Who said anything about a recession coming soon? Do you dispute the idea that a recession is inevitable? Sometime?
So, the market last week, at record prices, can’t be considered high?
Are people who do profit taking timing the market?
When I switched my allocations a few years ago I was quite aware that the downturn might not come soon. As I said, I was quite aware that I was giving up gains. And I was also quite aware that we weren’t at the high then.
I’m not sure what you don’t understand about this strategy.
Try reading what I wrote. I reallocated not when I thought things were at the high, but to be conservative and protect the assets I need for retirement when the inevitable recession comes. Or do you think the next recession will never come?
And BTW I don’t plan on buying at the low, whenever that may be. At my age cash flow is everything. My investments churn out enough return so that with them and Social Security and a few other income sources I only have to sell for capital improvements.
As I said, in 2008 when I was reasonably far from retirement I didn’t touch anything. Which is the thing to do today if you have a cushion for losing a job.
A month of so ago I sold some stuff to buy a new car with cash. I felt good about this because the market was high. I didn’t think the market was anywhere near its highest. See the difference?
Now I’m looking for an opportune time to get back in.
I agree that this is a very risky strategy.
I wanted to try it once and then go back to buy-and-hold.
I never thought I could predict the market’s top or bottom.
I just thought I could get out at a relative high and perhaps get back in at a relative low.
So far, I have missed out on all the gains the market made in 2018 and 2019. (Then again, my profits from 2009 through 2017 are secure.)
I accept that overall, I am likely to lose money from this decision and that if I make money, it will be due much more to luck than to market savvy.
Still, psychologically, it felt good to assert some agency over my investments rather than just remaining strapped in during these unpredictable times.
I agree that buy-and-hold is - statistically speaking - the most sensible approach.
I retired at age in 2009, a week after the market bottomed out. I was 95% stock and had dropped 42% from the high in late 2007. (I did nothing then, just as I had done in 1987 & 2000. I just kept buying in my 401k.)
Stayed at that allocation until 2103 when I moved to 75% stock index funds in a three fund portfolio. I have dialed that back over time to 50% and sleep well. I now have 12 years of expenses that are not at market risk, so I will ride this one out too…
Psychology and emotional thinking are clearly powerful when one recognizes it’s suboptimal but still is governed by them. The most opportune time is now btw.
Have you discussed what a balanced portfolio is with anyone, with the allocation dependent on the level of risk you are willing to assume.
In addition, are you familiar with the psychological factors, such as loss avoidance, that tend to cause us to make bad decisions? Everyone is subject to these to some extent, if you are to a greater extent (as I am) it might pay to get someone to manage it for you. Not because they are guaranteed to give you good returns, just that it makes it less likely for you to screw up.
Since you don’t know you are at a local or global high or low for that matter when you are at that point in time than yes you are making a guess and trying to time the market.
Because it is. Almost by definition. It’s just that market timing has been so thoroughly debunked people use euphemisms out of embarrassment.
You recognize an emotional flaw in your own self but you don’t realize you are engaging in behavior that is not productive to those who share the same psychological flaw. There is no loss or gain until you sell. You still own the exact same shares. Too many folks look at the so-called dollar value of their investments when that dollar value isn’t real until a transaction takes place.
Thankfully, I don’t feel those emotions and I save money doing my own financial management.
I’d do it for others as well if I were certified. Maybe as a second career.
If you’re all caught up in the need to do something, here’s an opportunity I’m thinking about. When stocks are low it’s a chance do do some conversions from conventional to Roth. There’s no income or annual limitations on these, and with the new SECURE act inheriting a conventional IRA has tax implications for your heirs you might want to avoid.
A conversion would let you move money over at the bottom, pay the taxes on it now, then all the growth would be tax free, for both you and your heirs.
And a recession portfolio isn’t trying to time the market as long as you don’t plan to move in and out of it. If you’re risk tolerance is low you should certainly be in a recession portfolio and you should have been in it all along. If this bobble has you worried you’re too exposed.
High as in high relative to values over the past year say. That you know. High as in highest, that you don’t know. These are different things. Profit taking, as I understand it, is an attempt to lock in some gains, not an attempt to maximize gains.
So, the current move into safer investments like government bonds is market timing. Selling or buying based on the latest research on a stock or an industry is market timing.
It seems that any strategy except programmatically buying or selling based on price moves or random transactions could be considered as market timing if you make the definition broad enough.
Hell holding could be considered as market timing, since you are assuming the market will go up over a possibly long time period.
BTW, remember I said a recession portfolio doesn’t make sense if you are looking at a long investment window, like 10 or 20 years. It only makes sense if you are looking at a shorter window. Which is the same as changing your allocations to reduce risk. Reduced risk clearly means reduced returns. Is that market timing also?
How am I doing that? Changing an allocation to reduce the impact of a recession has nothing to do with its current value.
The dollar value thing is why Dan Ariely suggested back in 2008 that the best strategy was to not even look at your statement. I messed up in 2000 and changed the way I did things - I did not mess up in 2008.
You might think you are immune. And handling other peoples money is not the same psychologically as handling your own.
I’d ask you a slightly different question. Do you want to change the allocation to make it more recession proof as a permanent state? In other words, is your current allocation out of sync with your risk tolerance? If so, then sure, I wouldn’t necessarily call that “timing the market”. And the answer to “when should we move” would be “now”. Fix it right now and leave it alone.
But if you’re wanting to change the allocation to be more recession proof because you think the chances of a recession are higher than usual then that is absolutely “timing the market”.
So which one is it? The fact that you literally asked “when should we” in the opening post title suggests the latter, but I’d welcome a correction of my interpretation.
Since recessions are almost impossible to predict and end of recessions almost impossible to predict give yourself a good time horizon and invest according to your risk of a recession occurring tomorrow at all times. So for me, my only regret is I don’t have enough in bonds to rebalance to more stocks.
But I figure 99% stocks is what I want for about 5 more years. At that point, regardless of what the market is or is not doing we will shift stocks to about 80%. And slowly make our way to around 60-50% as we enter retirement.
I am immune lol. Just decided to put a little extra into the market today. Not because of timing per se but because we have money in the bank and don’t want to spend it on junk at the moment. So might as well invest it. Time in the market yo!
Now, with regards to investing in general being market timing? I think that’s too much of a stretch. If you have confidence that the market is long term stable and the government is long term stable and productivity is going to increase then it makes sense to invest for the long term.
You should rebalance to the stock/bond ratio that matches your need and ability to take risk. That will inevitably cause you to take some profits during bull markets (because you will be heavier in stocks than you “should” be) and buy into bear markets (since you will be lighter in stocks than you “should” be).
You should reconsider your need and ability to take risk as your life situation changes, not based on what the markets are doing. The only thing I could think of that would justify your way of thinking in the OP is if you now have enough saved (due to market gains) that your need to take risk is dramatically lower than it was a few years ago. Then it could be useful to take a more conservative stock/bond allocation. Of course, that will mean lower returns (most likely) over various future time horizons.
As to the point in the quote (high relative to the past year), it’s important to remember that the S&P 500 has set a new high on almost 7% of open trading days since 1950. The average 1-year return after an all-time high is 8.9% (since 1915). 3- and 5-year returns are even higher. The market being at an all-time high is actually a bullish sign, not a bearish one.
Exactly what I did. And kind of what I said. When I mentioned profit taking, I was not talking about myself, but about the sales you get when the market hits a high.
I’ve noticed a big difference between investing for retirement and investing in retirement. When you are investing for retirement dips like we saw this week are excellent buying opportunities. (Or rather, keeping on buying as usual works well - not buying specially on a dip.) When you are in retirement you don’t want to be forced to sell stuff when it is down in order to have money to live on. Selling stuff during a high (but not the high) gives you cash to live on and ride out any dip without having to sell stuff.
And, as I said, while cash flow is less important than price upside when you are investing for retirement, it is very important when you are investing in retirement. If I can live on the cash flow from my investments in terms of interest and dividends, I don’t give a crap about what their price is.
My investment goals are:
To have enough income and assets to support me even if I live to 100.
To not lose any sleep over money.
To have some left over for my kids to have.
Building up capital during retirement is good for goal 3. That is least important since my kids are doing fine and just like us and our parents, by the time they get the money they won’t need the money.
I’ve done very well on goals 1 and 2.
I was a bit more balanced than that. I still did very well, and some bond funds even outperformed some stocks.
My goal was to have enough money to live comfortably in retirement and have them invested so that I wouldn’t have to delay retirement due to money. Both accomplished.
If you are 20 years out from retirement, I’d think the only recession planning you have to do is to have enough cash (in the loose sense) to support you if you get personally hit by the recession. The 2008 recession was awesome for me; I’m glad I didn’t do anything to prepare for it in terms of investments.
I was giving advice to the OP - which is probably to not make his investments recession proof, assuming he is far from retirement.
As for me, it is timing my age, not timing the market. See my post above on the difference between investing for retirement and in retirement. Cash producing less volatile stocks are good for recessions and retirement.
I thought the recession could come soon, but I was fine with it not coming soon.
Remember, not all equities are equal.
