Author Topic: Holding cash until bottom of this coming recession?  (Read 10564 times)

ryan112ryan

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Holding cash until bottom of this coming recession?
« on: July 13, 2017, 12:01:04 AM »
I self employed and I have a steady income to cover all my monthly bills and a bit savings. However I get most of my income in large bursts.  Like one month might pull in 80% of income for the year and I just budget for it.  I live off 20% of my income which comes in monthly. The bursts are bonuses.

I'm about to have another one of those bursts from the sale of a business and I'll have paid off student loans and my house so I have no debt at all, now I'm ready to sock away a lot of money. 

I know there is another recession coming in about a year and I believe it will be bad. 

I guess my question is:  is there a reason not to wait and buy low.  I may not be able to nail the bottom perfectly, but close enough to ride it to the top of the next peak and then pull money out, let it crash, buy low ride to peak. If I totally miss it and it crashes while I'm in then just ride it to the next peak.  It doesn't seem that difficult to read the writing in the wall for these big crashes give or take a year, but the gains seem like it would be worth even pulling out a year or two early. 

I'm a total newb so show me where I'm wrong.

ixtap

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Re: Holding cash until bottom of this coming recession?
« Reply #1 on: July 13, 2017, 12:13:37 AM »
You know there is a recession coming in a year?! Do you realize how much you can make with that knowledge?!

Are you also aware that this kind of post has been popping up for at least two years already? Anyone who sat on it over those two years has missed out on some impressive gains.

Make a plan, stick with it, ride out a recession.

Mgmny

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Re: Holding cash until bottom of this coming recession?
« Reply #2 on: July 13, 2017, 05:02:48 AM »
You should read "The Black Swan."

Just like the previous poster said, if you know there is going to be a recession, don't wait but short, short, short! You could be a billionaire easily if you properly predict it.

The problem is that you claim you can easily read the writing on the wall. According to the book I recommended above, by the very nature of you being able to predict it means it probably won't happen.

You're not smarter than Wall Street, just dollar cost average like the rest of us and any upcoming recession really won't matter.

dess1313

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Re: Holding cash until bottom of this coming recession?
« Reply #3 on: July 13, 2017, 05:04:53 AM »
Can i borrow your crystal ball?  i have a lottery i'd like to win

no guarantees in life.  lots of pointers but it could take another 2 months or another 2 years before anything happens.  markets might be a -10% drop or it could go up another 20%.  or it could drop 30%.  If it makes you feel better, as part of your plan, slowly insert 1/8 or some such percentage per month to average out the high and low points, as per your investing plan. 

Linea_Norway

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Re: Holding cash until bottom of this coming recession?
« Reply #4 on: July 13, 2017, 05:32:41 AM »
If your gut feeling tells you there will be a crash within a year, then keeping cask could an answer. But know that inflation eats up a certain amount of your cash, even if you get a little rent. And if inflation would become really high, your cash would not sit safe in a bank. Maybe investing in a rental property could be a solution for you? Yes, there is also a possible housing bubble coming, so you need to buy carefully. Investing is all about taking risks and how much your are willing to take. An index fund is far from the highest risk.

Smokystache

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Re: Holding cash until bottom of this coming recession?
« Reply #5 on: July 13, 2017, 06:02:38 AM »
RyanRyan,
It is a very compelling goal - I too would love to be able to save myself some money and maximize returns. I believe that looking back (below is a 20 year S&P returns example), that it seems so obvious that we could sell "somewhere" the top and buy "somewhere" near the bottom (it doesn't have to be perfect, after all, look how much difference is between the highs and the lows!!!). After all, I realize that I can't pick the exact high and the exact low, but even getting close looks like it would be a huge advantage. Right!?!



Unfortunately that's wrong. One reason is the power of just a handful days. One of the most compelling realizations for me to avoid trying to buy/sell into highs/lows is when I learned about the power of missing out on the X (5, 20, etc.) best days in the market over a period of time and how that would affect my long term returns. For example, the graph below shows that if you miss out on just the 10 best days over 20 years and your return would drop 3.75% (From almost ~10% return to ~6%). Ouch.

Miss out on the next best 10 days and your returns drop even further to 3.6% (Obviously, this is just one example).

So among other factors, the question is NOT "Can I see when the market is kinda close to the top and kinda close to the bottom" - the real question is: "Can I predict the 1 day every two years when I will get huge returns?" And then during the next bull/bear cycle, can you do it again, and again....  Because if you don't, you'll lose out on huge gains.


lifeminimalized

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Re: Holding cash until bottom of this coming recession?
« Reply #6 on: July 13, 2017, 06:06:33 AM »
Go post this over on the bogleheads forum, dare ya!

YttriumNitrate

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Re: Holding cash until bottom of this coming recession?
« Reply #7 on: July 13, 2017, 06:53:27 AM »
To be fair, the thinking that the big gains come from only a handful of big up days kind of breaks down when you realize that the big up days and the big down days are usually clustered together.

ReadySetMillionaire

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Re: Holding cash until bottom of this coming recession?
« Reply #8 on: July 13, 2017, 07:02:24 AM »
To be fair, the thinking that the big gains come from only a handful of big up days kind of breaks down when you realize that the big up days and the big down days are usually clustered together.

Right, but there were a bunch of "big down days...clustered together" in the beginning of 2016.  January and February were terrible and everyone was saying it was the "retail crash" and the "student loan crash" and on and on.  The S&P was at 1865 in mid-February of 2016; it's now at 2,443.

You can't predict this stuff.

Mr. Green

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Re: Holding cash until bottom of this coming recession?
« Reply #9 on: July 13, 2017, 07:51:28 AM »
What are your reasons for thinking there will be a recession in a year? All major economic indicators currently point to a continuation of the status quo.

PathtoFIRE

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Re: Holding cash until bottom of this coming recession?
« Reply #10 on: July 13, 2017, 07:58:46 AM »
http://awealthofcommonsense.com/2015/03/stock-performance-before-during-after-recessions/

"The next logical step from here is the see how stocks performed in and around these past recessions. I only have monthly S&P 500 returns going back to the mid-1950s, but that was good enough to show the total returns leading up to, during and after each of the past nine recessions:
"



While some recessions, in hindsight, look like great opportunities, on average there's not been much to gain by timing recessions to the year.

Cwadda

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Re: Holding cash until bottom of this coming recession?
« Reply #11 on: July 13, 2017, 07:59:56 AM »
Can I also borrow your crystal ball real quick?

Lady SA

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Re: Holding cash until bottom of this coming recession?
« Reply #12 on: July 13, 2017, 08:17:27 AM »
Even with a crash, it still makes sense to invest.
For interesting reading: http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

Mgmny

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Re: Holding cash until bottom of this coming recession?
« Reply #13 on: July 13, 2017, 09:19:04 AM »
Ryan ryan has unleashed the bowels of hell on this forum. Haha.

Cwadda

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Re: Holding cash until bottom of this coming recession?
« Reply #14 on: July 13, 2017, 10:03:31 AM »
Quote
Don't tie all of your assets to the US stock market if you think it's overvalued right now.

Take it out of the bank, put it in glass jars and bury it in your backyard!!

Quote
Ryan ryan has unleashed the bowels of hell on this forum. Haha.
You've got that right. It happens several times a week.

ryan112ryan

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Re: Holding cash until bottom of this coming recession?
« Reply #15 on: July 13, 2017, 10:05:42 AM »
RyanRyan,
It is a very compelling goal - I too would love to be able to save myself some money and maximize returns. I believe that looking back (below is a 20 year S&P returns example), that it seems so obvious that we could sell "somewhere" the top and buy "somewhere" near the bottom (it doesn't have to be perfect, after all, look how much difference is between the highs and the lows!!!). After all, I realize that I can't pick the exact high and the exact low, but even getting close looks like it would be a huge advantage. Right!?!



Unfortunately that's wrong. One reason is the power of just a handful days. One of the most compelling realizations for me to avoid trying to buy/sell into highs/lows is when I learned about the power of missing out on the X (5, 20, etc.) best days in the market over a period of time and how that would affect my long term returns. For example, the graph below shows that if you miss out on just the 10 best days over 20 years and your return would drop 3.75% (From almost ~10% return to ~6%). Ouch.

Miss out on the next best 10 days and your returns drop even further to 3.6% (Obviously, this is just one example).

So among other factors, the question is NOT "Can I see when the market is kinda close to the top and kinda close to the bottom" - the real question is: "Can I predict the 1 day every two years when I will get huge returns?" And then during the next bull/bear cycle, can you do it again, and again....  Because if you don't, you'll lose out on huge gains.



I'm doing my best to comprehend this but I must be seriously missing something. I'm looking at getting in and going out in say 5-7 year chunks and buying when it's plain as day when we are down and sell when it's all feeling good.  Not in days or even months, but years. For example looking at S&P in 2009 everyone knew things were super bad even if you lived under a rock.  If in 2009 to 2010 I bought in that time and just let it sit until today (2017) when almost everyone agees were out of the recession. It went from ~650 to ~2500.  If I bought and it went down some more I'd not pull out but wait (I'm looking st this in years).  Eventually it would go back up.  If I was thinking of selling at the top here in 2017 but before I got to take it out it all tanked, I'd just wait until the next peak which maybe 5 years.

I guess what I'm saying is operate on roughly 5-7 year chunks, where I can eliminate big drops which would offset if I pulled out 2 years too early.  If I totally missed it, dont freak out and stay in.
« Last Edit: July 13, 2017, 10:10:33 AM by ryan112ryan »

ixtap

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Re: Holding cash until bottom of this coming recession?
« Reply #16 on: July 13, 2017, 10:08:40 AM »
Why don't you just put it in now and not panic? Or go look for those stories of the people who started thinking like you in 2015 and have missed out on market gains?

Scortius

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Re: Holding cash until bottom of this coming recession?
« Reply #17 on: July 13, 2017, 10:25:07 AM »
RyanRyan,
It is a very compelling goal - I too would love to be able to save myself some money and maximize returns. I believe that looking back (below is a 20 year S&P returns example), that it seems so obvious that we could sell "somewhere" the top and buy "somewhere" near the bottom (it doesn't have to be perfect, after all, look how much difference is between the highs and the lows!!!). After all, I realize that I can't pick the exact high and the exact low, but even getting close looks like it would be a huge advantage. Right!?!



Unfortunately that's wrong. One reason is the power of just a handful days. One of the most compelling realizations for me to avoid trying to buy/sell into highs/lows is when I learned about the power of missing out on the X (5, 20, etc.) best days in the market over a period of time and how that would affect my long term returns. For example, the graph below shows that if you miss out on just the 10 best days over 20 years and your return would drop 3.75% (From almost ~10% return to ~6%). Ouch.

Miss out on the next best 10 days and your returns drop even further to 3.6% (Obviously, this is just one example).

So among other factors, the question is NOT "Can I see when the market is kinda close to the top and kinda close to the bottom" - the real question is: "Can I predict the 1 day every two years when I will get huge returns?" And then during the next bull/bear cycle, can you do it again, and again....  Because if you don't, you'll lose out on huge gains.



I'm doing my best to comprehend this but I must be seriously missing something. I'm looking at getting in and going out in say 5-7 year chunks and buying when it's plain as day when we are down and sell when it's all feeling good.  Not in days or even months, but years. For example looking at S&P in 2009 everyone knew things were super bad even if you lived under a rock.  If in 2009 to 2010 I bought in that time and just let it sit until today (2017) when almost everyone agees were out of the recession. It went from ~650 to ~2500.  If I bought and it went down some more I'd not pull out but wait (I'm looking st this in years).  Eventually it would go back up.  If I was thinking of selling at the top here in 2017 but before I got to take it out it all tanked, I'd just wait until the next peak which maybe 5 years.

I guess what I'm saying is operate on roughly 5-7 year chunks, where I can eliminate big drops which would offset if I pulled out 2 years too early.  If I totally missed it, dont freak out and stay in.

You are making some assumptions in your logic that are just flat out incorrect, and could cost you a lot of money.

Your number one assumption is that once the next recession comes, the market will drop to levels below where they are today.  It's very likely that this will simply not happen.  Even if there is a recession next year, the market could have climbed another 10 or 20% before the drop.  Then the drop may end up being more of a simple correction or prolonged stagnation that doesn't lower the price much at all.  Oops.

Your second assumption is that once the drop does happen (if it happens), that you'll be able to buy at the bottom.  It seems so simple.  Wait for it to go down, then buy once it stops going down.  Except, how do you know when it's done dropping?  Will you buy in during a dead cat bounce?  (Yes, I just wanted to use the term correctly in context.)  Will you wait another week for things to keep dropping, only to see the market recover 5%? Then, you've just spend a year waiting on the sidelines hoping to get lucky, you actually did correctly predict the market movement, and you end up gaining, what, 5-10%?  Those are pretty poor gains for such long odds, especially considering how much you stand to lose if this doesn't play out exactly as you hope.

People are biased because we're not far removed from two very large market crashes.  What you're not realizing is that the crashes of 2002 and 2008 are not the norm.  You can't expect to see huge 50% drops in the market.  Rather, you're more likely to see reduced gains over a long period of time, with no large drops.  Or, you'll see a 5 or 10% dip and then a steady march upward for another 5-10 years.  If you're not in the market now, you will lose a lot of value by waiting, even assuming there is a 'correction' soon.

frugalnacho

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Re: Holding cash until bottom of this coming recession?
« Reply #18 on: July 13, 2017, 10:26:43 AM »
I'm doing my best to comprehend this but I must be seriously missing something. I'm looking at getting in and going out in say 5-7 year chunks and buying when it's plain as day when we are down and sell when it's all feeling good.  Not in days or even months, but years. For example looking at S&P in 2009 everyone knew things were super bad even if you lived under a rock.  If in 2009 to 2010 I bought in that time and just let it sit until today (2017) when almost everyone agees were out of the recession. It went from ~650 to ~2500.  If I bought and it went down some more I'd not pull out but wait (I'm looking st this in years).  Eventually it would go back up.  If I was thinking of selling at the top here in 2017 but before I got to take it out it all tanked, I'd just wait until the next peak which maybe 5 years.

I guess what I'm saying is operate on roughly 5-7 year chunks, where I can eliminate big drops which would offset if I pulled out 2 years too early.  If I totally missed it, dont freak out and stay in.

It's only "plain as day" in retrospect.  That is what you are missing.  Yes we all knew it was a fantastic deal to buy in 2009, and we all know it's much less of a deal to buy in 2017.  But holding cash is an even worse deal. People have been posting threads nearly identical to this one for literally years saying a recession is coming and everyone should stop investing, and pull your investments out.  Every one of those people so far have been fools and have lost out on big gains over the last several years.  You don't know where the market is going, and you don't know if this is the top.  You don't know when or where the  recession will start, nor how long it will last.  You may get lucky, but the odds are overwhelmingly against you calling the correct top and bottom.  The odds of you continuing to call the correct tops and bottoms in the future are even less likely.  Statistically speaking you are better off just dumping money into the market as it becomes available to you - even if you think the market is highly over valued and due for a major recession.

The consequences of you being right but still investing is minimal in the long run.  If you just keep investing for the next 10 years it really won't matter if you make a huge "error" and invest right now while the market is over valued.  There is far more potential for you to be wrong though and lose out significant growth in the years to come by holding cash and thinking you can time the market.

CowboyAndIndian

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Re: Holding cash until bottom of this coming recession?
« Reply #19 on: July 13, 2017, 10:27:09 AM »
...
So among other factors, the question is NOT "Can I see when the market is kinda close to the top and kinda close to the bottom" - the real question is: "Can I predict the 1 day every two years when I will get huge returns?" And then during the next bull/bear cycle, can you do it again, and again....  Because if you don't, you'll lose out on huge gains.
...

SmokyStache, great answer. Posted to best posts...

ReadySetMillionaire

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Re: Holding cash until bottom of this coming recession?
« Reply #20 on: July 13, 2017, 10:31:56 AM »
I'm doing my best to comprehend this but I must be seriously missing something. I'm looking at getting in and going out in say 5-7 year chunks and buying when it's plain as day when we are down and sell when it's all feeling good.  Not in days or even months, but years. For example looking at S&P in 2009 everyone knew things were super bad even if you lived under a rock.  If in 2009 to 2010 I bought in that time and just let it sit until today (2017) when almost everyone agees were out of the recession. It went from ~650 to ~2500.  If I bought and it went down some more I'd not pull out but wait (I'm looking st this in years).  Eventually it would go back up.  If I was thinking of selling at the top here in 2017 but before I got to take it out it all tanked, I'd just wait until the next peak which maybe 5 years.

I guess what I'm saying is operate on roughly 5-7 year chunks, where I can eliminate big drops which would offset if I pulled out 2 years too early.  If I totally missed it, dont freak out and stay in.

To put it as simply as I can, you will never exactly predict the lowest of the lows (and you'll likely be substantially off), and you'll never exactly predict the highest of highs. You will never just beat the average if you kept it in long term.

Dmy0013

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Re: Holding cash until bottom of this coming recession?
« Reply #21 on: July 13, 2017, 11:13:22 AM »
I waited 5 years to buy a house, because I was also sure that the recession was just around the corner, and I could cash in big time with a flood of houses coming to the market by desperate people...

Well that house I wanted to buy that was 400,000 5 years ago is now 500,000.  That neighbourhood I wanted does not have many homes for sale and the ones that do pop up go quick at high prices due to demand.

So I'm now in my second choice neighbourhood and paid way more for the home...

But then again maybe your right?

intellectsucks

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Re: Holding cash until bottom of this coming recession?
« Reply #22 on: July 13, 2017, 11:34:27 AM »
Letís look at some possible scenarios of how this mindset could really hurt you over time.  Letís assume you have $100k sitting around.  Weíll go with your timeline of 5 years.
Scenario 1: The next five years look almost identical to how they did starting in 2008, one of the worst economic environments since the great depression.
If you are REALLY lucky and time the market correctly, then you will end your five year period with $182,627 (1% return year one, average of 14.9% starting year two).  An average return of 16.4%
Scenario 2: Same as above except you invest now.  You end up with $132,000 (-37% year one, average of 14.90% starting year two) An average return of 6.4%
Scenario 3: You invest now, but the recession doesnít happen until year five.  You end up with $113,915 (14.9% average return first four years, -37% return in year five) An average return of 2.8%
Scenario 4: You hold out in cash, the recession doesnít happen until year five.  You end up with $105,124.  The average return for all five years is the same since you didnít invest.
Youíve stated that the recession will happen next year.  I propose this: if you are not confident enough in your ability to predict next yearís market returns to short sell the market, then you should not be confident enough to sit on the sidelines (youíre extremely likely to sit too long and end up losing a ton of growth).
If none of this advice, or any of the other advice in the thread can convince you, then why not split your windfall half and half?  Invest half now, and leave the other half in cash until the crash.  Then wait your preferred timeline and compare. 


Smokystache

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Re: Holding cash until bottom of this coming recession?
« Reply #23 on: July 13, 2017, 11:39:08 AM »
Quote
I'm doing my best to comprehend this but I must be seriously missing something. I'm looking at getting in and going out in say 5-7 year chunks and buying when it's plain as day when we are down and sell when it's all feeling good.  Not in days or even months, but years. For example looking at S&P in 2009 everyone knew things were super bad even if you lived under a rock.  If in 2009 to 2010 I bought in that time and just let it sit until today (2017) when almost everyone agees were out of the recession. It went from ~650 to ~2500.  If I bought and it went down some more I'd not pull out but wait (I'm looking st this in years).  Eventually it would go back up.  If I was thinking of selling at the top here in 2017 but before I got to take it out it all tanked, I'd just wait until the next peak which maybe 5 years.

I guess what I'm saying is operate on roughly 5-7 year chunks, where I can eliminate big drops which would offset if I pulled out 2 years too early.  If I totally missed it, dont freak out and stay in.

I can sense that you're really trying to get your mind around this. I have personally struggled with it too. Obviously I can't speak for you, but I've had thoughts like "Look at those graphs. The top is so far from the bottom. I'm not greedy, I'm just going to miss those big, obvious times when it is definitely going down or going up. I'm a pretty sharp guy."

The other realization that was helpful for me is that if it were that straightforward, then the "financial experts" and mutual fund managers would be doing this. They would take their computers, computer models, and huge staffs of finance experts and they would do this and supposedly "beat the market" relatively consistently.

But the truth is that people who think about this stuff all day long and devote their entire lives to it cannot jump in and out consistently enough to beat average broad index returns. It's not for lack of trying - if a mutual fund manager could show that he/she were beating the S&P500 20 years in a row without wacky risk-taking, then he/she would be on the cover of every finance magazine and would be paid hundreds of millions of dollars. (Why 20 years? I don't know how long you need your money to grow, but you'd have to consistently be right again and again and again ... .because if you slip up once (especially later on) and take an unnecessary 10% loss, then you just threw all your extra earnings. It could be longer).

I empathize though. It looks like it should be so easy. I tried to do this with financial index funds over the last 15 years. There are definitely times when banks are doing well and when they are doing poorly. Right? Should be easy right? After a couple of years I was happy to break even and get out. That's why almost everyone around here focuses on consistent contributions to index funds of some type. We like to argue about stock/bond ratios and the wisdom/foolishness of being in 100% stocks and international vs. domestic index funds .... but the vast, vast majority focus on consistently putting their money into index funds and riding it out. The other advantage is that you never have to be thinking/worrying about when to get in/out and having second thoughts about your timing.

Another compelling thing is that someone who has beaten the averages for decades (and has no financial stake in whether we take his advice) says this:



...
So among other factors, the question is NOT "Can I see when the market is kinda close to the top and kinda close to the bottom" - the real question is: "Can I predict the 1 day every two years when I will get huge returns?" And then during the next bull/bear cycle, can you do it again, and again....  Because if you don't, you'll lose out on huge gains.
...

SmokyStache, great answer. Posted to best posts...

(Blushes)




nawhite

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Re: Holding cash until bottom of this coming recession?
« Reply #24 on: July 13, 2017, 12:51:44 PM »
Let's say you're 100% right. In that case you should borrow as much money as you can and then short the market with everything today. This will give you a HUGE multiplier on your returns. Why not do that?

Holding cash is just the first stop on the market timing train, I vote you go full bore and do leveraged naked shorts! Way more return potential there.

(Obviously I'm being sarcastic, you shouldn't do that. What I'm trying to get at is, why is holding cash the magical point that fits your confidence level? Are you extremely loss averse? Mathematically, you should get in now because you have no way of knowing if the market will go up significantly before it goes down. Unfortunately, that plan also basically guarantees you will lose money at some point. And that's ok. If you're not comfortable with losing money, you shouldn't invest in the stock market ever. It isn't the right investment for you.)

frugalnacho

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Re: Holding cash until bottom of this coming recession?
« Reply #25 on: July 13, 2017, 01:40:55 PM »
Every time this same post comes up, there is all or nothing thinking.  Someone argues to hold everything in cash, while others argue they should put 100% in the "market" (as defined by the US Stock Market).  I really think we need to diversify our portfolios and our thinking more here.  If you chose 25% cash, 25% bonds, 25% domestic stocks, 25% international you would have 75% of your dollars in things that are not related to the US stock market, so the valuation won't matter.  This is just an arbitrary example - see portfoliocharts.com and be amazed.

The issue is not what % of cash/bonds/stocks you are comfortable owning, it's changing that up based on market conditions.  If you are comfortable keeping 100% cash, do that.  But flipping back and forth between cash and stocks and trying to time the market is a mugs game.  Just pick an asset allocation you are comfortable with and stick with it no matter what.  If the markets go crazy one way or another then you rebalance your assets to your desired asset allocation.

davisgang90

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Re: Holding cash until bottom of this coming recession?
« Reply #26 on: July 13, 2017, 02:00:14 PM »
We could have a drinking game based on "timing the market" threads.

On second thought, that's a bit too much alcohol for me.

caracarn

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Re: Holding cash until bottom of this coming recession?
« Reply #27 on: July 13, 2017, 02:00:38 PM »
I think one key point that may not be stated as clearly is that many of us have already traveled the route you seem to want to travel OP, and through the school of experience we have learned the wisdom of all these things we are posting.  So it is not just that we respect Warren Buffet and therefore offer his quotes to you and follow them, it is that we KNOW Warren Buffet is right because many of us tried and failed miserably to beat the market with our own hair brained scheme that seemed so clear.  I have picked individual stocks.  I have used complex algorithms.  One year, I'd beat the market and laugh and my clueless friends.  Then next year I did it again, and laughed some more.  Then the year after that I made one poorly timed decision (of course my fool proof model was telling me the timing was right on) and it wiped out everything that had but me ahead for those two years and usually more.  Now I got to play catch up.  Sometimes I caught up and broke even to what I would have had had I just been indexing and dollar cost averaging, sometimes I did not.  After 10 years of this and ending up down a bit I finally succumbed to the great knowledge base of index investing and said I'm not going to waste me time to tread water.  I have better things to do with my life than watch market indices and try to read the unreadable tea leaves.  We are just trying to help you avoid that pain and anguish, but hey, some people, myself included only learn through the school of hard knocks.  We think we've discovered something millions  of others have somehow overlooked so we come on a discussion board and try to explain it to people who say, "Run away from your ego and just invest!"

caracarn

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Re: Holding cash until bottom of this coming recession?
« Reply #28 on: July 13, 2017, 02:08:47 PM »
Every time this same post comes up, there is all or nothing thinking.  Someone argues to hold everything in cash, while others argue they should put 100% in the "market" (as defined by the US Stock Market).  I really think we need to diversify our portfolios and our thinking more here.  If you chose 25% cash, 25% bonds, 25% domestic stocks, 25% international you would have 75% of your dollars in things that are not related to the US stock market, so the valuation won't matter.  This is just an arbitrary example - see portfoliocharts.com and be amazed.

The issue is not what % of cash/bonds/stocks you are comfortable owning, it's changing that up based on market conditions.  If you are comfortable keeping 100% cash, do that.  But flipping back and forth between cash and stocks and trying to time the market is a mugs game.  Just pick an asset allocation you are comfortable with and stick with it no matter what.  If the markets go crazy one way or another then you rebalance your assets to your desired asset allocation.
Yes, and I'd also add, that the "safe" parts of this mix are only safe against loss.  Several of them will rarely if ever beat inflation, so while the might help you avoid the US market fluctuations, you are leaving money on the table from an actual mix that can provide decent returns.  There are all kinds of threads, articles and other writings all over the internet and libraries the world over that indicate that only equity investments are going to provide returns that have any chance of growing your money.  While some people may feel comfortable holding lower levels of equities it is only a method of emotional security blanketing to avoid making snap judgments and withdraw during a downturn because your risk aversion cannot stomach a 50% drop in your portfolio so you sell.  If however you do not react, models will show that the equity heavy portfolio outperforms this structure 100% of the time when you simply place money into it and leave it there.  Only taking action locks in the changes that then can drive a full US market portfolio for example to underperform this type of spread.

iceberg8

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Re: Holding cash until bottom of this coming recession?
« Reply #29 on: July 13, 2017, 02:09:15 PM »
What if the market goes by NIKKEI route ? after 20 years, they are still in -50%

caracarn

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Re: Holding cash until bottom of this coming recession?
« Reply #30 on: July 13, 2017, 02:24:11 PM »
What if the market goes by NIKKEI route ? after 20 years, they are still in -50%
As said before, if the US market does that, then everybody on here is in deep doodoo.

In the end it's the old saying that floated around for a while at the start of the 2008 crisis.  "The US market may be a dirty shirt, but it's the cleanest dirty shirt in the world".  In short, what I'm saying is that I can't create a fictional investment vehicle.  So I have to pick from what is out there.  And I still believe that the US economy has the greatest potential of anyone in the world to over the LONG TERM deliver innovation which leads to profits.  That's what drives a market.  The NIKKEI issue was explained earlier.  Japanese culture and failure to capitalize based on how the populace thought was their barrier and what has driven to lack of success of Japanese companies in the long term.  I feel US culture is different.  IF, and that's a really big IF, that ever changes, I'l re-evaluate, but for now I take the stance of Bogle and Buffett.  I am more than adequately exposed to international investment by being fully invested in the total US stock market because of the global involvement of the major US companies still being the leaders in the world.  I feel holding a separate international index fund is just something one might do for peace of mind but not one that will actually make any difference.  If I was 100% US Total Stock, versus 50% US Total Stock and 50% Rest of World, my long term returns would not be higher in the later scenario over a long period of time.  The best I could hope for would be the same or a bit less.  I've seen this when I tried this over a 10 year period.  Over a 5-10 year period perhaps the latter wins out.  Over a 20 year period the infighting and instability of business climate outside the US causes periodic losses that negate any "help" holding stocks outside the US provide.  Then you are back to market timing, trying to predict when the US is really in a recession and the rest of the world is not.  As this whole thread showed, timing is a fool's errand.
« Last Edit: July 13, 2017, 02:26:49 PM by caracarn »

iceberg8

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Re: Holding cash until bottom of this coming recession?
« Reply #31 on: July 13, 2017, 10:35:17 PM »
Thanks for the post.
Well, I also think, that the recession would last only few months, as consumers would love to get back on their habits and consume. Not just that, but simply live their lifestyle, and that would keep stocks up, maybe, I think.. Some smart innovators will always innovate, World will not top just where it is. So some ultra black scenarios like 5 years power outages out of question, and truly sci-fi.. or at least for 99,9% . So is the timing.. So we should simply buy on regular basis, perhaps buy a little bit more after some correction by few % to outweigh the average price, and money will roll in eventually :)

Paul der Krake

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Re: Holding cash until bottom of this coming recession?
« Reply #32 on: July 13, 2017, 10:39:43 PM »
We could have a drinking game based on "timing the market" threads.

On second thought, that's a bit too much alcohol for me.
Are you suggesting we time the timing threads?

iceberg8

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Re: Holding cash until bottom of this coming recession?
« Reply #33 on: July 13, 2017, 10:47:03 PM »
But still, these SP or any other charts, which seems like to da moon looks pretty interesting. How far can they go..  It's crazy that something that did cost 650, now cost nearly triple (with dividends or not)

But it is double after 10 years, if we do not count the 650dip. Thats pretty much normal for the markets.. SO should we see 4000 in 10years?

okits

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Re: Holding cash until bottom of this coming recession?
« Reply #34 on: July 14, 2017, 12:13:17 AM »
What if the market goes by NIKKEI route ? after 20 years, they are still in -50%

Err, what?

https://dqydj.com/nikkei-return-calculator-dividend-reinvestment/

July 1997-July 2017 gives -1%, or 32% when you count reinvested dividends.  Inflation doesn't change the returns much.  Still shitty ROI, but not anywhere near as bad as "-50%".

For the OP, you seem unswayed by all the arguments others have put forth (and that I would agree with), so if you're dead sure you can time correctly, proceed and let us know how it goes.

iceberg8

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Re: Holding cash until bottom of this coming recession?
« Reply #35 on: July 14, 2017, 02:59:36 AM »
Er,, try Dec1989 for example.
-46%
Total Nikkei-225 Return (Dividends Reinvested) -25%
Annualized Nikkei-225 Return (Dividends Reinvested) -1%

I was talking about "from TOP to toady", not sure when exactly was the top.

So my bad, not 20 years in deflation but 27 years..

2Birds1Stone

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Re: Holding cash until bottom of this coming recession?
« Reply #36 on: July 14, 2017, 03:58:07 AM »
Dude, start a hedge fund ;)

Might as well go all in and short the market now

okits

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Re: Holding cash until bottom of this coming recession?
« Reply #37 on: July 14, 2017, 02:17:57 PM »
Er,, try Dec1989 for example.
-46%
Total Nikkei-225 Return (Dividends Reinvested) -25%
Annualized Nikkei-225 Return (Dividends Reinvested) -1%

I was talking about "from TOP to toady", not sure when exactly was the top.

So my bad, not 20 years in deflation but 27 years..

So if you fear another Nikkei-like performance, construct a portfolio that diversifies away some of that risk.  Hold as much cash or as many guaranteed investments as you need to in order to match your risk profile, and adjust your FIRE timeline to the realistic future returns of your portfolio.

While your top-to-today numbers look scary, I'm sure there weren't many investors who jumped in with their entire NW in Dec 1989 in that single index.  Actual investors' returns will vary, some (hopefully most) better, some worse.

aspiringnomad

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Re: Holding cash until bottom of this coming recession?
« Reply #38 on: July 14, 2017, 10:20:08 PM »
Er,, try Dec1989 for example.
-46%
Total Nikkei-225 Return (Dividends Reinvested) -25%
Annualized Nikkei-225 Return (Dividends Reinvested) -1%

I was talking about "from TOP to toady", not sure when exactly was the top.

So my bad, not 20 years in deflation but 27 years..

FWIW, the CAPE of the Nikkei-225 was 92 in December 1989. If that or something close happens here, then I'll almost certainly move money out of US equities. For now, I'll stick to the plan.

JAYSLOL

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Re: Holding cash until bottom of this coming recession?
« Reply #39 on: July 15, 2017, 10:39:40 AM »
We could have a drinking game based on "timing the market" threads.

On second thought, that's a bit too much alcohol for me.
Are you suggesting we time the timing threads?

Many have tried unsuccessfuly to call the top of the "Top is In" thread, but it just keeps going!  Maybe its a double top.  or triple.

BlueMR2

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Re: Holding cash until bottom of this coming recession?
« Reply #40 on: July 15, 2017, 12:06:55 PM »
People do get antsy when things are rolling along pretty well.  We do expect a downturn at some point.  Just because it's been steady for awhile though really is not proof the change is just around the corner (market timing doesn't work, we all know that).  The market should grow over time at a certain rate.  Sure, some markets have failed, but I believe those are outliers as they have social components that do not mirror ours.  When I look at the current valuation, I don't see it as too high.  I see us right on the track we should be given historic trends.  So, to claim a crash is due just because we're too high (specifically) seems foolish.  It'll happen when it happens...  Stay calm and invest on!

redbird

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Re: Holding cash until bottom of this coming recession?
« Reply #41 on: July 15, 2017, 01:06:42 PM »
The stock market is unpredictable. The last larger down we had was for Brexit, and that ended a LOT faster than most people were predicting.

It'll go down at some point, yes. It could happen in 6 months. It could happen in a year. Or it might not happen for 3 years or more.