Author Topic: Markets at all time highs: strategy?  (Read 8077 times)

WackyTomato

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Markets at all time highs: strategy?
« on: January 11, 2017, 09:43:34 PM »
Hey guys,

Most of you will be aware that current indexes are pretty much at an all time high... I have a considerable sum of money sitting on the sideline in bonds that is barely making inflation rate... I really wonder what to do.  I am not a particularly knowledgeable guy when it comes to stocks.  I am an adept of couch potato investing however.  I know ETFs and and I know the basics.

I am not particularly keen in rolling over thousands of dollars currently invested in bonds towards equity-based ETFs.  Mind you, I am 34, working, no debt and financially healthy...

Any advice?  What do you guys do when you have cash on the sidelines with markets at an all time high?  I thought perhaps I should take that cash and "drip feed" it monthly (say $1,500 per month) into an ETF (I like ETF ticker CDZ.TO).

Thanks.

Radagast

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Re: Markets at all time highs: strategy?
« Reply #1 on: January 11, 2017, 10:05:59 PM »
Default Strategy: 1/3 US Total Stock  1/3 Total Ex-US Stock  1/3 bonds
Timing: Yesterday
Future Adjustments Based on Increasing Knowledge: TBD

Notes: Default strategy per William Bernstein, "If You Can." Strategy recommended for investors scared of stock market. Strategy does not protect against loss. Over long periods of accumulation a greater percentage invested in stocks is more likely to be optimal.
« Last Edit: January 11, 2017, 10:10:02 PM by Radagast »

tyir

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Re: Markets at all time highs: strategy?
« Reply #2 on: January 11, 2017, 11:44:27 PM »
If markets are at an all time high that's generally when you need to make sure to rebalance INTO bonds, i.e. additional income should be weighted more towards bonds than stocks. Converting bonds into stocks now doesn't make sense unless you are changing your asset allocation.

If I have cash in the sidelines I invest it according to my asset allocation, same as when the market is crashing, same as when it is flat.

CanuckExpat

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Re: Markets at all time highs: strategy?
« Reply #3 on: January 12, 2017, 02:27:47 AM »
Stick to your planned asset allocation and keep investing regularly. Don't panic, don't worry too much, try not to second guess yourself.

If you don't have a planned asset allocation, get one. Radagast suggested a very reasonable starting point.

Heckler

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Re: Markets at all time highs: strategy?
« Reply #4 on: January 12, 2017, 04:27:28 AM »
Are you asking about where to invest cash?  Or whether to sell bonds to buy more stocks?  Two different thngs.

Scandium

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Re: Markets at all time highs: strategy?
« Reply #5 on: January 12, 2017, 05:58:19 AM »
Something that goes up more than it goes down, how often will it be at an all-time high...?

radram

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Re: Markets at all time highs: strategy?
« Reply #6 on: January 12, 2017, 06:23:56 AM »
Something that goes up more than it goes down, how often will it be at an all-time high...?

Not my research, but they also know their shit over at bogleheads and it was not corrected or disputed:
"Based on monthly numbers, the S&P 500 has spent 31.9% of its life within 5% of its (up to then) all time high.

It has spent 23.9% of its life within 2% of its (up to then) all time high.

It has spent 15.7% of its life at a new all time high."

https://www.bogleheads.org/forum/viewtopic.php?t=196681

Discussion from the same link:

"I'm curious if anyone's taken the time to look at the numbers to see how often the S&P is within 5 or even 2% of its all-time high. I think it could be reassuring that just because the market is up, doesn't mean a decline is imminent."

"Recently did this. Since 1950, about 24% of months have been highs-to-date.

Even better: a strategy that refuses to invest at market highs, and instead waits until a drop before investing income, does worse than a strategy that just puts the money in every month. So, yeah, I think market highs are largely meaningless. When things grow exponentially, you *expect* them to be high rather often."


Huskie87

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Re: Markets at all time highs: strategy?
« Reply #7 on: January 12, 2017, 07:38:57 AM »
I'd probably avoid buying equities at all time highs.  See this...  http://forum.mrmoneymustache.com/investor-alley/don't-buy-equities-we're-at-all-time-highs!/

radram

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Re: Markets at all time highs: strategy?
« Reply #8 on: January 12, 2017, 08:05:00 AM »
I'd probably avoid buying equities at all time highs.  See this...  http://forum.mrmoneymustache.com/investor-alley/don't-buy-equities-we're-at-all-time-highs!/

Your link states a great case that you SHOULD still buy during all time highs.  Why would you not?

Huskie87

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Re: Markets at all time highs: strategy?
« Reply #9 on: January 12, 2017, 08:33:39 AM »
Just a little joke, and pointing out a similar discussion that was just taking place.  I wouldn't change anything based on markets being at new all time highs, as research shows that data point has zero predictive power of future market corrections.

Find your risk tolerance, invest appropriately, ignore those that say they can predict the future.

trollwithamustache

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Re: Markets at all time highs: strategy?
« Reply #10 on: January 12, 2017, 08:44:38 AM »
Is this bond fund money needed for anything in the next 5 to 10 years?  Sure, stocks are at an all time high. So either they will go down, or up. Solid PE ratio arguments say stocks are over valued and will go down. Solid arguments are out there for Trump lowering corporate tax rates and cash flows back in the USA and stocks go up.

I have no idea. But in general over long periods the stock market historically has gone up, so as long as you have time before you need the $$ you will be fine.


Tyson

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Re: Markets at all time highs: strategy?
« Reply #11 on: January 12, 2017, 08:48:06 AM »
Markets are generally at all time highs, because they go up over time.  Which is the reason why we invest in the markets.

TheAnonOne

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Re: Markets at all time highs: strategy?
« Reply #12 on: January 12, 2017, 09:09:21 AM »
Markets are generally at all time highs, because they go up over time.  Which is the reason why we invest in the markets.

Not only that, due to inflation it must remain at highs pretty often to just keep up. There are only short fleeting times it drops heavy to break this

Pizzabrewer

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Re: Markets at all time highs: strategy?
« Reply #13 on: January 12, 2017, 09:12:27 AM »
There are only short fleeting times it drops heavy to break this

...and we are way overdue for such a correction.

EscapeVelocity2020

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Re: Markets at all time highs: strategy?
« Reply #14 on: January 12, 2017, 11:06:47 AM »
Another gem from Bogleheads is to determine you willingness, need, and ability to take risk (e.g. shifting AA bonds to equities).  Since we don't know anything about your situation, I can't speak to what is the best strategy going forward.  But for myself, I have hit FI and still enjoy my work, so I have the ability to maintain a high level of equity exposure, but not so much the need.  I am therefore about AA neutral for my age, 75/25 stock/bond, continuing to shove new automated investments (401k, ESPP, rIRA, 529) in to equities all year long.  For me, it comes down to willingness with the final lump sum discretionary investments.  I have not been very happy with returns on munis now that tax rates are expected to fall and Trump might issue buttloads of infrastructure debt, so I'll probably go with more TIPS soon to try to diversify and lower risk.

johnny847

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Re: Markets at all time highs: strategy?
« Reply #15 on: January 12, 2017, 12:00:07 PM »
Markets are generally at all time highs, because they go up over time.  Which is the reason why we invest in the markets.

I decided to figure out exactly how often that's true. Using S&P 500 data from Yahoo Finance,

.

moof

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Re: Markets at all time highs: strategy?
« Reply #16 on: January 12, 2017, 12:31:47 PM »
Right about a year ago there was a lot of fretting about being at a near all time high, things were scary, and indeed markets went down for a bit.  If you sold all your VTSAX one year ago and sat in cash out of fear you lost out on almost 21% growth.  It could have almost as easily kept going down, the market is near an all time high and things are scary after all.

I personally am at about 85% stocks, and intend to let it ride more or less that way for quite a while (gradually increasing bonds around retirement).  YMMV.

Huskie87

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Re: Markets at all time highs: strategy?
« Reply #17 on: January 12, 2017, 01:55:22 PM »
Markets are generally at all time highs, because they go up over time.  Which is the reason why we invest in the markets.

I decided to figure out exactly how often that's true. Using S&P 500 data from Yahoo Finance,

.

What time period are you using here?  If I'm looking at it correctly, this chart says that only 9% of trading days are at all time highs.  The number is about 30% since the mid 1920s, so wondering if you have a short time period here or if the data might be distorted somehow.  Or...maybe I'm misreading

johnny847

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Re: Markets at all time highs: strategy?
« Reply #18 on: January 12, 2017, 02:38:22 PM »
Markets are generally at all time highs, because they go up over time.  Which is the reason why we invest in the markets.

I decided to figure out exactly how often that's true. Using S&P 500 data from Yahoo Finance,

.

What time period are you using here?  If I'm looking at it correctly, this chart says that only 9% of trading days are at all time highs.  The number is about 30% since the mid 1920s, so wondering if you have a short time period here or if the data might be distorted somehow.  Or...maybe I'm misreading

I'm using Yahoo's data on the S&P 500, which starts from 01/03/1950. (And it's actually 7%, not 9%).

Ideally I would've started this data analysis from March 4, 1957, as that is when the index actually adopted its current form of the top 500 companies by market cap. At the beginning of the index in 1923, it only tracked "a small number" of stocks. In 1926, it expanded to 90 stocks total.

Huskie87

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Re: Markets at all time highs: strategy?
« Reply #19 on: January 12, 2017, 02:57:41 PM »
Interesting.  I'm pulling information from the morningstar database and get 28% of trading days since 1950 at all time highs.  I think Yahoo Finance must have some bad data.

Edit: I'm using monthly closing prices, so perhaps that leads to the variance in our numbers.  Seems like a wide variance, but maybe not.
« Last Edit: January 12, 2017, 02:59:41 PM by Huskie87 »

johnny847

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Re: Markets at all time highs: strategy?
« Reply #20 on: January 12, 2017, 03:14:35 PM »
Interesting.  I'm pulling information from the morningstar database and get 28% of trading days since 1950 at all time highs.  I think Yahoo Finance must have some bad data.

Edit: I'm using monthly closing prices, so perhaps that leads to the variance in our numbers.  Seems like a wide variance, but maybe not.

Ah yeah Yahoo Finance provides daily closing prices.

You've got me curious now - how are you using Morningstar to get this data? I looked around and couldn't spot where to download the data.

Heckler

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Re: Markets at all time highs: strategy?
« Reply #21 on: January 12, 2017, 10:28:56 PM »
EAFE is at all time low, as are bonds.  Buy low, sell high.  See attached 2016 Callan table of returns.

Huskie87

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Re: Markets at all time highs: strategy?
« Reply #22 on: January 13, 2017, 07:33:39 AM »
EAFE is at all time low, as are bonds.  Buy low, sell high.  See attached 2016 Callan table of returns.

So much wrong here...just no

Huskie87

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Re: Markets at all time highs: strategy?
« Reply #23 on: January 13, 2017, 07:34:38 AM »

You've got me curious now - how are you using Morningstar to get this data? I looked around and couldn't spot where to download the data.

Do you have Morningstar Direct?  I can show you how.  If you're using the public site I don't think they allow you to pull historical index returns there.

PizzaSteve

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Re: Markets at all time highs: strategy?
« Reply #24 on: January 13, 2017, 08:02:39 AM »
There are only short fleeting times it drops heavy to break this

...and we are way overdue for such a correction.

Because....?


Retire-Canada

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Re: Markets at all time highs: strategy?
« Reply #25 on: January 13, 2017, 08:05:14 AM »

Heckler

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Re: Markets at all time highs: strategy?
« Reply #26 on: January 13, 2017, 08:14:15 AM »
EAFE is at all time low, as are bonds.  Buy low, sell high.  See attached 2016 Callan table of returns.

So much wrong here...just no

I'm truly looking forward to see what happens on MMM during the next real US crash with the "100% US Equities crowd".

wenchsenior

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Re: Markets at all time highs: strategy?
« Reply #27 on: January 13, 2017, 08:43:48 AM »
EAFE is at all time low, as are bonds.  Buy low, sell high.  See attached 2016 Callan table of returns.

So much wrong here...just no

I'm truly looking forward to see what happens on MMM during the next real US crash with the "100% US Equities crowd".

I suspect the same thing that happened during the 2008 crash. We all kept investing (FIRE SALE WOO HOO!); and rather than checking returns all the time, we found other things to distract ourselves with until our portfolios recovered. It wasn't really that complicated or difficult.

frugledoc

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Re: Markets at all time highs: strategy?
« Reply #28 on: January 13, 2017, 09:30:13 AM »
EAFE is at all time low, as are bonds.  Buy low, sell high.  See attached 2016 Callan table of returns.

So much wrong here...just no

I'm truly looking forward to see what happens on MMM during the next real US crash with the "100% US Equities crowd".

We'll all be like " Finally! Party, Party, Party!" and continue to invest.

Tyson

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Re: Markets at all time highs: strategy?
« Reply #29 on: January 13, 2017, 09:31:42 AM »
My retirement savings are mostly equities, but I'm starting to shift some of my current savings to have a bit more cash on hand to be prepared if 2 things happen in succession - a crash, followed by me getting laid off.  I've had to deal with long term unemployment before and it's no fun.  Next time I'll have a better buffer. 

Personally I don't mind having high risk high return asset allocations in my retirement savings because I'm never going to touch that money, anyway.  Only way that money gets hurt is if there's a crash that is not recovered from.  But considering the markets have survived and thrived after things like World Wars and terrorist attacks and presidential assassinations and large scale societal upheavals, and on and on and on, I think we'll be OK in the future, too. 

Retire-Canada

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Re: Markets at all time highs: strategy?
« Reply #30 on: January 13, 2017, 09:55:09 AM »
It would be preferable that the next big market crash comes before I stop working, but there is no way to predict the market as Mr.% and others have shown. So I spend zero time worrying about it. I'm 100% stocks and I'll deal with it when it happens.

Living through the tech bubble and 2008 was good fear training not to do anything stupid. Thanks to this forum I'm better prepared than ever psychologically to deal with a crash.

Huskie87

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Re: Markets at all time highs: strategy?
« Reply #31 on: January 13, 2017, 10:28:54 AM »
EAFE is at all time low, as are bonds.  Buy low, sell high.  See attached 2016 Callan table of returns.

So much wrong here...just no

I'm truly looking forward to see what happens on MMM during the next real US crash with the "100% US Equities crowd".

Here are my reasons for my response. 

1 - 'EAFE is at all time low' - this just isn't true
2 - 'as are bonds' - this couldn't be further from the truth, bond valuations are extremely high.  Bond returns are a function of yield and price.  Low yields mean high prices.  Interest rates are low, therefore yields are low and prices are high. 
3 - 'buy low, sell high' - go look at that PDF you attached a link to.  You would have been buying bonds a lot, and you would have been selling emerging markets a lot.  Since 1997 an emerging market investor has more than doubled the returns from a bond investor.  Buy low, sell high does not mean what you're implying

Metric Mouse

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Re: Markets at all time highs: strategy?
« Reply #32 on: January 13, 2017, 10:39:21 AM »
There are only short fleeting times it drops heavy to break this

...and we are way overdue for such a correction.

No doubt one who believed this would sell all of their equities and hold cash, to buy in at a lower price during the imminent collapse of prices.

actionjackson

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Re: Markets at all time highs: strategy?
« Reply #33 on: January 13, 2017, 02:12:03 PM »
I'm in the same boat here. Sitting on about $150k in cash, and was waiting to time the market, but by Bejamin Graham standards, the current PE ratios are way out of wack.

So I went on Quora and asked the question if it was a good strategy to put money into bonds and hold out until the market PE ratio dipped below 15, and then buy into a market index fund. The feedback was that the dividend yield that I was missing out on when PE ratios >15 would offset the benefit of buying into the market when the PE ratio was low.

I back tested it on a spreadsheet using ASX monthly figures and Australia 10Y Bond yields from Oct 2016, back to May 1992. See - https://docs.google.com/spreadsheets/d/1gP4B65EU52gPOk8a-pt83HZ-rI0-QImEjJgxc4wxbrY/edit?usp=sharing

It seems that what they said makes sense at least tested on that timeline.

Strategy 1: Invest $1000 per month in ASX index fund, regardless of price.
Strategy 2: Invest $1000 per month in bonds when Market PE Ratio <15, then when PE ratio drops <15, sell bonds, buy into market, and continue putting each 1000 months into market until it goes >15 again.

Total invested over timeframe = $294,000
Portfolio value Strategy 1 = $933450
Portfolio value Strategy 2 = $926696

Perhaps I'm making some errors in the calculations - which I'd be keen to hear if anyone has thoughts.

It looks to me however, that trying to time the market like in strategy 2 isn't worth the effort. If anything, it's worse.

Heckler

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Re: Markets at all time highs: strategy?
« Reply #34 on: January 13, 2017, 03:55:48 PM »
EAFE is at all time low, as are bonds.  Buy low, sell high.  See attached 2016 Callan table of returns.

So much wrong here...just no

I'm truly looking forward to see what happens on MMM during the next real US crash with the "100% US Equities crowd".

Here are my reasons for my response. 

1 - 'EAFE is at all time low' - this just isn't true
2 - 'as are bonds' - this couldn't be further from the truth, bond valuations are extremely high.  Bond returns are a function of yield and price.  Low yields mean high prices.  Interest rates are low, therefore yields are low and prices are high. 
3 - 'buy low, sell high' - go look at that PDF you attached a link to.  You would have been buying bonds a lot, and you would have been selling emerging markets a lot.  Since 1997 an emerging market investor has more than doubled the returns from a bond investor.  Buy low, sell high does not mean what you're implying

Youre right, my statement is easily misinterpreted.


My 30% bond allocation has dropped from 28% down to 23% in the past year.

My 20% international has stuck around 19% all year

My 25% US is a smidge over 30%

Thus I'm buying bonds and international now, not US. 

davisgang90

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Re: Markets at all time highs: strategy?
« Reply #35 on: January 14, 2017, 03:48:52 PM »
Yet another "I know we aren't supposed to try to time the market...but this time I think I should try to time the market" thread.  Don't time the market.  Stick to your allocation plan.

Metric Mouse

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Re: Markets at all time highs: strategy?
« Reply #36 on: January 14, 2017, 08:50:52 PM »
Yet another "I know we aren't supposed to try to time the market...but this time I think I should try to time the market" thread.  Don't time the market.  Stick to your allocation plan.

"Somehow these people delude themselves into thinking they can time the market."
"Has it ever worked?"
"Oh no. It never works. But I think it might work for us."


(Obscure reference; if you don't get it, it's not offensive, you've just missed something.)

Indexer

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Re: Markets at all time highs: strategy?
« Reply #37 on: January 14, 2017, 09:33:05 PM »
1. Markets trend up over time so the markets being at all time highs doesn't say anything about valuations. You could be at all time highs and everything be cheap.
2. Valuations do imply markets are above their historical averages. Does this mean you should sell? NO! Markets have spent most of the time since 1996 above their historic valuations. It just 'implies' average returns in the future might be lower than historic average returns.
3. Stick to your AA. Pretty simple. Great time to rebalance.
4. If anything the most radical thing you should do is reconsider your AA. Have you looked at it in awhile? If you are currently 90/10 and you plan to switch to 85/15 in the near future you could go ahead and move to 85/15 now. Again, this is the most radical thing you should do. I'm not even say do this. I'm saying if it gets it out of your system so you don't do something more drastic then just do this.

Tyson

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Re: Markets at all time highs: strategy?
« Reply #38 on: January 14, 2017, 11:23:02 PM »
Here is the story of Bob, the world's worst market timer:

http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

Metric Mouse

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Re: Markets at all time highs: strategy?
« Reply #39 on: January 14, 2017, 11:36:51 PM »
Here is the story of Bob, the world's worst market timer:

http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

Can't believe this hasn't been shared in this thread yet. All the market timing threads do begin to run together after a while.

Indexer

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Re: Markets at all time highs: strategy?
« Reply #40 on: January 15, 2017, 04:39:53 AM »
Here is the story of Bob, the world's worst market timer:

http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

Holy crap!  How have I never seen this story? It's the best "don't market time" story ever. Wow!

jjandjab

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Re: Markets at all time highs: strategy?
« Reply #41 on: January 15, 2017, 06:57:00 AM »
Here is the story of Bob, the world's worst market timer:

http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

Holy crap!  How have I never seen this story? It's the best "don't market time" story ever. Wow!

Yup, this is the one that made me just put it all in the stock/bond index allocation of my choice and stop worrying about it.

To the OP - if your money is for the long term, then I vote for just put it all in and forget about it. If you can't stomach that, then divide the number by 12 and invest it automatically for the next 12 months - the automatically is the key. Don't tell yourself that you will just wait and see each month. I did that for a few years after 2008 in the US and lost out on both the dividends and huge recovery gains. Along with the principles in the article, the reason no one can time the market is you have a 50/50 chance or coin flip to be right on up or down each day do to factors beyond your control. And you have to be right on the way out AND back in (which is much harder to psychologically do), so your chances start at 25%. Any casino would love you to bet with those odds. Then extrapolate that out over multiple days and weeks...

EscapeVelocity2020

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Re: Markets at all time highs: strategy?
« Reply #42 on: January 15, 2017, 10:31:54 PM »
I didn't think people were necessarily 'market timing', if you don't need the invested dollars for 10+ years (solid job, no big purchases like house, college for kids, medical, stocks returning more than bonds), then go with high PE stocks.  100% equity is the historic winner over long periods.  But if you lose your job or healthcare, or plan to buy real estate, then maybe some bonds or cash would be prudent in case stocks decline over the short horizon.  An asset allocation should be matched to your cash withdrawal needs.  Accumulation is actually quite easy, but ER flips the switch toward making a similar efficiency difficult.

Metric Mouse

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Re: Markets at all time highs: strategy?
« Reply #43 on: January 15, 2017, 10:35:14 PM »
I didn't think people were necessarily 'market timing', if you don't need the invested dollars for 10+ years (solid job, no big purchases like house, college for kids, medical, stocks returning more than bonds), then go with high PE stocks.  100% equity is the historic winner over long periods.  But if you lose your job or healthcare, or plan to buy real estate, then maybe some bonds or cash would be prudent in case stocks decline over the short horizon.  An asset allocation should be matched to your cash withdrawal needs.  Accumulation is actually quite easy, but ER flips the switch toward making a similar efficiency difficult.

Wouldn't this be true in any market? If you have short-term plans for cash, one should keep cash, regardless of the market. If one doesn't, then one should invest it - holding out from investing because 'the market may decline in the short term' is the definition of market timing.

EscapeVelocity2020

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Re: Markets at all time highs: strategy?
« Reply #44 on: January 16, 2017, 06:44:40 AM »
I didn't think people were necessarily 'market timing', if you don't need the invested dollars for 10+ years (solid job, no big purchases like house, college for kids, medical, stocks returning more than bonds), then go with high PE stocks.  100% equity is the historic winner over long periods.  But if you lose your job or healthcare, or plan to buy real estate, then maybe some bonds or cash would be prudent in case stocks decline over the short horizon.  An asset allocation should be matched to your cash withdrawal needs.  Accumulation is actually quite easy, but ER flips the switch toward making a similar efficiency difficult.

Wouldn't this be true in any market? If you have short-term plans for cash, one should keep cash, regardless of the market. If one doesn't, then one should invest it - holding out from investing because 'the market may decline in the short term' is the definition of market timing.

Just pointing out the obvious, but folks are getting used to the S&P being up every year.  That doesn't necessarily happen, so don't put your short term needed funds there. 

spud1987

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Re: Markets at all time highs: strategy?
« Reply #45 on: January 16, 2017, 10:56:52 AM »
To me the issue isn't whether the market is at all-time highs. As has been pointed out, an upward market is generally near all-time highs.

What is different with this market is the high 1-year PE and CAPE PE ratios. These are also near all-time highs. The only time they've been higher is before '00 and before '08. That is what gives me pause and why I've slightly reallocated into int'l stocks and bonds. Nothing major, but my IPS permits me to move down to 60% equities when valuations are high and I'm about there now.

Huskie87

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Re: Markets at all time highs: strategy?
« Reply #46 on: January 16, 2017, 01:47:05 PM »
To me the issue isn't whether the market is at all-time highs. As has been pointed out, an upward market is generally near all-time highs.

What is different with this market is the high 1-year PE and CAPE PE ratios. These are also near all-time highs. The only time they've been higher is before '00 and before '08. That is what gives me pause and why I've slightly reallocated into int'l stocks and bonds. Nothing major, but my IPS permits me to move down to 60% equities when valuations are high and I'm about there now.

You will be better off by thoroughly reading this... http://www.cfapubs.org/doi/pdf/10.2469/faj.v72.n3.1

spud1987

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Re: Markets at all time highs: strategy?
« Reply #47 on: January 16, 2017, 02:03:14 PM »
To me the issue isn't whether the market is at all-time highs. As has been pointed out, an upward market is generally near all-time highs.

What is different with this market is the high 1-year PE and CAPE PE ratios. These are also near all-time highs. The only time they've been higher is before '00 and before '08. That is what gives me pause and why I've slightly reallocated into int'l stocks and bonds. Nothing major, but my IPS permits me to move down to 60% equities when valuations are high and I'm about there now.

You will be better off by thoroughly reading this... http://www.cfapubs.org/doi/pdf/10.2469/faj.v72.n3.1

I've read that study. I agree that changes in GAAP accounting have some effect on inflating the current Schiller PE ratio. However, even if you make adjustments for GAAP changes, the market is still expensive. See this WSJ making your point while still pointing out that markets are expensive: http://www.wsj.com/articles/powerful-market-indicator-flashes-sell-heres-why-it-can-be-ignored-1475687806.

ChpBstrd

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Re: Markets at all time highs: strategy?
« Reply #48 on: January 17, 2017, 12:21:45 PM »
Right now, your beta (risk or volatility) is probably a lot less than one. Ideally, you would sit right in the middle range with a portfolio beta of 1 (equal to market risk) - the ready for anything stance.

Then, if markets crash, you should increase exposure to more volatile small caps and foreign stocks, increasing portfolio risk to, say, 1.2. This way, you catch more of the rebound.

If markets soar, maybe dial back to 0.8 by shifting into bonds or REITs..

As you await these maybe once-every-five-year events, your portfolio actually grows instead of staying hunkered down.

The point is to calm your own concerns about this risk level by committing to a plan to make money after any major market drops. But you have to commit and be able to execute. Most ppl would fail that task in the face of fear, or do the opposite trade.

VoteCthulu

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Re: Markets at all time highs: strategy?
« Reply #49 on: January 17, 2017, 12:53:07 PM »
The same thing we do every night, Pinky, invest in index funds!

Seriously, if it's going to be invested for 20+ years it doesn't really matter. Just keep reminding yourself there's no difference between keeping 100k in cash rather than investing it and selling 100k of stock to time the next dip.