I’m 57 and have maintained my aggressive growth balance all along, through crashes and rises, dollar averaging all the way. For me it’s been bonds schmonds. But current events has me turning not quite so risk tolerant. I’ve moved closer to (albeit still quite a bit from) the age advised bond percentage and put about 7% in the gold etf GLD. I figure I’ll do simple rebalancing every so often and move back to my old aggressive growth positioning if the market does indeed crash to half its value.
Anyone else repositioning?
Any thoughts about whether to rebalance once a quarter or whenever the percents shift by some X amount?
I sold my remaining stocks on election night and don’t intend to buy any more until this guy is finished. Yes, I missed a bit of run-up, but I don’t see anything that encourages me to reinvest. Our nest egg is entirely in government instruments and cash at this point. Precious metals are a bad bet right now, and many are predicting that silver will hit rock bottom. I’ve also seen recommendations to wait until gold hits about 790 before buying in.
Current events being a generally much more favorable environment for business? I’m not saying that there won’t inevitably be another recession or some kind of crash, but it’s impossible to know when. It’s easy to imagine pro-business policies leading to an improved economy throughout the administration of the current president, and then it all coming apart in a crash shortly after he leaves office.
I think it’s a reasonable thing to rebalance annually based on your age, and if you are at a higher than average risk level, moving toward bonds makes sense, but anything beyond that is far more likely to hurt than help. If regulations are going to be reduced, I wouldn’t want to miss out on the gains that would result.
I’m similar to the OPs age. I had sold a couple of under-performing funds in late Summer, plus due to a company merger had another influx in cash, so at this point I’m probably 30% in cash (the rest various ETFs/MFs and oil), and I’m not rushing to reinvest that 30%. I will probably take another hard look at the end of this month.
Like the OP, I always stayed aggressive and pretty much ignored the ‘age in bonds’ thing. When I retired at age 60, I dropped back to 70% equity index funds (and a few stocks).
On Nov 9, I dumped my remaining stocks into my stable value fund returning 3.25%. That dropped me to 55% equities. I figure I have an eight year cash-equivalent reserve to protect me from selling in a down market.
I spoke with my advisor just yesterday. He predicts significant short-term exchange rate volatility for the pound and UK stock market but medium-term stability.
I know a guy who invested heavily in gun manufacturers, not long before Obama was elected. He made (shall I say it?) a killing.
He repeated it in 2012, and made more money.
But he tried for a trifecta and was disappointed; he guessed Clinton would win, and people would buy up lots of guns, before she tried to take them all away. Lost a bit of money.
The only thing I’m doing differently is making sure my portfolio has enough international stocks in it, in case there is a global trade war that the US loses. But that consists more in gradually shifting toward around 30-35% of my stock funds being international rather than immediately putting everything I have into them.
I went to ~80% equities before the election, then got back out at 20K. This added significantly to our retirement funds.
I think a fairly deep recession was on its way regardless of the election, so I’m ready and hoping it happens soon (it seems more likely now). We made significant gains during the 08 crash, and would like a repeat. Also, we need to make a few large purchases prior to retirement and I can make better deals during a recession.
Care to share the logic used by those who say that gold will be dropping by 1/3 of its current value? Especially in the context of those who like you are believing that there is a reasonably high risk of a highly significant stock market drop or a new recession over the next year.
Trying to guess what the stock market is going to do based on reading the news and filtering it through your political views and biases is a complete mug’s game. It’s surprising so many people still think they can do this. Granted, the volatility and quasi-randomness of markets, combined with selective memory and confirmation bias may make it seem you can do this.
But the vast majority can’t. Whatever you perceive from the news smart money market participants also already know and it’s reflected in prices. For the few with the skill and insight to do it successfully consistently, they should really be going all out to get jobs as traders or asset managers.
Changes in asset allocation should be in response to changes in your own circumstances. That’s something you know that everyone else doesn’t. Secondarily an argument might be made to allocate based on market measures of risk. There’s room for argument there (however if so from a US stock POV the most relevant risk measure, the VIX, is unusually low now).
But thinking you can predict eg. foreign stocks are more likely to do better from USD POV because of Trump, just to pick on one prediction in the thread, you’re kidding yourself. The opposite could just as easily happen. A ‘border adjusted cash flow tax’, as proposed by House GOP to reform/replace the corporate income tax, if passed would seriously boost the USD’s value and cause a big one time loss of wealth for US holders of foreign assets. Or that tax may not be passed. The basic fallacy is thinking you have unique insight.
I haven’t. Based on what I need to take from my IRA I have two years worth of cash and seven years worth of bonds. That leaves 18 years worth of stocks. Even if the stocks lose 50% of their value, I’m almost a decade away from selling into a down market. The stocks are allocated roughly 60% domestic, 30% international, and 10% REITs. I rebalance whenever things get too out of whack.
Income from the bonds and stocks gets dumped into the cash bucket, and when it gets to be more than 30 months worth of money I buy some more stocks to drop it back to two years.
I’m no expert on this. It seems that the consensus is that gold will decline steadily in the short term bullish market, but that it is likely that another recession is on the way. The estimates were that it would bottom out at about 790 before the market turns sour, when precious metals would again be in favor. Gold prices have dropped significantly over the past few years. I sold what I had when the price was up around $1700/oz, as I recall. It’s now about $1200.
Bill, how do you define “too out of whack”? Corry,
VIX (the volatility index) was about as low in the first quarter of 2007 and was not far off that into August 2008. It only went up as the crash occurred with maybe some slight lead on it of less than a month. Bumps up in it in 2010 and 2011 did not presage any crashes. Why do you see it as so meaningful as a marker for risk over the next year?
Agreed that trying to out-predict is foolish but “changes in your own circumstances” do include changes in your own tolerance for risk and your own perception of how big the risk is and how they match. I do not know what will happen to the markets over the next two years. I do know that my perception of the risk has gone up significantly and is now over the level that would have me maintaining my long term “aggressive growth” positioning even with my high risk tolerance. So I’ve dialed back to a more “balanced” position: 60% stocks (divided between S&P500 index, Extended Market Index, and personal picks pretty equally); 34% fixed income instruments (4 sorts of funds); and 6% gold. My risk tolerance has not changed but my experienced perception of the risk has.
Things like a crash occurring and the market halving in value would change my perception of the risk and I’d move back into a more aggressive stance.
Chefguy, ah. That is those heads doing what I know I cannot do - out-predict what the market will do and time the length of a bullish run and of a recession. Maybe there will be a short term bullish market for another six months. Maybe it will drop in one. My trying to pick the bottom or decide which expert to believe (by definition the consensus is that gold’s prospects are reflected in its current price) is not something I have the skill to do.
If gold loses value and stocks have a bull run for a few months I rebalance in a few months and buy more. Odds are sometime over the next 15 or so years gold will be relatively outperforming stocks and bonds and then I will sell some then picking up some of the other class(es).
If stocks drop over the next few months I have great confidence that they will eventually recover. Odds are in that gold will go up in that circumstance and I rebalance then.
In stocks I figure anything more than a relative 5% higher than its target gets sold off, and the proceeds go into whatever is low relative to its target. So if the domestic stocks got up to 63% of the total stock package I’d sell some and use the proceeds to even out the international and REIT portions.
For cash and bonds I keep absolute numbers, two years and seven years of each. To me it seems like trying to allocate cash and bonds as a percentage doesn’t make sense. Their job is to keep me from selling in a down market, so I have to keep track of them in years.
I developed this strategy very recently. Until the last half of 2016 I had individual stocks, more than 40 different stocks to keep track of. I was planning to retire as of the first of the year and I was in what I figured was a glide path, so started divesting last June and moving to index funds. What I have now is four Vanguard Index Funds and a money market account for the cash portion.
I don’t believe they were trying to be fortune-tellers. I think the thrust of the articles was that buying in the short term may not be to your advantage, and that if you ARE contemplating buying, you should wait for a sustained selling trend. As always, it’s impossible to know when to buy and sell, so the target price of 790 was seen as a reasonable point to buy.
Yes, I recently sent an e-mail to my advisor to that effect. The last two downturns hit investments hard. I have two sources of income in my household. Social Security, for which Republicans have an historical enmity. And a pension. Mine happens to be from service as a government employee. At least one prominent Republicans has advocated allowing states to declare bankruptcy to escape “onerous pension obligations”. And bankruptcies, of course, can be manufactured. A tax cut here, a pet project there, and next thing you know it’s “hey, where’d all the money go?” But I’d be concerned even if my pension were from private sector service as the people who run companies would evade that obligation if they could, anybody think differently?
So with both assets and income under possible threat, if not downright assault, yeah it would be prudent to protect yourself. Unless you have a taste for rat meat, that is.
Thank you for calling my attention to VIX. You can trade on VIX? Or at least some correlate of it. I should have known there was a way to trade on a fear index. I’ve got to look into that! You are of course right that VIX is at historic lows and volatility goes up rapidly in a crash … it seems like a small position there at this low point might be a way to hedge against a crash too.
Now I get the points made in this Motley Fool bit I found - they are not a long term investment and over time the nature of how the etf is structured assures downward pressure. But the market is betting on very low volatility over the next year. I’d be willing to speculate (not invest) some that we will have a volatility spike by the time 2018 hits and little chance that the market will be much less than its current perceived stability.
Yup. Just placed my bet on fear increasing! Bought some VXX at $18.14. Not a long term investment; it’s sold before 2018 hits one way or the other. Chefguy color me confused then. They aren’t predicting a short term future bottom of about a third off from where it is and saying that that is where one should time the market to enter?