Is weathering the market always good advice

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I'm having a debate with my spouse and I'm looking for educated opinions.  My spouse believes in weathering the market and leaving our investments and retirement as is, claiming the old adages that you can't time the market and that markets bounce back.  I was able to foresee the housing market crash in 08 and transferred most of my retirement funds to cash and gold and saved a lot of money.  I foresee another crash coming in the next few months, and as much as I'm hoping for a mild recession that rebounds in 18 months or less, the skeptic in me is very doubtful that this will be a mild correction.  What are your thoughts and what are you all doing to prepare, if anything?

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I'd love to see actual evidence of OP timing the market right. Sure, lots of people sold before the 2008 bust - but near... (more)

magika (Mar. 24, 2017 @ 4:37p) |

Lots of advisors tell the story about how missing the best 5 or 10 or 20 days of the market significantly reduces your l... (more)

aahunt (Mar. 24, 2017 @ 11:32p) |

I live in DC metro area. Shit is expensive for needless sake.

nixmahn (Mar. 27, 2017 @ 3:49p) |

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ami6580 said:   I'm having a debate with my spouse and I'm looking for educated opinions.  My spouse believes in weathering the market and leaving our investments and retirement as is, claiming the old adages that you can't time the market and that markets bounce back.  I was able to foresee the housing market crash in 08 and transferred most of my retirement funds to cash and gold and saved a lot of money.  I foresee another crash coming in the next few months, and as much as I'm hoping for a mild recession that rebounds in 18 months or less, the skeptic in me is very doubtful that this will be a mild correction.  What are your thoughts and what are you all doing to prepare, if anything?
  How far away from your goal -- both time and money wise -- are you?

I simply buy low and ride the market. Trying to time crashes is a recipe for disaster as you sell - lose out on gains - and end up in an overall lose-lose situation.

And when I say "Buy low" - that simply means that when there is a correction or crash... such as 2008 or the 2016 oil correction... that's when I double down and max out my retirement 401k + Roth IRA ASAP. If there isn't a crash or you don't anticipate there is a crash that year, then I would just make your contributions on a normal basis (once every 2 weeks, once a month, etc...)

IF you've had success timing the markets and actively managing your accounts, then yes exit now and wait for a pullback.

Otherwise, for the majority of people, it's probably better to continue contributions to retirement accounts regardless of market fluctuations. The funds you add during the crash you might be expecting will lower the cost basis of your investments and will pay off once the market rebounds again as your spouse, and history has shown it will do.

Good luck!

ami6580 said:   I was able to foresee the housing market crash in 08 and transferred most of my retirement funds to cash and gold and saved a lot of money.

Great, and did you foresee the bottom to get back in and ride the market as it tripled?

"always", never say never.

btw, there's a difference between timing the market (gut) vs having a system to go in and out.

I don't typically time the markets. We are in our 30's, married, 2 kids, income of 350k, almost 300k in various investments/retirement accounts with various ETF's and Target retirement plans. My spouse has $220 in med school loans, but we are moving for work and will make around $175 on the sale of our house. We are generally moderately risk investors, and we definitely have time to ride the markets, but I've just had some bad gut feelings about the market and the economy overall lately that are hard to ignore.

Chyvan said:   
ami6580 said:   I was able to foresee the housing market crash in 08 and transferred most of my retirement funds to cash and gold and saved a lot of money.

Great, and did you foresee the bottom to get back in and ride the market as it tripled?

  I reallocated funds a little late after the initial rise, but overall, my 40k IRA from an old job is almost 70k now, so I didn't miss out on too many gains.  I just don't want to take a big hit and start back from 40k again.  I'm by no means a wise investor or some sage guru, I've just been one of those people that trusts their gut.  I am not an active investor, I check in on my accounts, but I'm relatively passive, and my financial advisor follows the same strategy.  

I'm just posting the question trying to gage if anyone else feels that my concerns are overblown.

Each of you can decide how to manage 50% of the portfolio. This way one spouse is not bossing the other one and you get to get the average of two stategies. 

Personally I am worried about this market too but (1) I have sold covered calls on a lot of my positions to hedge a minor correction. (2) Not all the stocks are at super highs - I am comfortable holding what I have. (3) I am keeping some cash on hand to deploy opportunistically.

PrincipalMember said:   Each of you can decide how to manage 50% of the portfolio. This way one spouse is not bossing the other one and you get to get the average of two stategies. 

Personally I am worried about this market too but (1) I have sold covered calls on a lot of my positions to hedge a minor correction. (2) Not all the stocks are at super highs - I am comfortable holding what I have. (3) I am keeping some cash on hand to deploy opportunistically.

  Thank you.  That is basically what we do now.  I'm glad to hear I'm not the only one concerned.  I hate feeling like a chicken little.

If a financial adviser offers any significant value to an investor, it's holding your hand and saying something along these lines:
The stock market is bi-polar in the short term. When it's trending up, it's always sunny, and when it's dropping, it's always a disaster. You can spend billions on equipment trying to dodge the nano-seconds between rain drops, but this costs commissions, taxes, and most importantly your very valuable time.

You have paid me a lot of money to draft a plan that included an asset allocation. When the stock portion rises above your allocation, we will rebalance to sell. When the stocks inevitably panics and significantly drops below your allocation, we will be buyers. If you are starting to loose sleep, we should reassess your tolerance for risk, but by sticking with the original investment thesis and not a whim, you ensure you get the full value of your investment opportunity. And ultimately, the positive Expected Value over the long term is why we've invested your hard earned money in stocks instead of on red at the roulette wheel.

Your gut could be right, but it ultimately coincidence in the short term. As Keynes said, the markets can remain irrational far longer then you can stay solvent.

That said, if your gut is scared now, there's a really good chance you'll sell at the worst possible moment during a correction if you don't remember your plan or don't have one, there are resources at http://wiki.bogleheads.org 

You might be right, but without some objective, testable process for getting in and out, how do you separate luck from skill? On average, trying to pick tops and bottoms is going to underperform buy and hold.

It seems odd to me that we've had 2-3 threads here recently about cashing out or market timing, all while the us markets are within 5% of an all-time high. Maybe this is the "climbing the wall of worry" typically seen during bull markets.

If you guessed right once, great. You guessed right once.

I guessed right once at a roulette wheel. Doesn't mean jack.

The theory of efficient markets is just barely a theory in that it's essentially been proven. Without some insider information you have aren't able to accurately predict the market. You just sometimes come out ahead; it's often a coin toss.

If you want to follow your emotions, go ahead. Statistically speaking you will not do better than if you have a smart plan with an asset allocation appropriate for your age and risk tolerance, and you rebalance appropriately at set intervals. In other words, barring LUCK, a simple computer algorithm will outperform you.

Your wife is right.

ami6580 said:     I reallocated funds a little late after the initial rise, but overall, my 40k IRA from an old job is almost 70k now, so I didn't miss out on too many gains.  I just don't want to take a big hit and start back from 40k again.  
  Put most everything into insured savings accounts if you worry about losing value. Sure, some will say inflation will erode it, but with 350K income, who cares. You want to protect your money and if the markets crash, you could lose a significant amount of it.

TravelerMSY said:   It seems odd to me that we've had 2-3 threads here recently about cashing out or market timing, all while the us markets are within 5% of an all-time high. Maybe this is the "climbing the wall of worry" typically seen during bull markets.
  
I can't speak to other threads, but I have concerns of economic policies that I think will fail, including protectionist policies akin to Smoot Hawley, current political unrest coupled with historical trends (we are 9 years out from the last recession).  I have little faith that the NASDAQ is a true economic indicator, and the market is so high that if feel as if this may be another bubble that will burst, if not correct itself at the very least.  Inflation is still greater than the fed funds rates. I guess I mislabeled my original post as it's not about timing the market, but just feeling a bit bearish when all of the bulls are running.

ami6580 said:   I'm having a debate with my spouse...
The odds over the long term are not in your favor.  And I'm not talking about the markets.  

dcwilbur said:   
ami6580 said:   I'm having a debate with my spouse...
The odds over the long term are not in your favor.  And I'm not talking about the markets.  

Wise words...  

It's still called timing the market, and it still won't work. One thing you can do is not be all in stocks- build a diverse portofolio to reduce risk, so that even if stocks tank you won't fell the full force.

ami6580 said:   
Chyvan said:   
ami6580 said:   I was able to foresee the housing market crash in 08 and transferred most of my retirement funds to cash and gold and saved a lot of money.

Great, and did you foresee the bottom to get back in and ride the market as it tripled?

  I reallocated funds a little late after the initial rise, but overall, my 40k IRA from an old job is almost 70k now, so I didn't miss out on too many gains.  I just don't want to take a big hit and start back from 40k again.  I'm by no means a wise investor or some sage guru, I've just been one of those people that trusts their gut.  I am not an active investor, I check in on my accounts, but I'm relatively passive, and my financial advisor follows the same strategy.  

  
Wait, are you saying that thanks to your brilliant/lucky reallocation of funds in anticipation of the 2008 crash, you have since then turned 40k in investments into 70k? Do you realize that's roughly where 'weathering the market' put everyone else? Probably behind a bit for those who continued to buy in while the market tanked and as it gradually climbed back. Timing those things usually takes a huge chunk of the theoretical gains for having more or less correctly predicted a crash.

ami6580 said:   ...my 40k IRA from an old job is almost 70k now...
That amounts to about a 6.5% return.  Leave the investing up to your wife.  

It's just almost impossible to both (a) time when the crash will happen and (b) time where the bottom is and jump in at the very bottom when things look the darkest and prices are going lower every day. Almost nobody does it just right. And anyone who does, thinks they are brilliant but are actually lucky and will take a bath next time.

I say this as someone who ALSO saw that houses were dramatically over-valued in 2006-2008 (especially living in Los Angeles) and avoided buying a house at the high for that reason (let alone trying to flip 5 houses at once like my friends). But to try to apply that to the stock market (as opposed to saying "I'll just keep renting for a while") is a vastly different beast. Specifically, it is easy to miss out on so many gains that even when you then "correctly" avoid the crash 2 years later, then also miss 2 years of the recovery before you get back in, you end up worse than the guy who just held and kept investing the whole way.

It sounds possibly like the issue could be with having an asset allocation that is too high (in which case the answer may be a more conservative stock/bond ratio, not just right now because the market feels "high," but overall), or not thinking about it on a long enough time frame. Depending on your age, who cares if there's a crash next year if you can't touch what's in your IRA for 30+ years? Assume a big crash tomorrow. Do you think stocks will be worth more or less than today's prices in the year 2047?

I've weathered the market (I do rebalance yearly) for 14 years.
If I had pulled out my investments in August 2008 and bought in Feb 2009 (essentially skipping the crash), I would currently have in the neighborhood of 1% more money than if I had weathered the markets (more than what I currently have).

If I had waited until May 2009 to reinvest rather than Feb 2009, I would currently have in the neighborhood of 1% less money than weathering the market (less than what I currently have).

So sure, if you perfectly time things, you might end up with a little bit more money.
If you don't perfectly time things, and you miss a month or two worth of gains, you might end up with less money.

Easy answer, just ask yourself: Would you be more disappointed liquidating now and potentially losing an increase in profits, or not selling and sustaining losses when you want/need to sell?

I foresaw stock market crash years ago, but it still hasn't happened. Stock market is about how many dumb people still buying, so you are guessing whether the world is running out of dumb people yet.

justignoredem said:   I simply buy low and ride the market. Trying to time crashes is a recipe for disaster as you sell - lose out on gains - and end up in an overall lose-lose situation.

And when I say "Buy low" - that simply means that when there is a correction or crash... such as 2008 or the 2016 oil correction... that's when I double down and max out my retirement 401k + Roth IRA ASAP. If there isn't a crash or you don't anticipate there is a crash that year, then I would just make your contributions on a normal basis (once every 2 weeks, once a month, etc...)

 
"Buy low" means you are timing the market.
 

ami6580 said:   I don't typically time the markets. We are in our 30's, married, 2 kids, income of 350k, almost 300k in various investments/retirement accounts with various ETF's and Target retirement plans. My spouse has $220 in med school loans, but we are moving for work and will make around $175 on the sale of our house. We are generally moderately risk investors, and we definitely have time to ride the markets, but I've just had some bad gut feelings about the market and the economy overall lately that are hard to ignore.
  Ride it out. When you get to your fifties, then you should have a plan.

ami6580 said:   I'm having a debate with my spouse and I'm looking for educated opinions.  
  There is no shortage of educated opinions about the market direction.  The problem is that they all differ and you don't know which one to pick.  

Also, people who can foresee market crashes would not hang out in FW threads looking for money saving tips....

justignoredem said:   when there is a correction or crash... such as 2008 or the 2016 oil correction... that's when I double down and max out my retirement 401k + Roth IRA ASAP. If there isn't a crash or you don't anticipate there is a crash that year, then I would just make your contributions on a normal basis (once every 2 weeks, once a month, etc...)
  
Isn't that trying to time the market (all of this, especially the bold)?

Different angle here:

What is the interest rate on the educational debt?

IMHO the answer the that question goes a long way toward determining how to deploy your assets.

IOW, if that is rolling along at 7%, paying that off is a guaranteed solid return. Your financial planner may not mention that if he is paid by assets under management.

dcwilbur said:   
ami6580 said:   I'm having a debate with my spouse...
The odds over the long term are not in your favor.  And I'm not talking about the markets.  

  Unless OP is a woman

In the past decade of investing I have learned that I can never time the market. I buy and forget. If I am investing 12K in an ETF (Best investments IMHO), I invest equally over 12 months and Dollar Cost Averaging does the rest for me!

I think the "you can't time the market" statement isn't entirely true, but I also don't believe people know when a crash is coming. You can time the market if you buy in when it's low (after a crash).

The true cost to market timing isn't the inability to generally time the market. It's the opportunity cost of not being invested during the spikes. Selling when the market is high is much harder to do because you are likely to miss out on some of the jumps. Historically, gains in a year are made up mostly in a couple days.

When the banks were at their low point, it was astonishing to me how long it took for them to bounce back. When they dropped, I was able to move a ton of money into them. If the banks failed the entire economy would collapse. I wasn't necessarily staking it on a bail out, but the fact that you'll lose everything anyway if the banks fail (even if not invested in bank stocks) should've resulted in more investment. I'm confident that this approach can work, but this only works if you have access to other money because the money that you're throwing in was previously not invested in the market. Maybe you should develop some function where you slowly sell as the market keeps going up. The problem is, you don't know when to start selling and how much to sell at any given point.

DesiVibe said:   
dcwilbur said:   
ami6580 said:   I'm having a debate with my spouse...
The odds over the long term are not in your favor.  And I'm not talking about the markets.  

  Unless OP is a woman
  
 

It is interesting that two people referred to the OP's spouse as a wife, but the OP never mentioned it.

marginoferror said:   I think the "you can't time the market" statement isn't entirely true, but I also don't believe people know when a crash is coming. You can time the market if you buy in when it's low (after a crash).

I think this is only true in a very limited and mostly useless (and dangerous) sense - just like it isn't entirely true that "you can't win the lottery". You can if you are unreasonably lucky, and that does in fact happen many times every year. Look at our OP - understandably proud of understanding pretty big economic trends and acting on that insight intelligently. And yet it seems that translated into no tangible benefit in practice.

BingBlangBlaow said:   
DesiVibe said:   
dcwilbur said:   
ami6580 said:   I'm having a debate with my spouse...
The odds over the long term are not in your favor.  And I'm not talking about the markets.  

  Unless OP is a woman
  

It is interesting that two people referred to the OP's spouse as a wife, but the OP never mentioned it.

I've never heard a woman brag like he did about foreseeing the housing crisis, buying gold, foreseeing another crash, etc.  Five bucks says he's a he.

ami6580 said:   I don't typically time the markets. We are in our 30's, married, 2 kids, income of 350k, almost 300k in various investments/retirement accounts with various ETF's and Target retirement plans. My spouse has $220 in med school loans, but we are moving for work and will make around $175 on the sale of our house. We are generally moderately risk investors, and we definitely have time to ride the markets, but I've just had some bad gut feelings about the market and the economy overall lately that are hard to ignore.
  Just had my 37th birthday, Engineering degree, 95k income, single, no kids. no debt, NO HOUSE. Cleared IT with beltway bandit (defense contractor), 325k in 401k and about the same in cash. I make less than you but more in 401k.  It is strictly maxing out 401k contributions with buy and hold through the downturn.

nixmahn said:   
ami6580 said:   I don't typically time the markets. We are in our 30's, married, 2 kids, income of 350k, almost 300k in various investments/retirement accounts with various ETF's and Target retirement plans. My spouse has $220 in med school loans, but we are moving for work and will make around $175 on the sale of our house. We are generally moderately risk investors, and we definitely have time to ride the markets, but I've just had some bad gut feelings about the market and the economy overall lately that are hard to ignore.
 

  Just had my 37th birthday, Engineering degree, 95k income, single, no kids. no debt, NO HOUSE. Cleared IT with beltway bandit (defense contractor), 325k in 401k and about the same in cash. I make less than you but more in 401k.  It is strictly maxing out 401k contributions with buy and hold through the downturn.
 

  
Completely bad logic here. You don't know the other person's lifestyle - he could be enjoying his life or he is dealing with the loans that you didn't have to deal with. You also know what state the person lives in - 350K in expensive place is a lot different from 350K in a cheap place. So looking at your 401K balance right now compared to him doesn't justify any theory. For all you know, he made an investment in his education etc. - so starting out, he has less assets but over time, his rate of growth could be much higher.

Also, buy and hold is one component of 401k growth. The other component is choosing the right funds. Some of my friends had crappy selections in their 401K until I guided them to funds that have done better over the long term.

I'd love to see actual evidence of OP timing the market right. Sure, lots of people sold before the 2008 bust - but nearly all of them were waiting on the side lines as the market went up and up. How many times were doom porn permabears on FWF claiming that another crash was just around the corner in 2010, 2011, and 2012? I'm betting OP thinks he has timed the market but in reality lost out on huge gains by not reinvesting before the market went back up. I've seen plenty of people claim to be market savants who predicted the 2008 crash by pulling out money before stocks tanked, but most of them kept their money out until 2012 or 2013.

OP says his 40k IRA now has 70k. That seems like a very low return versus someone who stayed invested and continued investing all the way down. We don't really know without knowing how much was invested when, but it really looks like OP just thinks hes a market timing savant.

Lots of advisors tell the story about how missing the best 5 or 10 or 20 days of the market significantly reduces your long term returns (20-30 yr returns), or could even mean you lose money.

E.g.
https://www.ifa.com/12steps/step4/missing_the_best_and_worst_days/

The message goes: Could you pick out the 10 days to make sure you're in the market out of 5000 days (roughly 20 years)? Or on the flip side, could you pick the 10 times to be in cash and avoid the largest loss days?

Many find it challenging to be right, have the right plan, and have the discipline to trade the plan, let alone time the plan correctly.

If you believe you can time the market, allocate your portfolio according to your confidence. An option might be to keep majority of capital in the market, and "time the market" with an amount you are comfortable with risking. For example reserve 10% of funds for tactical allocation.

Skipping 1 Messages...
PrincipalMember said:   
nixmahn said:   
ami6580 said:   I don't typically time the markets. We are in our 30's, married, 2 kids, income of 350k, almost 300k in various investments/retirement accounts with various ETF's and Target retirement plans. My spouse has $220 in med school loans, but we are moving for work and will make around $175 on the sale of our house. We are generally moderately risk investors, and we definitely have time to ride the markets, but I've just had some bad gut feelings about the market and the economy overall lately that are hard to ignore.
  Just had my 37th birthday, Engineering degree, 95k income, single, no kids. no debt, NO HOUSE. Cleared IT with beltway bandit (defense contractor), 325k in 401k and about the same in cash. I make less than you but more in 401k.  It is strictly maxing out 401k contributions with buy and hold through the downturn.
 

  
Completely bad logic here. You don't know the other person's lifestyle - he could be enjoying his life or he is dealing with the loans that you didn't have to deal with. You also know what state the person lives in - 350K in expensive place is a lot different from 350K in a cheap place. So looking at your 401K balance right now compared to him doesn't justify any theory. For all you know, he made an investment in his education etc. - so starting out, he has less assets but over time, his rate of growth could be much higher.

Also, buy and hold is one component of 401k growth. The other component is choosing the right funds. Some of my friends had crappy selections in their 401K until I guided them to funds that have done better over the long term.
 

  I live in DC metro area. Shit is expensive for needless sake.



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