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"Higher risk level" is a cool catch phrase until an investment in an equity-based mutual fund loses over 35% of its value within a year. Impossible, right? Looking at the OP, ".6%" cash is worse than most fund managers. At a market cycle like this, you should have at least 15% in liquid cash for the inevitable crash that is looming on the horizon. I'd consider moving away from US-based equities and into fixed income and cash.
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Jun 28, 2014 22:21
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ntan1 posted:It's not a catchphrase. A person who is young is able to withstand major equity shocks and does not need to withdraw from mutual funds in the long term. Furthermore, there is no reason to have 15% of your savings in liquid cash, assuming that you have the expenses to be able to live for at least 6-12 months. Moving to Us based equities and fixed income at a young age when you do not need to withdraw money will lead to wasting a lot of potential gains. The point behind have a cash reserve is that it will allow you a buying opportunity for equities that are trading at a steep discount immediately following a crash. Simply keeping a long position on every equity you own with no regard for the general price of the market is a sure way to lose money. The proposition that equities will always go up no matter the time or economic environment is a smug disregard for the maxim that past returns do not indicate future performance. Jolly green Giant posted:What are you basing this "inevitable crash" off of? Nothing. You can sit there self-assured that you can in no way do anything to prepare for an adverse market correction or you can take steps to limit your downside in the 'unlikely' event that it does happen. It lets me sleep well at night knowing that a fair amount of my investment capital isn't tied to the emotional demands of other investor's fear and greed. If it lets you sleep well knowing you can catch a few more percentage points of gain from an already over-valued equities market, don't let me dissuade you.
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Jun 29, 2014 01:30
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kansas posted:My boss has been singing this song for the past 18 months. I think he's missed out on a pretty good 25-30% gain over that time period. If it was as obvious and as sure as you make it out to be, the market would have already corrected itself. What metric are you basing your position on? P/E? F P/E? Whatever metric you are using, what is the fair value? When will you jump back in? I am not your boss. In fact, I don't know anything about your boss's personal portfolio and I doubt you do either. I never advocated jumping out of the market completely. That would be equally as foolish as putting every cent you own into it so as to continue speculating on future price growth in equities. What I did advocate was, to the OP, to set aside a conservative amount of money for liquid cash and maintain his proportion of fixed income investments to offset the risk (you know, the thing a well diversified portfolio is supposed to mitigate) that the equity market could lose 50% in the next quarter. Will it lose 50% in the next quarter? Will the stock market go on to gain 50% 52 weeks from now? Both of those questions are irrelevant if a person is concerned foremost with preserving their initial investment and making a reasonable return on their money while mitigating extreme downside risks. If your only goal is to speculate with Wall Street analysts and their legions of cheerleaders, go right on ahead and stay fully invested in fully priced securities. Don't let people who are making a few percentage points less than you in this 5th consecutive bull-market year be a damper on your exuberance about the stock market or American corporations. Droo posted:What specific events will trigger to to convert your 15% cash to stock? When your price target for Corporation XYZ has been met with a considerable margin of safety for your capital. I can't tell you what your requirement would be because that is a personal question for yourself.
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Jun 29, 2014 04:33
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Jolly Green Giant posted:That depends on the equity you own... If you bought an s&p 500 etf and kept it for 10 years, you generally would be high (assuming you don't buy high and sell low). I never advocated hiding money inside a mattress. My argument was to allocate 15% of his deployable capital to liquid cash to mitigate any extreme stock market correction and provide an opportunity for long-term profit afterward. Based on the SPY ETF, the S&P returned a nominal value of roughly 72% from 25 JUNE 2004 to 27 JUNE 2014. This back-dating, however, is irrelevant. If I had shorted the entire financial sector with all of my capital in the middle of 3rd quarter of 2007, I would be a millionaire multiple times over today by that same hindesight.
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Jun 29, 2014 04:53
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ntan1 posted:In a thread about Wealthfront, a company with a investment philosophy that was founded on the principles of Malkiel and Bernstein, I'd recommend that you at least appear to have read their books or be able to logically argue about their claims before giving away advice. Please go back to the Stock Trading thread and avoid necroing a dead thread that has already been answered. The OP asked for a critique of his presented portfolio and I gave him one. The only thing you've presented thus far is a rebuke of my original advice to him on the grounds that he may not keep up with the Jones' portfolio.
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Jun 29, 2014 12:47
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kansas posted:The reaction from people is that you are advocating trying to time the market. You didn't say that in general keeping 10-15% of your assets in non-equities is a tool to increase a risk-adjusted rate of return (which is true). You said that equities are overvalued and there is an inevitable crash coming. There have been countless empirical studies going back for decades showing that on average market timing results in lower performance. That's a distortion of what I said. I told him that him that having 15% of his investment portfolio in liquid cash and maintaining his current amount of fixed income investments is the prudent action in an overvalued market. He, like any investor, should be looking at the price level of an investment and deciding whether it is fully valued, undervalued, or overvalued. Because he asked anyone to critique his portfolio, he necessarily must be subject to my opinion in order for me to do that. My opinion, obviously, is that this market is overvalued and further equity investments will result in future losses. The opinion I'm generally seeing in this thread is that a person should remain fully invested without thought to risk of unrealized capital loss. That is fairly absurd in context with the last crash that was seen 6 years ago. There is no guarantee that one's investment will always recoup its value after a crash in the long run of 5, 10, 15, or whatever amount of years. Staying fully invested with no comment given to risk or aversion of risk implicitly assumes that an investment in equities will always provide a positive 8-10% annualized return over a person's lifespan. It would be height of self-delusion to assume that this is true simply because it has so far been the case in numerous back-tested studies.
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Jun 29, 2014 21:18
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kansas posted:
I never claimed that my goal was to beat the market. Keeping cash in an investment portfolio is to provide a buffer against loss of capital in the event of a downturn, not to "beat" the market. I am fully comfortable being beaten by the market (whatever amorphous definition that means) as long as I have the security that if the market does crash tomorrow, my entire portfolio won't be wiped out with percentage draw-downs of >35% like were seen in 2008. You're kidding yourself if you think fixed income and international equities are going to shield you from a collapse in domestic (US) equities. They'll decline as well even if not to the same degree. On Jack Bogle, it is humorous that you recommend his literature when it is so obvious that it all benefits his company and the fees it collects on passive investors looking for something easy to believe in. The best sales pitch is the one which is simple to understand and easy to facilitate for the mark.
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Jun 30, 2014 03:54
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