[2020] A little stock market sense

[geekette]

A simple rebalance. My target in our retirement funds is 80% equities (split between three different ETFs) and 15% fixed income and 5% real estate (all ETFs). If the equity portion would rise, a portion would be sold and invested in areas that have not done as well. It essentially forces you to sell when things have gone up, and buy when they've gone down. You're not trying to time the market and get out at the peak or buy-in at the very bottom (and no - it won't make you a billionaire), but it does ensure things don't get out of wack.

Selling winners to buy losers does not at all ensure things don't get out of whack, because things get whacked by cutting the legs out from under the best horses in your stable to buy tired nags with some hope they will get better.

 

[Brett]

Selling winners to buy losers does not at all ensure things don't get out of whack, because things get whacked by cutting the legs out from under the best horses in your stable to buy tired nags with some hope they will get better.

sometimes it's difficult to predict the future of "tired nags" and thoroughbreds
10 or 15 years ago people thought General Electric was a good stock for earnings growth and it would be very foolish to buy Tesla (or Amazon!)

 

[davidvel]

It is foolish to assume that dollar cost averaging doesn't catch bottoms and that dca investors have the money available at drop time.

Just because you feel that something has to be exploited does not make it foolish not to. Dow is 30 stocks. Hardly a bellweather for me.

The Dow dropping 11,000 points is a serious drop!
But like the article indicates, the investor that doesn't try to time the market almost always does better

View attachment 29019

If you don't have the $$ of course you can't buy. Never said DCA was bad, just that it is not the only way to invest. When the DOW fell below 20,000 we scrounged up every dollar in savings we had and bought lots of equities. (These are long term 10+ year investments. )

I guess we were stupid for doing so. SPOILER: We're happy we did.

 

[geekette]

If you don't have the $$ of course you can't buy. Never said DCA was bad, just that it is not the only way to invest. When the DOW fell below 20,000 we scrounged up every dollar in savings we had and bought lots of equities. (These are long term 10+ year investments. )

I guess we were stupid for doing so. SPOILER: We're happy we did.

I called no one stupid nor foolish.

 

[geekette]

sometimes it's difficult to predict the future of "tired nags" and thoroughbreds
10 or 15 years ago people thought General Electric was a good stock for earnings growth and it would be very foolish to buy Tesla (or Amazon!)

Agree, nobody knows the future. This is partly why I am buy n hold, capturing the different cycles of a company's life. Most any company that will endure 50-100 years will have good and bad times and stock price will reflect what investors think about those situations. Anyone that gave GE a serious look could have seen they were going in deep in areas beyond their expertise. Diversification is not automatically a good thing. Research is always a good thing. We will each interpret that research differently. GE's demise was no secret, if one sought data.

 

[DrQ]

I'm a no on this. Rebalancing is a concept born from brokers to benefit brokers. No way I am selling my winners twice a year. Definitely not a "should" for my portfolios, but others are free to churn theirs at will.

Not necessarily, I pay our FA based off the value of the portfolio, not the trades (which are no cost to us). We rebalance looking ahead to market trends.

 

[Brett]

If you don't have the $$ of course you can't buy. Never said DCA was bad, just that it is not the only way to invest. When the DOW fell below 20,000 we scrounged up every dollar in savings we had and bought lots of equities. (These are long term 10+ year investments. )

I guess we were stupid for doing so. SPOILER: We're happy we did.

Great !
anyone that can predict the stock market should be very very happy.

But for others (not so clairvoyant) a diversified low cost stock index fund is recommended.
And rebalancing from stocks to fixed income as one gets older is also recommended ...

 

[jimf41]

My dad was a broker on Wall Street all his life. He was there for the '29 crash. He made a lot of money, I mean serious money. He taught me two things about investing in stocks.

First, Buy low sell high
Second, If you're not down here on the "street" don't play this game.

 

[jabberwocky]

Selling winners to buy losers does not at all ensure things don't get out of whack, because things get whacked by cutting the legs out from under the best horses in your stable to buy tired nags with some hope they will get better.

If you have a portfolio approach (I used ETF's in our retirement fund) that shouldn't be a huge concern since you're not selling completely out of the position. It's more of a "trim" that you're making. I'm willing to give up a bit of the upside to avoid a much larger potential downside.

Now in my taxable trading account, I'm willing to take a view on specific names. I'm more of a contrarian so I was more than happy to load up on equities back in March/April and started selling put options since the premiums were getting quite juicy.

 

[DannyTS]

I will tell you the "guaranteed" way of calling the bottom. When CNN and other media outlets tell you that the sky is falling wait 3 weeks then buy with both hands

 

[Brett]

I will tell you the "guaranteed" way of calling the bottom. When CNN and other media outlets tell you that the sky is falling wait 3 weeks then buy with both hands

Another "guaranteed" way is when a FoxNews tweeter says the economy will collapse - immediately buy with both hands !

 

[geekette]

If you have a portfolio approach (I used ETF's in our retirement fund) that shouldn't be a huge concern since you're not selling completely out of the position. It's more of a "trim" that you're making. I'm willing to give up a bit of the upside to avoid a much larger potential downside.

Now in my taxable trading account, I'm willing to take a view on specific names. I'm more of a contrarian so I was more than happy to load up on equities back in March/April and started selling put options since the premiums were getting quite juicy.

I don't think in terms of "avoiding downside." I simply want more shares of good companies, so even trimming runs counter to my mission. Think of me as a builder, each position building themselves with divs when I'm not adding to them.

My risk is the company goes kaput, vs stock price depression. By adding to a position over decades, the downside price issue becomes moot. For me, LMT would have to sink below $80 to get near where I started for loss on the position. Since I've owned, it has been great div raises and massive price run up. I'm not in a situation where it has been tempting to sell at 100 or 200 or 300 or 400. I'm getting fat on juicy divs and vast price appreciation should I ever care to have the dough instead. I'm 55, could be that divs alone from this one position pays all of my monthly bills before I'm 65. For price run up, an extreme good example in my portfolio. They don't all quadruple in price and share significant profits with me like this one. They could indeed have a BA experience and price cuts in half and dividend goes away. I'd wait them out, just like I am waiting out my much smaller BA position.

Since I'm not an ETF person, these are company-by-company decisions. It's easy for me, since I began the buy n hold habit in my 20s. I don't get itchy to sell or run What If scenarios through my head based on stock price up, stock price down. I do consider the What Ifs when there is a material change to the company since I am more about long term company success (so they share increasing dividends with me) than market noise.

 

[geekette]

Not necessarily, I pay our FA based off the value of the portfolio, not the trades (which are no cost to us). We rebalance looking ahead to market trends.

Yes, AUM is a different matter. Rebalancing as a thing came about to get some profit from accounts just sitting there. It was probably great money right up until fees finally stopped. Early trading fees were much much higher long ago. It was good money to scare people from stocks to bonds.

Today, rebalancing is embraced as risk reduction, such as in your case. While I don't personally subscribe to it, I can understand how asset shifts over time give people peace of mind. Yes, stocks are the riskiest of investments (and best potential long haul reward). However, put into context, there is a spectrum. P&G is hardly a "lose everything you have in it" type of investment risk. Sure, if they hit the big skids, shareholders are last. I can live with that risk easier than I could stomach going from PG shares to their bonds. I personally do not need the 'almost certainly a sure thing' bond return and will take the far-from-guarantee path.

Tax strategies are also a consideration, and rebalancing can definitely play a role there. Anyone needing to take money out most certainly has an eye towards where to take it from and what that means to the overall. I would say that I would be in favor of shifting things around when something forces a change (like withdrawal or sudden life change) but I would not ever rebalance on some schedule for sake of rebalance.

 

[bogey21]

You can rebalance a gold and silver portfolio similarly, selling gold and buying silver when the number of ozs of silver to buy one oz of gold gets high then reversing the process when the ratio goes the other way...

George

 

[davidvel]

I called no one stupid nor foolish.

Who said you did?

 

[davidvel]

Great !
anyone that can predict the stock market should be very very happy.

But for others (not so clairvoyant) a diversified low cost stock index fund is recommended.
And rebalancing from stocks to fixed income as one gets older is also recommended ...

If one (especially holding for long term) needs a crystal ball to figure out if they should invest deeply in a market that has fallen from 30,000 to 18,500 in 30 days (60+%), then there is no help for them.

 

[PigsDad]

If one (especially holding for long term) needs a crystal ball to figure out if they should invest deeply in a market that has fallen from 30,000 to 18,500 in 30 days (60+%), then there is no help for them.

Absolutely agree, but psychologically I can see why many may hesitate when all we see in the media at that time are stories about how we're all doomed / the world is ending. At those times, you have to admit it takes courage and faith to draw down on your nice, safe cash reserves / emergency funds and throw it into what looks like a sinking ship on fire.

Since most people don't have a lot of extra cash sitting around, I certainly don't fault those who can't / aren't willing to take that jump. After all, when things tank so extremely fast like that, they are probably thinking their jobs aren't very secure (not unfounded fear), so preserving cash looks a whole lot better to them vs. investing.

Kurt

 

[Brett]

Yes, AUM is a different matter. Rebalancing as a thing came about to get some profit from accounts just sitting there. It was probably great money right up until fees finally stopped. Early trading fees were much much higher long ago. It was good money to scare people from stocks to bonds.

Today, rebalancing is embraced as risk reduction, such as in your case. While I don't personally subscribe to it, I can understand how asset shifts over time give people peace of mind. Yes, stocks are the riskiest of investments (and best potential long haul reward). However, put into context, there is a spectrum. P&G is hardly a "lose everything you have in it" type of investment risk. Sure, if they hit the big skids, shareholders are last. I can live with that risk easier than I could stomach going from PG shares to their bonds. I personally do not need the 'almost certainly a sure thing' bond return and will take the far-from-guarantee path.

Tax strategies are also a consideration, and rebalancing can definitely play a role there. Anyone needing to take money out most certainly has an eye towards where to take it from and what that means to the overall. I would say that I would be in favor of shifting things around when something forces a change (like withdrawal or sudden life change) but I would not ever rebalance on some schedule for sake of rebalance.

For me rebalancing means slowly reducing risk and volatility as one gets older, especially past the age of 70.

 

[geekette]

Who said you did?

.... I guess we were stupid for doing so. SPOILER: We're happy we did.

seemed like insinuation.

 

[geekette]

For me rebalancing means slowly reducing risk and volatility as one gets older, especially past the age of 70.

Yes, and I think "slowly" is the key, vs twice a year or more frequently (starts to feel like churn). With trade fees gone, I'm sure rebalancing for those in brokerages is much more palatable.

Frankly, everyone has their own ideas on how to go about all of this, and it matters whether one is trying to leave money to others. I do my own thing that is largely untethered from 'conventional wisdom' but the plan I hatched in my 20s is working, so I don't expect to change as I age. I would be categorized as an aggressive investor, based on my always 95%+ equities, but it's hard to feel "aggressive" when I have old stodgies like PG. For me, they key is the longevity of the companies I invest in. If I don't think a company will outlive me, I am not a buyer of their shares.

 

[VacationForever]

For me rebalancing means slowly reducing risk and volatility as one gets older, especially past the age of 70.

I don't get the rebalancing as one gets older. One cannot predict if they will live to 75 or 100. If you go with "safer" fixed income investments and you live to 100, you may run out of money by doing so. No matter what age I am, I would prefer to go with a 70-25-5 equity-fixed income-cash mix, or at the minimum 65-30-5. I just logged into my investment account and it is currently showing 70.81-25.75-3.44.

 

[geekette]

I don't get the rebalancing as one gets older. One cannot predict if they will live to 75 or 100. If you live to go with "safer" fixed income investments and you live to 100, you may run out of money by doing so. No matter what age I am, I would prefer to go with a 70-25-5 equity-fixed income-cash mix, or at the minimum 65-30-5. I just logged into my investment account and it is currently showing 70.81-25.75-3.44.

Yes, I feel that my biggest risk is outliving my money. Many of my relatives reached late 90s and some crossed the century mark. I need that long term average 12% return that is only possible with stocks.

 

[bogey21]

Yes, I feel that my biggest risk is outliving my money.

This is why I accepted an annuity with a 50% Survivor benefit for my 20 year younger ex-wife instead of a lump sum when I retired at age 65 twenty one years ago. I have never regretted my choice...

George

 

[Ralph Sir Edward]

To me, investing is a big tent, a lot like a casino. The advantage is that you can't get thrown out for "counting cards". OTOH, each game in the casino is different, and what may work for one game won't work for another game. The same with investing.

Can you time the market successfully? Yes, depending on the scale, and what you define as successfully.
Can you buy for long term dividends? Yes, assuming you have the cash flow to invest on a long term basis.
Can you make lots of money in growth stocks? Yes, if 1.) you can pick the winners before everybody else thinks they are winners. and 2.) You realize no growth stock remains a growth stock forever, which means at some point you have to get out, and buy another winner.

and, Yes there are other games that you can play.

But each of the games mention above have totally different rules and methods. You can play one or more than one. Your choice, your responsibility.

Recently, I bought some MO for the long term portfolio. A stock that everybody loathes, but. . . . 9% dividend, and 55 dividend bumps in the last 52 years, including one this year.

 

[Brett]

I don't get the rebalancing as one gets older. One cannot predict if they will live to 75 or 100. If you live to go with "safer" fixed income investments and you live to 100, you may run out of money by doing so. No matter what age I am, I would prefer to go with a 70-25-5 equity-fixed income-cash mix, or at the minimum 65-30-5. I just logged into my investment account and it is currently showing 70.81-25.75-3.44.

The conventional wisdom is to be heavily invested in equities (90 - 100%) early in life and then shift to fixed income later for a more predictable and reliable income stream.
It's a different risk factor for each individual. Sure, it's possible to run out of money with any asset class unless you have a guaranteed annuity.
I'm also around 70% equities but looking to make the nest egg more reliable - annuities, bonds, CD's, etc.