Originally Posted by
hopp
There were pundits and advisors telling the public the same thing in 1970; ,71,72,73,74,75….$100 dollars in the S&P was worth $84 in 1975.
Remember your math. If the market drops 30% this year, it will take a climb of about 42 % just to get back to even. When was the last time you saw a 42% return in a year or even 2?
We all want to believe the best, but the market and economy doesn’t care what we want.
CNBC is full of Wall Street shills.
Last comment first: ABSOLUTELY CNBC is full of Wall Street shills. But I've been watching for so long that I know that everyone's talking their book. It's a question of whether or not it makes sense to me, and a lot of what's said by the 'experts' doesn't make sense to me. A lot of those talking heads collect their fees based on AUM (assets under management for those not familiar with the abbreviation) so of course they're constantly pushing for people to invest more and dollar cost average.
I especially get a chuckle out of Cathie Wood, Elon Musk, and a few others warning the Fed to stop raising rates.
For returns, I've averaged better than 42% over several 2 year periods in the last decade. But I was invested in ETFs which had significant positions in FANG stocks, as I specifically looked for that in ETFs. I'm sure that those funds are further out on the risk spectrum than you're comfortable.
There is a lot of cash on the sidelines that is waiting for the Fed to pivot; that is a coiled spring that will have the markets have a significant initial recovery. You are much more risk averse since you're in retirement so I don't expect you to dive into non-dividend paying tech stocks which are likely to show those returns.
We are currently at the point where TINA's (there is no alternative) dead and many are parking their assets in US bonds (ironically, not British Gilts). When the Fed pivots and starts lowering interest rates, there will be less new money flowing into bonds because equities will once again offer a better return.
Originally Posted by
tallpilot
I also sleep well at night with most of my assets in short term cash equivalents or guaranteed return funds paying between 2-3%. Some people are bothered by returns less than the inflation rate but I am far more bothered by steep losses.
I bought a little bit of the S&P when it was down 25%. That position is staying in the +-5% range for now. If it breaks significantly to the downside I will sell it.
My first trigger to buy in size will be the FED 'pivot.' When they lower the Fed funds rate both bonds and stocks will be bid. I will primarily buy bonds initially. It will take stocks longer to get back to a real bull market after the initial pop so I will average in.
Like mentioned above you don't need to perfectly nail the trend reversal and statistically you will not. Just ease out of high risk when valuations are high and ease back in after they bottom. I don't always win but I've survived this downturn as well as 2008 with losses limited to 10%. Don't be afraid to be in cash. Wall Street hates that because they don't make as much in fees or have retail suckers to sell to so they always advise against it.
Rule #1 Don't lose money
I'm perfectly fine with a rate of return at the moment below the rate of inflation, as I'm currently in a return
of capital mode rather than return on capital. There will be opportunities in the future to get returns above the rate of inflation, but if depleting one's capital means you have to work much harder to get back to even.
Interesting choice to buy bonds initially. Which part of the curve and are you going into other products than Treasuries?
Hopp and
Tallpilot, thanks for the discussion/exchange. I encounter far too many brain dead people who simply subscribe to the Boglehead school of thought where one dollar cost averages in both up and down markets which ultimately enriches fund managers. I find it very tiring when so many people who know nothing about the fundamentals of investing and the markets state something along the lines of it being unavoidable to dodge large market declines. The discussion with both of you has been a breath of fresh air.