Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Dow at 10K would be almost -58% haircut from here. That would be shocking. Trump can help pull that off, though. Keep the tariffs coming and keep putting up various "walls". Box ourselves in.
Don't think Dow 10K is likely, but not hard to imagine a scenario that gets us there: trade war, impeachment with Trump not going quietly & bringing his supporters into the streets, revelation that some big hedge fund is a Ponzi scheme & Trump's economic team over their heads & blinded by ideology when trying to deal with the fallout.
None likely, IMHO, and the economy is still going gangbusters so all this is probably a dip to be bought, but can anyone tell me that some combination of the above is impossible?
Well now - “Double Dipping“ can also be a good thing. Think ice cream cones.
Truth is I have no idea what the future holds, nor does anyone else. Rather than trying to fathom dips, I’m just slogging through the mud as usual. Agree with the many smart folks who think valuations are stretched and have been for some time now (not a universal belief). That doesn’t mean you shouldn’t invest or that a crash is imminent. @Flack had an excellent post during the past few days about the difference in risk level that can be safely assumed by young workers who are averaging in over time and the risk appropriate for those already retired and having much shorter time horizons. I’d urge everyone to read that post and think about it - if they haven’t already done so.
Personally I had moved my “naked” cash position to above 22% around the first of the year. That’s the highest ever, and doesn’t even take into account the bond/fixed income held within my conservative allocation funds. As markets have pulled back maybe 5-10% over the past 3 weeks I’ve been able to put a little bit of that cash back to work - but it still sits unusually high at 20%+. In this I’m in agreement with several others who have recently referenced higher than normal cash positions.
As I hope I made clear, it’s the valuations that I try to hew to. Try and forget the other garbage (macro-politics). It will drive you nuts and maybe even result in some bad decisions.
Only reasons I can think of are (1) reduce volatility and have money to invest if valuations dip and (2) you don’t think bonds are attractive due to the low rates and fact they don’t do well in rising rate environments. Personally, i still pay for housing, transportation, food, medical etc with cash, so think having some on hand useful instead of having to sell equities often to meet those anticipated needs. Rather than holding 3 years of expected future expenses in a cash reserve, as @BobC and others have recommended in the past, I simply draw from the invested cash (no emergency reserve) - probably one reason the % looks high,
Just another thought ... Cash is a term that gets kicked around a lot and defined in different ways here and elsewhere. I used the term losely to include DODIX, TRBUX, other short-term bond funds. I agree 100% with Ted and David if they’re saying that holding cash in the form of a bank account or government money market fund doesn’t make sense. Rates on those are paltry. I don’t think they make sense either.
As you stated, if you need cash for income you are not forced to sell when your investments are under performing.
Also, some investors consider credit cards or even HELOC (on their homes) as a source of cash which often come with costs (fees and interest rates). Many HELOCs were "called in" by lenders during the 2008 recession.
When liquidity tightens it is cash that provides opportunities and peace of mind.
Aside for true cash, how else do you hold the "cash" part of your portfolio?
I have been impressed with FCONX, RUSIX or TSYYX. Small, but steady returns:
Further thoughts on growth and income (to supplement retirement income):
When I chart a cash choice (Ultrashort bond fund) like TSYYX (TSDOX) (which has a 24 year history) with a favorite growth fund (you pick yours)...I charted TSYYX with PRMTX... I imagine these two funds working together as the growth and income ingredients in a portfolio. The roughest growth period for PRMTX was between March 2000 - March 2010. It is during this spans of time one needed to have enough income stored in a fund like TSYYX to make distributions (for income) and make it through the under performance that PRMTX was experiencing.
For a long term growth and income investor, TSYYX might also serve a the funding source to reallocate into your growth fund (PRMTX) opportunistically as it under performed during time periods. TSYYX might also serve as the recipient of your growth as it is reallocated out of growth into income, again periodically.
Reallocating (re-balancing) between these two funds is one way of capturing these opportunities. Having two funds...one for growth fund and one for income...provides a place for these opportunities grow, to be harvested, to be stored and to be re-deployed when the time is right.
@davidrmoran: So yes, timing matters...it means raising cash when growth outperforms and redeploying from cash when growth under performs. The timing method is called "rules based - periodic re-allocation or re-balancing." I'm calling cash (income fund) any investment that is highly uncorrelated to the growth fund (market).
@hank -Your cash holding may be serving this same purpose as a fund like FCONX or TSDOX (TSYYX). I guess I mention this because many investors forget that reallocation help a portfolio harvest gains that can be used for income or to be redeployed when growth opportunities arise. Cash can serve that purpose as easily as a conservative fund. @MikeM...I'm easily impressed! Not going argue over a cash choice that works for you.
Which brokerages offer TSYYX and RUSIX as ntf funds? I've been using TRBUX and BBBMX which are ntf at a number of brokerages. Would like to use FPNIX but it has a tf at all the brokerages I've reviewed.
Why does anyone here hold or go to cash if truly not needed soon? Many market-timers, seriously?
It helps me sleep at night. In my IRA I can be anywhere from 0% to 100% invested. I just follow a model honed over 3 or so years. I don't even have to run the model every day. Once a week I look and whatever it tells me I do.
It's not about "market timing". That word has gotten such a bad rap, why even use it except in a derogatory way. Let's call it something more intelligent like "tactical allocation".
Why can't I do my own tactical allocation? I can also look at "macro trends", and "market strength" and the crystal ball I keep in my garage.
>> Fido Money Market- "FZDXX" is yielding 1.69% at the moment.
Well, study this in some detail -- fn5, fn4 / minimum if applicable, performance details --- it has outperformed (somewhat) 3-month t-bills; 1y as of last week was 1.16%
not talking about having cash for equity purchases unless you are doing timing, which is a separate discussion
not talking about having cash for nearterm (~n years) needs or indeed emergency stash / buffer
if for sleep-at-night, cool, just realize that and say so
Gosh - Market timing? Don’t know. You can judge. As laid out in some detail in one of Puddenhead’s threads last November, I split my portfolio between a “Core” position (75%) which doesn’t change and a “Flex” position (25%) in which I attempt to correlate my exposure to equities & cash with my perception of market risk at the time. The normal cash range runs from 10% to 20%. Not a perfect system for sure. But that’s the plan I’ve followed for 22 years since retiring and it meets my humble needs. Other than cash or short term bonds, where else would one move to when valuations appear high?
Now - Does that make me a “market timer“? Don’t know. I’ll say that all of my fund companies have strict rules designed to prevent market timing. Some I’ve been with for 30 or more years. None has ever identified me as a market timer or abusive trader. But if I am a timer, where’s your problem? It’s not illegal, unethical or immoral as far as I know. And it strikes me odd that the term would be tossed out in a derogatory fashion on a board where the most popular thread each month is: What are you buying, selling or pondering? Seems like a case of The pot calling the kettle black.
Re: Sleeping well ... I think having a clearly thought out investment plan and adhering to the plan rigorously does go a long way in assuring a good night’s sleep.
@Hank, Such defensiveness about timing, and trying to make it personal. Not my 'problem', just curious about any good reasons why smart people here do it. I mean, own it, and you do. 'Because I say so' can be a good reason, for some.
>> attempt to correlate my exposure to equities & cash with my perception of market risk at the time. ...
That's timing. Or 'tactical'.
>> Other than cash or short term bonds, where else would one move to when valuations appear high?
Sit tight is where else. Some do that. Rebalance when out of balance, regardless.
>> Fido Money Market- "FZDXX" is yielding 1.69% at the moment.
Well, study this in some detail -- fn5, fn4 / minimum if applicable, performance details --- it has outperformed (somewhat) 3-month t-bills; 1y as of last week was 1.16%
I prefer a money market to short-term bond funds because right now FZDXX is at 1.70%, and each week it will increase a few basis points as long as interest rates continue to go up. And for the near-term, that's the trend.
For those parking funds in Cash for a few weeks or a few months in the interest of market-timing or whatever the reasoning, MMkts are ideal. The odds of a negative return are almost nil (unlike short-term bond funds). I've compared to TRBUX, GILPX, MINT, etc. Money markets are finally giving a small return, and people still think they are yielding close to 0%. That is finally changing.
My next level up is a Floating Rate fund. I own SPFPX .
And then SEMPX (MBS).
Not everybody has the desire to be at 100% equities. After a long bull market, some of us will get cautious. The market is finally showing some volatility after years of smooth sailing thanks to Fed intervention. That intervention has been slowly fading away.
Now we have a "leader" starting a trade war. Perhaps some caution is warranted. But that's just my 2 cents.
I have been buying ITOT this week on dips. But I keep a solid cash stake on hand to buy many, many more ITOT lots this summer on continued dips. If that doesn't happen, I'll be stuck earning close to +2%. A gamble I am comfortable with.
It's not about "market timing". That word has gotten such a bad rap, why even use it except in a derogatory way. Let's call it something more intelligent like "tactical allocation".
@VintageFreak , tactical allocation funds are market timing funds. The terms are interchangeable. That is probably why, as a whole, tactical funds do poorly against a straight forward balanced fund.
In my IRA I can be anywhere from 0% to 100% invested.
If that is the case, I'm going to venture a guess and say you are under-performing. Sleeping maybe, but under-performing.
HA. I don’t want to make it personal. Sorry if I got carried away. Defensive? Maybe.
Please know that I claim no expertise in financial affairs and don’t recommend my approach to others. I simply love following and discussing financial matters, along with science & astronomy, because in those disciplines a given input equals a given outcome. In other words, both disciplines rely on logic and provable facts. Compounding works. Buying low and selling high is demonstrably more profitable than the reverse. Management fees make a difference in the long-run, etc. etc. Contrast that type of intelligent commentary with most of the garbage that gets consumed daily in our media driven society. Thus reason to read the board and share ideas.
Dick Strong and some of his cohorts gave market timing a bad name back in the late 90s. (I dunno how he escaped prison.) And the fund companies than were more or less forced to tighten their regulations to prevent timing. Without going into detail, the practice (timing) can be profitable for a few smart (or shrewd) investors, but “dings” the fund returns for most so invested (a practice sometimes called skimming).
Anyway, my plan - scatterbrained though it is - was designed to keep me from shooting myself in the foot by trading frequently. Just about everybody here, including myself, seems to agree that frequent trading is detrimental to long term returns. That’s why 75% is essentially “locked away” in a diversified core portfolio. Except for annual distributions and rare rebalancing it’s hands off with that portion.
The 25% “Flexible” portion is a concession to my perceived need to be “hands on.” I can’t tell you whether the incremental adjustments to cash/equity holdings based on perceived market risk over the years have worked or not. My guess is it’s probably been a “draw.” I can say that in ‘98 when the tech-bubble burst, bringing down the whole market, and again in late ‘08 / early ‘09 when the last bear market ended I did have a sizable cash stash to put to work. It felt good anyway to be buying low. But maybe I’d been better off if I hadn’t carried the cash/equity equation over the preceding years.
I know your OP was “Why cash?” ... It’s highly liquid for one thing. It doesn’t pose the same downside risk as short selling does. It doesn’t carry the high expenses / fees that using various derivatives would. And most fund companies don’t put restrictions on your ability to move in and out of their cash / cash equivalency accounts - as they do with their other funds. As I said earlier, bonds pose some special risks in this low rate environment that might not ordinarily exist.
For all the preaching about staying 100% invested in stocks, we learned in 2008-2009 that taking a -40% haircut is not for the faint of heart. If only we had "hedged" a bit.
Now its almost 10 years later, and the market has gone on a wicked tear. Pullbacks have been rare. Complacency has set in for many investors. This cycle has already gone on longer than the typical Bull run.
If we were to enter a recession (these things are cyclical), a -30% drawdown would be reasonable. There is an urge to try to time the market....especially after a big, long, Fed fueled melt-up starts sputtering. Volatility has returned. And maybe this is healthy.
The other side of the coin is that "the market can stay irrational longer than you can stay solvent". Hey, to all you who can ride the big-boy rollercoaster all day long, hats off to you! Equities do yield the best returns over time. But it can get rough, and we haven't had "rough" in over 9 years. Cycles play out, and this time will not be different.
As I read the comments, I thought did you read David's commentary this month. If you did you have your answer. This month and his commentary for several months going back. It seems obvious that the prospects for 10 years to get back to even is a very good argument for why you leave a chunk money in Money markets and Short term Bonds.
Of course market timing is difficult but losing 50% is also very difficult. Many people who thought they would never sell after the 2009 sold out never got back in or have just recently got back in the market.
Comments
Just curious as to your reasoning.
None likely, IMHO, and the economy is still going gangbusters so all this is probably a dip to be bought, but can anyone tell me that some combination of the above is impossible?
Truth is I have no idea what the future holds, nor does anyone else. Rather than trying to fathom dips, I’m just slogging through the mud as usual. Agree with the many smart folks who think valuations are stretched and have been for some time now (not a universal belief). That doesn’t mean you shouldn’t invest or that a crash is imminent. @Flack had an excellent post during the past few days about the difference in risk level that can be safely assumed by young workers who are averaging in over time and the risk appropriate for those already retired and having much shorter time horizons. I’d urge everyone to read that post and think about it - if they haven’t already done so.
Personally I had moved my “naked” cash position to above 22% around the first of the year. That’s the highest ever, and doesn’t even take into account the bond/fixed income held within my conservative allocation funds. As markets have pulled back maybe 5-10% over the past 3 weeks I’ve been able to put a little bit of that cash back to work - but it still sits unusually high at 20%+. In this I’m in agreement with several others who have recently referenced higher than normal cash positions.
As I hope I made clear, it’s the valuations that I try to hew to. Try and forget the other garbage (macro-politics). It will drive you nuts and maybe even result in some bad decisions.
Regards,
Ted
BTW - Some prominent investors do hold cash. Their reasons may be different and their amounts are more than I ever dream of. https://www.fool.com/investing/2017/11/07/warren-buffetts-109-billion-cash-problem-how-much.aspx
Warmest regards @Ted and @davidmoran
As you stated, if you need cash for income you are not forced to sell when your investments are under performing.
Also, some investors consider credit cards or even HELOC (on their homes) as a source of cash which often come with costs (fees and interest rates). Many HELOCs were "called in" by lenders during the 2008 recession.
When liquidity tightens it is cash that provides opportunities and peace of mind.
Aside for true cash, how else do you hold the "cash" part of your portfolio?
I have been impressed with FCONX, RUSIX or TSYYX. Small, but steady returns:
I agree with both bee and @Hank though.
Fido Money Market- "FZDXX" is yielding 1.69% at the moment.
When I chart a cash choice (Ultrashort bond fund) like TSYYX (TSDOX) (which has a 24 year history) with a favorite growth fund (you pick yours)...I charted TSYYX with PRMTX... I imagine these two funds working together as the growth and income ingredients in a portfolio. The roughest growth period for PRMTX was between March 2000 - March 2010. It is during this spans of time one needed to have enough income stored in a fund like TSYYX to make distributions (for income) and make it through the under performance that PRMTX was experiencing.
For a long term growth and income investor, TSYYX might also serve a the funding source to reallocate into your growth fund (PRMTX) opportunistically as it under performed during time periods. TSYYX might also serve as the recipient of your growth as it is reallocated out of growth into income, again periodically.
Reallocating (re-balancing) between these two funds is one way of capturing these opportunities. Having two funds...one for growth fund and one for income...provides a place for these opportunities grow, to be harvested, to be stored and to be re-deployed when the time is right.
@davidrmoran: So yes, timing matters...it means raising cash when growth outperforms and redeploying from cash when growth under performs. The timing method is called "rules based - periodic re-allocation or re-balancing." I'm calling cash (income fund) any investment that is highly uncorrelated to the growth fund (market).
Source:
https://investopedia.com/terms/r/rebalancing.asp
@hank -Your cash holding may be serving this same purpose as a fund like FCONX or TSDOX (TSYYX). I guess I mention this because many investors forget that reallocation help a portfolio harvest gains that can be used for income or to be redeployed when growth opportunities arise. Cash can serve that purpose as easily as a conservative fund.
@MikeM...I'm easily impressed! Not going argue over a cash choice that works for you.
24 year chart:
not talking about having cash for equity purchases unless you are doing timing, which is a separate discussion
not talking about having cash for nearterm (~n years) needs or indeed emergency stash / buffer
if for sleep-at-night, cool, just realize that and say so
TSYYX has an ER (.44%), TF @ USAA brokerage (Fidelity Platform). TSDOX has a higher ER (.69%) but is NTF.
RUSIX has an ER (.28) also TF.
Thanks for the info.
It's not about "market timing". That word has gotten such a bad rap, why even use it except in a derogatory way. Let's call it something more intelligent like "tactical allocation".
Why can't I do my own tactical allocation? I can also look at "macro trends", and "market strength" and the crystal ball I keep in my garage.
I have some FZDXX already. Now I'm going to move some more money from bank to it. Thanks much for the info.
Term / Minimum / Rate / APY
6 Year / $10,000+ / 2.96% / 3.00%
5 Year / $10,000+ / 2.76% / 2.80%
4 Year / $10,000+ / 2.32% / 2.35%
3 Year / $10,000+ / 2.23% / 2.25%
2 Year / $10,000+ / 1.98% / 2.00%
18 Month / $10,000+ / 1.29% / 1.30%
12 Month / $10,000+ / 0.70% / 0.70%
6 Month / $10,000+ / 0.50% / 0.50%
3 Month / $10,000+ / 0.25% / 0.25%
30 Day / $25,000+ / 0.15% / 0.15%
23 Month Special / $10,000+ / 2.47% / 2.50%
16 Month Special / $10,000+ / 1.98% / 2.00%
8 Month Special / $10,000+ / 1.49% / 1.50%
Can almost start building a reasonable ladder to at least keep close to inflation. (At least "official" inflation.)
Well, study this in some detail -- fn5, fn4 / minimum if applicable, performance details --- it has outperformed (somewhat) 3-month t-bills; 1y as of last week was 1.16%
https://fundresearch.fidelity.com/mutual-funds/summary/31617H805?type=o-SrchResults
http://fundresearch.fidelity.com/mutual-funds/fundfactsheet/31617H805
Now - Does that make me a “market timer“? Don’t know. I’ll say that all of my fund companies have strict rules designed to prevent market timing. Some I’ve been with for 30 or more years. None has ever identified me as a market timer or abusive trader. But if I am a timer, where’s your problem? It’s not illegal, unethical or immoral as far as I know. And it strikes me odd that the term would be tossed out in a derogatory fashion on a board where the most popular thread each month is: What are you buying, selling or pondering? Seems like a case of The pot calling the kettle black.
Re: Sleeping well ... I think having a clearly thought out investment plan and adhering to the plan rigorously does go a long way in assuring a good night’s sleep.
Cheers!
Such defensiveness about timing, and trying to make it personal. Not my 'problem', just curious about any good reasons why smart people here do it.
I mean, own it, and you do. 'Because I say so' can be a good reason, for some.
>> attempt to correlate my exposure to equities & cash with my perception of market risk at the time. ...
That's timing. Or 'tactical'.
>> Other than cash or short term bonds, where else would one move to when valuations appear high?
Sit tight is where else. Some do that. Rebalance when out of balance, regardless.
For those parking funds in Cash for a few weeks or a few months in the interest of market-timing or whatever the reasoning, MMkts are ideal. The odds of a negative return are almost nil (unlike short-term bond funds). I've compared to TRBUX, GILPX, MINT, etc. Money markets are finally giving a small return, and people still think they are yielding close to 0%. That is finally changing.
My next level up is a Floating Rate fund. I own SPFPX .
And then SEMPX (MBS).
Not everybody has the desire to be at 100% equities. After a long bull market, some of us will get cautious. The market is finally showing some volatility after years of smooth sailing thanks to Fed intervention. That intervention has been slowly fading away.
Now we have a "leader" starting a trade war. Perhaps some caution is warranted. But that's just my 2 cents.
I have been buying ITOT this week on dips. But I keep a solid cash stake on hand to buy many, many more ITOT lots this summer on continued dips. If that doesn't happen, I'll be stuck earning close to +2%. A gamble I am comfortable with.
HA. I don’t want to make it personal. Sorry if I got carried away. Defensive? Maybe.
Please know that I claim no expertise in financial affairs and don’t recommend my approach to others. I simply love following and discussing financial matters, along with science & astronomy, because in those disciplines a given input equals a given outcome. In other words, both disciplines rely on logic and provable facts. Compounding works. Buying low and selling high is demonstrably more profitable than the reverse. Management fees make a difference in the long-run, etc. etc. Contrast that type of intelligent commentary with most of the garbage that gets consumed daily in our media driven society. Thus reason to read the board and share ideas.
Dick Strong and some of his cohorts gave market timing a bad name back in the late 90s. (I dunno how he escaped prison.) And the fund companies than were more or less forced to tighten their regulations to prevent timing. Without going into detail, the practice (timing) can be profitable for a few smart (or shrewd) investors, but “dings” the fund returns for most so invested (a practice sometimes called skimming).
Anyway, my plan - scatterbrained though it is - was designed to keep me from shooting myself in the foot by trading frequently. Just about everybody here, including myself, seems to agree that frequent trading is detrimental to long term returns. That’s why 75% is essentially “locked away” in a diversified core portfolio. Except for annual distributions and rare rebalancing it’s hands off with that portion.
The 25% “Flexible” portion is a concession to my perceived need to be “hands on.” I can’t tell you whether the incremental adjustments to cash/equity holdings based on perceived market risk over the years have worked or not. My guess is it’s probably been a “draw.” I can say that in ‘98 when the tech-bubble burst, bringing down the whole market, and again in late ‘08 / early ‘09 when the last bear market ended I did have a sizable cash stash to put to work. It felt good anyway to be buying low. But maybe I’d been better off if I hadn’t carried the cash/equity equation over the preceding years.
I know your OP was “Why cash?” ... It’s highly liquid for one thing. It doesn’t pose the same downside risk as short selling does. It doesn’t carry the high expenses / fees that using various derivatives would. And most fund companies don’t put restrictions on your ability to move in and out of their cash / cash equivalency accounts - as they do with their other funds. As I said earlier, bonds pose some special risks in this low rate environment that might not ordinarily exist.
would this all were more like astronomy
Now its almost 10 years later, and the market has gone on a wicked tear. Pullbacks have been rare. Complacency has set in for many investors. This cycle has already gone on longer than the typical Bull run.
If we were to enter a recession (these things are cyclical), a -30% drawdown would be reasonable. There is an urge to try to time the market....especially after a big, long, Fed fueled melt-up starts sputtering. Volatility has returned. And maybe this is healthy.
The other side of the coin is that "the market can stay irrational longer than you can stay solvent". Hey, to all you who can ride the big-boy rollercoaster all day long, hats off to you! Equities do yield the best returns over time. But it can get rough, and we haven't had "rough" in over 9 years. Cycles play out, and this time will not be different.
Of course market timing is difficult but losing 50% is also very difficult. Many people who thought they would never sell after the 2009 sold out never got back in or have just recently got back in the market.