Author Topic: Market timing (yes, I know)  (Read 435 times)

frugaldrummer

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Market timing (yes, I know)
« on: July 07, 2019, 02:18:21 PM »
I've always followed the principle of just leaving my money invested and it has served me well.

Now I am within a few years of (not early) retirement. I'll be in decent shape, with social security, part of my ex's pension (no COLA on that) and $500k in a 401k.

Right now the 401k is invested in balanced mutual funds but I'm concerned about this overheated stock market and the likelihood of a stock crash/recession in the relatively near future. Even NPR is reporting on troubling indicators and a look at the DJIA or NASDAQ graphs looks like a bubble.

So I'm considering one of three courses:
1) Just leave it there. That always made sense before but with my retirement timeline, a major drop in the market could seriously set back my plans, and require me to work longer.

2) Take some or all of my money out of funds and reinvest slowly. Worst case, I risk losing maybe a year or two of growth, which at this point would not make a big difference in my plans. Best case scenario I buy back into the market on a crash and double my money by buying back into a cheap market (this WOULD have a significant, positive impact on my retirement plans.). More likely scenario, I am able to reinvest slowly through a recession and preserve my stash.

3) Switch to a more conservative mix for a year or two (although bond funds did not fare well either in the last crash).

What would you do?
 (Additional details: planning full or partial retirement in 2-4 years, wait 7 years to draw max Social Security at 70, pension at 65 (hopefully- depends on ex-husband's retirement timeline and he's 4 years younger than me, but he can retire in a year). Pension does not cover my living expenses so would be drawing on 401k until Social Security at 70. Longevity runs in family so planning on living to 100. )

« Last Edit: July 07, 2019, 02:24:38 PM by frugaldrummer »

TheHardenedInvestor

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Market timing (yes, I know)
« Reply #1 on: July 07, 2019, 02:48:28 PM »
I would invest using an asset allocation of 75% stocks, 25% bonds (or other fixed income), and go on with my life.

All your question boils down to is your asset allocation. Anything under 50% stocks is too low, and anything above 75% probably isn’t worth the risk for your situation. So, take your pick, and move on from this question.

wjinghlw

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Market timing (yes, I know)
« Reply #2 on: July 07, 2019, 08:29:00 PM »
If it makes you sleep better you could adjust AA a little. What is your current AA? Consider increasing diversification with exposure to commodities?


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« Last Edit: July 07, 2019, 08:34:18 PM by wjinghlw »

frugaldrummer

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Re: Market timing (yes, I know)
« Reply #3 on: July 10, 2019, 02:59:52 PM »
Currently those funds are in a balanced mutual fund, I don't know the exact ratio of bonds to stocks off the top of my head. My point though is that in the last crash, bonds went down as well as stocks so a similar crash today would not be cushioned by this mix. If I took $$ out of the mutual fund I would look for some conservative investment to stash it in while slowly cost-averaging  it back in to the mutual funds.

Could the stock market go up another 10% before it crashes - possibly. Would that be worth the risk of the value of those funds being cut in half for the next several years as the market recovers from another artificially propped up bubble? Not for me, since I would need to draw on those funds during the next several years. 

Moustachienne

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Re: Market timing (yes, I know)
« Reply #4 on: July 10, 2019, 06:15:32 PM »
Worry about stock market volatility close to retirement is very understandable.  I was able to stop worrying and love the market by using the Cash Wedge strategy.  This is similar to Laddering - https://en.wikipedia.org/wiki/Laddering - but I don't think there's any need to have complicated multiple accounts/vehicles.  Just have 1,2,3 years of living expenses in low risk, easily accessible accounts/vehicles - and keep replenishing them.  This time frame will easily ride out most stock market hiccups, including 2008, without needing to liquidate anything at a loss.

Explained here:

"Working with your advisor, a portion of your retirement income (usually one year's worth) is allocated to a conservative, highly accessible investment such as a money market fund or high daily interest account. We named this portion of your portfolio The Cash Wedge©. This is from where you draw your retirement income. The second and third year’s income is allocated into a guaranteed short-term investment, such as 1 and 2 year GICs, bonds or an investment savings account.

On maturity, the short-term investments are used to replenish The Cash Wedge© and provide guaranteed income for years two and three respectively. The rest of your savings is left to grow with time in a diversified portfolio that meets your personal financial needs. Over time, any profits are moved from the invested portfolio into a cash position to create income for year four and subsequent years."
https://www.diamondretirement.com/strategies/cash-wedge-strategy

ChpBstrd

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Re: Market timing (yes, I know)
« Reply #5 on: July 11, 2019, 02:25:45 PM »
#4
If you are a finance nerd, learn about strategies with options contracts that could protect your portfolio from large draw-downs while letting you stay invested in equities. For example:

http://www.cboe.com/strategies/beginner/equity/protective-puts-strategy/part1
http://www.cboe.com/strategies/intermediate/equity/equity-collars-strategy/part1