What are your investing thoughts

I am trying to figure out ways to preserve my IRA (401K) accounts given the current markets.
YES, I do know that trying to time the markets is not a recommended play, and many who try it, don't fare as well as they could have otherwise.
But I just can't see where investing new money in stocks right now is going to work out in the short term. We have been on a 7 year bull run, yet our economy seems as stagnant now as it was 5 years ago. Layoffs are as common now as then. Even though the jobless numbers appear to have gone down, I'm not sure they are accurately accounting for the many people who have been out of work so long they have given up even looking. Many of the pundits I read are saying a pull back is inevitable, although some of them were saying that last year, and that was not a pull back by any means..... The global economy is more tightly coupled now, than it was in years past, so the old play of US market down, foreign markets up, is not really available any longer.

The bond market does not look very attractive, with interest rates so low, the bond values are going to get killed as interest rates rise, which they have to do pretty soon.

So as I see it, equities are not safe, world markets are not safe, and bonds are not a good play. Real estate has been on a tear, so that will likely pull back as well, if the markets start to tumble. Energy used to be a nice place to hide, but since oil started this free fall, and the Saudi saying oil will never go back to $100 a barrel, what will happen in the energy sector? Natural gas supplies are going to be saturated when Marcellus Shale reserves come on-line.

So what are your thoughts for investing? What to do?

if you're gambling, then try this:
wait till oil hits bottom, then buy double long

Gordon, you know I harp on 'TINA' - "there is no alternative" and I think this is what is going on with stocks. We see sharp, stunning declines, then the next day all back up again, right now nearly all time highs again.

For example, over the years I have put a ton into bonds, more than I wanted to going by the advise you get for someone my age. Now, I am selling those bonds. I've had the vast proportion in short-term funds, so what happens is they turn it over a lot, eagerly maybe in current conditions, so the fund generates capital gain distributions while staying at the same price and paying less and less in dividends. So I look at it now knowing I have received the capital gains already and the [as I write 1.92% 10 yr rate] of dividends start to suck more and more [usually something less than the 10 yr in these funds]. Take a look at your bank accounts to see how much you like these kind of rates. Meanwhile there is a big guessing game as to when the Fed will make sure interest rates go up. That is inevitable too and will cause pain in even short term bond capital [certainly ending any gains]. The really seemingly better grounded pundits were predicting higher rates some months ago [also to show how 'nobody knows nothing']

I plan to hold a big percentage in bonds but for now as long as I catch the rates going down even further I sell more, sometimes just leaving it in cash.

TINA = everything else sucks even more.

TINA will end too. What will be the circumstances? Certainly not rates going down!

PS: just to make it clear, I sell some of my bonds, not all of my bonds. And these are ETF funds.

If you're a six-digit or better investor, get dividends 4-5% on a good chunk of it. Plenty of HQ-stocks to chose from, but get some divi's.

MO, KMI, D, O, T, VZ, etc

Quote: 100xOdds

if you're gambling, then try this:
wait till oil hits bottom, then buy double long

http://www.marketwatch.com/story/oil-above-100-never-again-says-saudi-prince-alwaleed-2015-01-12

Saudi prince says oil will never again go above $100 barrel. If the prince is right, where will oil end up?

My rule of thumb Gold/20.

Quote: 98Clubs

If you're a six-digit or better investor, get dividends 4-5% on a good chunk of it. Plenty of HQ-stocks to chose from, but get some divi's.

MO, KMI, D, O, T, VZ, etc

If a pull back occurs, those divi's are not going to cover the underlying drop in the stock price. Get a 4% divi, but lose 20% in the stock equity. Of course, the divi is real dollars, and the 20% drop is only a paper loss, unless you have to sell. But if you have to wait for a couple of years for the stock to get back to your purchase price, those are wasted years. Am I looking at this wrong?

edit: In addition, if there is a pull back, they could cut divi's as well, leaving you with a lot less coming in.

Quote: 98Clubs

My rule of thumb Gold/20.

I assume this is for the price of oil?

So at $1200 an ounce, oil will be right around $60 / barrel ?

Even at my age I have moved most of my stock investments (50% of IRA, 100% of short term) into utilities mutual funds. My logic is that they have steady income like a bond but there is some growth as population and energy growth continues. The two I am in have been at 10-20% return the past few years.

Get the heck out of most stocks, the market is being fueled by a printing press. The parallels to 2006/7 right now are scary. My thinking right now is auto loans will start to go bad the next 12 months. That was part of the start of it last time.

Quote: RaleighCraps

If a pull back occurs, those divi's are not going to cover the underlying drop in the stock price. Get a 4% divi, but lose 20% in the stock equity. Of course, the divi is real dollars, and the 20% drop is only a paper loss, unless you have to sell. But if you have to wait for a couple of years for the stock to get back to your purchase price, those are wasted years. Am I looking at this wrong?

edit: In addition, if there is a pull back, they could cut divi's as well, leaving you with a lot less coming in.

The problem here is that bonds will do worse compared to inflation. And that the local bottom for divi's occurred in Oct. '14. If you chart the six divi's listed since Oct. 10, 2014, you'll see the current problem with divis... some are ALREADY up 15% (edited from 20) on price. Thats a game-changer for some. So I see your point.

Quote: AZDuffman

Even at my age I have moved most of my stock investments (50% of IRA, 100% of short term) into utilities mutual funds. My logic is that they have steady income like a bond but there is some growth as population and energy growth continues. The two I am in have been at 10-20% return the past few years.

Get the heck out of most stocks, the market is being fueled by a printing press. The parallels to 2006/7 right now are scary. My thinking right now is auto loans will start to go bad the next 12 months. That was part of the start of it last time.

if that's the case, then why not healthcare mutual funds.
they've climbed an avg of 30%/yr this decade!

I recently bought stock in MGM and Wynn. Doesn't mean I am a stock expert, but just like the companies, and they say "invest in what you know."

Quote: RaleighCraps

I am trying to figure out ways to preserve my IRA (401K) accounts given the current markets.
YES, I do know that trying to time the markets is not a recommended play, and many who try it, don't fare as well as they could have otherwise.

Welp you just answered your own question :p

I like OG's acronym - TINA - there is no alternative. Bonds especially are usually the go-to in a big bull market when you're expecting a pullback, but the current conditions with interest rates where they are and where they'll probably go make that unattractive too. Kind of uncharted territory.

Dropping a big chunk of change into stocks right now feels really bad, I agree. But if you're talking about an existing portfolio, remember that you purchased these shares in the past - at a lower price almost certainly - and no one is forcing you to sell. If there's even a medium size pull back, you're probably still in the green.

Anyway I'm a firm believer in modern portfolio theory, so I don't have a lot of advice here. My long term portfolio is:
15% US large-cap equity
15% US small-cap equity
15% REIT
15% International large-cap equity
15% international small-cap equity
15% emerging markets
10% medium term US bonds
For short-term, drop all of the 15% figures to 11.5% and and the bonds go up to 31%. Everything in low-cost ETFs.

My current job's 401(k) plan offers s*** for funds, so my allocation is a bit simpler there, 30% US large cap, 30% international, 30% US small cap, and 10% bonds. Same theme though.

I do own some gold and silver (physical metal, not through funds) that vacillates right around 5% of my net worth. This is mostly a holdover from my goldbug youth, but I'm not going to sell it...it sits in my safe and satisfies the irrational part of my brain that predicts some small possibility of hyper inflation and societal breakdown. I still don't have a gun to defend it though, so it wouldn't do me much good in that case :).

For a completely different direction than traditional stock/bond investing, you could always do some peer-to-peer lending through Lending Club or Prosper. I have used both of these platforms and I like them a lot. It's a steady stream of income and if you mostly buy the high-risk high-return notes your returns should be in the 8-12% range after the inevitable defaults. My oldest account is running 11.05% right now (over a couple of years) which I'm a little disappointed in, but I didn't know the ropes when I started it and bought too many low-interest notes and also bought too large a portion of individual notes (you really want to only buy $25 of a single loan to diversify your risk). Some say that it in another market crash/recession, these loans will start to default at a higher rate than they historically have as consumers are squeezed. They may be right. TINA.

Lastly, about the current market, here is some advice from my favorite financial blogger Mr. Money Mustache. He's my favorite for a reason and his advice will mirror mine about holding the course. He just dumped $100K into the stock market in November. Money talks.

Quote: AcesAndEights

I like OG's acronym - TINA -

And I'd say I like your ideas too ... we pretty much converge.

Just for the record, in case somebody would wonder, I did not come up with "TINA" ... that can be googled

wtf, market was up nearly 300 points but ended up down, with oil up a bit at the end too ... geez

Vanguard.

Knowing your age would help on where to put your money.

Be thankful you have money to invest.

Quote: RaleighCraps

http://www.marketwatch.com/story/oil-above-100-never-again-says-saudi-prince-alwaleed-2015-01-12

Saudi prince says oil will never again go above $100 barrel. If the prince is right, where will oil end up?

Is it a good idea to be trusting Saudi Royalty about anything?

With 15 of the 19 coming from SA and never been an investigation, wtf. It would not surprise me in the least to find out much of the Sovereign wealth fund of SA is invested in Bakken shale plays, or going to pick them up on the cheap. So Ghawar goes dry in 6-7 years and we'll still be buying oil from the Sauds, only next time it will be drilled and pumped out of the Dakota's?

Watch what they do, not what they say. If they were our "friends" and open and honest and all about the direction of the price of crude, they should have told me 6 months ago that oil now would be below 50$. These are the same guys who decapitate women just for driving a car.

Real Estate. My primary home and a second house down the street that I am renting out. I am not feeling real secure about this (especially the second property investment) as the Vegas Real Estate market is still pretty shaky. Prices have drifted up nicely in the last 2 years, but there is still a large inventory of bank owned homes get to be put on the market. This should keep prices down for a while. On top of this despite that housing was overbuilt in the early 2000's, every where I turn there are still new developments going up. I am not sure where the demand is going to come from. ??

My risk will be the energy sector this year, but that's just gambling with a different title considering I'm looking at the short term.

Quote: kewlj

Real Estate. My primary home and a second house down the street that I am renting out. I am not feeling real secure about this (especially the second property investment) as the Vegas Real Estate market is still pretty shaky. Prices have drifted up nicely in the last 2 years, but there is still a large inventory of bank owned homes get to be put on the market. This should keep prices down for a while. On top of this despite that housing was overbuilt in the early 2000's, every where I turn there are still new developments going up. I am not sure where the demand is going to come from. ??

Not to rain on your parade J, but a home is a terrible investment. Here is a great article summarizing various reasons why... Not that I think no one should own their home, but it's best not to think of it as an investment.

A rental property can be a good source of cash flow, but there are lot of problems with it, mostly maintenance and occupancy. When you take those two costs into account over the long term, a rental property is usually worse than investing in the stock market. If you do a lot of maintenance yourself, that's great, but at that point it's a job and you can't really compute the cash flow as investment returns. It's getting paid for putting your time into it.

Anyway, this is a sore spot for me as I have had some friends get their asses handed to them trying to generate passive cash flow with real estate. Great when it works, and everything's going smoothly! Not so much when it doesn't.

Quote: AcesAndEights

Not to rain on your parade J, but a home is a terrible investment. Here is a great article summarizing various reasons why... Not that I think no one should own their home, but it's best not to think of it as an investment.

A rental property can be a good source of cash flow, but there are lot of problems with it, mostly maintenance and occupancy. When you take those two costs into account over the long term, a rental property is usually worse than investing in the stock market. If you do a lot of maintenance yourself, that's great, but at that point it's a job and you can't really compute the cash flow as investment returns. It's getting paid for putting your time into it.

Anyway, this is a sore spot for me as I have had some friends get their asses handed to them trying to generate passive cash flow with real estate. Great when it works, and everything's going smoothly! Not so much when it doesn't.

Here's one more article on Real Estate appreciation rates in the US, by Michael Bluejay who used to be the Wizard's webmaster.

Lead. It's the new gold.

I believe in a balanced portfolio but something to think about adding is some peer to peer lending notes. There is a primary and secondary market for these micro loans that you make to people, though not all states allow access to the primary market. I currently use lending club and have had excellent results thus far. I have had a few defaults but overall my returns had been excellent.

Quote: AcesAndEights

Not to rain on your parade J, but a home is a terrible investment.

two thoughts:

*I absolutely 100% agree with that opinion

*I have to believe there are more self-made millionaires who did it with real estate, than any other vehicle

one thing for sure, I am not the guy for that. Know thyself.

There are a couple main principles for investing.

1. Invest towards your risk tolerance relative to your age and financial needs. It doesn't make sense to be in all conservative positions when you're young or risky stock/commodity/hedge fund positions when you're old.

2. The main benefit of a 401k is tax deferred savings and dollar cost averaging. Buying into funds on a fixed schedule is much better than trying to time the markets.

3. Company matches are great, but I view a 401k as a way of forced savings, something Americans have a hard time of doing in our consumer obsessive economy. In Asian countries especially Japan, the majority of earnings are saved. It has the highest savings rate in the world.

4. Pick low cost funds unless you accept paying a premium for specialty funds(like sector specific or star managers).

5. Now to where to invest....the broad market is inflated in every asset class. A hit anywhere be it equity, bonds or commodities will hurt. I'm about 75% equity and 25% bonds. I rebalance whenever I see a good entry point in the market. I am more.conservative for my age group. In the equity space, I focus on dividends, small caps, and international. Bonds I look for intermediate duration. You'll notice that one or two categories are usually down when the others are up. I rebalance to keep my risk levels in sync

A major significant positives in real estate investment is tax shelter via depreciation or capital improvements, and you can often avoid capital tax gains on a sale using a 1031 exchange to purchase another property. Certainly it's more complicated with more risk/room for error than many investments if you don't really know what you're doing (easier said than done, I still hold my real estate license and worked in property management in my previous state of residence and I'm not so sure I'd be confident about being able to do it myself). I believe Kewlj has stated that his second property is in his neighborhood, so that helps.I wouldn't want to take a loan on an investment property, but if I had the excess cash laying around it would be tempting for the tax shelter.

Channeling real estate into a self directed ira/401k is also may be a better option than the way most people invest in real estate.

Three years ago I lost my job and converted my 401K into an IRA. At the same time I read Ric Edelman's "The Lies about Money" and have been adhering to the recommended portfolio for me in the book. The book has portfolios for various age and financial situation combinations, and I rebalance yearly. It has worked well for me and I don't fret the big drops in the market like I used to when I was definitely too aggressive.

Quote: Asswhoopermcdaddy

...
5. Now to where to invest....the broad market is inflated in every asset class. A hit anywhere be it equity, bonds or commodities will hurt. I'm about 75% equity and 25% bonds. I rebalance whenever I see a good entry point in the market. I am more.conservative for my age group. In the equity space, I focus on dividends, small caps, and international. Bonds I look for intermediate duration. You'll notice that one or two categories are usually down when the others are up. I rebalance to keep my risk levels in sync

I am mid 50s, and just forced out from the only company I worked for, for 33 years. My analysis says I have enough to last 34 years if I make 3% each year. It won't be an extravagant retirement with lots of travel, but I can pay all my expenses and have a little bit of fun each month (won't be any more $2K buy-ins at craps though, unless I score some nice day trade wins).

One of the biggest things to kill a retirement is to lose money in the first couple of years of retirement. So an asset mix is really out of the question for me right now, because a year with a 10% loss would be quite devastating. On the positive side, I do not have any plans of drawing on my retirement funds for a few years, so I am not faced with the double hit of a market loss and a draw down, all at the same time.

I wonder if Axel offers a 401K program..............

Quote: AcesAndEights

Not to rain on your parade J, but a home is a terrible investment. Not that I think no one should own their home, but it's best not to think of it as an investment.

A rental property can be a good source of cash flow, but there are lot of problems with it, mostly maintenance and occupancy. When you take those two costs into account over the long term, a rental property is usually worse than investing in the stock market.

Quote: mcallister3200

I believe Kewlj has stated that his second property is in his neighborhood, so that helps.I wouldn't want to take a loan on an investment property, but if I had the excess cash laying around it would be tempting for the tax shelter.

I think for an AP (especially a card counter AP), the home/investment scenario is a little different. As a professional card counter, my bankroll is EVERYTHING. A successful AP, Kim Lee (on BJ21) used to tell me that an AP's entire net worth is his bankroll, including real estate and investments. I had a problem with that at the time. I wanted to separate things out into nice little packages, rent money (wasn't a home owner), living expenses, bankroll, maybe savings.

But now as a homeowner, I have come around to that way of thinking. I put 50% down on my home that I live in. That money came from my blackjack winnings and as such, it will always sort of be part of my bankroll, even if I separate things out as I do. I now look at it as I have a playing bankroll, which is high five figure that I have readily available for play (would like to get that back over 100k). But if I were to lose that which is highly unlikely, at the tiny RoR that I play, I would HAVE to dip into my total BR which includes home equity. So my home IS part of my bankroll and as such, I need to protect that investment dearly. I don't need to have it increase in value the way you would want a traditional investment to, but I can't have it decline (long-term).

Now, my second property was just a bad decision on my part. Maybe 'bad' isn't the right word, because I think and hope it may turn out ok, but it is a decision I regret. It's a decision I didn't think through entirely and that's not the way an AP operates. I just saw this nearby property selling significantly under current value and grabbed it up (cash purchase also from what I now consider my total BR funds).

My plan was to turn around and put it right back on the market at a closer to market selling price. Problem with that is potential buyers can see that even though property is listed at or close to value, that is very recently sold for far less. The questions they immediately have are what is wrong with it that it sold so far below value and what now makes it worth more? I quickly realized the prospects of turning around and selling it right away at a higher price were not good. Second option was to rent it out for a year or two, generating some income, and then sell it for a profit, which I should be able to do baring another major drop in the Vegas market. (values have been creeping upwards).

Luckily, I found a renter on another site that I participate on that some members that I know vouched for. He is an AP (for a living) so I worried about his finances, I know that's the kettle calling black...lol. He has been very reliable tenant and actually wants to purchase the property, so hopefully he will be in a position to do so at some point in the not too distant future and this rash and potential bad decision will have a happy ending. :)

Quote: RaleighCraps

I wonder if Axel offers a 401K program..............

its called having an opportunity for partnership.

Quote: kewlj

But now as a homeowner, I have come around to that way of thinking. I put 50% down on my home that I live in.

Wow! Props to you on that.

Quote:

Now, my second property was just a bad decision on my part. Maybe 'bad' isn't the right word, because I think and hope it may turn out ok, but it is a decision I regret.

It's good that you can admit that.

Quote:

It's a decision I didn't think through entirely and that's not the way an AP operates. I just saw this nearby property selling significantly under current value and grabbed it up (cash purchase also from what I now consider my total BR funds).

DOUBLE WOW! You've eliminated one of the big problems with thinking of real estate as an investment - using big leverage. 50% down on one home and 100% down on the other - that's a whole different ball game. I still wouldn't do it, but you've eliminated a big cash leak (interest).

Quote:

My plan was to turn around and put it right back on the market at a closer to market selling price. Problem with that is potential buyers can see that even though property is listed at or close to value, that is very recently sold for far less. The questions they immediately have are what is wrong with it that it sold so far below value and what now makes it worth more?

Hence one of the problems with real estate as an investment :).

Quote:

Luckily, I found a renter on another site that I participate on that some members that I know vouched for. He is an AP (for a living) so I worried about his finances, I know that's the kettle calling black...lol.

I don't fault you at all for being worried...you are one of the few exceptions as a successful disciplined AP. I imagine many "full time" APs live hand-to-mouth, and many who claim to be full-time APs aren't really. No reason not to be skeptical of him being able to pay the rent.

Quote:

He has been very reliable tenant and actually wants to purchase the property, so hopefully he will be in a position to do so at some point in the not too distant future and this rash and potential bad decision will have a happy ending. :)

That's awesome. I hope it all works out for you!

Quote: RaleighCraps

I am mid 50s, and just forced out from the only company I worked for, for 33 years. My analysis says I have enough to last 34 years if I make 3% each year. It won't be an extravagant retirement with lots of travel, but I can pay all my expenses and have a little bit of fun each month (won't be any more $2K buy-ins at craps though, unless I score some nice day trade wins).

Based on your age, the general rule of thumb is to have your bonds equal you age. So that means 55% bonds and 45% equity, assuming 55yrs old. That's a benchmark and many advisors will tweek around it based on their models. You are expected to work another 10-12 years to reach full retirement age. Many models incorporate that. Are you worried about a 10% loss now or a 10% loss 10-12yrs from? That would help drive how much you tweek your allocation.

In theory assuming you find another job, your asset mix stays roughly the same, especially if you don't plan on drawdowns in the near future. Also, its important to check the fees that your plan funds are invested in. These fees are generally lower than rolling over the funds into an IRA. Rollovers make sense if you want more investment discretion or the plan funds are crap. If you're happy with your investments, then its a matter of percentage allocation.

Quote: Asswhoopermcdaddy

Based on your age, the general rule of thumb is to have your bonds equal you age. So that means 55% bonds and 45% equity, assuming 55yrs old. That's a benchmark and many advisors will tweek around it based on their models. You are expected to work another 10-12 years to reach full retirement age. Many models incorporate that. Are you worried about a 10% loss now or a 10% loss 10-12yrs from? That would help drive how much you tweek your allocation.

In theory assuming you find another job, your asset mix stays roughly the same, especially if you don't plan on drawdowns in the near future. Also, its important to check the fees that your plan funds are invested in. These fees are generally lower than rolling over the funds into an IRA. Rollovers make sense if you want more investment discretion or the plan funds are crap. If you're happy with your investments, then its a matter of percentage allocation.

This is all very sound advice, and is consistent with most every article I read (and Money magazine). But, as my money is currently parked in short term interest funds, does it really make sense to redistribute to even a 50/50 equity/bond split?
Equities are so over priced it is not funny. The economy is not as rosy as the indicators are making it out to be. Bonds are going to get creamed when the interest rates rise, which they most likely will do this year. So why put money into an allocation that is likely to get spanked?
I could start easing into equities, in a dollar cost averaging way, but again, it would seem down is much more likely than up. We are into the 7th year of a bull run, which I believe is the longest run for the past 40 years or so.

I am worried about the 10% loss now. I have not had to look for a job in 33 years, and am not planning on looking now. If something comes along, I might take it, but as far as a resume, job applications, etc. not in the cards at this time.
So preservation of my existing funds is job #1.

My problem with the long term, allocate and mostly ignore path is with the examples that I have seen. What the market does in the first years of your time frame carries much more weight than the latter years. A big year one can carry you through 2 or 3 down years. Conversely, a bad year one can put you in a position of almost no chance of recovery. I want to see what a 50/50 portfolio that went into 2007 looks like today, assuming no added funding and reallocation each year to maintain the 50/50 mix.

Quote: RaleighCraps

This is all very sound advice, and is consistent with most every article I read (and Money magazine). But, as my money is currently parked in short term interest funds, does it really make sense to redistribute to even a 50/50 equity/bond split?
Equities are so over priced it is not funny. The economy is not as rosy as the indicators are making it out to be. Bonds are going to get creamed when the interest rates rise, which they most likely will do this year. So why put money into an allocation that is likely to get spanked?
I could start easing into equities, in a dollar cost averaging way, but again, it would seem down is much more likely than up. We are into the 7th year of a bull run, which I believe is the longest run for the past 40 years or so.

I am worried about the 10% loss now. I have not had to look for a job in 33 years, and am not planning on looking now. If something comes along, I might take it, but as far as a resume, job applications, etc. not in the cards at this time.
So preservation of my existing funds is job #1.

My problem with the long term, allocate and mostly ignore path is with the examples that I have seen. What the market does in the first years of your time frame carries much more weight than the latter years. A big year one can carry you through 2 or 3 down years. Conversely, a bad year one can put you in a position of almost no chance of recovery. I want to see what a 50/50 portfolio that went into 2007 looks like today, assuming no added funding and reallocation each year to maintain the 50/50 mix.

Raleigh, let me say that I don't envy you. I'm a young guy with years of work ahead of me, so a big crash right now is actually good for me. Despite having a bunch of money in the market already (including money I will likely use for a house down payment in the next 2-3 years), a big crash right now means I'm getting big money in at a lower price.

Anyway, no real advice here, just some commiseration. Actually, I do have some advice: if you're not going to work (which I fully support, retirement sounds awesome), look for ways to cut costs in your daily life. You don't have to be a pauper, but I'm sure there are cash leaks that you didn't really notice or care about when you had an income, but that you could easily live without. Lower your yearly "nut" and the investment returns suddenly become less important.

I'm still waiting for someone to suggest Bitcoin.

Quote: AxelWolf

I'm still waiting for someone to suggest Bitcoin.

He's still under self suspension

Quote: RaleighCraps

He's still under self suspension

What did he buy them @?

I don't recall, but there was a thread or two on it here.

Quote: RaleighCraps

This is all very sound advice, and is consistent with most every article I read (and Money magazine). But, as my money is currently parked in short term interest funds, does it really make sense to redistribute to even a 50/50 equity/bond split?
Equities are so over priced it is not funny. The economy is not as rosy as the indicators are making it out to be. Bonds are going to get creamed when the interest rates rise, which they most likely will do this year. So why put money into an allocation that is likely to get spanked?
I could start easing into equities, in a dollar cost averaging way, but again, it would seem down is much more likely than up. We are into the 7th year of a bull run, which I believe is the longest run for the past 40 years or so.

I am worried about the 10% loss now. I have not had to look for a job in 33 years, and am not planning on looking now. If something comes along, I might take it, but as far as a resume, job applications, etc. not in the cards at this time.
So preservation of my existing funds is job #1.

My problem with the long term, allocate and mostly ignore path is with the examples that I have seen. What the market does in the first years of your time frame carries much more weight than the latter years. A big year one can carry you through 2 or 3 down years. Conversely, a bad year one can put you in a position of almost no chance of recovery. I want to see what a 50/50 portfolio that went into 2007 looks like today, assuming no added funding and reallocation each year to maintain the 50/50 mix.

If you don't plan on working and preservation of capital and cash flow is now the number one priority, then your money market position is a fair representation of your risk profile. It is the right asset class, but the returns are crap. You probably earn .1% in interest which does nothing for you over the next 10-12 yrs. IMHO, if I were under those constraints, I would look for higher yields in preferred stock, mortgage reits, and intermediate corporate bonds.

Going back to work gives you a longer investment time frame. You benefit from the volatility if you hold fair and true in your allocation
To your question, a portfolio invested in 2007 under 50/50 would be up today and would have fully recovered losses. Interest, dividends, dollar cost averaging, and no rebalancing would put you in the green.

If you were to rebalance, don't do it at once. Do it slowly over time. Hope this helps.

Do not think bonds carry no risk, and I don't mean risk of default.

Right now I would say the risk of getting creamed in bonds is much higher than in equities. The latter, when slipping in the long awaited correction, probably, as reflected in the Dow, only get down to something like 16,000. Being an active investor with control over my allocations and living through the worst possible time in recent memory for stocks, 2007-8, does give me the confidence to say that should it be worse than that, make yourself start buying for sure [I will be buying before we get to that point myself]

Bonds, on the other hand, if you want to talk about "due", are heading for a much more painful correction.

As for re-balancing, definitely go for it. It'll be the only time you can do market-timing [essentially] and get the blessings of the conservative pundits.

As for the proportion of bonds being equal to your age; I personally don't believe there is a magic formula, and I also think it is too conservative, especially now while they are at such risk and pay crap. I think even in the best of times, assuming your not cashing out big chunks constantly, a case can be made that equities can be no lower than 30% of your portfolio no matter how old you are. In the case of needing big chunks all the time, though, "your age" might work pretty well.

The interesting thing about bonds is that assuming the issuer is creditworthy and does not default, you get your principal back. A couple of investor presentations came out by Gundlach of Doubleline Capital Mgmt, Gross of Janus, and others that suggest bond prices could continue to appreciate in value. I thought this was an interesting point especially with the expectation that rates are suppose to increase since that is the baseline for the Fed.

Suppose the economy weakens or the Fed holds off further on rate increase, or some global macro event sinks the economy, bonds continue to be default fear trade.

Either way, the market is inflated so invest with caution.

Where am I investing? Not from any suggestions from a Vegas forum. Put it all on black!

Quote: Asswhoopermcdaddy

The interesting thing about bonds is that assuming the issuer is creditworthy and does not default, you get your principal back. A couple of investor presentations came out by Gundlach of Doubleline Capital Mgmt, Gross of Janus, and others that suggest bond prices could continue to appreciate in value. I thought this was an interesting point especially with the expectation that rates are suppose to increase since that is the baseline for the Fed.

Suppose the economy weakens or the Fed holds off further on rate increase, or some global macro event sinks the economy, bonds continue to be default fear trade.

Either way, the market is inflated so invest with caution.

I'm not sure, but I think this holds true only if you actually buy a true bond. When you invest in a mutual bond fund, one that is buying and selling bonds before they reach maturity, you can lose value. At least this is my limited understanding. How else can you explain how a bond fund can have a -10% yearly return, like many did in 2008?
If they had been holding bonds to maturity, there shouldn't have been a loss, no?

If I have this wrong, please feel free to correct me, as I will be the first to admit I don't fully understand these things.

Quote: Intheknow

Where am I investing? Not from any suggestions from a Vegas forum. Put it all on black!

I can understand your post, since you just joined this month.

Spend a year here, and once you understand how intelligent many of the members are here, you will understand why I started this thread. Short of a mensa group, I think you would be pretty hard pressed to come close to the collective IQ that is on this board, and quite frankly, some of the mensa groups haven't really impressed me all that much.

Quote: RaleighCraps

I'm not sure, but I think this holds true only if you actually buy a true bond. When you invest in a mutual bond fund, one that is buying and selling bonds before they reach maturity, you can lose value. At least this is my limited understanding. How else can you explain how a bond fund can have a -10% yearly return, like many did in 2008?
If they had been holding bonds to maturity, there shouldn't have been a loss, no?

If I have this wrong, please feel free to correct me, as I will be the first to admit I don't fully understand these things.

This might be a good one for some "Wizard of Investing" to explain.

Instead you get me LOL.

My limited understanding is that, yes, you can just hold on to the bonds if you own them [rather than funds] and then you can't realize a capital loss, assuming defaults don't happen [I do not do corporate debt myself*]. But apparently you are just kidding yourself. The investor who takes the loss and buys the newer, better issue is presumably better off. Otherwise, why would the bond funds shoot themselves in the foot?

I figure if you can and should realize capital gains with bonds, it must be true that you can and should realize capital losses.

Quote: Asswhoopermcdaddy

bond prices could continue to appreciate in value.

I think they will. The 10 yr might hit 1%. I have so much in bonds, though, I am getting out slowly as we approach that.

I picture the 2% threshold as probative. You can get 2% with stock dividends pretty easy. If the 10 yr is going to go lower than 2%, I am going to lower my exposure. There are a lot of buyers just getting treasuries for safety, foreign governments even. In that situation, they don't care what the yield is.

10 year went from about 1.85% yesterday to 1.77% today. I sold some again.

PS: just saw that it settled at 1.726%

Bond funds can actually hold bonds to maturity and still incur a 10% loss in the interim They have to mark to market and revalue their portfolio every day and changes in interest rates and credit will create fluctuations in portfolio values.

Most people who buy bonds individually on a retail level ignore these daily pricing changes.

To Odiousgambit's point, it is scary to think of a 10yr bond hitting 1%. That means the risk free rate of funding is marginal. How does an investor get compensated for 10yrs worth of risk? There are plenty of alternative investments that have better cash flows than your government issued debt. But then again, when you see stocks dropping 1% a day, bonds are a place to hide.

Quote: Asswhoopermcdaddy

Bond funds can actually hold bonds to maturity and still incur a 10% loss in the interim They have to mark to market and revalue their portfolio every day and changes in interest rates and credit will create fluctuations in portfolio values.

Thanks for the bond 101 class AWMD (I would have just gone with A$$, but don't want a timeout...... ;-)

So, let's see if I have this right......

Say fund xyz holds 100% of their funding in a 10 yr bond at 2%.
Because they are doing mark to market, the value of their portfolio at the end of year 1 could be down 5%. Therefore I would have 5% less value in my xyz holdings.
Assuming the fund did no buying or selling, over the next 9 years they could have up and down years.
However, at the end of year 10, wouldn't the overall fund have to be in positive territory, at the 2% rate for the bonds they were holding (assuming 0% fees)?
I realize this is not practical, I am just trying to make sure I understand the basic principle of a bond fund.

Quote: RaleighCraps

Thanks for the bond 101 class AWMD (I would have just gone with A$$, but don't want a timeout...... ;-)

So, let's see if I have this right......

Say fund xyz holds 100% of their funding in a 10 yr bond at 2%.
Because they are doing mark to market, the value of their portfolio at the end of year 1 could be down 5%. Therefore I would have 5% less value in my xyz holdings.
Assuming the fund did no buying or selling, over the next 9 years they could have up and down years.
However, at the end of year 10, wouldn't the overall fund have to be in positive territory, at the 2% rate for the bonds they were holding (assuming 0% fees)?
I realize this is not practical, I am just trying to make sure I understand the basic principle of a bond fund.

That is exactly correct. Assuming no buying, selling, redemptions, and only hold to maturity, the fund would be up 2%=your interest at the end of 10yrs. Not very realistic, but that's the jist. Managers need to earn their fees so they will trade, hedge, etc.