Poll

What would you do given my situation and the current state of the market.

Keep the tIRA as "dry powder" to take advantage of a significant market pullback
4 (8.3%)
Dump the whole tIRA into VTSAX/VBTLX to hit desired 80/20 allocation
36 (75%)
Dump the tIRA into VTSAX/VBLX in 3-4 chunks spaced a few months apart
8 (16.7%)

Total Members Voted: 44

Author Topic: Need some MMM Insight  (Read 5933 times)

2Birds1Stone

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Need some MMM Insight
« on: March 01, 2015, 03:24:42 PM »
I recently contacted Fidelity Investments to roll over my old employers 401k into a Vanguard IRA.

I received the check for $21,630 last week and mailed it to Vanguard on Friday. Once the funds clear I have them going right into a Money Market Fund for the time being.

I obviously don't want to sit on that much cash indefinitely, especially since I already have a few months living expenses in actual cash.

I know that no one has a crystal ball, the market could continue running up for the next year or two, or ten.

However, being an individual with his ear to the ground, following current events, along with financial/economic cycles. I, along with many people have a voice in the back of our heads telling us that the market is overdue for a correction. I know many here disagree about market timing and all that jazz. But many posters here and elsewhere share this sentiment. I am not a doom and gloom type of guy, and I am certainly bullish long term. However I would like to put this sizable chunk of my portfolio to work for me wisely.

So what would you do, and why?

KingCoin

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Re: Need some MMM Insight
« Reply #1 on: March 01, 2015, 04:08:41 PM »
I'll fess up to doing a little market timing myself, and not always being as fully invested as I should be "by the book".

However, as a policy, I always stay 100% invested in my retirement accounts. Because an IRA is tax advantaged, I'd rather play around in my taxable accounts. This policy also ensures that at least a portion of my portfolio is invested optimally, and I don't end up "outsmarting" myself by poorly timing the market.

Ohio Teacher

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Re: Need some MMM Insight
« Reply #2 on: March 01, 2015, 04:37:30 PM »
I have sometimes started to think about sitting on cash as you are, but then I remind myself of my target AA.  This is why we have AAs, so that this process is automated and not emotional.

Further, if I really thought the market was going to pull back, why wouldn't I just go one step further from not buying and sell EVERYTHING.  Since I'm clearly not going to do that, I chuck the money into the market.

Retired To Win

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Re: Need some MMM Insight
« Reply #3 on: March 01, 2015, 07:52:20 PM »
You could use the old stand-by strategy of investing the money in equal-sized portions over a certain length of time.  Say $2000 a month for 10 months.  Or $5000 every 3 months.  That way, if the market goes up some of your money is already in and set to score you a gain.  But if the market goes down, some of your money is still "dry powder" ready to be used to buy at better prices.

2Birds1Stone

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Re: Need some MMM Insight
« Reply #4 on: March 02, 2015, 06:27:02 AM »
Thank you for the feedback. I know the "by the book" method would be to just drop it all in at once immediately.

I guess just looking at the market from a historical/cyclical perspective something in the back of my mind is telling me I might regret the choice.

If we were to look at the historical P/E Ratio for the S&P 500 going back ~150 years. Currently we are 27% over the historical mean P/E ratio and 36% over the historical median P/E Ratio. The aggregate global debt is many multiples of the global GDP, and interest rates are at historic lows.

ZiziPB

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Re: Need some MMM Insight
« Reply #5 on: March 02, 2015, 08:05:36 AM »
My advice: Invest it in accordance with your AA now and don't even waste your energy on thinking about alternatives or questioning your timing.  Keep adding to the pot.  Maybe if you had $2M instead of $20K and were on the verge of FIRE, my advice would be different but this is just a drop in the bucket and you are very young, so don't sweat it.

skyrefuge

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Re: Need some MMM Insight
« Reply #6 on: March 02, 2015, 11:38:43 AM »
However, being an individual with his ear to the ground, following current events, along with financial/economic cycles.

You may very well have your ear to the ground, but that doesn't mean you're any more likely to be "right" about the future than someone who is completely deaf. See the sad tale of smedleyb's crystal ball for an example of the post I'll probably be compiling about you in 4 years if you actually act on this belief that you know more about the market.

Even if you are "right" (by which I mean, "lucky") and the market does tank tomorrow, that will be essentially irrelevant as your regular investments over time will balance out that loss.

The scariest thing is that you're thinking of holding "dry powder" simply because the 401(k) rollover procedure put cash in your hand. Unless you had been considering actively selling the assets in your 401(k) a month ago and moving them to cash within that account, it is logically inconsistent to now keep that money in cash.

Good idea with the poll though, it's nice to see a slightly more "objective" forum opinion on market-timing than one where you're trying to gauge opinion from the smaller pool of those who actually write a response.

Kaspian

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Re: Need some MMM Insight
« Reply #7 on: March 02, 2015, 12:49:24 PM »
However, being an individual with his ear to the ground, following current events, along with financial/economic cycles. I, along with many people have a voice in the back of our heads telling us that the market is overdue for a correction. I know many here disagree about market timing and all that jazz. But many posters here and elsewhere share this sentiment.

Do not listen to that voice, do not listen you it!!  Neither you nor others nor "many people" have a divine channel to the movements of the markets.  Sentiment, emotion, and hunches have no place at all in math.  Be like Spock! 

Who would you trust with your math? A gypsy fortune teller or Mr. Spock? Ill go with the Vulcan every single time.

My guess doctor, would be meaningless. I suggest we refrain from guessing and find some facts. Spock out.

Jags4186

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Re: Need some MMM Insight
« Reply #8 on: March 02, 2015, 03:00:49 PM »
I'll fess up to doing a little market timing myself, and not always being as fully invested as I should be "by the book".

However, as a policy, I always stay 100% invested in my retirement accounts. Because an IRA is tax advantaged, I'd rather play around in my taxable accounts. This policy also ensures that at least a portion of my portfolio is invested optimally, and I don't end up "outsmarting" myself by poorly timing the market.

Wouldn't you rather play around in your retirement accounts as you wouldn't have to deal with taxes when you buy and sell things?

mxt0133

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Re: Need some MMM Insight
« Reply #9 on: March 02, 2015, 03:52:03 PM »
Read Buffet's investor letter and if you think you can do better than him then more power to you.  But he's bullish long term and time in market is proven to be more important than timing of the market, statically.

Kaspian

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Re: Need some MMM Insight
« Reply #10 on: March 03, 2015, 10:21:32 AM »
I received the check for $21,630 last week and mailed it to Vanguard on Friday.

And if you need more convincing, what if you suddenly inherited $$21,630 in a balanced portfolio of index funds?  Would you liquidate it all to cash immediately?  If the answer is no, why not?  It's the same question you're asking yourself and the same amount of money only now they're in investments.  Do you see what I'm saying? 

Please read the section on "Framing" in this article:
http://www.moneysense.ca/invest/train-your-investing-brainurl

ioseftavi

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Re: Need some MMM Insight
« Reply #11 on: March 03, 2015, 10:25:30 AM »
Dude.  Invest that shit.  Don't get cute with it.  Don't listen to the siren song of market timing.  Invest and get the fuck on with your life. 

Jack

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Re: Need some MMM Insight
« Reply #12 on: March 03, 2015, 10:45:52 AM »
You're forgetting something really, really important: that money came from your old 401K, which means (unless you forgot to set your 401K allocation previously) it was already in the market!

In other words, even if you presupposed that market-timing were a good idea (which it isn't), the question to ask yourself would not be "is now a good time to put money into the market?" but rather "is now a good time to take money out of the market?"

Indexer

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Re: Need some MMM Insight
« Reply #13 on: March 03, 2015, 06:55:59 PM »
If you were 1 year from FIRE and this was a 600k portfolio I could understand the question.

This isn't the case.  You have 22k.  So let me teach you young grasshopper of the stock market why I am 100% stock in my retirement accounts AND I pray for a market crash. 

Lets say worst(?) case scenario you invest 22k right now, and the market dives 50% tomorrow.  Many people would freak out.  I would throw a party.  Because you are still in the early stages, you are still adding to the account.  Lets say over the next year you add 11k, then another 11k the following year, and then by year three the market is even again.  Your original 22k is worth 22k again... well actually there were dividends, make that 23k.  However the 22k you added went in when the market was down 50%, so now that the market is even you are up 100% on those funds.  They are worth 44k + dividends so lets call it 47k.  So you have 70k total.

What would happen if the market just continued to bob along at +8% growth plus 2% dividends for 10% annual growth? 
22k X 1.1 X 1.1 X 1.1 = 29282.
11k X 1.1 X 1.1 = 13310
11k X 1.1 = 12100.
Total = 54,692.

If the market dropped 50% and then slowly got back to even over a 3 year period adding 22k along the way you would have significantly MORE money than if the market just kept growing at 10% while you added money. 

So let me rephrase what I said earlier.  WORST case scenario you let this money sit in cash and miss out on growth if the market keeps going up.  BEST case scenario you invest and then it crashes and all new contributions go in cheep.  MEDIOCRE scenario you go 100% in and it just trends up over time from here.   If you plan on timing it you will just lose in the long run. 

Now what if you said you wanted to go 100% all in, but because domestic stock valuations were a little high you might allocate 5-10% more to international stocks than you had originally planned?  Well thats an idea I would not only support, but I do it mightself ;).  Oh, and your allocation in the poll didn't include international stocks.  You should probably have some of those.

EDIT:  In addition.  PE Ratios aren't very good at predicting if the stock market is overvalued or undervalued.  According to PE ratios 2009 was the WORST year ever in history to invest(PE 123.7 which is about 700% over the historical average).  Companies had little earnings you see so even after the 08 crash the stocks were still insanely overvalued using PE ratios.  In retrospect 2009 was actually one of the best years in history to invest, especially in the last few decades.  If you do want to keep a gauge on the valuations of stocks CAPE tends to be a better gauge.  However CAPE is 100% useless for predicting returns in a 1 year time frame.  It can tell you if stocks are likely to outperform or underperform their historical averages over the next 10 years, and not much else.  Right now CAPE says stocks are expensive, but again... all that tells us is that they are more likely to earn <10% average annual returns than they are to average >10% average annual returns over the next 10 years.
« Last Edit: March 03, 2015, 07:12:14 PM by Indexer »

KingCoin

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Re: Need some MMM Insight
« Reply #14 on: March 04, 2015, 05:07:59 PM »
I'll fess up to doing a little market timing myself, and not always being as fully invested as I should be "by the book".

However, as a policy, I always stay 100% invested in my retirement accounts. Because an IRA is tax advantaged, I'd rather play around in my taxable accounts. This policy also ensures that at least a portion of my portfolio is invested optimally, and I don't end up "outsmarting" myself by poorly timing the market.

Wouldn't you rather play around in your retirement accounts as you wouldn't have to deal with taxes when you buy and sell things?

To the extent I'm "playing" in my taxable accounts, I do so in a tax efficient manner.

As a simplified example, given the choice between holding an interest bearing bond in my IRA and cash in taxable accounts, or cash in my IRA and a bond in my taxable account, the former is obviously preferable.

Dividend Youngster

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Re: Need some MMM Insight
« Reply #15 on: March 04, 2015, 07:29:56 PM »
Personally if you have done the fundamental research on company XYZ and know you what its worth then you also know when there is a good deal to be had... I only buy aristocrats when they are undervalued... I may not get the best price but I do get a good enough price considering its dividends im after but the principle holds true regardless.... Youre more likely to miss and opportunity than perfectly timing a top or bottom

Retired To Win

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Re: Need some MMM Insight
« Reply #16 on: March 05, 2015, 10:31:26 AM »
Personally if you have done the fundamental research on company XYZ and you know what its worth then you also know when there is a good deal to be had... I only buy aristocrats when they are undervalued... I may not get the best price but I do get a good enough price considering its dividends im after but the principle holds true regardless.... Youre more likely to miss and opportunity than perfectly timing a top or bottom


Market timing is indeed a chimera.  But knowing a good deal on a stock when some weird market or industry downdraft pulls down the stock prices of good and bad companies together.. ah, well, that's something else.  Because the good company will more than likely bounce back up once the downdraft passes.

But, as my father in law very astutely told me once: "you've got to be nimble."