it could be a good day or not.

2. Transfer cash from sold funds.

3. After successful transfer: Exchange bonds+cash into equity funds in new account. On same day in old account: Exchange equity funds into cash.

4. Repeat Steps 2 and 3. Until all transferred. There would no zero days that hasn't kept equity allocation intact and a maybe a few days when bond allocation was not intact. Eventually use last cash transfer to buy bond funds.
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Re: Risk of being out of the market

Post by bloom2708 »

Three scenarios:

1. The markets go up when you are briefly out of the market
2. The markets stay the same when you are briefly out of the market
3. The markets go down when you are briefly out of the market.

2 and 3 seem neutral to positive but will not make a difference over the long haul. 66.66%
1 likely won't make any difference over the long haul. 33.33%
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Re: Risk of being out of the market

Post by rockstar »

I like the rule of always being at least 50% in the market.
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Re: Risk of being out of the market

Post by exodusNH »

Stef wrote: Wed Mar 22, 2023 1:52 am I currently have to move some investments from from account to account without the option to just transfer the ETFs (no need to go into details why). Now I‘m again concerned about a possible loss due to being out of the market for x days. I already had similiar instances where I moved funds and had to be out of the market for up to one week. There are probably a couple of scenarios where you encounter this situation.

I know that the expected weekly return is somewhere around 0.15%. But real world markets aren‘t linear and there are many weeks where markets go up/down by 2-5%. So lets assume there is a scenario for being out of the market for saving 0.2%/year in fees. If you are unlucky, you‘ll end up not saving anything at all for 20 years. It won‘t even out as those instances of being out of the market for a couple of days are very rare. It‘s even worse if we are talking about 2-4 weeks. Especially during very volatile markets.

How do you manage this? Do you even consider this being a real risk?
Since you indicate you can't ACATS it, I assume this means you need to go to cash.

Do you have another account where you can make changes without tax consequences? If so, do you have enough fixed into in that account to cover the balance of the account you want to move? If so, just go to cash in the first account and go from bonds to equities in the second. That keeps your AA roughly intact.

If you can't do this all in one shot, your next best option are multiple transfers over a few days.
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Re: Risk of being out of the market

Post by rkhusky »

Realize that our brains trick us into worrying about losses more than gains. And you are very nearly as likely to win as lose in being out of the market for a few days.

I would reduce the time out of the market as much as possible, adjust other holdings to compensate if feasible, pull the trigger and don’t worry about it.

Edit: I’ve had to transfer 6 figures that had to go by mail in one transaction, which took about a week. If it is sufficiently important, you won’t worry about time out of the market.
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Re: Risk of being out of the market

Post by rkhusky »

Regarding breaking the transaction into multiple transactions, consider a simplified situation where there is a 51% probability of the market rising by 1% and a 49% probability of dropping by 1%. If you have $1000 out of the market, the expected return is missing out on a $0.20 gain.

If instead you break the transaction into two $500 transactions and assuming the statistics remains the same, the expected return on each transaction is missing out on two $0.10 gains. The total expected return is therefore -$0.20, the same as before.
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Calvert
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Re: Risk of being out of the market

Post by Calvert »

+99 to the folks that suggested looking at your total Asset Allocation. :beer

Do you have Bonds/Cash in ANY other account?
If so, simply put that money into stocks as you convert your stocks to cash and move it around.
This will keep you "in the market" about as much as you already are "in the market".

This is a great forum with some great thinking!

I follow the below advice with my "cash in a tax-advantaged account", but I guess "total portfolio thinking" is not my default yet. :(

https://www.bogleheads.org/wiki/Placing ... ed_account
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Re: Risk of being out of the market

Post by impatientInv »

Stef wrote: Wed Mar 22, 2023 1:52 am I currently have to move some investments from from account to account without the option to just transfer the ETFs (no need to go into details why). Now I‘m again concerned about a possible loss due to being out of the market for x days. I already had similiar instances where I moved funds and had to be out of the market for up to one week. There are probably a couple of scenarios where you encounter this situation.

I know that the expected weekly return is somewhere around 0.15%. But real world markets aren‘t linear and there are many weeks where markets go up/down by 2-5%. So lets assume there is a scenario for being out of the market for saving 0.2%/year in fees. If you are unlucky, you‘ll end up not saving anything at all for 20 years. It won‘t even out as those instances of being out of the market for a couple of days are very rare. It‘s even worse if we are talking about 2-4 weeks. Especially during very volatile markets.

How do you manage this? Do you even consider this being a real risk?
If you have funds elsewhere in tax advantaged accounts, consider using the total portfolio approach. Selling bonds in a different account and buying stocks - equal to being transferred. Out of the market risk is primarily with stocks..

Assuming you only have these two accounts - move the bonds first. Use options (or futures) to set the stock exposure temporarily.
80/20 portfolio
1. Transfer 20% bonds - sell and transfer 20% cash.
2. Use 20% cash to get 80% stock exposure, use options if they are liquid enough.
You will have to calculate the transaction and other cost with the options..

If I need to transfer VTI/BND - 80/20 - I would use SPY/SPX options temporarily to get similar exposure as 80% VTI. SPY options are very liquid..
No individual stocks.
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Re: Risk of being out of the market

Post by enad »

It could also be a blessing if the market tanks 20 or 30 percent on the day you're out of the market, then you'd simply pat yourself on the back. if you are not sure don't do it all at once (if you can, else don't worry about it)
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Stef
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Re: Risk of being out of the market

Post by Stef »

Thanks for the many answers, very useful thoughts!
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Re: Risk of being out of the market

Post by tibbitts »

I've never understood why so many Bogleheads so casually accept the risk of being out of the market, but that's been pretty consistent over the years.
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Re: Risk of being out of the market

Post by AnnikaW »

Lost $5000 on a transfer once due to price fluctuation. :(
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Re: Risk of being out of the market

Post by AnnikaW »

tibbitts wrote: Thu Mar 23, 2023 1:51 am I've never understood why so many Bogleheads so casually accept the risk of being out of the market, but that's been pretty consistent over the years.
Sometimes you have to move investments and you have no choice.
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Re: Risk of being out of the market

Post by tibbitts »

AnnikaW wrote: Thu Mar 23, 2023 3:49 pm
tibbitts wrote: Thu Mar 23, 2023 1:51 am I've never understood why so many Bogleheads so casually accept the risk of being out of the market, but that's been pretty consistent over the years.
Sometimes you have to move investments and you have no choice.
Usually you can at least break large transactions apart to minimize the risk, and if not there's usually some other way to minimize the risk. Bogleheads seem to put more effort into saving $5 on HRB or TT every year than in avoiding potentially tens of thousands of dollars in losses from being out of the market. I assume the reasoning is that the $5 is s sure thing, and the tens of thousands of dollars more of a gamble.
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Re: Risk of being out of the market

Post by the_wiki »

I had to do this recently with a 4-5 day window out of the market, and I just did 25% per week for 4 weeks to hedge my bets. I think I ended up about .5% ahead. But if I would have picked the wrong window in that month with 100% out I would have lost close to $10k.
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Re: Risk of being out of the market

Post by AnnikaW »

tibbitts wrote: Thu Mar 23, 2023 4:32 pm
AnnikaW wrote: Thu Mar 23, 2023 3:49 pm
tibbitts wrote: Thu Mar 23, 2023 1:51 am I've never understood why so many Bogleheads so casually accept the risk of being out of the market, but that's been pretty consistent over the years.
Sometimes you have to move investments and you have no choice.
Usually you can at least break large transactions apart to minimize the risk, and if not there's usually some other way to minimize the risk. Bogleheads seem to put more effort into saving $5 on HRB or TT every year than in avoiding potentially tens of thousands of dollars in losses from being out of the market. I assume the reasoning is that the $5 is s sure thing, and the tens of thousands of dollars more of a gamble.
I wish I could have. But I had to move the money out of the 401K. It was about $500K.
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Re: Risk of being out of the market

Post by furwut »

A note on timing - try to avoid moving your money around volatile market days e.g., Fed interest rate announcements.
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Re: Risk of being out of the market

Post by rkhusky »

the_wiki wrote: Thu Mar 23, 2023 5:25 pm I had to do this recently with a 4-5 day window out of the market, and I just did 25% per week for 4 weeks to hedge my bets. I think I ended up about .5% ahead. But if I would have picked the wrong window in that month with 100% out I would have lost close to $10k.
And if you had picked the right window, would you have gained more than $10K?
tibbitts wrote: Thu Mar 23, 2023 4:32 pm Usually you can at least break large transactions apart to minimize the risk, and if not there's usually some other way to minimize the risk.
Using multiple transactions doesn’t really minimize the risk. It’s just a trick to make you more comfortable. The same as dollar cost averaging versus lump sum investing.
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Re: Risk of being out of the market

Post by AnnetteLouisan »

Every month $20k accrues in my accounts after taxes, investments and expenses, from salary and auto transfers from my low interest bank. I’ve already maxed my 401K, IRA, catch ups for both and my I bond allotment. So every month lately I’ve been putting it into short term treasuries in taxable for the nice interest.

But this might be dumb because once those t bills mature (ok they are on auto roll) but once it’s no longer worth it to do this I’ll be stuck having to buy equities at presumably higher prices than now (or not).

My IPS says to add equities in taxable (I do have some there) and bonds in my 401K but with t bill rates so high and my discomfort buying equities often other than through DCA in my 401K, lump sum in my IRA and on RBDs, I’m sort of ending up with this.

I’m reluctant to go G Fund (treasuries) only in my TSP so I’m 75 percent G and 25 percent C, which is S&P). And it’s hard to turn down now … 5 percent tax effective yield or an over 5 percent CD.

I was doing $5k of VTI per month and 10-15k of treasuries. That might be good since I’m trying to increase my equity AA a d failing if you count everything (but succeeding if you only count my securities).

Sigh.
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Re: Risk of being out of the market

Post by clip651 »

AnnetteLouisan wrote: Sat Mar 25, 2023 8:29 am Every month $20k accrues in my accounts after taxes, investments and expenses, from salary and auto transfers from my low interest bank. I’ve already maxed my 401K, IRA, catch ups for both and my I bond allotment. So every month lately I’ve been putting it into short term treasuries in taxable for the nice interest.

But this might be dumb because once those t bills mature (ok they are on auto roll) but once it’s no longer worth it to do this I’ll be stuck having to buy equities at presumably higher prices than now (or not).

My IPS says to add equities in taxable (I do have some there) and bonds in my 401K but with t bill rates so high and my discomfort buying equities often other than through DCA in my 401K, lump sum in my IRA and on RBDs, I’m sort of ending up with this.

I’m reluctant to go G Fund (treasuries) only in my TSP so I’m 75 percent G and 25 percent C, which is S&P). And it’s hard to turn down now … 5 percent tax effective yield or an over 5 percent CD.

I was doing $5k of VTI per month and 10-15k of treasuries. That might be good since I’m trying to increase my equity AA a d failing if you count everything (but succeeding if you only count my securities).

Sigh.
Did you mean to post this in a different thread? It has nothing to do with OPs question in their first post. Best wishes in your quest to increase your equities in taxable. :)
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Re: Risk of being out of the market

Post by AnnetteLouisan »

clip651 wrote: Sat Mar 25, 2023 9:00 am
AnnetteLouisan wrote: Sat Mar 25, 2023 8:29 am Every month $20k accrues in my accounts after taxes, investments and expenses, from salary and auto transfers from my low interest bank. I’ve already maxed my 401K, IRA, catch ups for both and my I bond allotment. So every month lately I’ve been putting it into short term treasuries in taxable for the nice interest.

But this might be dumb because once those t bills mature (ok they are on auto roll) but once it’s no longer worth it to do this I’ll be stuck having to buy equities at presumably higher prices than now (or not).

My IPS says to add equities in taxable (I do have some there) and bonds in my 401K but with t bill rates so high and my discomfort buying equities often other than through DCA in my 401K, lump sum in my IRA and on RBDs, I’m sort of ending up with this.

I’m reluctant to go G Fund (treasuries) only in my TSP so I’m 75 percent G and 25 percent C, which is S&P). And it’s hard to turn down now … 5 percent tax effective yield or an over 5 percent CD.

I was doing $5k of VTI per month and 10-15k of treasuries. That might be good since I’m trying to increase my equity AA a d failing if you count everything (but succeeding if you only count my securities).

Sigh.
Did you mean to post this in a different thread? It has nothing to do with OPs question in their first post. Best wishes in your quest to increase your equities in taxable. :)
I thought it is directly related. It’s the risk of being out of equities. I’m buying t bills and should be buying equities. The risk is that I’ll have to buy at higher prices. I’m casually accepting that risk like commenter tibbits wrote and I shouldn’t.
Last edited by AnnetteLouisan on Sat Mar 25, 2023 9:05 am, edited 1 time in total.
clip651
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Re: Risk of being out of the market

Post by clip651 »

AnnetteLouisan wrote: Sat Mar 25, 2023 9:02 am
clip651 wrote: Sat Mar 25, 2023 9:00 am
AnnetteLouisan wrote: Sat Mar 25, 2023 8:29 am Every month $20k accrues in my accounts after taxes, investments and expenses, from salary and auto transfers from my low interest bank. I’ve already maxed my 401K, IRA, catch ups for both and my I bond allotment. So every month lately I’ve been putting it into short term treasuries in taxable for the nice interest.

But this might be dumb because once those t bills mature (ok they are on auto roll) but once it’s no longer worth it to do this I’ll be stuck having to buy equities at presumably higher prices than now (or not).

My IPS says to add equities in taxable (I do have some there) and bonds in my 401K but with t bill rates so high and my discomfort buying equities often other than through DCA in my 401K, lump sum in my IRA and on RBDs, I’m sort of ending up with this.

I’m reluctant to go G Fund (treasuries) only in my TSP so I’m 75 percent G and 25 percent C, which is S&P). And it’s hard to turn down now … 5 percent tax effective yield or an over 5 percent CD.

I was doing $5k of VTI per month and 10-15k of treasuries. That might be good since I’m trying to increase my equity AA a d failing if you count everything (but succeeding if you only count my securities).

Sigh.
Did you mean to post this in a different thread? It has nothing to do with OPs question in their first post. Best wishes in your quest to increase your equities in taxable. :)
I thought it is directly related. It’s the risk of being out of equities. I’m buying t bills and should be buying equities. The risk is that I’ll have to buy at higher prices.
The post (not just the title) is about being out of equities for a few days or a week or two while an account is being transferred. They don’t want to be out of the market even that long! Sort of the opposite of your issue of being reluctant to really get in regularly to get to desired AA over months to years.
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Re: Risk of being out of the market

Post by AnnetteLouisan »

clip651 wrote: Sat Mar 25, 2023 9:04 am
AnnetteLouisan wrote: Sat Mar 25, 2023 9:02 am
clip651 wrote: Sat Mar 25, 2023 9:00 am
AnnetteLouisan wrote: Sat Mar 25, 2023 8:29 am Every month $20k accrues in my accounts after taxes, investments and expenses, from salary and auto transfers from my low interest bank. I’ve already maxed my 401K, IRA, catch ups for both and my I bond allotment. So every month lately I’ve been putting it into short term treasuries in taxable for the nice interest.

But this might be dumb because once those t bills mature (ok they are on auto roll) but once it’s no longer worth it to do this I’ll be stuck having to buy equities at presumably higher prices than now (or not).

My IPS says to add equities in taxable (I do have some there) and bonds in my 401K but with t bill rates so high and my discomfort buying equities often other than through DCA in my 401K, lump sum in my IRA and on RBDs, I’m sort of ending up with this.

I’m reluctant to go G Fund (treasuries) only in my TSP so I’m 75 percent G and 25 percent C, which is S&P). And it’s hard to turn down now … 5 percent tax effective yield or an over 5 percent CD.

I was doing $5k of VTI per month and 10-15k of treasuries. That might be good since I’m trying to increase my equity AA a d failing if you count everything (but succeeding if you only count my securities).

Sigh.
Did you mean to post this in a different thread? It has nothing to do with OPs question in their first post. Best wishes in your quest to increase your equities in taxable. :)
I thought it is directly related. It’s the risk of being out of equities. I’m buying t bills and should be buying equities. The risk is that I’ll have to buy at higher prices.
The post is about being out of equities for a few days or a week or two while an account is being transferred. They don’t want to be out of the market even that long! Sort of the opposite of your issue of being reluctant to really get in over months to years.
Gaston diverged stating he was off topic. Do you want to address that with him as well?

I didn’t realize this was only about the risk of being out for a few days or weeks. Thank you. I knew someone who had to execute a big trade and the market fell just as her order executed. She lost thousands that she couldn’t afford to lose.
Last edited by AnnetteLouisan on Sat Mar 25, 2023 9:13 am, edited 1 time in total.
rich126
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Re: Risk of being out of the market

Post by rich126 »

Personally I view this as a foolish worry. Some days the markets go up 2%, some days go down, and a lot in between. If I had to guess I'd say over the last year the market has had more down days than up days although normally it is the other way. Are you talking millions where 1% would be $10K per million? Or 100K where 1% is $1K?

This is one of the things where people remember missing out on profits and forgetting about losses.

According to this one web site for the SP500 - https://einvestingforbeginners.com/stoc ... ercentage/
The percentage of stock market days up from ‘96 – 2016 was 53.3%. The percentage of stock market days down was 46.7%. Updating that further, the percentage of stock market days up (from 2016 – 2021) was 54.9%, while days down was 45.1%.
I just see it as a complete non-factor and usually something you have no control over. You might as well worry about how to time your buys and sells.
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dbr
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Re: Risk of being out of the market

Post by dbr »

rich126 wrote: Sat Mar 25, 2023 9:12 am Personally I view this as a foolish worry. Some days the markets go up 2%, some days go down, and a lot in between. If I had to guess I'd say over the last year the market has had more down days than up days although normally it is the other way. Are you talking millions where 1% would be $10K per million? Or 100K where 1% is $1K?

This is one of the things where people remember missing out on profits and forgetting about losses.

According to this one web site for the SP500 - https://einvestingforbeginners.com/stoc ... ercentage/
The percentage of stock market days up from ‘96 – 2016 was 53.3%. The percentage of stock market days down was 46.7%. Updating that further, the percentage of stock market days up (from 2016 – 2021) was 54.9%, while days down was 45.1%.
I just see it as a complete non-factor and usually something you have no control over. You might as well worry about how to time your buys and sells.
I agree and don't pay the slightest attention to the issue.
er999
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Re: Risk of being out of the market

Post by er999 »

I’d suggest doing the transfer in partial amounts. I recently transferred my total market into brokeragelink at fidelity. I was expected I wouldn’t be out of the market much as the transfer processes when the market closes and the funds are available the next day. I was going from a vanguard total market institutional fund to VTI. However despite placing the order shortly after the market opened it was up something like 2% from market openings compared to my purchase price. Since I had transferred around $450k (a huge amount for me) that was a painful loss. It could have easily gone the other direction, of course, but stressful when dealing with a large amount of money as even a small fraction is a lot in absolute dollar terms.
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AnnetteLouisan
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Re: Risk of being out of the market

Post by AnnetteLouisan »

I have $3600 sitting in a GTC order for VTI set months ago that hasn’t triggered. I assume it’s in SPAXX (my Fidelity core fund). Or is it? Is that $ out of the market entirely or is it still earning in SPAXX?
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Re: Risk of being out of the market

Post by Marseille07 »

Stef wrote: Wed Mar 22, 2023 1:52 am I currently have to move some investments from from account to account without the option to just transfer the ETFs (no need to go into details why). Now I‘m again concerned about a possible loss due to being out of the market for x days. I already had similiar instances where I moved funds and had to be out of the market for up to one week. There are probably a couple of scenarios where you encounter this situation.

I know that the expected weekly return is somewhere around 0.15%. But real world markets aren‘t linear and there are many weeks where markets go up/down by 2-5%. So lets assume there is a scenario for being out of the market for saving 0.2%/year in fees. If you are unlucky, you‘ll end up not saving anything at all for 20 years. It won‘t even out as those instances of being out of the market for a couple of days are very rare. It‘s even worse if we are talking about 2-4 weeks. Especially during very volatile markets.

How do you manage this? Do you even consider this being a real risk?
Don't bother. If you have to move investments and have to be out of the market, just accept it and move on. Not worth pondering over or hedging against.
tibbitts
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Re: Risk of being out of the market

Post by tibbitts »

rkhusky wrote: Sat Mar 25, 2023 8:13 am
the_wiki wrote: Thu Mar 23, 2023 5:25 pm I had to do this recently with a 4-5 day window out of the market, and I just did 25% per week for 4 weeks to hedge my bets. I think I ended up about .5% ahead. But if I would have picked the wrong window in that month with 100% out I would have lost close to $10k.
And if you had picked the right window, would you have gained more than $10K?
tibbitts wrote: Thu Mar 23, 2023 4:32 pm Usually you can at least break large transactions apart to minimize the risk, and if not there's usually some other way to minimize the risk.
Using multiple transactions doesn’t really minimize the risk. It’s just a trick to make you more comfortable. The same as dollar cost averaging versus lump sum investing.
Certainly you can win or lose. However one difference is that the risk can be on both ends of the transaction, because with being out of the market when moving from one equity investment to another you could sell low and buy high. Usually with DCA we discuss someone coming into a lump sum that's starting its life (at least with them) as cash, so the worst they can do is buy high.

I'm not sure how you are not minimizing the risk of a worse-case outcome by multiple transfer, just as with DCA. I think everyone agrees DCA minimizes the risk of investing at a (near-term, at least) market high; the disagreement is over whether the price of doing that (and statistically, with the markets rising over time, there will be an opportunity cost.)

Another factor is that usually with DCA, all the money can be at one provider, so you at least have the option of an immediate transaction. With some of these out-of-market issues you're at the mercy of USmail etc. and there could be very long delays for weeks or months delays.
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Re: Risk of being out of the market

Post by 20cm »

The irrational fear of being out of the market for a few days here and there is stoked largely by articles of the "If you had missed the X best days of the market in the past Y years your returns would be Z% lower" variety, where Z is obviously some dramatic percentage. The questions those articles never touch on, for good reason, are the probability of randomly missing the X best days, the expected impact of missing random days instead of best ones, and the effect of missing some consecutive set of days including those cherry-picked best ones. The answers nullify the desired narrative.

It's odd that the finance media doesn't run "If you had missed the X worst days..." articles. If you did miss the X worst days the positive impact to your total returns is much higher than the positive impact of not missing the same number of best days.

There's an old saying saying that "the markets take the stairs up and the elevator down". While the number of positive days is higher than the number of negative days, the effect of falling into an elevator shaft is more damaging than the effect of stumbling on a stair.
tibbitts
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Re: Risk of being out of the market

Post by tibbitts »

20cm wrote: Sat Mar 25, 2023 10:42 am The irrational fear of being out of the market for a few days here and there is stoked largely by articles of the "If you had missed the X best days of the market in the past Y years your returns would be Z% lower" variety, where Z is obviously some dramatic percentage. The questions those articles never touch on, for good reason, are the probability of randomly missing the X best days, the expected impact of missing random days instead of best ones, and the effect of missing some consecutive set of days including those cherry-picked best ones. The answers nullify the desired narrative.

It's odd that the finance media doesn't run "If you had missed the X worst days..." articles. If you did miss the X worst days the positive impact to your total returns is much higher than the positive impact of not missing the same number of best days.

There's an old saying saying that "the markets take the stairs up and the elevator down". While the number of positive days is higher than the number of negative days, the effect of falling into an elevator shaft is more damaging than the effect of stumbling on a stair.
From what I've read you're correct that the odds of "winning big" are greater than "losing big", although I don't have statistics. However that doesn't mean the fear is irrational; some of us have actually lost money during lengthy out-of-market rollovers. I don't remember the exact amount, but it enough to make an impression on me at the time, and that difference has had almost 40 years now to compound. At that time I hadn't come at the process with any knowledge of history of up vs. down days, and hadn't read anything about the impact of being out of the market.
mike_in_ny
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Re: Risk of being out of the market

Post by mike_in_ny »

I am worried about this too. As it turns out, I am currently consolidating my former 401k into
my other accounts and the amount is significant to me. I am able to do a direct transfer from
the initial 401k to the new trustee, but it is a check (cash) that moves between the companies.
I had thought about the three different approaches discussed above, which are essentially:

1) Cross your fingers and hope you missed a "down" week, not an "up" week
- perhaps pay expedite fee for mailing

2) Multiple transactions, the only issue is that this was going to be $50/shot and be cumbersome.

3) Move transferring assets to bonds and adjust other accounts to keep AA roughly fixed
- my thought is that bonds are less volatile than the current equity markets

My prior 401k was 100% S&P500 (the only reasonable fund in the menu), so I ended up doing #3.
Specifically, one day a few weeks ago I did two transactions: converted the 401k into bond index
fund and in my taxable account, I moved an equal amount from bond fund to VTI. Overall AA
stayed the same. Then last week I initiated the transfer.

When the money lands in my new retirement account, it will go into my bond allocation. I will also
note that I'm using this to make a change to my "asset location" but not my "asset allocation." I had
been following the wiki and have come around to the idea that instead of being roughly equal AA in
taxable and tax-deferred accounts, the majority of my bonds should be in tax-deferred.

Hope this helps.
clip651
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Re: Risk of being out of the market

Post by clip651 »

AnnetteLouisan wrote: Sat Mar 25, 2023 9:07 am
Gaston diverged stating he was off topic. Do you want to address that with him as well?

I didn’t realize this was only about the risk of being out for a few days or weeks. Thank you. I knew someone who had to execute a big trade and the market fell just as her order executed. She lost thousands that she couldn’t afford to lose.
I genuinely thought you might have accidentally posted in the wrong thread. I wasn't trying to finger wag at you, I was trying to help. :D And I do see now how your post was related, thanks for explaining.

My parents lost a percent or two when they transferred accounts from their previous high fee advisor to Vanguard years ago, just by luck of how the markets moved over the few days they were out. It wasn't a lot of total $$, but I remember it stinging a bit. Of course they would have been worse off over the following years staying with their high fee advisor, so that was some consolation at least.
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Re: Risk of being out of the market

Post by rkhusky »

tibbitts wrote: Sat Mar 25, 2023 9:58 am I'm not sure how you are not minimizing the risk of a worse-case outcome by multiple transfer, just as with DCA.
By increasing the number of transactions, you are increasing the probability of hitting a bad day. However, you are putting less money at risk each time. The two offset and the overall probability of losing money remains the same.
Last edited by rkhusky on Sat Mar 25, 2023 4:36 pm, edited 2 times in total.
tibbitts
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Re: Risk of being out of the market

Post by tibbitts »

rkhusky wrote: Sat Mar 25, 2023 4:19 pm
tibbitts wrote: Sat Mar 25, 2023 9:58 am I'm not sure how you are not minimizing the risk of a worse-case outcome by multiple transfer, just as with DCA.
By increasing the number of transactions, you are increasing the probability of hitting a bad day. However, you are putting less money at risk each time. The two offset and the overall probability of losing money remains the same.
But the probability of a significant outlier event (significant rise in the market, that then can't be offset by a subsequent drop with another transaction) is less.
rkhusky
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Re: Risk of being out of the market

Post by rkhusky »

tibbitts wrote: Sat Mar 25, 2023 4:32 pm
rkhusky wrote: Sat Mar 25, 2023 4:19 pm
tibbitts wrote: Sat Mar 25, 2023 9:58 am I'm not sure how you are not minimizing the risk of a worse-case outcome by multiple transfer, just as with DCA.
By increasing the number of transactions, you are increasing the probability of hitting a bad day. However, you are putting less money at risk each time. The two offset and the overall probability of losing money remains the same.
But the probability of a significant outlier event (significant rise in the market, that then can't be offset by a subsequent drop with another transaction) is less.
Suppose there are 250 trading days in the year and on one of them the market increases much higher than on any other day. If you are out of the market on that day you lose a lot of money.

If you choose one day to be out of the market, you have a 1/250 chance of choosing the wrong day. If you choose 4 days to be out of the market, you have a 4/250 chance to hit the wrong day. But with only 1/4 the money at stake in the latter case, the expected loss is still the same as choosing only one day.
tibbitts
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Re: Risk of being out of the market

Post by tibbitts »

rkhusky wrote: Sat Mar 25, 2023 4:37 pm
tibbitts wrote: Sat Mar 25, 2023 4:32 pm
rkhusky wrote: Sat Mar 25, 2023 4:19 pm
tibbitts wrote: Sat Mar 25, 2023 9:58 am I'm not sure how you are not minimizing the risk of a worse-case outcome by multiple transfer, just as with DCA.
By increasing the number of transactions, you are increasing the probability of hitting a bad day. However, you are putting less money at risk each time. The two offset and the overall probability of losing money remains the same.
But the probability of a significant outlier event (significant rise in the market, that then can't be offset by a subsequent drop with another transaction) is less.
Suppose there are 250 trading days in the year and on one of them the market increases much higher than on any other day. If you are out of the market on that day you lose a lot of money.

If you choose one day to be out of the market, you have a 1/250 chance of choosing the wrong day. If you choose 4 days to be out of the market, you have a 4/250 chance to hit the wrong day. But with only 1/4 the money at stake in the latter case, the expected loss is still the same as choosing only one day.
I guess I'm looking at the simple case of, for example, the market being at 4000 every day of the year except one day at 4400. How is it that I'm not worse off choosing the one day that happens to be 4400, vs. dividing the transactions over that day and any three others?
rkhusky
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Re: Risk of being out of the market

Post by rkhusky »

tibbitts wrote: Sat Mar 25, 2023 4:59 pm
rkhusky wrote: Sat Mar 25, 2023 4:37 pm
tibbitts wrote: Sat Mar 25, 2023 4:32 pm
rkhusky wrote: Sat Mar 25, 2023 4:19 pm
tibbitts wrote: Sat Mar 25, 2023 9:58 am I'm not sure how you are not minimizing the risk of a worse-case outcome by multiple transfer, just as with DCA.
By increasing the number of transactions, you are increasing the probability of hitting a bad day. However, you are putting less money at risk each time. The two offset and the overall probability of losing money remains the same.
But the probability of a significant outlier event (significant rise in the market, that then can't be offset by a subsequent drop with another transaction) is less.
Suppose there are 250 trading days in the year and on one of them the market increases much higher than on any other day. If you are out of the market on that day you lose a lot of money.

If you choose one day to be out of the market, you have a 1/250 chance of choosing the wrong day. If you choose 4 days to be out of the market, you have a 4/250 chance to hit the wrong day. But with only 1/4 the money at stake in the latter case, the expected loss is still the same as choosing only one day.
I guess I'm looking at the simple case of, for example, the market being at 4000 every day of the year except one day at 4400. How is it that I'm not worse off choosing the one day that happens to be 4400, vs. dividing the transactions over that day and any three others?
If you knew you were to choose the 4400 day, then sure. But you don’t know, so it becomes a matter of probability. For sure, all problems are not purely probabilistic, how much you have at stake also matters. Are we talking your life savings or 1% of your portfolio being at risk.
tibbitts
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Re: Risk of being out of the market

Post by tibbitts »

rkhusky wrote: Sat Mar 25, 2023 5:58 pm If you knew you were to choose the 4400 day, then sure. But you don’t know, so it becomes a matter of probability. For sure, all problems are not purely probabilistic, how much you have at stake also matters. Are we talking your life savings or 1% of your portfolio being at risk.
Oh yes, I agree the amount matters. My recent rollovers were in the low-mid six digit range so significant to me. My earlier transfers were much smaller, when I actually lost money, but that was 40-ish years ago, so the small losses had a lot of time to compound. So it's probably a function of size of the rollover and maybe to some extent the time until you'll be spending the money.
snowday2022
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Re: Risk of being out of the market

Post by snowday2022 »

Lump sum all investments ASAP and stop worrying about things you cannot control. Over decades of investing, this is highly likely to be insignificant compared to things like AA and savings rate and income.
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