Author Topic: Switching portfolio to 100% stock temporarily?  (Read 2033 times)

DanP

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Switching portfolio to 100% stock temporarily?
« on: March 26, 2020, 11:18:36 AM »
Is there anything wrong with putting my monthly contributions into 100% stocks right now that they're so low - or even selling my current 80/20 portfolio to buy 100% stocks? Is this considered "timing the market" or being smart about it?

I am new to investing, and want to build good habits here, so I am wary of fallacies in my thinking. But I don't see it, hence why I'm reaching out. As I see it, buy low and ride the wave back up. I am thinking of investing future monthly contributions in 100% stocks until markets get back to what they were (possibly a long time, understood), and then investing mostly in bonds to get the ratio back to that 80/20 or so.

Am I fundamentally wrong somewhere here? I feel like this falls into "timing markets" which I have learned is "bad" but I simply cannot see how it would be bad to buy cheap stocks. I know a lot of Couch Potatoes just stay at that 80/20 and don't even think about it. This makes me second-guess myself.

Currently, I have a 80/20 stock/ bond split and am very securely employed. I have a long time until retirement, so I'm okay with risk/ loss if it leads that way. I took a big hit with the crash, but not worried about it at all (which is another thing that worries me, but that's a different matter).

MustacheAndaHalf

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Re: Switching portfolio to 100% stock temporarily?
« Reply #1 on: March 26, 2020, 11:49:33 AM »
Are you sure you want to buy something that has lost -22% this year so far?
If that attempt to scare you didn't work, then I'd agree you should buy.

I like to think of it as everyone who bought since the start of the year lost money, and now you can beat all of them by purchasing now.  You beat 3 months worth of people investing, rather than focusing on the drop.

PDXTabs

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Re: Switching portfolio to 100% stock temporarily?
« Reply #2 on: March 26, 2020, 12:10:41 PM »
In general I'd say no, unless you think that bonds are too damned expensive. That would be a reasonable argument to me.

FWIW I'm 100% global equities.

SpaceCow

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Re: Switching portfolio to 100% stock temporarily?
« Reply #3 on: March 26, 2020, 12:44:37 PM »
I think the current uptick is a bull trap, so I did opposite of OP's plan.

DanP

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Re: Switching portfolio to 100% stock temporarily?
« Reply #4 on: March 26, 2020, 03:13:37 PM »
SpaceCow, by Bull Trap, you mean that it went up slightly, and then it will go down again? If so, I agree with you 100%. I wouldn't implement my thoughts now, but after it goes down again. And if it doesn't, oh well. I am learning here, so okay with lost opportunities.

Rob_bob

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Re: Switching portfolio to 100% stock temporarily?
« Reply #5 on: March 26, 2020, 07:49:37 PM »
Well if you have a good emergency fund and you are very certain of job security I would dollar cost average into stocks and not add to bonds.  I would not sell the bonds you have though, but that's me.

BicycleB

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Re: Switching portfolio to 100% stock temporarily?
« Reply #6 on: March 26, 2020, 08:57:59 PM »
Is there anything wrong with putting my monthly contributions into 100% stocks right now that they're so low - or even selling my current 80/20 portfolio to buy 100% stocks? Is this considered "timing the market" or being smart about it?

I am new to investing, and want to build good habits here, so I am wary of fallacies in my thinking. But I don't see it, hence why I'm reaching out. As I see it, buy low and ride the wave back up. I am thinking of investing future monthly contributions in 100% stocks until markets get back to what they were (possibly a long time, understood), and then investing mostly in bonds to get the ratio back to that 80/20 or so.

Am I fundamentally wrong somewhere here? I feel like this falls into "timing markets" which I have learned is "bad" but I simply cannot see how it would be bad to buy cheap stocks. I know a lot of Couch Potatoes just stay at that 80/20 and don't even think about it. This makes me second-guess myself.

Currently, I have a 80/20 stock/ bond split and am very securely employed. I have a long time until retirement, so I'm okay with risk/ loss if it leads that way. I took a big hit with the crash, but not worried about it at all (which is another thing that worries me, but that's a different matter).

You're fundamentally wrong in a few ways (just responding literalistically):
1. Yes, this falls into timing markets because you assume you can tell the difference between cheap stocks and not-cheap stocks. "Buy low and ride the wave up" requires you know when they're low. That's a market timing judgment!
2. Hundreds of perfectly intelligent people think they're not cheap now, but that they will become so later. In that case, they're not cheap. Which is an example of how 1 can lead you astray.
3. The logic that you can afford drops because you are securely employed and investing for a long time is excellent, but it's not a good reason to market time. It's a good reason to invest.
4. To avoid market timing, classically you stick with the same allocation (like your 80% stock 20% bonds). Switching now to 100% because you feel stocks are cheap is market timing.
5. It may be that if you measure your % stock now, you need to buy 100% stock for a while to get back to your 80/20. That wouldn't be market timing.
6. The reasons in 3 are reasonable reasons for a 100% stock portfolio, but to not market time, you'd have needed to do 100% before the drop.

I don't think it's crazy to shift to 100% stock now, and you're right that based on 3, the risk for you is low. I don't even think some very reasoned or consistent method of partial market timing is even crazy, though I advise caution. For background on this last, consider reading Big ERN at Early Retirement Now on the subjects of stock valuations, safe withdrawal rates, and portfolio allocation.

To be fair, as a newbie, your thoughts and decisions will evolve. Just remember: that a decision works out doesn't mean it was the best decision, it could just mean you were lucky. Shifting to 100% stock right now could easily be such a decision. Meanwhile, asking questions like this and learning before you act is a safe way to improve, so kudos.

MustacheAndaHalf

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Re: Switching portfolio to 100% stock temporarily?
« Reply #7 on: March 26, 2020, 09:30:20 PM »
A beginning investor will typically invest for decades, so your 20% bonds is higher than needed.  Do those 20% bonds provide reassurance that lets you keep investing during bad markets?

My view: 80% to 100% if you are not scared of -22% drop
PDXTabs: stay at 80%  (but worth mentioning PDXTabs is 100% now)
SpaceCow: 80% -> lower allocation
Rob_bob: keep 80%, but new money buys 100% stocks
BicycleB: potentially 80% to 100%, but might be a learning experience

Two votes to go 100% stocks, two votes to stay at 80% stocks, one vote to lower stock allocation.  Maybe there's a consensus to raise your stock allocation somewhere between 80% and 100%?

How many years until you retire?  Vanguard has retirement funds with billions of dollars in them, so you can peek at their allocations to see how Vanguard allocates between stocks and bonds.  I'm seeing:
Vanguard 2050 (30 years away) at 10.5% bonds
Vanguard 2040 (20 years away) at 17.5% bonds
Vanguard 2030 (10 years away) at 32.5% bonds

PDXTabs

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Re: Switching portfolio to 100% stock temporarily?
« Reply #8 on: March 26, 2020, 09:41:13 PM »
A beginning investor will typically invest for decades, so your 20% bonds is higher than needed.  Do those 20% bonds provide reassurance that lets you keep investing during bad markets?
...
PDXTabs: stay at 80%  (but worth mentioning PDXTabs is 100% now)

I should clarify, DanP asked if he should temporarily add more stocks. That sounded like market timing to me. I do think that DanP should seriously consider his asset allocation and whether or not he should increase his equity holdings while decreasing his bond holdings. But I don't think that it should be a temporary thing because of market timing.

DanP

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Re: Switching portfolio to 100% stock temporarily?
« Reply #9 on: March 27, 2020, 11:09:24 AM »
Thanks for the incredible feedback, guys.

What I take out of all this is that my thinking/ actions is "timing the market" - as suspected. That said, I read that it may be acceptable in this case. I feel like this will be a huge point of focus in my learning going forward - when/ what is okay, and that it may not be a black-and-white rule - as with everything in life. I do feel like I'm taking actions without having as clear an understanding of the underlying systems as I would like, but that will come with experience, and this is it. The above responses do give me significant extra confidence in my ideas.

Actions:
-  Every monthly contribution going forward, I will get 100% stocks. Until things rise up again, significantly.
-  I transferred $1k cash into my investment account, just waiting there.
-  IF the markets drop again (to a certain metric I've set) then I will buy VEQT (100% equity) with the cash.
-  I have some reading to do on bonds and NAV and see if I want to sell off my VBAL (80/20) and buy 100% VEQT, or maybe 95/5 or so - the 5 coming from VAB (100% bond).
-  IF the markets do go up (I don't see it, doesn't make sense to me), then I will decide whether to invest the $1000, or just put it back in my savings.
-  Regardless, going forward, I think I will drop the VBAL buy a blend of VEQT  and VAB, set to my desired ratio. Most probably a 90/10, but way more reading on this before I decide on a final ratio. Excellent idea to look at the Vanguard funds, MustacheAndaHalf.

Official retirement is in 35 years. But I currently have my goal to reach FI in 20 years, at the latest. I do see myself as very securely employed. That said, if hell really breaks loose, and I do lose employment - then I can always sell off a portion of my stocks to live off of - IF absolutely required (low living costs, which EI would cover 100%). We must also be closer to the bottom now that I'm buying than we were before this whole thing started, so my selling losses would be mitigated somewhat in such a scenario. Also, as I see it, if there's no risk, there is limited reward at best. So I am okay with risk, so long as it is calculated and understood.



Misc. Rambling:
I can't help but be very excited about what the markets are doing now. Over the past year I've been reading books and blogs during every spare minute, and now I actually get to see it all in action, real-time. Very educational, and these events put some good experience to the information. I have a huge list of questions to look into. One interesting thing is that this is supposed to be a really bad crash, but I was personally expecting way, way worse, having read so many horror stories. So this gives huge confidence going forward, so long as I'm as prepared as is possible for such events.

Whatever I do, I will not take unreasonable risks (i.e. selling all now, waiting for an even bigger dip). I'm excited/ hopeful to make some returns years down the line because of my actions now, but the sums I'm dealing with are not life-changing (~15k) so it won't kill me if I mess up now, as this would teach for later in time when the sums will be more impactful. At this point, the experience is far more valuable than any returns, and would be worth any losses. This will happen again, years down the line, and I want to have first-hand experience, and a very detailed contingency list/ understanding - to attempt to take advantage of it then.
« Last Edit: March 27, 2020, 11:13:55 AM by DanP »

Kroaler

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Re: Switching portfolio to 100% stock temporarily?
« Reply #10 on: March 27, 2020, 11:09:49 AM »
I was putting about 30% into bonds.

I took that money and split it out 12.5 , 12.5 and 5% into , airline index, banking index and energy index for future contribution.

I may also slightly up my 401k contribution so I max out end of August instead of december.

No rhyme or reason really.   I just didn't want to be buying bonds with the price of everything.

ChpBstrd

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Re: Switching portfolio to 100% stock temporarily?
« Reply #11 on: March 27, 2020, 03:08:25 PM »
Nope.

des999

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Re: Switching portfolio to 100% stock temporarily?
« Reply #12 on: March 27, 2020, 03:24:48 PM »

I may also slightly up my 401k contribution so I max out end of August instead of december.


I did this as well, but I ensured that my company match would not be affected before I did it.

Also, I have always been pretty aggressive, so I took my 10% bonds and sold them and bought stocks last week.

other than that, I am just riding it out.  But, I now have a better idea on how I would handle a large downswing.  I didn't have much money in 2008/9.





GuitarStv

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Re: Switching portfolio to 100% stock temporarily?
« Reply #13 on: March 27, 2020, 03:27:08 PM »
You shouldn't do anything but occasionally re-balance your investments to pre-determined asset allocations.  Don't kid yourself - anything else is just market timing.

solon

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Re: Switching portfolio to 100% stock temporarily?
« Reply #14 on: March 27, 2020, 03:30:40 PM »
I've always been 100% stocks.

Given the recent downturn, I think I might switch to 100% stocks.

After all this is over, I think I'll go back to 100% stocks.

I'm just not sure when to do my rebalancing.

Lady Stash

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Re: Switching portfolio to 100% stock temporarily?
« Reply #15 on: April 04, 2020, 01:55:51 PM »
I've always been 100% stocks.

Given the recent downturn, I think I might switch to 100% stocks.

After all this is over, I think I'll go back to 100% stocks.

I'm just not sure when to do my rebalancing.

Ha!  That does make things simpler

Retire-Canada

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Re: Switching portfolio to 100% stock temporarily?
« Reply #16 on: April 10, 2020, 07:02:30 AM »
Is there anything wrong with putting my monthly contributions into 100% stocks right now that they're so low - or even selling my current 80/20 portfolio to buy 100% stocks? Is this considered "timing the market" or being smart about it?

Look at your planned AA and see where you are at now. If your stock allocation is low as it probably is then it makes sense to direct more $$ there. Whether that's through new contributions or selling bonds is up to you.

talltexan

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Re: Switching portfolio to 100% stock temporarily?
« Reply #17 on: April 14, 2020, 06:23:49 AM »
I like the idea of using new contributions to rebalance rather than just whole-up switching to a different allocation. Markets go up and down over time, you don't know which will happen next. With 20 years until retirement, 20% bonds is probably about right.

Buffaloski Boris

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Re: Switching portfolio to 100% stock temporarily?
« Reply #18 on: April 14, 2020, 08:18:19 AM »
A beginning investor will typically invest for decades, so your 20% bonds is higher than needed.  Do those 20% bonds provide reassurance that lets you keep investing during bad markets?

My view: 80% to 100% if you are not scared of -22% drop
PDXTabs: stay at 80%  (but worth mentioning PDXTabs is 100% now)
SpaceCow: 80% -> lower allocation
Rob_bob: keep 80%, but new money buys 100% stocks
BicycleB: potentially 80% to 100%, but might be a learning experience

Two votes to go 100% stocks, two votes to stay at 80% stocks, one vote to lower stock allocation.  Maybe there's a consensus to raise your stock allocation somewhere between 80% and 100%?

How many years until you retire?  Vanguard has retirement funds with billions of dollars in them, so you can peek at their allocations to see how Vanguard allocates between stocks and bonds.  I'm seeing:
Vanguard 2050 (30 years away) at 10.5% bonds
Vanguard 2040 (20 years away) at 17.5% bonds
Vanguard 2030 (10 years away) at 32.5% bonds

Buffaloski Boris: stay mostly cash unless and until we see a significant change to risk/reward dynamic as measured by PE/CAPE ratios. International likely being a better deal than domestic (US). 

The argument against cash has been it gets eaten up by inflation. What inflation would that be looking forward? We're staring deflation in the face.