Author Topic: If I sold off US index funds, what do you recommend buying?  (Read 3623 times)

dr_sassy

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Hi,
I'm a Canadian with a sizeable portfolio invested in the US market (VUN & VTI). With the state of American politics, I'm mulling over selling some before the election. I could keep this as cash or invest in something else in the meantime.

I realize this is an anti-Mustachian position, but I would like to FIRE in five years or less and don't want my plans jeopardized. Problem is, I've tried a lot of different ETF's (also anti-MMM, but I like to try things myself), but the only consistent performers are VUN/VTI and BRK-B. BRK-B doesn't pay dividends.

Thanks!

human

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #1 on: June 05, 2016, 03:21:27 PM »
I'm in Canada too and can't imagine giving up over half of the world's markets over trump. You seem to think that all index funds worth investing in have positive returns in perpetuity. If you give up us equities I would go to something like vdu or viu and then bonds excluding us. But wait vdu isn't doing well at the moment so forget that. Vcn has been doing well for one week so stick with that? You need to seriously rethink your logic. Pick an AA and stick with it. Mine is 15% vcn and 85% vxc

maizeman

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #2 on: June 05, 2016, 03:26:06 PM »
The problem is that for every country you can come up with a good reason why it's a bad time to invest right now. In order of market cap:

1. United States: presidential election showdown between two candidates no one likes. Dysfunctional congress for years now that toys with defaulting on the national debt.
2. China: Unreliable economic indicators, and even those suggest slowing economic growth. Corruption and mismanagement in private companies means you often don't know for sure what you're investing in.
3. Japan: Economy hasn't grown in decades. Aging population.
4. Hong Kong: Wait Hong Kong is really #4 by total market cap? Yikes! Anyway, concerns here have to do with conflict with the government over in mainland China and questions of how much autonomy and home rule the city is likely to retain.
5. Great Britain: possible Brexit imminent.
6. Canada: Your home country so doesn't count as international. As an outsider, I'd be worried about the impact on lower oil prices on the Canadian economy over the long term.
7. France: .... insert stereotypical american joke here.
8. Germany: Currently has negative interest rates.
...and so on.

forummm

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #3 on: June 05, 2016, 04:24:11 PM »
Don't pull out of the US market (half the world's market cap) because Trump might win. What if he doesn't win and the markets shoot way up? I don't think that a Trump presidency will cause a giant market crash in the short term. I will continue to have about half my money in the US and half elsewhere (in line with the market cap).

GrOW

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #4 on: June 05, 2016, 04:44:33 PM »
I would like to hear how one person would cause the US stock market to crash. Especially in light of the fact that the market has survived the last 3-4 presidents and the varied congress statuses during their times.

MustacheAndaHalf

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #5 on: June 05, 2016, 04:59:24 PM »
A note on U.S. politics - the President doesn't make laws.  So anything U.S. Congress doesn't like, Trump doesn't get to do.  An executive order can be found unconstitutional by the U.S. Supreme Court - or U.S. Congress can make a new law negating it.  So Trump has limits if he wins the election.

How will you time this decision if you're right?  If the market does drop 10%, and as you wait it out it rebounds 15%, you've lost money while still being correct.  To time the market, you need to be right both when you leave the market and when you get back in.



nobodyspecial

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #6 on: June 05, 2016, 07:16:50 PM »
I would like to hear how one person would cause the US stock market to crash.
A presidential candidate explaining that he would negotiate a way around government debt could be a good start ...
 
« Last Edit: June 05, 2016, 09:58:19 PM by nobodyspecial »

StreetCat

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #7 on: June 05, 2016, 07:51:38 PM »
With the state of American politics, I'm mulling over selling some before the election.
I personally wouldn't sell for that reason.  Election could go either way and even if Trump wins, a market crash isn't a guarantee.

Having said that, currently US stocks are richly valued with low expected returns over the next decade.  If all or most of your holdings are in Canada+US stocks, it might be a good idea to diversity globally.  Emerging markets (EEM, VWO) are relatively inexpensive currently.  But be prepared for a wilder ride and a longer holding period (few years at least).  Several countries in Europe are also inexpensive (Italy, Spain, Austria, Poland, Portugal, etc.) but the same wild ride applies there.

Yaeger

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #8 on: June 05, 2016, 11:37:27 PM »
I agree with you, I've been buying emerging market and developed market index funds like candy. Especially since they've been poor performers lately, it's like they're on sale!

I'm much more pessimistic about where the U.S. government is going now in regards to economic growth.

1) Obama is the only president that hasn't exceeded 3% growth during his time in office in US history
2) We stimulus'd and bailed out during the last economic crisis with no plan on how to 'pay back' the emergency funds we've thrown at the economy to the extent to where a repeat of the corrective actions we took in 2008 would be untenable for another crash (remember, they're business cycles, they happen like clockwork)
3) Government spending growth continues to exceed economic growth and revenue growth, to such a point where things like pension liabilities are a problem during the 'recovery years' would be disastrous during a recession
4) For decades budget analysis has pointed to the unsustainable growth of entitlement programs, yet no action is ever taken to address it. You can only expand, never contract, public programs no matter how inefficient or counterproductive.
5) Able-bodied worker labor participation rates continue to shrink. Lowest male labor participation rate in US History and continuing to fall.
6) The political climate is about what the government can provide in benefits. Not how government action or inaction could stimulate economic growth, opportunity, and sustainable prosperity to enable people to benefit themselves.

A Trump presidency could be good, or bad, but let's not pretend we're on a good path now.

Mighty-Dollar

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #9 on: June 06, 2016, 12:57:11 AM »
The president of the US is not a dictator. Everything goes through congress and the senate. Adolph Hitler could be elected president. Wouldn't change much.

GrOW

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #10 on: June 06, 2016, 03:53:28 AM »
I agree with you, I've been buying emerging market and developed market index funds like candy. Especially since they've been poor performers lately, it's like they're on sale!

I'm much more pessimistic about where the U.S. government is going now in regards to economic growth.

1) Obama is the only president that hasn't exceeded 3% growth during his time in office in US history
2) We stimulus'd and bailed out during the last economic crisis with no plan on how to 'pay back' the emergency funds we've thrown at the economy to the extent to where a repeat of the corrective actions we took in 2008 would be untenable for another crash (remember, they're business cycles, they happen like clockwork)
3) Government spending growth continues to exceed economic growth and revenue growth, to such a point where things like pension liabilities are a problem during the 'recovery years' would be disastrous during a recession
4) For decades budget analysis has pointed to the unsustainable growth of entitlement programs, yet no action is ever taken to address it. You can only expand, never contract, public programs no matter how inefficient or counterproductive.
5) Able-bodied worker labor participation rates continue to shrink. Lowest male labor participation rate in US History and continuing to fall.
6) The political climate is about what the government can provide in benefits. Not how government action or inaction could stimulate economic growth, opportunity, and sustainable prosperity to enable people to benefit themselves.

A Trump presidency could be good, or bad, but let's not pretend we're on a good path now.

Macro economic indicators like these are a much better indicator of future stock market performance than one single individual.

If you chose to take a negative stance, I would recommend this path over the who is president path. But keep in mind that the market has proven to be cyclical time and time again and those that take a stand well after a cycle has started have been steamrolled more than they have been correct.

dr_sassy

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #11 on: June 06, 2016, 06:06:34 AM »
Hi everyone,

Thanks for the responses.

I realize the market timing is a problem and that all countries (and leaders) have problems. I'm a buy and hold kind of person, and the American ETF's are the only consistent performers in my portfolio, so I hate to dump them all. I don't expect positive returns all the time, but I prefer them.

You've correctly surmised that I'm nervous about Trump, even though I didn't name him. Clever MMM's.

I'm doing VCN/VXC for my kids, so I may shift some of my money there as well, even though VXC is in the red for me and I can't imagine VCN being a hot commodity. OTOH, I'm willing to lose some gains for more stability as I eyeball my FIRE.

Thanks again!
« Last Edit: June 06, 2016, 06:09:48 AM by dr_sassy »

Rubic

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #12 on: June 06, 2016, 06:19:13 AM »
I realize the market timing is a problem and that all countries (and leaders) have problems. I'm a buy and hold kind of person, and the American ETF's are the only consistent performers in my portfolio, so I hate to dump them all. I don't expect positive returns all the time, but I prefer them.

Picture yourself 20 years hence reviewing your decision to exit the market.  You might be thinking then, "Yes, my original investment might now be worth 500% more, but a least I avoided that little blip back in 2017."

Kaspian

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #13 on: June 06, 2016, 07:47:04 AM »
You really need to write a personal investment policy and stick with it come hell or highwater.  Seriously, moves like you just did are the main reason investors don't beat the index--too much spontaneous tinkering.

MustacheAndaHalf

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #14 on: June 06, 2016, 11:28:52 AM »
I'd suggest OP look at past corrections in portfoliovisualizer.com, to get a sense of how much is lost and how long it takes to recover.  https://www.portfoliovisualizer.com/backtest-asset-class-allocation shows the max drawdown / correction for the time period you analyze.  If you put the mouse over the (i) in the drawdown column, it shows the dates of the drawdown and the year by which the stock broke even again.  Plugging in 100% US stock, I changed the dates to find various drawdowns:

1973-74 recovered by 1976
2000-02 recovered by 2006
2008 recovered by 2012

1. US will find another bubble, and crash like the dot com or mortgage bubbles.  If you think that's the case, past crashes suggest a 4 year recovery.  (And if we're talking concerns over the potential U.S. president, that situation also has a 4 year recovery ;).
2. In the 38 years before the dot-com bubble/crash, the oil crisis/inflation shock of the early 1970s took 2 years to recover.  In the span of 1976-1999 the worst drawdown was 1990, but that -6% loss had large gains on before (+29%) and after (+34%) that were far more significant.

Looking at it this way, you really have to predict a bubble to believe exiting the U.S. stock market is worthwhile.  Otherwise the correction and recovery could happen too quickly for you to get back in the market.  But I suggest discovering this yourself with your favorite simulation tool, so you get a sense of how quickly a recovery could happen while you're out of the market.
« Last Edit: June 06, 2016, 11:33:38 AM by MustacheAndaHalf »

matchewed

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Re: If I sold off US index funds, what do you recommend buying?
« Reply #15 on: June 06, 2016, 03:30:26 PM »
Hi everyone,

Thanks for the responses.

I realize the market timing is a problem and that all countries (and leaders) have problems. I'm a buy and hold kind of person, and the American ETF's are the only consistent performers in my portfolio, so I hate to dump them all. I don't expect positive returns all the time, but I prefer them.

You've correctly surmised that I'm nervous about Trump, even though I didn't name him. Clever MMM's.

I'm doing VCN/VXC for my kids, so I may shift some of my money there as well, even though VXC is in the red for me and I can't imagine VCN being a hot commodity. OTOH, I'm willing to lose some gains for more stability as I eyeball my FIRE.

Thanks again!

You have some self-contradiction in all of this. You need to, as someone already suggested, craft an Investment Policy Statement and asset allocation that ensures that you don't knee-jerk into some silly choice. Who the president is has a rather null effect on overall market performance.