Reinvesting in Market

Investment Analysis Clubs Macro Economic Trends and Risks
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I have a lot of cash on hand and am trying to formulate a plan to buy back into the market.

Am looking to transition to buying ETFs, mostly index funds with a juicing of risk/return with a bit of more specialized funds, in an effort to simplify our investments. Other than Ibonds, I don’t do bonds. Perhaps you could convince me otherwise, but I am not risk adverse and can take fluctuations in portfolio value. Currently the only value I see in bonds is a ladder for the 5 years of expenses that I consider to be outside the investment portfolio.

We are comfortably retired and have 5 years expenses out of the market. I am patient and have experience with ability to invest with volatility. I would like to turn our portfolio into a set and forget, as much as that is possible. A 2% withdrawal rate is sufficient to more than meet our retirement needs at this time, with this going down to less than 1% when we start taking Social Security.

I am not asking you to predict an absolute bottom of the market, rather trying to get a feel for what you think a healthy entry point into the indexes look like, particularly in a for the most part post Covid economy. Sure, the indexes are down substantially, but were they skewed due to Covid rather than high for fundamental reasons? Are we simply resetting to a new norm, or is it the continuing Covid Supply Chain issues that are depressing it? One investor on Bloomberg said they would be buying the S&P 500 somewhere around 3500-3800, but I didn’t catch why. If you are not interested in providing an entrance point, I would appreciate you talking about what you look for as triggers to entry, or data points and trends you look at to evaluate the index. I am much more interested in understanding the process than being told what to do.

I will do my own due diligence, but sure would value hearing a conversation about where you think the broad stock market is at currently and what you are looking for in order to put cash back in, or what you have seen, (no don’t time the market rants please,) that convinces you to stay fully invested. So far I have for the most part gone with my gut, which has done well for us, but I would love to quantify the market better, and be able to explain my instincts.

As important as what is going on in Ukraine right now, I can’t control that and am trying to focus on what I can control…when to pull the buy trigger and setting out a course of action for when action becomes reasonable.

TIA,

IP

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I’m 55, and expect to be going through your exercise in 10 years myself, so will be curious what people say. My first rough stab at this, if you need only 2% withdrawal rate, is to consider some REITs. Go simple with VNQ, or grab a variety of individual REITs (self storage is a favorite of mine). Consider a balanced fund. Consider a large cap dividend fund. Hope that helps.

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if you need only 2% withdrawal rate, is to consider some REITs… Consider a balanced fund. Consider a large cap dividend fund.

Appreciate the rough stab, but not really looking for funds to invest in, rather in how to evaluate the market in general for a re-entry point. I try to avoid income producers, preferring to be taxed on LT capital gains via sell off of shares, preferably during portfolio rebalance.

IMO a 2% withdrawal rate implies a larger tolerance for risk, rather than a smaller one.

I have always avoided the index funds, particularly during a high, because from what I saw in 2008 was that newbie investors tended to be largely invested in them and they were the first to panic, triggering sell offs. Gross over generalization, I know, but that was my impression. Am now looking at getting into index funds, in part so I can pay less attention to our portfolio but largely in an attempt to protect ourselves from ourselves as we age. I am the only one who has any interest in investing, so am looking to dumb down our investments should someone else have to take over. Considering the amount of Alzheimer’s in my family, this is best done on the younger side. I recently got out of rental properties for the same reason.

Perhaps the real solution is to finally find a wealth management professional I can work with. The last time we tried that with a financial planner it was not what I would call a success.

IP,
not very good at being managed

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Step 1 read Mungofitch on brk or mi board.

He has a great major bottom signal.

Step 2 decide what constitutes fair value for you. Forward pe of your selected Etfs
less than x?

Alternatively wait for a recession and dca
into the selected etfs.

Jk

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per Buffett, over the long haul the market is a “weighing” machine, the price corresponds
to the earnings of the companies in the market. USA has had an unprecedented amount of
monetary stimulus, both actual “handouts” and interest rate policy that has fueled the gains
in the market, as well as buying up junk “assets” from favored companies and sectors.
Lots of worry that company earnings are going to tank, contrasted with shortages of labor,
materials, finished parts, chips, vehicles, … Seems like for now, and the near future, companies are able to sell everything they can produce, at very favorable prices.
So an earnings crash is not a certainty.

Wall St is throwing a “taper tantrum” as Fed tries to unravel it’s balance sheet,
and an “interest rate tantrum” as Fed tries to slow inflation.

SPY is down about 20% from it’s high, which is bear territory. It can go lower, of course.
It’s back to about year ago levels, according to this weekly graph.
https://stockcharts.com/h-sc/ui

I personally haven’t sold anything during this drop. the small purchases I’ve made are all
negative so far. No plans to sell, at all, other than am thinking about balancing out some
gains taken earlier this year with maybe some tax loss harvesting. Have already paid the taxes on
the gains, so it would just be a bigger refund next year.

If I was sitting on a large percentage of cash, would be easing back in to the market at
this point.

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I am a great fan of mungofitch, a very smart guy who has been active on the Mechanical Investing Board for many years.

The “mungofitch 99-day rule” is based on decades of stock market cycles. Simply, if the SPX has not made a new high for 99 trading days, sell stocks and go to cash. If the SPX is coming out of a bottom and makes new highs for 99 trading days, buy the SPX. (That would be a low-cost S&P500 fund, available from Fidelity, Vanguard and others.)

The 99-day wait prevents the investor from buying at short-term, minor bottoms and avoids triggering during “dead cat bounces” which aren’t stable bull markets.

I think it will be months before it’s time to buy back in. The Fed is just beginning to raise rates and hasn’t actually sold any of its longer-term securities. The stock market is in a major bubble and a conventional 20% bear market is only a minor part of it.
https://www.multpl.com/shiller-pe
https://www.currentmarketvaluation.com/models/buffett-indica…

The asset markets are all in bubbles since the Federal Reserve has forced REAL (inflation adjusted) interest rates to be negative. The Fed has announced that they now want a “neutral” fed funds rate. That means a LOT of increasing rates in the next few months.

Be patient. Don’t let your money burn a hole in your pocket. Since short-term Treasury rates have risen, I am now buying short-term Treasury bills (available from TreasuryDirect.gov) that will mature in October 2022 to June 2023. This will bring in some interest while waiting for the eventual market bottom. Which will be at least 6 months from now, if history is any indication.

If you really want to start investing in stocks now, divide your intended cash into 100 parts and invest 1/100 each week into a low-cost broad market fund. This will dollar-cost average into the market and will probably cover the decline and recovery since 2 years is a reasonable time for this cycle to play out.

Wendy

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Look at the charts here.
https://www.hussmanfunds.com/comment/mc220429/

John Hussman is often pooh-poohed as a permabear, but the charts do not lie. It’s only a matter of time before the markets revert to normal – IF the Fed reverts to normal, that is a “neutral” rather than “stimulative” monetary stance.

Wendy

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If you read my thread on the subject, you know my answer. It also seems to be the answer recommended by jkredux and wendy. Be patient. Stop worrying about timing your re-entry point.

If you have more than enough cash plus more than enough equities to survive on, then even if you miss out on a V shaped recovery like 2008-9 and spring 2020, you will still have plenty of cash and equities to survive on during the v-shaped recovery. You can average the extra cash in during the recovery with greater confidence than trying to guess the bottom.

If you average back in and get caught flat-footed by a false bottom in a deeper, more sustained recession than anybody expected, then you may regret you impatience.

So, to quote Wendy, Be patient. Start averaging back in after the next couple of Fed interest rate announcements and after you have greater certainty that it is safe to deploy the money that you were lucky enough to save in the first place.

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I think it will be months before it’s time to buy back in. The Fed is just beginning to raise rates and hasn’t actually sold any of its longer-term securities. The stock market is in a major bubble and a conventional 20% bear market is only a minor part of it.
…
Be patient. Don’t let your money burn a hole in your pocket.

Were the market rational, I suspect it could be some time as well, but it’s definitely not guaranteed. The market has not seemed rational to me for some time now, which has contributed to our being so heavily in cash. That said, I am not looking to act at this time, rather to define what would be an actionable market. The time to make plans, to define a plan, is before the need to execute it.

Patience is a virtue. Inaction is not always the same as patience.

IP

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I have now been mostly out of the securities markets (excepting one REIT) for almost two years, but I would start buying back in if it looked like the USA is getting over its QOP derangement and Ukraine was doing well enough against Russia to

–survive as an independent nation, and
–regain its original lands, with or without Crimea.

If that happens then Putinist Russia will rapidly deflate until real reform takes place in Russia, and then the advanced world will have an opportunity to divert funding from war industries to valuable investments in GCC proofing and tech breakthroughs. I would become very bullish.

david fb

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I am around 40% in cash.

I’m hardly experienced with paper assets so I admit for me, it’s all sort of a guess. I see talking heads shouting “value” “Strong buy” or whatever their phrase du jour is - yet on their LinkedIns I see how they never ran a business nor met a payroll. That doesn’t make them dumb, it just means that someone with little experience in running a business - is making pronouncements. Hence - I’m content admitting my moves are sort of a guess. I’d like to put 25% of that cash into stocks and I’ve started nibbling, knowing full well I won’t be smart enough to catch a bottom. So far some tiny buy orders to that effect have gone thru recently:

SDY: 119.70

DIS: 100.80

TJX: 55.01

AAPL: 139.00

BRK.B $304-ISH (it went today)

MO $52 (done)

PG: $140

PEP: $158

I feel recent years - much of it - was fake. Funny money. Leverage. And to be fair, yes there was also value created in some cases too.

I guess the bulk of my orders will go thru if the sainted S&P 500 is around 3700 give or take. Why? Again my unscientific, born of ignorance guess is that eventually - Millennials will realize that the reward for living “healthy” and long - is having no choice but to join Club 401K and send in the money every pay period. And despite the world’s best efforts - the kids DO want families. cars, TRUCKS, homes, etc etc etc. Behind them is Gen Z - - another sizable generation and again - they’ll have no choice but to send the money to Wall Street and they’ll keep powering consumption. Furthermore - There’s ONE country that has an abundance of glorious, delicious, economy powering natural gas and fossil fuels. There’s ONE country - that doesn’t have to beg a superpower to defend it. And I feel that makes it more and more a destination for foreign investment dollars. A bulk of my spare cash is waiting for the following:

SDY: $114

AAPL: $129-$132

BRK.B: 297

QQQ: 272

Over the next 5 years…if the “stock” section of my portfolio gives me a nominal return of 5.5%…I’ll be happy has heck. Less than 5 comes means it’ll cost me money. Anything over than 5.5%…is casino poker money. If my total dividend is around 2.25% - -I need another 3.25% in appreciation. Between GDP and inflation I’d hope that’s realistic.

My rental homes - I pencil them at 3% yearly appreciation.

Also did the obligatory I-B0NDS. If Uncle Sam needs to keep borrowing, to play the role of parent, father and mother and therefore keep spending- and raise interest rates due to what some used to call “transitory” inflation - well then oh mee-oh, oh my-oh, oh Cleveland Ohio I have no problem collecting the interest. (That catchy phrase is borrowed from the yummy CJ Cregg…)

Other excess cash…

There’s a slight uptick in mortgage problems. It won’t be a 2008 crash – - but I am hoping to find a one or two foreclosures that are not total guts – but in need of some cosmetic fixing.

Beyond that - no more, no less.

I figure if I can’t get 3% appreciation on houses, and average of 3.25% share appreciation - well, I was either really wrong or we’re gonna have bigger troubles.

The two reasonS I’ll still be somewhat cash heavy by some standards…

*I am worried the Ruling Class is planning World War 3 for years now - and it might be slightly nuclear.

*America is in Civil war for decades now and its getting visible to even the Smuggest. And the economic divide WILL in some pockets, reach normalized, visible obvious-ness a la the 3rd world - - along with normalized political violence. I’m not sure if this will be California/NYC style stick-the-underclass-on-that-side-of-town and ignore it, OR if it will permeate parts of the economy.

If that wasn’t a worry, id be guns blazing and buying at around 3700 SP500

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Stop worrying about timing your re-entry point.

There is a difference between worrying and developing a plan! The first is unnecessary and the later critical.

IP,
looking to take emotion out of the process

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“QOP derangement”

?

IP

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IP: “There is a difference between worrying and developing a plan! The first is unnecessary and the later critical.”

Fair enough.

I too have tried to come up with plans for dealing with crashes since I got caught with my pants down and rode my IRA down from roughly $500K to roughly $190K in 2000-2.

In 2008 I even complimented myself for having accumulated some excess cash in 2006-7, bought the dip in the fall of 2008, and then watched helplessly as the subsequent meltdown smashed my equities in 2009.

I have yet to find anybody who accurately timed their re-entries in those crashes except in hindsight.

But…Mungofitch comes the closes of anybody I have found, and I even added some brk during the mini meltdown of December 2018. If he calls a ‘major bottom’ in the near future, I will deploy some of my cash, probably on brk and vig.

So the closest thing I have to a ‘plan’ at this point is Mungofitch’s major bottom indicator which came close to signaling a couple of times last week. He even guessed a few days ago that his ‘minor’ bottoms might cause a short term bump similar to what we might be seeing today.

But beyond that, quibbling over whether to call it a ‘plan’ vs. ‘worrying’ may read well on a message board, but it misses the point.

Plan all you want, but planning on when and how much to deploy money during a crash is a lot like preparing for war. Be prepared to plan and plan and plan and still have the plans go wrong.

My experience, worth what you are paying for it, is that planning on timing entries on the way down, and/or guessing bottoms, go wrong more often than right. The best risk adjusted way to make money, in the long run, IMO, is to let the big crashes crash even if you miss a few upswings along the way.

I will say that you should also listen to Wendy. I have a long memory even if I don’t often share it here. Wendy actually did announce her purchases of some ‘boring’ stocks like jnj and pg in the summer of 2009, after the markets had bottomed, and after they had risen maybe 10 or 15%. Not a perfect call, but a sensible call unlike the ones that are bragged about in hindsight like so many writers, posters and pundits.

So you might consider planning on letting the markets shake out and resist the temptation to guess at a bottom too soon, or just because it has already crashed 10, 20, or 30% or whatever. You have plenty of cash and equities. The only way you can lose is to start deploying cash during a downturn that turns out to be longer and deeper than you expected.

IMNSHO

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Plan all you want, but planning on when and how much to deploy money during a crash is a lot like preparing for war. Be prepared to plan and plan and plan and still have the plans go wrong.

The point of a plan is not a guarantee of success, but a hedge against inaction. A well thought out plan will help you to take the plunge when you would rather hide your head under a pillow. It maximizes your CHANCE for success, not guarantee it.

IP,
who sleeps better with a plan up her sleeve

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There is a difference between worrying and developing a plan! The first is unnecessary and the later critical.

IP,
looking to take emotion out of the process

Good thinking!

Earlier I had nothing to contribute to this thread but today…

X-post at NPI:

When the bottom falls out of the market there are lots of bargain basement stocks on sale. I have yet to buy any but I’m seriously monitoring the NASDAQ for an entry point. Patience Grasshopper!

…

I would much rather load up on my current holdings than on less proven wannabes. But, Patience Grasshopper!

https://discussion.fool.com/ya-means-that-same-stock-that-was-in…

The Captain

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When the bottom falls out of the market there are lots of bargain basement stocks on sale. I have yet to buy any but I’m seriously monitoring the NASDAQ for an entry point. Patience Grasshopper!

Thanks Denny. Weighted or equal weight? How are you monitoring the NASDAQ? What are you looking for?

I am seeing individual stocks that are interesting, but am having trust issues with indexes. It’s not easy shifting one’s style of investing.

IP

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If you expect a V shaped recovery like we had in 2008-9 or March 2020, you could probably start nibbling now. And look like a genius a year from now.

If you are concerned that the Fed will not inflate our way out of this one like it did in 2008-9 and 2020, you might want to let the markets shake out for another few months to avoid re-entering a market that continues to drag downward like 2000-2002. Unless the Fed chickens out on its hawkish policies like it did in December 2018, I am hedging against a sustained downturn like 2000-2002 and perhaps worse.

That is my plan.

But I am a retired 66 year old and a nervous nelly.

If you fear cap weighted indices, Mungofitch’s rsp recommendation is worth a look.

I still like brk and vig which is a dividend achiever and light on FAANG stocks.

And I like FAANG stocks sometimes. Mungofitch thinks google is a possibility. I think. Read his words, not mine.

And Saul’s Saas stocks are down about 50-60% on average. They think they are great buys again. I am too cautious and perhaps too lazy to play that game.

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Thanks Denny. Weighted or equal weight? How are you monitoring the NASDAQ? What are you looking for?

I am seeing individual stocks that are interesting, but am having trust issues with indexes. It’s not easy shifting one’s style of investing.

I’m afraid I was not clear enough. I have no intention of buying any index. The reason for monitoring the NASDAQ is to check Mr. Market’s sentiment. I don’t want to buy on the way down. The second part of my post should have made it clear what I’m buying…

I would much rather load up on my current holdings than on less proven wannabes. But, Patience Grasshopper!

I bought some ARKK to sell covered calls just one week out. If assigned 6% return in a week. It’s part of the income section of the port.

The Captain

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Perhaps the real solution is to finally find a wealth management professional I can work with. The last time we tried that with a financial planner it was not what I would call a success.

For many (most?) people, this is the worst possible solution. That’s because while they talk a big game about “fiduciary duty”, their only real duty is to themselves. And in the end, even a low fee wealth management professional will cost you more than you think their services are worth. For example, let’s say you have $8M to manage, and let’s say that the manager has a VERY low fee of 0.5% of assets. You will be paying the manager $40,000 a year out of your $160,000 a year income (2% withdrawal rate). Is paying a full quarter of your income worth it? Most of the time, it is not.

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