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With cash being a sure loser, why would anyone do this? If you think the economy is going down, switch from equities to fixed income. Or is there a reason you dislike fixed income?
In a serious correction such as we saw in 2008, everything gets hit. In addition the reason for going to a higher cash position before a correction is only partly to save principal, the other part of the strategy is to raise cash to do some bargain basement purchases.
Just wondering how many CD posters are seeing the poor economic numbers and the redemptions in mutual funds as a sign to reduce equities and increase cash.
OP I am not.
I've been in the accumulation stage since the early 90's in low cost, low turnover tax efficient mutual funds. The only market timing I do is "automatically" when my AA goes outside my risk tolerance bands.... because I don't have a clear crystal ball to do it accurately myself...
I don't pay for any newsletters or advice for investing because I'm fortunate enough to get excellent information for free from other websites (ie Bogleheads). Been worth its weight in gold.
Haven't tallied what I'm up since I started investing, but it has exceed my goals (which is early retirement)....
Stay the course and ignore the noise and doomsdayers/market predictors...no one here can predict accurately where asset classes will be short term, or individual stocks for that matter....just look at the gold bugs or bond haters as examples.....alot of dreadful predictions
...you won't remember this day or specific time a couple years from now...
In a serious correction such as we saw in 2008, everything gets hit.
So what? Did you sell your house during the housing crash because it's value went down some? No, and you shouldn't panic and sell during a downturn either. Any long term stock or mutual fund investment that's worth owning is worth buying more and averaging down on in a pullback. Stay the course. Trust me, it works.
In a serious correction such as we saw in 2008, everything gets hit.
A simple fact check would reveal this to be wrong.
Quote:
Originally Posted by jimhcom
In addition the reason for going to a higher cash position before a correction is only partly to save principal, the other part of the strategy is to raise cash to do some bargain basement purchases.
Would've been smarter to get into fixed income. When a stock market correction happens, equity goes down and fixed income goes up, so you get even more buying power. Given how liquid the fixed income market is, this is a more profitable approach. And plus, you never know when a correction happens, so while you're camping out with cash you're losing purchasing power; shifting to fixed income would still give you some income (hence, "fixed" income)
On a somewhat related note, I am of the opinion that the most financial damage the recession did to the population was not the money people immediately lost but the fear of investing instilled in people's minds. In a way, this is deepening the wealth gap. The smart people that understand investment waited it out, recovered the losses, and will continue investing. The people whose fear took over their senses bailed, making the losses permanent, lamenting over the losses, and don't invest again for a while and thus missing out on the opportunities.
Just wondering how many CD posters are seeing the poor economic numbers and the redemptions in mutual funds as a sign to reduce equities and increase cash.
Maybe a little bit. But the fact is the stock market has had surprising upward strength for a quite a while now.
All the pullbacks in 2013 were just 3-7% and after each of them the market immediately shot up higher. Lucky 13, as they say.
It's hard to say when this repeating pattern will end.
getting out is easy. Those that try to time the big downturns usually just end up buying low and selling lower. When to get out is a bigger decision then getting in!
Soooo many got burned as they thought low was when we fell 2000 points. So they bought and bailed out as we fell 4000 more. You still make more money by getting out and then reinvesting even before it has hit bottom then the guy that stays in
Then you have those who do not believe the upturn is not a suckers rally so they wait and wait until they buy in higher then they bailed out. Professionals never get back in until a positive rebound has started. The reason for this is that the market can drop faster then it climbs and it's smarter to lose a few points in a bull then losing more points in a bear.
The Forbes 400 still have that slot open for their first market timer.
You are assuming that all investors use fear and emotion in their investment decisions. If you do, you're wrong.
i am not assuming anything, the numbers speak for themselves. . ibbotson and morningstar track the inflow and out flow of money into funds and small investors as a group have seen only 1/3 of the gains most the funds actually saw.
they move money out when they should be moving it in and the reverse.
morningstar rates funds now with an actual return and a small investor return tracking the money in and out of the funds.
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