Is anyone else a bit paranoid about what may happen over the next couple of weeks with their investments? I've been thinking of going "all cash" (just sell out to a money market account) this week. I don't mind if I miss a small rally, but I'd rather not see another 2008/2009. Thoughts?
You should consider a tin foil index fund, or a sandwich heavy portfolio for the hungry investor.
Honestly, it's probably not too stupid to move at least a portion of your equities into cash or bonds, but moving it all to cash is tantamount to hiding-in-a-bunker paranoia. I'll be leaving 95% of mine in equity index funds. May god have mercy on my soul.
Market timing is bad investing strategy.
Clearly, cash is for retards. Better to start a company making skateboard cameras or pantyhose without feet. Then, $billion$
Me? I invented the boomerang rubber band.
Doctors are notorious for making bad financial decisions, you should know that. In general you're better off doing the exact opposite of what you think is best and you will likely be better off
Clearly he should be buying Gold.
Unless you're planning to retire in the next 6 months don't worry about it.
Don't worry so much about what the market is going to do over the next month or so, but look longer term.
If you were planning to sell like within the next year anyways, then sell now. Your taxes on capital gain is going to double or triple next year, so if you were planning on getting out of the market, or to decrease your market presence, now would be the time.
But don't do it because you think the market is gonna tank over the next month, or even year. Even if it does, cash (imo again) is a horrible position to take. If you feel, as I do, that we are headed for inflation over the next few years, then cash will become less and less valuable. I personally am putting more in gold/silver, also in tax-free municipal bonds....both are long term outlooks. I haven't, nor do I plan to, "sell out" of the market, but I haven't added anything substantial to my brokerage accounts in a while.
I believe you are youngish.....like in your 30s? That would be even less reason to get out, at least completely, you have decades to go before retirement, and even with the increased taxes and any possible recession...by the time you do retire, you will have seen many ups and downs in the market, and having ridden it all out, your final nest egg should be fine. Make sure you are properly diversified, that you don't have all your eggs in one basket (like the stock market), and I think you should be fine.
No, capital gains taxes aren't going to double or triple, or no, don't sell even if you were planning on selling anyways?
The former - I'm not a financial consultant nor do I play one on TV.
I sold out a lot of positioned and transferred about $90,000 just yesterday.
If you are in it for the long haul, then worrying about what will amount to a temporary anomaly in your investment performance isn't worth trying to time the market. If the market does crash, just use the opportunity to get some more money in there.
The market has priced in a reasonable risk of the cliff negotiations failing.
Unless you think you know something other people don't, hold your horses. Weight down a bit if you want, but don't go all cash. Like Eomer said, market timing is not a good investment strategy (for 99% of us).
It's probably reasonable to sell if you're risk averse and can't sleep because you're afraid of what will happen to the value of your portfolio if we do fall off the fiscal cliff.
As for the efficient market hypothesis - that all risks are priced in - well, it might be that the "market" perceives a low risk of no agreement. So if the "no agreement" event is realized, stocks could drop significantly. Moreover, if a lot of people panic, then stocks are going to drop no matter what the real impact on the economy will be.
That said, I don't plan on selling anything myself, but if there is a drop, I will move some of my liquid savings into stocks. All things considered, there's nothing stopping Congress from changing the taxes for the 2012 year after the fiscal cliff deadline... we know that nothing motivates Congress to action like a quick drop in the stock market. (Remember the bailout?)
The OP should understand this before he sells willy nilly, and at least comprehend that if he follows this strategy over a lifetime, it could cost him millions. Most people don't understand that there is a tradeoff, they just spend their lives avoiding any risk whatsoever and not realizing they are kneecapping their returns.
Last edited by Lyrical; 12-28-2012 at 02:58 PM.
Hasn't it been shown that pretty much nothing beats index funds over the long term?
My point is really that maximizing return is a good strategy only if you can handle the inevitable downswings. If you start selling the moment you hear of bad news, or start having sleep/relationship problems the moment the stock market drops, then you're better off changing your strategy and picking less volatile investments (or at least don't put everything into equities).
Most people aren't completely detached from the daily or monthly swings of their portfolio - even if they SHOULD be.
I check my portfolio every single day, hell multiple times a day. My choice to sell out 90k was actually just because I needed to have the funds for my down payment of the house lol. But, with that said people SHOULD NOT be detached from the daily/monthly swings in my opinion -- people should know whats happening to their money all the time -- but they should not overreact due to the swings. See: people who panic sold in late 2008 and went into cash through 2009. If they just kept their money where it was, they all would have recovered.
You need to know what's going on. But you need to make sure you don't panic sell (or hype buy.. or whatever that term would be called lol)
Buy an hold baby! In twelve years you too can break even with this strategy.
yes I'm leaving out 1980 to 2000 but it makes the point that when the market is on a Macro trend even the sound investment advice of buy and index fund and go away does not mean it will work out for you. Maybe it will and maybe it won't. I don't think it hurts to buy and sell macro trends it's timing the market in the short term which is a crap shoot. I do think an investor can sell highs and buy lows by changing weighting of stocks to bonds not completely in and out of positions over long term trends. I personally sold out prior to 2008 crash and am glad as shit that I did and bought back in some awesome bargains. But buying this week to sell next week is an idiots game. If you are going to day trade then really day trade by holding no position over night.
Last edited by Blazin; 01-02-2013 at 11:16 PM.
2. You're cherry picking periods. I could do that too. Look, 352% return (16.3% annually) ex dividends from 24/3/1990 to 24/3/2000!
3. You're ignoring dividends. People make that mistake all the time when trying to argue for the "death of equities" or the superiority of active management. Here's S&P 500 with dividend reinvested (red line). The second graph shows a (slightly smoothed) timeline of 10 year dividend reinvested returns on S&P500. There's only 4 short periods where it was significantly negative, while most periods have offered significantly positive returns. There's two takeaways from this: First, you'll probably get good returns with a buy and hold index strategy over time. Second, market timing is dangerous. There are few "big macro trends" visible here, but tons of short term movements that will skew your returns heavily if you make major timing investments.
Last edited by Elerion; 01-03-2013 at 01:43 PM.
This link has good historical data on the S&P, showing 25 year returns from each year. Buy and hold is one of the best strategies, assuming you're investing in index funds.
Yeah, even on 10 year periods it's only been negative four times. 1938, 1939, 2008 and 2009. Go figure.
I'm a big fan of buying index funds and/or target retirement funds but I think with time and education it's possible to make some investment decisions to turn things "slightly" more in your favor. If the S&P 500 is trading at an 18 PE well then unless I think we are about to have the mother of all productivity increases I'm going to reduce my positions, and if the market is trading at a PE of 11 then unless I think Glenn Beck is right and this country is utterly doomed then I'm going to increase my stock positions. I don't believe that is reckless investing.
One of the other ways to protect your selves form spikes is to always be buying. Dollar cost averaging greatly reduces period risk, the dangerous game is taking large sums in and out of the market in a short time frame. Murphy will fuck you every time.
Very few people are going to be entering and exiting the market with their entire investment at the same time. Which you agree with later in your post anyway, but I felt it worth pointing out.Originally Posted by Blazin
There is something to be said for timing in terms of what blazin said. I made a decision to put my real estate endeavors on hold, and this turned up a ton of free cash. I had read a number of books, and I knew I was going for a straight S&P index fund with the smallest expense ratio possible. In this circumstance it was (is) Vanguard S&P Admiral index fund. I sat and watched for at least half a year, mostly worried with what would happen with Greece and in turn the EU and its impact on US markets.
I forget what the exact event was, I want to say it was an election that ended in a more partisan Greece government, and the odds of them accepting a bailout or some such reduced drastically. The markets took a shit. I jumped in then, I want to say S&P was at 1260 ish. This was May / June. Since then I put $500 every pay check into it, every pay day, no matter what, and I reinvest dividends. Logged in right now, and since inception I am up:
So I timed to the best of my ability, and arguably lucked out, and since then I don't time shit and just go with it. I was tempted to "Go cash" (hence why I was following this thread) and i'm glad I didn't. That was a lesson I learned without having to feel the pain of it.
Nobody disputes that your entry and exit from the market can have a huge influence on your returns. The dispute is about whether the average joe should attempt to time them.
Yep, the fact that timing entry and exit has a huge influence on your returns is precisely the reason 99% of investors should avoid it. The effect on your future wealth is too big, and the learning experience is limited. The vast majority of market movements are caused by events that are unknown at the time of investment. Considering most of the money out there is managed by people with better information than you, the chance of you timing it correctly is less than 50%.
Playing around with buying/selling individual stocks is also unlikely to net excess returns for your average Joe, but as long as you stay diversified and don't get buried in fees, it won't make a massive difference either. That's why I tell friends that are interested in learning about investing to allocate a small part of their portfolio to do some medium-term trading, if they think it will be fun. Diversified stock picking is a cheap hobby that could potentially pay out a lottery ticket once in a while, and will teach you a lot about how companies work.
TLDR; Don't do macro bets / time your investments. If you want to play with the market, try stock picking with a small part (5-20%) of your portfolio. Just remember that even if you luck out and strike gold on those stock picks, you're still no more likely to do so in the future. Don't fall for the temptation of moving a larger part of your portfolio into the stock picking game.
Last edited by Elerion; 01-07-2013 at 09:18 AM.
Some basic stats showing that trying to time the market just isn't worth it unless you are a pro. And if you are that level of pro, you'll make more leveraging your skill on successful long/shorts than you will on market timing.
Just an update. I did not make any changes. Have not even checked the markets. Thank you for the support.
I thought you rolled it over into the Glenn Beck 2040 Aggressive Growth fund and bought a 50cal and some assault rifles?
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