Author Topic: The most market-timey thing I've ever done...  (Read 5353 times)

spud1987

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The most market-timey thing I've ever done...
« on: November 10, 2016, 02:17:34 PM »
In light of recent market highs, high PE ratios (both trailing 12 month and Schiller), and future uncertainty regarding US policy, I decided to reallocate 10% of my portfolio from equities to bonds/cash.

My asset allocation is now: 60% equities, 25% bonds, 6% cash, 9% REITs.  Still pretty aggressive, but below my planned asset allocation of 75% equities, 15% bonds/cash, 10% REITs.

This reallocation was all in tax-deferred/Roth accounts so there were no capital gains or other tax consequences.

I will begin to reallocate towards equities once the market is down 15% from current levels and/or the US policy picture begins to stabilize (obviously this is a subjective criteria).

Anyone else doing something similar?

Retire-Canada

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Re: The most market-timey thing I've ever done...
« Reply #1 on: November 10, 2016, 02:48:54 PM »
Anyone else doing something similar?

Nope. I just bought more stocks and am 100% equities. If the last few days has taught us something it's gotta be that we can't predict what will happen. I plan to just keep buying each month no matter what.

tonysemail

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Re: The most market-timey thing I've ever done...
« Reply #2 on: November 10, 2016, 02:53:45 PM »
i was expecting to do some TLH.
but my predictions keep going kaput.
I'm sticking to the IPS.

fattest_foot

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Re: The most market-timey thing I've ever done...
« Reply #3 on: November 10, 2016, 02:59:02 PM »
I thought the point of an allocation strategy was to never deviate from it. Otherwise what's the point?

soccerluvof4

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Re: The most market-timey thing I've ever done...
« Reply #4 on: November 10, 2016, 03:11:02 PM »
^ Yup!

frugledoc

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Re: The most market-timey thing I've ever done...
« Reply #5 on: November 10, 2016, 03:12:22 PM »
There is no point.

If your current equity allocation is too high for your risk tolerance then change your allocation to less equities : more bonds/cash but once you make that change then stick to it.

dycker1978

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Re: The most market-timey thing I've ever done...
« Reply #6 on: November 10, 2016, 03:15:17 PM »
In light of recent market highs, high PE ratios (both trailing 12 month and Schiller), and future uncertainty regarding US policy, I decided to reallocate 10% of my portfolio from equities to bonds/cash.

My asset allocation is now: 60% equities, 25% bonds, 6% cash, 9% REITs.  Still pretty aggressive, but below my planned asset allocation of 75% equities, 15% bonds/cash, 10% REITs.

This reallocation was all in tax-deferred/Roth accounts so there were no capital gains or other tax consequences.

I will begin to reallocate towards equities once the market is down 15% from current levels and/or the US policy picture begins to stabilize (obviously this is a subjective criteria).

Anyone else doing something similar?

Stupid question, but what if the market is never 15% lower than it is right now?

spud1987

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Re: The most market-timey thing I've ever done...
« Reply #7 on: November 10, 2016, 06:17:36 PM »
i was expecting to do some TLH.
but my predictions keep going kaput.
I'm sticking to the IPS.

I thought the point of an allocation strategy was to never deviate from it. Otherwise what's the point?

My IPS allows for an asset allocation sliding scale based on objective (SP500 PE ratios) and subjective (personal outlook for equities in the near/medium term). I should have clarified this.

Basically I see limited upside in equities compared to the downside. Also, I want some "dry powder" in order to buy in case of a drop.

If I'm wrong then it's not a big deal. I still will have a large exposure to equities and my bonds will give off a decent return.

One Noisy Cat

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Re: The most market-timey thing I've ever done...
« Reply #8 on: November 10, 2016, 06:29:17 PM »
Not really. Maybe in 2008 I put a few hundred dollars I had in a checking account into an S&P 500 index fund. A few times in my career I altered the mix of stocks to bonds but nothing drastic and never on what the market was doing or about to do. I believe in getting a good plan and staying with it.

Driko

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Re: The most market-timey thing I've ever done...
« Reply #9 on: November 10, 2016, 06:39:11 PM »
Well, I never had an emergency fund and I plan to be moving in the next few months, so I finally started saving for an emergency fund. Once my emergency fund is at the level I am comfortable with, I will start investing all my excess cash in equities again.

I guess it's kind of market timing since before I always wanted to invest all excess cash, and with current valuations I finally felt it was a good time for an emergency fund.

Mighty-Dollar

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Re: The most market-timey thing I've ever done...
« Reply #10 on: November 10, 2016, 07:44:48 PM »
Quote
If the last few days has taught us something it's gotta be that we can't predict what will happen.
BIG TIME! The people who predicted a market crash if Trump wins were equally as wrong about predictions that were made about the election.

Telecaster

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Re: The most market-timey thing I've ever done...
« Reply #11 on: November 10, 2016, 07:47:26 PM »
In light of recent market highs, high PE ratios (both trailing 12 month and Schiller), and future uncertainty regarding US policy, I decided to reallocate 10% of my portfolio from equities to bonds/cash.

My asset allocation is now: 60% equities, 25% bonds, 6% cash, 9% REITs.  Still pretty aggressive, but below my planned asset allocation of 75% equities, 15% bonds/cash, 10% REITs.

This reallocation was all in tax-deferred/Roth accounts so there were no capital gains or other tax consequences.

I will begin to reallocate towards equities once the market is down 15% from current levels and/or the US policy picture begins to stabilize (obviously this is a subjective criteria).

Anyone else doing something similar?

Stupid question, but what if the market is never 15% lower than it is right now?

Actually a great question. 

Cycling Stache

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Re: The most market-timey thing I've ever done...
« Reply #12 on: November 11, 2016, 04:53:25 PM »
In light of recent market highs, high PE ratios (both trailing 12 month and Schiller), and future uncertainty regarding US policy, I decided to reallocate 10% of my portfolio from equities to bonds/cash.

I am Jack's lower-than-expected market returns. 

trashmanz

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Re: The most market-timey thing I've ever done...
« Reply #13 on: November 11, 2016, 05:07:19 PM »
Think about all the time spend micromanaging your investments and worrying about whether stocks are overpriced. Wouldn't you want to reclaim that time to just enjoy life?  I am ok with 100% VTI personally and let it ride.

Space Pickle

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Re: The most market-timey thing I've ever done...
« Reply #14 on: November 12, 2016, 07:32:29 AM »
Quote
If the last few days has taught us something it's gotta be that we can't predict what will happen.
BIG TIME! The people who predicted a market crash if Trump wins were equally as wrong about predictions that were made about the election.

This is true, although you have to figure that 4 years minimum of Trump economic policy will cause economic chaos eventually.

Retire-Canada

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Re: The most market-timey thing I've ever done...
« Reply #15 on: November 12, 2016, 08:31:34 AM »
This is true, although you have to figure that 4 years minimum of Trump economic policy will cause economic chaos eventually.

You could figure that ^^^ and you could also be wrong. He could just as well get some smart economic advisors supporting him and with no interest in environmental protection or fair taxation he might unleash 4yrs of YUUUUGE growth. I don't think we can predict what will happen.

FIRE_at_45

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Re: The most market-timey thing I've ever done...
« Reply #16 on: November 12, 2016, 09:05:13 AM »
I think timing the market is impossible.  The experts predicted a drop while the election was happening and it went up.

I think it's best to hold a small amount of cash and bonds and just rebalance and let the natural ups and downs and balancing have you selling stuff that's up and out of balance and buying low or lower. 

human

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Re: The most market-timey thing I've ever done...
« Reply #17 on: November 12, 2016, 09:10:26 AM »
I wonder what happened to all those people who sold before the election. Will they now buy back in at higher prices?

kayvent

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Re: The most market-timey thing I've ever done...
« Reply #18 on: November 12, 2016, 11:03:15 AM »
The number one cause of failure is people not sticking to their plans.
« Last Edit: November 12, 2016, 04:27:45 PM by kayvent »

2Birds1Stone

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Re: The most market-timey thing I've ever done...
« Reply #19 on: November 12, 2016, 11:08:53 AM »
Well, it looks like since you made this trade...

Stock are up ~3%

Bonds are down ~2%

If this new AA helps you stick it through the volatility of the market however, I would keep it. Just don't keep tweaking, as it's been proven time and time again that we are our own worst enemy when it comes to investing.

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Re: The most market-timey thing I've ever done...
« Reply #20 on: November 13, 2016, 05:01:39 AM »
Yes.  I use a sliding asset allocation, based on valuation. 

For US stocks, I use Morningstar's fair value graph as the primary basis for asset allocation adjustments.

http://www.morningstar.com/market-valuation/market-fair-value-graph.aspx

Roots&Wings

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Re: The most market-timey thing I've ever done...
« Reply #21 on: November 14, 2016, 06:44:59 AM »
Yes.  I use a sliding asset allocation, based on valuation. 

For US stocks, I use Morningstar's fair value graph as the primary basis for asset allocation adjustments.

http://www.morningstar.com/market-valuation/market-fair-value-graph.aspx

Can you explain your sliding asset allocation further?

spud1987

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Re: The most market-timey thing I've ever done...
« Reply #22 on: November 14, 2016, 09:48:07 AM »
Well, it looks like since you made this trade...

Stock are up ~3%

Bonds are down ~2%

If this new AA helps you stick it through the volatility of the market however, I would keep it. Just don't keep tweaking, as it's been proven time and time again that we are our own worst enemy when it comes to investing.

I actually made the trades on 11/11 so I was able to buy bonds after another day of price drops. That being said, I agree that the day-to-day swings won't matter, it's the trend I'm looking for.

spud1987

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Re: The most market-timey thing I've ever done...
« Reply #23 on: November 14, 2016, 09:51:49 AM »
Yes.  I use a sliding asset allocation, based on valuation. 

For US stocks, I use Morningstar's fair value graph as the primary basis for asset allocation adjustments.

http://www.morningstar.com/market-valuation/market-fair-value-graph.aspx

Can you explain your sliding asset allocation further?

This sliding scale is interesting. Mine in my IPS is much more mechanical and subjective. For example, if Schiller and trailing PEs under 20, stock allocation should be no less than 75%, unless there are major extenuating (e.g., change in US policy following election) factors, etc.

frugalnacho

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Re: The most market-timey thing I've ever done...
« Reply #24 on: November 14, 2016, 11:05:42 AM »
i was expecting to do some TLH.
but my predictions keep going kaput.
I'm sticking to the IPS.

I thought the point of an allocation strategy was to never deviate from it. Otherwise what's the point?

My IPS allows for an asset allocation sliding scale based on objective (SP500 PE ratios) and subjective (personal outlook for equities in the near/medium term). I should have clarified this.

Basically I see limited upside in equities compared to the downside. Also, I want some "dry powder" in order to buy in case of a drop.

If I'm wrong then it's not a big deal. I still will have a large exposure to equities and my bonds will give off a decent return.

In what sense is it an actual policy if it's subject to changes based on subjective factors?  It undermines the entire premise of choosing an IPS to begin with.

spud1987

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Re: The most market-timey thing I've ever done...
« Reply #25 on: November 14, 2016, 01:05:18 PM »
i was expecting to do some TLH.
but my predictions keep going kaput.
I'm sticking to the IPS.

I thought the point of an allocation strategy was to never deviate from it. Otherwise what's the point?

My IPS allows for an asset allocation sliding scale based on objective (SP500 PE ratios) and subjective (personal outlook for equities in the near/medium term). I should have clarified this.

Basically I see limited upside in equities compared to the downside. Also, I want some "dry powder" in order to buy in case of a drop.

If I'm wrong then it's not a big deal. I still will have a large exposure to equities and my bonds will give off a decent return.

In what sense is it an actual policy if it's subject to changes based on subjective factors?  It undermines the entire premise of choosing an IPS to begin with.

I should clarify that my IPS only permits small changes to asset allocations based on subjective factors (up to 5% from rigid guidelines). The asset allocation is mainly a function of PE ratios.

I think an IPS is by definition a subjective determination. Who is to say that my chosen asset allocation is correct compared to someone else with less/more risk tolerance or a belief that passive/active investing is a better model?

In my mind, an IPS is a tool to ensure that we don't stray too far from our investment objectives. For example, even if PE ratios were sky high and I had a extremely negative outlook, my stock allocation would never dip below 50%. I agree that my IPS would not be useful if it said "my asset allocation will vary depending on my mood at any given time."

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Re: The most market-timey thing I've ever done...
« Reply #26 on: November 14, 2016, 01:52:50 PM »
I follow the entire renewables sector and feel I have a good understanding of relative policy risk therein (not all companies do the same work, or rely on the same laws to increase revenue or stability). On Wednesday, I moved some cash and bought stocks that had fallen.

Time will tell if it's a good move. I have high confidence, but we're all fallible.

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Re: The most market-timey thing I've ever done...
« Reply #27 on: November 17, 2016, 09:11:04 PM »
Yes.  I use a sliding asset allocation, based on valuation. 

For US stocks, I use Morningstar's fair value graph as the primary basis for asset allocation adjustments.

http://www.morningstar.com/market-valuation/market-fair-value-graph.aspx

Can you explain your sliding asset allocation further?

I don't have any hard and fast rules, as this is more of a screening tool (like CAPE) than an unimpeachable basis for investment decisions, but I my general approach looks something like this:

  • 1.1 < "Market Fair Value"           = Consider selling, reducing equity allocation to 80% or less
  • 1.0 < "Market Fair Value" < 1.1 = Hold.  Don't buy or sell if Equity allocation is in the 80-90% range
  • 0.9 < "Market Fair Value" < 1.0 = Consider buying if equity allocation is less than 90%.  Calculate expected ROI,l PVP/I, IRR of available investment options.
  • 0.8 < "Market Fair Value" < 0.9 = Stop whatever else I am doing, and start indiscriminately investing up to 90%
  •           "Market Fair Value" < 0.8 = Use up all my dry powder and increase allocation up to 100%, excluding cash for near-term expenses

Like others, I also check CAPE, long-term bond interest rates, and other commonly used valuation metrics.  I just don't look at them, until the "Market Fair Value" falls below 1.0.  Hope that helps. 

I think it is important not to blindly invest your money based on any one oversimplified / arbitrary metric or blindly follow an single "optimal" asset allocation that has been historically effective, but this does require a bit more time and effort. 

Roots&Wings

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Re: The most market-timey thing I've ever done...
« Reply #28 on: November 18, 2016, 06:55:45 AM »
^ Thanks Cottonswab for the details! It's interesting to hear others' approaches, and sounds like you're fairly active with monitoring/rebalancing.

I mostly stick to a 90/10 allocation (with my 10 including cash, that gets diverted back to stocks when things are out of balance) and usually check/rebalance twice a year. Far from precise science in my case.

daverobev

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Re: The most market-timey thing I've ever done...
« Reply #29 on: November 18, 2016, 07:02:01 AM »
I follow the entire renewables sector and feel I have a good understanding of relative policy risk therein (not all companies do the same work, or rely on the same laws to increase revenue or stability). On Wednesday, I moved some cash and bought stocks that had fallen.

Time will tell if it's a good move. I have high confidence, but we're all fallible.

Not because of market timing, I have some cash about to go into my investments (sold a house that wasn't doing well). I'm going to buy a big chunk of ICLN. Not sure about anything else, but I'm def. buying cheaper than it was a couple of months ago.

spud1987

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Re: The most market-timey thing I've ever done...
« Reply #30 on: November 18, 2016, 01:15:36 PM »
Another move I've made recently is to harvest some capital losses. This isn't strictly market timing, but it is taking advantage of a downturn in bond prices. I was able to harvest about 2k in bond losses by exchanging my muni bond funds for different muni bond funds.