who here is tempted to pullback on stocks?

[bengal22]

When I am super-bullish I split 60/40. When cautious 50/50. I tried the timing thing and did pretty well leaving the market before going down twice. But getting back in before the recovery was always tough and never successful. I am comfortable with 50/50. Find a proportion that works for you and try to keep your wits. You will have less gray hair that way.

Gray Hair is the new Black Hair. Its cool

[HomerJ]

There is a point. The point is, similar to late 2000s, if market goes down, you get back in. Yes, you can do well this way. Is it timing, sure. And bogleheads are anti-timing. That being said, do you think we are more likely to have a 20% rise or decline?
I am within my asset allocation, but it has been a long time to get to these levels. Who wouldnt be tempted to get some profits.
I understand the ideas that timing is bad and stay the course - dont have to mention those. I am interested in hearing from any bogleheads that occasionally do time the market (and you may be in the closet financially-forumwise). Are you going to do it this time?

I don't think you'll find too many people on here that speculate and time. What did you think the market was going to do last year? Why didn't you move then? If timing was so simple wouldn't Wall St gurus be outperforming the S&P 500? What do you know that they don't?

Last year at this time, everyone was sure the Greek debt crisis was going to sink us into a new global Great Depression. Instead the market went up 25%...

No one knows nothing. OP, don't bother listening to anyone on TV, or think you can predict the future.

[Garco]

Good advice about predicting the future. Often we're not very good a "predicting" the past, either. And we draw the wrong inferences about the present and future from such failures. Here's a recent but classic example: http://www.theatlantic.com/business/arc ... ke/275088/

[Dutch]

What would you pullback/re-balance into? Bonds?

[MnD]

Not me. A great deal of the big gains in the past few years is simple recovery from a near-death experience of the US financial system.
If you were invested in the 80's and 90's you would not think current market returns are anything over the top.

[Mingus]

I sold about 3% of my equity and put into the G fund last month on one of the "all time high" days.

For the past six month, almost 100% of my contributions have been going into the G fund. Two interfund transfers, and two rollovers into the G fund later from external accounts, I'm finally at 30% FI.

It's been fun "profit taking", but was difficult to last night to change my TSP purchase allocation to only 30% G fund since to my ignorant mind, stocks are expensive.

[EyeYield]

Pull back on individual stocks or stock funds? If you have some individual high fliers, it might be a good time to trim them (to the extent that you don't trigger too much in capital gains) and put the proceeds in an index fund.

A couple of possible negatives in taking profits and holding in cash. You sell, trigger capital gains taxes, and the market goes up another 20% causing a wasted tax payment.

Are you reinvesting your distributions/dividends? If so, and the market goes down, selling now will not allow those divs to reinvest and buy at a lower price, which will most probably result in a loss of total return long term.

Not knowing your age; are you retired or in your twenties, it's impossible to tell just how right or wrong such a move could be, but it sounds wrong on the surface.

[midareff]

I just rebalanced back to my planned AA for my age.

[Clearly_Irrational]

Of course I've been tempted, but that's why I have an IPS with a pre-written strategy. My strategy says I'm not authorized to make that sort of change right now.

[denovo]

When did this become the market-timing forum?

[MnD]

When did this become the market-timing forum?

Good question. I think the 2000-02 and 2008 experiences have conditioned many investors, especially those that didn't participate fully or at all in the 1980's and 1990's gains, to associate bull markets with impending doom and enormous market losses. And that's a good thing for Boglehead type investors. A good dose of investor fear keeps a lid on things!

[denovo]

When did this become the market-timing forum?

Good question. I think the 2000-02 and 2008 experiences have conditioned many investors, especially those that didn't participate fully or at all in the 1980's and 1990's gains, to associate bull markets with impending doom and enormous market losses. And that's a good thing for Boglehead type investors. A good dose of investor fear keeps a lid on things!

What's next, are we gonna have a 300 post thread about candlesticks or lightbubs or some other smoke and mirror "technical analysis"

[Clearly_Irrational]

What's next, are we gonna have a 300 post thread about candlesticks or lightbubs or some other smoke and mirror "technical analysis"

Works for me, I actually think technical analysis can be useful. Back when I did active trading I used fundamental analysis to tell me what to trade and technical analysis to tell me when. Some very useful signals include:

Bollinger Band squeezes
Ascending/Descending Triangles
Point and Figure chart targets
Doji or other turnaround candlestick patterns
Channel Lines
50/200 SMA cross
Resistance levels

The main problem with both fundamental and technical analysis is that they can't be made completely mechanical, you always need to inject your experience and judgement which means eventually you'll make a mistake. One of the advantages of buy and hold is that it takes the human out of the equation. You miss out on big wins, but you also minimize your number of big losses. Given the efficiency level of today's market the advantage is mostly with the indexer rather than the active trader.

[Clearly_Irrational]

When did this become the market-timing forum?

People are human beings, not robots. When large portions of their wealth are at stake it's natural for them to get nervous. Doing nothing is often much harder than doing something, even though it's usually the better plan.

[greg24]

When did this become the market-timing forum?

Its always happened during extreme markets. Which, over the past 15 years, is most of the time.

[leonard]

I know that bogleheads do not time the market. This thread isn't for you, or the "stay the course" comments. I know that, i get that, and I live that. My question is simply - if you are tempted to take profits and shift some to cash, are you going to do it or are you going to resist? I am trying to resist, but the profits have been really good,and I am tempted. End of 2000s were rough with the pullback.. concerned, but still in my asset alloc by my IPS.

"I know you guys don't time the market, but are you going to time the market."

I'm not making fun. I am just point out that you are asking if we believe "A" and "Not A" at the same time. It's really an unanswerable question.

[Ranger]

What's next, are we gonna have a 300 post thread about candlesticks or lightbubs or some other smoke and mirror "technical analysis"

Consider this, before momentum became one of the "fundamental factor" it was practiced by smoke and mirror technicians.

[Toons]

Bought more shares of bond funds this week

[jmndu99]

Earlier this year I did pull back on stocks, and it was due to the market's return.

What happened was the stock runup pushed the value of my portfolio over a pre-defined multiple of expenses, at which point my IPS says to modestly reduce the risk of my portfolio by changing from 60/40 to 50/50.

I didn't act because I thought stocks might go down. They most certainly will go down. They will also go up. I just don't know when or by how much. It's what stocks do. For that matter, it's what bonds do.

I acted because my need to take risk had decreased.

PJW

Phineas,

The part about "What happened was the stock runup pushed the value of my portfolio over a pre-defined multiple of expenses, at which point my IPS says to modestly reduce the risk of my portfolio by changing from 60/40 to 50/50." is of interest to me.

Can you explain how you cam up with "... value of my portfolio over a pre-defined multiple of expenses..." Can you point me to resources for this activity please?

[denovo]

What's next, are we gonna have a 300 post thread about candlesticks or lightbubs or some other smoke and mirror "technical analysis"

Works for me, I actually think technical analysis can be useful. Back when I did active trading I used fundamental analysis to tell me what to trade and technical analysis to tell me when. Some very useful signals include:

Bollinger Band squeezes
Ascending/Descending Triangles
Point and Figure chart targets
Doji or other turnaround candlestick patterns
Channel Lines
50/200 SMA cross
Resistance levels

The main problem with both fundamental and technical analysis is that they can't be made completely mechanical, you always need to inject your experience and judgement which means eventually you'll make a mistake. One of the advantages of buy and hold is that it takes the human out of the equation. You miss out on big wins, but you also minimize your number of big losses. Given the efficiency level of today's market the advantage is mostly with the indexer rather than the active trader.

Then why did you stop?

[Toons]

"Bollinger Band squeezes
Ascending/Descending Triangles
Point and Figure chart targets
Doji or other turnaround candlestick patterns
Channel Lines
50/200 SMA cross
Resistance levels"

I'm Lost

[Clearly_Irrational]

"Bollinger Band squeezes
Ascending/Descending Triangles
Point and Figure chart targets
Doji or other turnaround candlestick patterns
Channel Lines
50/200 SMA cross
Resistance levels"

I'm Lost

If you're going to choose indexing over active trading isn't it important to know how active trading works first?

[Clearly_Irrational]

The main problem with both fundamental and technical analysis is that they can't be made completely mechanical, you always need to inject your experience and judgement which means eventually you'll make a mistake. One of the advantages of buy and hold is that it takes the human out of the equation. You miss out on big wins, but you also minimize your number of big losses. Given the efficiency level of today's market the advantage is mostly with the indexer rather than the active trader.

Then why did you stop?

Because I came to the realization that eventually I was going to make a mistake and that the losses therefrom would likely outweigh the gains I'd been making. I was always looking for consistent good returns, not out of the ballpark type investments. Once I accepted that statistics was probably the best tool available it lead me naturally to indexing.

[john94549]

I suspect Toons and I are contrarians at heart, since I also harvested some of my wife's equity gains and plopped them into her bond fund (VBTSX) a few weeks ago. She raised barely an eyebrow, as it was merely to re-balance to 60/40 in her 401K.

As an aside, I have been selling all the way up this year in my trading account, so as to maintain roughly 50/50, equities/cash. Selling is ever so much easier when one has willing buyers.

[Van-Guard23]

My IPS schedules our rebalancing for January of every year...but I am almost at the "losing sleep" point so my wife and I decided to execute a no cost inter-fund transfer for our TSP, from L2030 to the G Fund. This is close to 30% of our portfolio, bringing our fixed income (to include CDs, cash, I Bonds and TSP G Fund) to 60% of our total portfolio...a bit too conservative for mid to late 40s couple. But if it helps us/me sleep, then so be it.

This is a good example of why it may be imprudent to put off rebalancing so long. If your AA can get out of whack by such a high degree before it comes time to rebalance, why not move up the schedule and do it every quarter or so?

But then I would have thought that someone in their mid-40s could maintain balance just with new contributions. Sounds like maybe your new contributions are pushing you further out of balance rather than steering you closer to balance. You might want to reconsider how you steer new contributions.

Aptenodytes,
There are no more new contributions to TSP upon my retirement but spouse is still contributing the max to the Roth TSP L2040 and Roth IRA and I would also be maxing contribution to Spousal Roth IRA...I would imagine that our asset allocation would inch its way back to 50-50.

I remember Bill Bernstein's advice about not taking additional risks when you don't need to: "When you've won the game, why keep playing it?" I consider our TSP and other fixed income "my safe portfolio" and our taxable and Roth IRAs my "risk portfolio" to borrow language Dr. Bernstein used in that interview with Money magazine last year.

[Toons]

"Bollinger Band squeezes
Ascending/Descending Triangles
Point and Figure chart targets
Doji or other turnaround candlestick patterns
Channel Lines
50/200 SMA cross
Resistance levels"

I'm Lost

If you're going to choose indexing over active trading isn't it important to know how active trading works first?

Exactly

[Toons]

I suspect Toons and I are contrarians at heart, since I also harvested some of my wife's equity gains and plopped them into her bond fund (VBTSX) a few weeks ago. She raised barely an eyebrow, as it was merely to re-balance to 60/40 in her 401K.

As an aside, I have been selling all the way up this year in my trading account, so as to maintain roughly 50/50, equities/cash. Selling is ever so much easier when one has willing buyers.

+3

[Sheepdog]

I have been tempted for many years, but not because of market conditions. I pulled back only as I have aged (100 minus my age in stocks.)
It's not fair for me to comment, is it? I started at over 70% stocks and now I am at only 22%.
Good luck folks.

[Toons]

I have been tempted for many years, but not because of market conditions. I pulled backonly as I have aged

Well Said

[Mako]

I have been buying emerging markets and REITs all year. Because they've been lagging.

I've been letting regular stocks (US large cap,US small cap, and developed int'l) go, because they haven't gone outside their band.

[Caduceus]

The number of Bogleheads who have come out of the closet in the last three weeks has been astounding.

[wriggly]

It is interesting, isn't it? When I first looked at this subject, I thought, no, of course I'm not.

But, despite considering myself a fairly pure Boglehead (IPS, approximately total world-weighted, still in Total Bond), actually, for the last month or so, I have formulated a plan to "tidy up" my portfolio. I have an index fund which is part of my portfolio, but at a different provider. It's not a big problem, but it's just needless additional complexity. My plan is that if at any time next year it gets to a set level, about 5% up from here, to sell it in the same amount as my monthly purchase at my usual provider. So, for those months, I'd be spinning my wheels with a net 0 contribution.

So, yes, I am planning to pullback on stocks. But only a little. It will only take 3 months to be completely sold out of the fund. And I am planning it well in advance, following my rule that any change to my IPS needs at least 30 days notice. And it won't happen unless the market goes even higher from here.

[Silence Dogood]

Stay the course.

[Padlin]

Well, I retired recently. It was a year or so earlier than I had originally planned because my employer is circling the drain and people were jumping ship leaving things a mess.

So with that plus the recent market highs I decided it would be a good time to rebalance and also cut my allocation a bit more than I would have normally. I'm still a bit less than age in bonds. It's quite possible that the next time I rebalance I will go to age in bonds. At this particular point in life I'm pretty sensitive to risk.

Almost exactly my situation.

Being recently retired and just starting to live off my savings makes a big difference in how I feel about risk taking. I've been thinking a lot recently about Bernstein's "if you've won the game..." view, as well as Pfau's Rising Equities Glide Path paper. I'm age -10 in Bonds per my IPS from years back, doesn't jive with either. Less the recent run-up and more an early retirement has caused me to think about changing my IPS.

[Phineas J. Whoopee]

...
Phineas,

The part about "What happened was the stock runup pushed the value of my portfolio over a pre-defined multiple of expenses, at which point my IPS says to modestly reduce the risk of my portfolio by changing from 60/40 to 50/50." is of interest to me.

Can you explain how you cam up with "... value of my portfolio over a pre-defined multiple of expenses..." Can you point me to resources for this activity please?

Hi jmndu99, happy to help.

I started contemplating all this as I thought about retiring early or switching to a financially riskier but more personally fulfilling career, and how those decisions might affect the age-in-bonds rough guideline.

If you're asking how I came up with the rule:
I began with the rough, planning-only guideline of taking an initial 4% of the portfolio, adjusted for inflation each subsequent year. That would mean having a portfolio value of 25 times expenses. The safer 3% would mean 33 times.

I don't like to get overly precise about events and data that are far off, so I just arbitrarily set the following thresholds see the edit below for myself. I can't strongly defend them, but I don't think anybody can strongly attack them. It doesn't matter because it's all very much based on my own personal situation, and may not apply to others. I didn't design it with the purpose of writing a book telling people to follow it.

The important thing is to reduce risk as I progress toward adequate funding levels, and to stick to the plan. Earlier this year the portfolio made it up and over 30 times expenses. The plan does not say to increase my stock percentage if the market drops - the sequence only moves forward, not backward.

I was at 70/30 when I settled on these rules, with a multiple a little below 20.

Up to 25 times expenses: 70/30
Above 25 but below 30 times expenses: 60/40
Above 30 but below 35 times expenses: 50/50
Above 35 times expenses: 40/60

[Edited to add]
I forgot all about one part of the reasoning behind those numbers: They result in a fairly constant-size stock holding. In effect, the gains are being safely set aside in bonds, until I get up to 35 times expenses at which point the stock holding can start to grow again. I don't know how I came to leave that out. It was a very important factor in choosing the thresholds.

If you're asking how I calculate:
I calculate everything in real dollars and, to be conservative, assume the remaining portfolio value keeps up with inflation but no more.

Expenses: I have a budget, which I've been using for a long time. I know how much I expect to spend each year, and I add income taxes to that amount to come up with the total annual withdrawal.

Portfolio value: I use Microsoft Money. I've set up a portfolio called "Retirement: All." I regularly update prices (a simple portfolio means not having very many to update). I don't bother to tax adjust because tax-deferred accounts are the great majority of the resources, so for planning purposes I treat everything as if it's taxable in the year I use it. When it comes time to take assets out I'll calculate the taxes more precisely each year.

Calculation: Portfolio value / (expenses + income tax).

For this purpose, and this purpose only, I ignore Social Security. As that time comes nearer I could adjust to take it into account, but already I'm at the second-lowest stock allocation specified by the rule, so it won't really make much difference, saying again: for this purpose and this purpose only.

If you're asking how I got so far so fast:
1) Save and invest;
2) Rebalance and invest all the way down and all the way back up our recent interesting times in the stock market;
3) Cut my living expenses by 40%, thereby simultaneously decreasing the amount I have to accumulate, and increasing the amount I can save.

I've carved my policy with an axe, not a scalpel.

Does that help?

PJW

[bungalow10]

+1 Ive been putting all new contributions into bonds to re-balance my Roth.

me too.

[jmndu99]

PJW,

It does help,

I have been thinking of looking at the exact same thing you came up with here recently, just gotta think of it a bit longer, thank you

I particularly paid much attention to this:
" If you're asking how I got so far so fast:
1) Save and invest;
2) Rebalance and invest all the way down and all the way back up our recent interesting times in the stock market;
3) Cut my living expenses by 40%, thereby simultaneously decreasing the amount I have to accumulate, and increasing the amount I can save.

I've carved my policy with an axe, not a scalpel. "

J

[jmndu99]

PJW,

It does help,

I have been thinking of looking at the exact same thing you came up with here recently, just gotta think of it a bit longer, thank you

I particularly paid much attention to this:
" If you're asking how I got so far so fast:
1) Save and invest;
2) Rebalance and invest all the way down and all the way back up our recent interesting times in the stock market;
3) Cut my living expenses by 40%, thereby simultaneously decreasing the amount I have to accumulate, and increasing the amount I can save.

I've carved my policy with an axe, not a scalpel. "

J

[Bacchus01]

I took a significant equity position off the table because 1) I had left that company; 2) I was now into LTCG; and 3) I was overweight in one area and not diversified. Most of that position, however, just shifted to a broader equity class from a single stock to 2 index funds: Vanguard TSM and Vanguard Total Int'l.

I have not shifted my asset allocation at all.

But, I have shifted the mix of holdings within my allocations. For example, I have moved completely out of Total Bond and moved to CDs and Money Market holdings.

I'm target 80/20 and that hasn't changed. The runup in stocks means I"m not investing more, however, as I've now gotten a little out of whack. I'm not moving out of equities to fixed because of the tax consequences. I am putting new money into fixed and will get back over time to my desired AA.

[linenfort]

I have been doing mild rebalancing from stocks to bonds since July. This has been accomplished in stages. The stock market has been so strong that my asset allocation is just the same as before.
Selling some stocks here makes sense to me. If one is going to "panic" out of the market, better to do it when the market is hitting new highs rather than at a bottom.
Other than taking some off the top, I would not market time here. Bull markets can last a long time.
...
I sure would not be "all out" of the stock market.
...

Same here. I've been selling shares here and there since early summer, mostly from individual stocks. (My stock index fund is largely intact except for a rebalance dictated by the permanent portfolio bands). Selling a bit helps me feel better about keeping the lion's share in.

by Dutch » Thu Nov 21, 2013 12:23 pm
What would you pullback/re-balance into? Bonds?

I've mostly been buying 5-year treasury notes with the proceeds, as I've been influenced by Larry Swedroe's Min(imize) Fat Tails strategy.
One might ask, "But won't inflation eat away at the value of those notes, especially when the yield is so low?"
As far as I'm concerned, inflation can feast on my treasury notes. It won't be as much of a bite as a 50% drop in the S&P.

[Phineas J. Whoopee]

PJW,

It does help,

I have been thinking of looking at the exact same thing you came up with here recently, just gotta think of it a bit longer, thank you

I particularly paid much attention to this:
" If you're asking how I got so far so fast:
1) Save and invest;
2) Rebalance and invest all the way down and all the way back up our recent interesting times in the stock market;
3) Cut my living expenses by 40%, thereby simultaneously decreasing the amount I have to accumulate, and increasing the amount I can save.

I've carved my policy with an axe, not a scalpel. "

J

Those parts I could write in a book suggesting everybody follow them, but who would publish it?
PJW

[Phineas J. Whoopee]

...
One might ask, "But won't inflation eat away at the value of those notes, especially when the yield is so low?"
As far as I'm concerned, inflation can feast on my treasury notes. It won't be as much of a bite as a 50% drop in the S&P.

Good one!
PJW

[stemikger]

...
One might ask, "But won't inflation eat away at the value of those notes, especially when the yield is so low?"
As far as I'm concerned, inflation can feast on my treasury notes. It won't be as much of a bite as a 50% drop in the S&P.

Good one!
PJW

I agree good one.

This was an issue I was struggling with recently, especially since Warren Buffett (who I love) has been all over the media telling all us average Joes to get out of bonds and soon many other financial experts were saying the same thing, but at 49, I don't have the stomach to experience that drop. I rather look at bonds as an insurance policy if that ever happens.

[ot1138]

I'm confused. What evidence is there that this rally won't continue?

CAPE/PE10 is just fine. My simulations suggest a 6.1% 10 year CAGR on equities which isn't much lower than it has been for the past year.

Seems to me that years like this are just par for the course.

[fredjohnson]

Tempted to sell stocks? Sure. Am I going to? No.

[JoMoney]

... Seems to me that years like this are just par for the course.

Yup. The norm for rolling 1 year periods is typically not the "average".

[Ranger]

I'm confused. What evidence is there that this rally won't continue?

CAPE/PE10 is just fine. My simulations suggest a 6.1% 10 year CAGR on equities which isn't much lower than it has been for the past year.

Seems to me that years like this are just par for the course.

With CAPE above 25, Cliff Asness article suggests that expected return of next 10 years will be 0.1% with the range of +6 and -6%.

[yatesd]

I enjoy bouncing between the "should I sell stocks" and the "should I sell bonds" threads. It seems like cash is safest unless you realize that inflation or interest rate changes can make them just as dangerous...

[dickenjb]

My target AA is 60/40 and I am currently at 64.2% stocks. So yes, I am tempted to sell some stocks. But my IPS says my rebalance bands are +/- 5%. So I will wait a little longer.

When I do pull the trigger I will sell down to 60% per my IPS.

Now I am at 64.5% equities. When it gets to 65 I will be compelled (not tempted) to reduce my equities to 60%.

[midareff]

What's next, are we gonna have a 300 post thread about candlesticks or lightbubs or some other smoke and mirror "technical analysis"

Works for me, I actually think technical analysis can be useful. Back when I did active trading I used fundamental analysis to tell me what to trade and technical analysis to tell me when. Some very useful signals include:

Bollinger Band squeezes
Ascending/Descending Triangles
Point and Figure chart targets
Doji or other turnaround candlestick patterns
Channel Lines
50/200 SMA cross
Resistance levels

The main problem with both fundamental and technical analysis is that they can't be made completely mechanical, you always need to inject your experience and judgement which means eventually you'll make a mistake. One of the advantages of buy and hold is that it takes the human out of the equation. You miss out on big wins, but you also minimize your number of big losses. Given the efficiency level of today's market the advantage is mostly with the indexer rather than the active trader.

My wife prefers Tarot and Astrology.