The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: OceanCid on January 31, 2014, 10:53:26 AM
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Would allocating 5 every month in a cash reserve, or something like VMMXX in order to invest when "stocks are on sale" be a wise move?
How can I check this suppositions?
Is there a website where I can check historical data and test this somehow?
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I put all my funds in VMSXX and transfer to indexs from there. That way you can do it yourself. Go to www.vanguard.com and you can do everything you said you want to do. Plus there great to talk to
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How does VMSXX compare to keeping cash at an online savings account earning .85%? I'm just curious which one provides more return after taxes?
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I think this is called timing the market... How do you know that the stock market is going to go "on sale" lower then it's current value. That term is only used by Mr. MM to encourage people to keep investing when stock prices drop along the years of investing many people have left, but not to delay getting into the market.
Just my $.02
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I think it's fine to have cash as part of your portfolio allocation. However, it would be wise to pick a percentage and stick to it (say 5-10%). Otherwise, cash has a funny way of piling up and taking over your portfolio (you don't want to buy because the market is "too high"; you don't want to buy because the market is "too risky", etc.)
Note that treasuries often rise in times of market distress, so they serve as a source of dry powder when the market is going south (through rebalancing).
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KingCoin - I'm not sure I understand. Do you mean keeping 20% in bonds and if a market crash occurs you have the option to sell those (because they will increase in value) and buy stocks on sale?
is this why in the long run (15-20 years or more) an 80/20 allocation can yield more than 100% stocks? with this kind of rebalancing?
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KingCoin - I'm not sure I understand. Do you mean keeping 20% in bonds and if a market crash occurs you have the option to sell those (because they will increase in value) and buy stocks on sale?
is this why in the long run (15-20 years or more) an 80/20 allocation can yield more than 100% stocks? with this kind of rebalancing?
Yes. That's the idea behind rebalancing and why diversification into uncorrelated assets is one of the few "free lunches" in finance.
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According to Vanguard, a 100% stock portfolio has a .8% higher yearly return than a 80/20 portfolio from 1929 to 2012. If you're not going to ride out the lows, then it's not worth the risk for that extra .8%
Having a cash reserve is a good idea, just be careful like KingCoin said, and make it a % of your portfolio, instead of just saving some random amount.
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The Market ALWAYS pulls back and gives you opportunity. Have cash ready and if it builds up just buy that much more on dips. Buy low and sell high. Simplistic...maybe but ave costing in is to me more comfortable once you have an initial lions share in the market. This month alone presented a nice opportunity. Just in my humble opinion.