Move to Cash? {Keep Politics out of this one}

In My Humble Opinion
101

So I am considering re- evaluating my position slightly. Not because of tariffs but because of the confluence of Kennedy, Trump’s withdrawal from WHO, the new mandated silence from the CDC, and the threat of bird flu exploding into a new human pandemic. I have no idea if a new pandemic is in the offing but if see we are completely ill equipped for even surveillance let alone a coordinated response.

So not to cash, but maybe positioning with that possibility in mind?

If you believed that a new pandemic was not far away how would you position yourself?

102

Personally, if I thought that, I’d probably focus on things like money market (net of about 1%), FTBFX (net of about 2%)

If we have another pandemic, Trump is going to take the denialist approach. I have no idea how that will play out.

Markets did well in the last one because of the massive government spending (IMO). Would that happen again? I do not know.

103

In short very badly.

I’m not ready to move to cash or even a total bonds fund. But maybe a bit out of the S&P 500 which is dominated by a handful or so of tech growth stocks … to?

Healthcare stocks have been beaten down but long term are pretty safe. Pfizer has a nice dividend, 6.7%, and a PE of 18. Kennedy’s antipathy to them is already priced in. A fairly reasonable long term defensive play and if there is another pandemic they would likely do well indeed. Moderna is also in the dumpster.

Or maybe a bit shifted into large cap value?

104

I’m thinking of moving a significant portion of what’s in my IRA’s S&P500 index fund into Vanguard’s Equity Income Admiral fund. VEIRX.

https://www.morningstar.com/funds/xnas/veirx/quote

Still in equity but less dependent on the several big tech firms that are so overweighted in the S&P500 index. Hasn’t lagged the index too much and hasn’t dropped so bad when index has. Maybe a little in a few dividend paying big pharmaceuticals like Pfizer and Glaxo …

Whaddaya think?

105

If timing the market is nigh impossible, I’m not sure timing pandemics seems just as hard. Unless you’re hedging, but even then, seems like it might be better to hedge against events where the possibility is currently known to be on the table?

106

Not sure if I’d call it hedging but that is closest.

Not retiring but of age that things could happen to force a hand. My brother always shares a saying: “pigs get fat, hogs get slaughtered” IOW don’t get greedy and press your luck. My retirement funds have done very well, being a bit more defensive against disasters may just be prudent?

The S&P500 as the biggest pillar approach is riskier now than it used to be. More of it is concentrated in the big tech growth stocks. They have done very well but what makes one suddenly ill afflicts the group.

My fear of Trump crashing the world economy with tariffs and trade wars in a manner that takes a decade to recover from is honestly on the small side. Trying to keep politics mostly out of this, but he has shown that he will reverse course as the institutional investors pull out of the market. Still hedging against that a bit is rational.

But my fear of another pandemic, and of its impact, is ramping up exponentially.

Oh I am positive there will be another pandemic. Not sure if it will be this year or next or in ten years. It’s like being sure there will be another bad hurricane in the Gulf. These are sure things. But the impact of each is going to be determined by how much early warning we have and how prepared we are to handle it.

Trump is dismantling all the early warning systems. Cutting the wires to all the possible sirens. Eliminating the tools of coordinated responses, of all effective responses. Preventing prudent preparation. Those are not mistakes he could quickly reverse like tariffs are. Once it hits us unprepared it is too late.

Bird flu might erupt into that big storm. A very real possibility. Or not. I don’t know the timing. But the risk of sooner than later is rising to my read. Staying as relatively all in the S&P500 index though is its own bet that it won’t be this year. Or any value of “now.”

It may be smarter to accept the possibility of missing out more of the big run and be placed in a position less completely exposed for the possibility of that storm hitting. I’d still be staying two thirds in equity, just more weighted to choices that are less likely to be as volatile in either direction. Less of the up side if the big techs keep their amazing run going pulling the S&P500 index higher and higher. But positioned to weather the economic crash that a pandemic with zero early warning system or preparedness for would cause. Assuming I lived through it myself!

Anyway. Play the hypothetical. You want to stay in the market but a bit more defensively positioned for a very badly managed pandemic sometime in the next four years. What’s your move?

107

Well, I think you’re zeroing in on the problem any investor has right now: Returns have been exceptional, and the pro-S&P 500 index argument is almost impossible to argue against.

But, it’s been extremely concentrated. The S&P 493 has not risen by nearly as much as the mag 7, and since most index funds are weighted, mag 7 are 30% of your holdings.

I have toyed with moving some money into small and mid caps, but they just haven’t returned.

It sort of feels like there’s nowhere to go.

108

Well let’s ignore your fear about the storm of tariffs impacts, and mine about the surety of a pandemic just not knowing when but fearing a very poor response.

“The disciplined investor” doesn’t chase past returns (or try to time the market); they rebalance staying true to their own personal volatility tolerance level for their current position in life. Right? The basics of the Boglehead philosophy. Well once upon a time rebalancing your three funds was enough to accomplish that. If one was doing exceptionally well that was when you rebalanced to the ones doing not as well.

The question is if the S&P index fund is itself out of balance, and staying true to that rebalancing philosophy means hand on scale to reweight away from the Mag Seven that have done, are doing, likely will continue to do, so well. Not trying to time their top, accepting the probability of missing out, in return for sticking to targets of volatility tolerance?

109

Well, there are S&P 500 funds that do not weight by market cap.

https://www.spglobal.com/spdji/en/indices/equity/sp-500-equal-weight-index/#overview

Of course, that fund has returned about half what the “regular” SPX returned over the last 5 years.

I think the last 25 years have been abnormal, but I’m not an expert on markets so I could be wrong.

Over that time we’ve had two things really driving everything:

  1. Interest rates have been consistently low. Even now, people are freaking out about mortgage rates. When I bought my first place, my 30 year fixed was 7.xx% and everyone thought that was just fine. So fixed income, cash, etc. have been crap over that time. That’s part of why I’m 70-80% S&P 500. Bonds were often losing to inflation.
  2. Calling the last 30 years a tech revolution isn’t overstated. So much has changed, and so much has been innovated, that we now have 8 of the 10 largest companies in the SPX are tech (9 if you count Tesla as tech).

So to me, it feels like anyone who is invested has done very well, but it’s really been a one-trick pony.

I’m nervous, but I don’t know where to turn (investment-wise). As I mentioned, I’ve been putting a little into SPHY for income, and I think I may put some in mid-caps, since they seem to represent value.

OR, maybe I’ll just stay put. Other than one or two mistakes (that muni find was dumb, dumb, dumb) I’ve just been putting it into the SPX and leaving it. And that’s served me well, although at 51 I anticipate starting to tap that around 60. Should be enough duration to ride out a downturn?

110

So my update. Not sure if I am contradicting my “don’t try to time the market” mantra, but I am more and more of the sense that being fairly all in on the S&P500 is being greedy and in these times riskier than I am comfortable with.

I’m staying in the same allocation of equities but pulled the trigger on moving out of most in the S&P index as my allocation, followed by a mid cap growth fund, and a smaller selection of individual stock picks pulling up the rear. Now I’m in VEIRX (Vanguard Equity Growth Administration Fund) in equal shares with the two other fund choices. It gets classified as large cap value. Compared to the S&P500 index VEIRX total return (dividends reinvested) was 10 year avg 10.73 compared to 13%. But less volatility. When the S&P500 dropped 18% in ‘22 VEIRX was flat, albeit in ‘18 it dropped 5.6 while the S&P500 only dropped 4.4%.

I just feel less anxious not having so much in a basket dominated by a relative handful of giant growth stocks. It begins to feel like a bubble with someone swinging and throwing a bunch of pointy sticks all around.

I also trimmed some off of an individual stock that has done very well (Trane) to buy some Pfizer as a long term play. Unfortunately I am very confident that another pandemic will happen sometime and that our current approach of destroying the public health systems both domestically and in terms of international cooperation are likely going to make it very bad when that happens. Whenever it is. Pfizer stock price is very low now, its dividend high and likely relatively safe from major cuts, and when there is a next health crisis it will be a good hedge to have. May that never happen and all I get is the dividend as return.

111

Thanks for the update.

I’ve decided that I’m going to take some profits and park them in FTBFX (total bond fund index; super boring) and wait out what’s happening with the slashing of the federal government.

I heard a compelling argument on the radio the other day that if this continues, there will be unemployment and knock-on effects. Beyond the newly unemployed federal workers, many of the programs being cut and frozen supply money to organizations who employ people, thus having to lay them off. This argument said we’ll start to see a big uptick in unemployment in the March numbers which come out in April. In addition, farmers aren’t getting their subsidies, so that’s more economic activity off the table.

So that will be in my IRA, where I can move without penalty. In my brokerage account I’m less sure what to do. If I make that move, I’ll realize gains and I really, really don’t want to do that.

Worst case is I miss out on maybe another 10%, but I’m up 90-ish over the past 5 years and you know what they say: Pigs get fat, hogs get slaughtered.

112

I ended up selling one of my larger equity positions and distributing amongst JPIE, JAAA, JBBB. My portfolio is already largely dividend-focused, and I like these for parking cash and I am comfortable with the risks therein. Fidelity currently pays about 4% in their money market, which is nice, too.

My single largest position has been and will continue to be SCHD, an ETF that could be called Large Cap Value but which focuses on companies with a history of solid dividend payments and dividend growth. It will likely suffer in any downturn but historically has weathered them better than the S&P 500.

My plan is that when we see a significant, enduring drop in equities I will move out of my parked cash and buy some sensible bargains, again with a focus on dividends.

113

Oh correction. VEIRX is Vanguard Equity Income Fund Institutional. They are large cap value focused on dividend paying stocks that have growth potential.

114

I’ve been reading your updates on this thread with interest. For the record, I don’t think you are wrong, but I’m also not sure changes you are making will have a material effect on the value of your portfolio if we do have another market crash (due to another pandemic or for other reasons). The fact is that stocks are volatile. If you remain primarily in stocks, there is a chance that your wealth is going to take a hit, regardless of whether you are in the S&P 500, small cap value, health care stocks, etc. It is going to be impossible to predict which sectors or stocks will take the biggest hit in any coming recession.
The fact is that, unless you have knowledge beforehand, the safest stock allocation is broadly diversified (either a total stock market index such as VTI or even a globally weighted index such as VT). Any sector bets you make might pay off, but they are just as likely to suffer greater losses than such a diversified portfolio.
If you are not comfortable with the possibility of such losses, your best bet is to move out of equities into bonds (although they have their own risks), cash, or other stable value investments. There is no magic equities investment (that we know ahead of time) that will be shielded in a market crash or perform better than the rest of the market.

115

I made the decision today to completely sell off a couple of underperforming funds in my brokerage account. I’ll take a capital gains hit on one, but the other will be a slight loss which will slightly lessen the blow.

That is exactly what I’ve been doing over the course of the past month. I’m still about 40% in equities, with the rest split between bonds and cash. I find now that I don’t stress nearly as much on a day like today when all the indices are substantially down.

116

I’m comfortable with loss. And I’m also more comfortable diversifying away from being heavily weighted to the several huge tech growth stocks that have returned so much so far.

Yes stocks will all come down as a group. And some sectors are more defensive than others. I do also have roughly 30% in other sectors. Yes Bonds. And 6% in the gold etf, which happens to have done as well as the S&P500 since I’ve bought it, but is really there for its poor correlation to other parts of the allocation.

117

I’m waiting for inflation to continue going back up and buy more i-bonds. Other than that, we are very diversified with a lot of cash parked in safe places that are getting good interest (for cash). When we think we hit the bottom (or bottom’ish), I’ll be moving that into assets that should go back up (I hope). Other than that, I’m leaving all our existing stocks & mutual funds where they are. We’ll see if we can retire in 6 years.

118

Two days ago, after a lot of thought, I moved the all my TSP money (federal retirees’ 401(k)) into the G-fund (treasury securities).

It had previously been 26% C fund (an S&P index) and 74% G-fund.

If inflation heats up, this will prove to be an unwise move. But if the markets tank it will look better. If both happen, well that’s how it goes sometimes.

I still have 28% of my entire portfolio in stocks, in my after-tax Vanguard account. And plenty of cash in the bank. Due to a combination of my age (65) and the fact that I live within my pension, I’m very unlikely to outlive my money.

This is all just about trying to maximize what I leave my heirs and the institutions I’ve chosen. First world problems.

119

My wife spent her entire career working for rating agencies working specifically on CDOs and RMBS. The one correction I would make is that the rating agencies weren’t “bamboozled”. They know exactly what goes into those financial instruments and the inherent conflict of interests in providing “impartial” ratings for the people who pay them.

I don’t know that this board has the financial acumen or industry insights to offer financial advice. That is to say AFAIK, few people on this board work in finance or economics. It mostly seems to be based off a purely emotional reaction of “Trump’s going to ruin the world!”

I will say I was looking at the list of companies with the largest market caps. I noticed something kind of …maybe not surprising…but interesting. When you look at what these companies produce:

  • Ads (which I will use as short-hand for anything that monetizes capturing people’s attention)
  • Software, platforms, and hardware for generating ads
  • Devices for watching ads or running the platforms where ads are played
  • Large retail storefronts for buying and selling the products seen in the ads (mostly made elsewhere)
  • A big energy company (ExxonMobil) for powering all this shit
  • A big pharma company (Eli Lilly) to help with all the headaches and depression for staring at ads all day
  • Fancy electric cars for people who got rich off of working for these companies

So whenever anyone talks of increasing “productivity”, I wonder, “producing” more what? Crappy ads for people to stare at so they can buy more crap they don’t need?

Current administration aside, I’m almost inclined to get out of the markets simply because I can’t answer the fundamental question of “why will all this shit be worth more in 10 years?” At least with a car company, you can try and figure out how many cars they might sell.

120

My understanding as well: you don’t get the benefit of lower taxes on cap gains when you take RMDs from your retirement funds, so I’ve weighted the 403b & IRA to bonds for safety. My brokerage account is heavier in equities.

Absolutely agree with you here. His science-denying clowns will mean the viruses win. We’ve barely been keeping up with them, and the dismantling of the global (via USAID cuts) public health system in addition to our own (cutting NIH & CDC research budgets) gives the advantage to the viruses.

What makes this so frustrating is that, as this discussion shows, I’m pretty sure whatever MAGA does is going to crash the economy, but I’m not sure exactly how. Inflation? Deflation? Devaluation? Defaults? Nationalization of assets? With this crowd who knows? That makes it tough to prepare.

I’ve converted about 20% of my portfolio to cash, and put 1/3 of that in enough gold & silver to cover the basics for a year (never thought I’d be that paranoid!). I’m converting most of the remaining cash to physical assets as much a possible: paid off the mortgage, added battery backup to the solar panels, doing some home maintenance & improvement. I vividly remember how expensive and sometimes totally unavailable simple stuff like plywood was during COVID.