Time to get out of the stock market?

The Dow is skirting 26,000 today up from around 20,000 a year ago.  Most of the other major indices have shown similar rises in the last year.  I find it hard to believe that the value of the American economy has increased by a fifth in the last year and I have little confidence in the demented monkey who is driving our government so I am left to wonder the following.

Is it time to get out of stocks and, if so, what is a safe haven to which I might move that portion of my 401k?


A person should stay with the allocation they have set. But given the increase in the stock market most portfolios need to be re-balanced now to get back to the desired allocation.


Time to go 100% into bitcoin!  Just kidding.

Yeah, it's a tough call these days. The market seems long overdue for a correction, yet keeps going up. The best advice does seem to be to stick with your allocation, but factor in your short/intermediate term goals and your overall timeline. Certainly don't put money in stocks that you'll need in the next few years (e.g., for college tuition, retirement, etc.).

The related question is whether to keep non-stock money in bonds or money market. Short term bond funds aren't yielding a whole lot more than money market funds. One of the wild cards, of course, is inflation. Another one is the unpredictability of you know who.

I, for one, am trying to stick to my allocation and stay diversified. And not wake up sweating too much in the middle of the night....


I have a friend who wants to start saving for retirement.  I opened her an acct at Vanguard, but am worried about investing with things so high.  Should I wait for a crash?


If your friend is in his/her 20s/30s, and the money is going into a 401k or IRA, that money won't be touched for three or four decades. During that time, the market will move up and down many times, but hopefully will have a long-term upward trend. In that context, it makes little or no sense to try and time the market.

If your friend is nervous about dropping in a large amount all at once, have him/her move the money into the market gradually, investing a portion each month or quarter. That's called dollar-cost averaging: https://www.investopedia.com/terms/d/dollarcostaveraging.asp

  
I have a friend who wants to start saving for retirement.  I opened her an acct at Vanguard, but am worried about investing with things so high.  Should I wait for a crash?



The problem here is that a correction is almost certainly in the works.  There is no way asset and market growth match the rate of increase in the market.  Its like the real estate market in 2006.  Everyone with eyes can see that there is a bubble that is about to burst.


What would you smart people do if you were 60 and most of your money was in age-targeted mutual funds assuming retirement at age 70? Maybe move some money into a money market?


KTHNRY, What company runs your fund?

The discussion on NPR Marketplace was about, if yesterday was the beginning of a downturn. Of course, they know as little as we do. But if you are concerned that this is it, you can buy SPDR put options, 15% out of the money, as insurance. If $500. or $1,000 of put insurance helps you sleep at night, it is money well spent. Plus, if the market does go down, you may come out ahead.

All of the downturns since the Great Depression have bounced back within 10 years.

Or, rather, than moving to money market, move some to income funds.


You shouldn't really ask a one-size-fits-all question like this. Every situation is different. What are your expenses? What are your assets? What are your debts? What are your goals? How is your health? See what I mean? 

I have several friends who have lots more money than I do. Generally speaking, they can afford to be less conservative than I am. So while they may be comfortable with X percent stock allocation in the market, I wouldn't be. And, of course, age comes into play. At a certain point, one has to start thinking more about capital preservation than capital accumulation.

kthnry said:

What would you smart people do if you were 60 and most of your money was in age-targeted mutual funds assuming retirement at age 70? Maybe move some money into a money market?



almost 50 years old. High $ amount in the stock market through 401k. Moderately aggressive choices right now. Don't need access to that $ now. Will take starting in about 15 years. What say you gurus?


Those who "get out" usually come to regret it.  As others have mentioned, you may want to rebalance, but if you have a good solid portfolio, the most likely scenario is that it will survive a correction and then go on to future growth.



unicorn33 said:

If your friend is in his/her 20s/30s, and the money is going into a 401k or IRA, that money won't be touched for three or four decades. During that time, the market will move up and down many times, but hopefully will have a long-term upward trend. In that context, it makes little or no sense to try and time the market.

If your friend is nervous about dropping in a large amount all at once, have him/her move the money into the market gradually, investing a portion each month or quarter. That's called dollar-cost averaging: https://www.investopedia.com/terms/d/dollarcostaveraging.asp
  
I have a friend who wants to start saving for retirement.  I opened her an acct at Vanguard, but am worried about investing with things so high.  Should I wait for a crash?

This!



conandrob240 said:

almost 50 years old. High $ amount in the stock market through 401k. Moderately aggressive choices right now. Don't need access to that $ now. Will take starting in about 15 years. What say you gurus?

Personally, I would stick with it.  Possibly start to look at reallocating a portion to less aggressive choices.  But nobody can say for sure.  What you can say with a fair amount of certainty is that the "totally safe" choices (if there even is such a thing) will lose out against inflation over time.


See my comments above. 

And when considering stock/bond/cash allocation, remember to consider your total picture. Some people are fully invested in the stock market through their 401k (or IRA) but are all cash in non-retirement assets. As a result, on balance their actual stock allocation may be very low.

conandrob240 said:

almost 50 years old. High $ amount in the stock market through 401k. Moderately aggressive choices right now. Don't need access to that $ now. Will take starting in about 15 years. What say you gurus?



I'm in similar boat. Making changes only at the margin, really --

(1) building cash by opening up some CDs (which are starting to pay a non-negligible interest rate). Not putting any new money into growth or speculative stuff.

(2) considering selling half of at least one individual stock that's been a big winner;

(3) considering reallocating some small (~2%) portion of stocks into bonds, though I may wait until the 10-year Treasury rises to 3.5% to do this (it's now near 2.5%)

conandrob240 said:

almost 50 years old. High $ amount in the stock market through 401k. Moderately aggressive choices right now. Don't need access to that $ now. Will take starting in about 15 years. What say you gurus?



I am 53.  Last year I changed my 401K assets from aggressive to moderate at the advice of my manager, based on age.    I am out of the aggressive anything game.


when I say "get out", it would be temporary. Selling off high funds, swapping them out for bonds or something safe right now. Let it crash then go back to more aggressive funds. Why would someone regret getting out?


Actually your last sentence supports the notion that the bull run can continue. If everyone sees a bubble ahead, that means there is pessimism and money on the sidelines -- which can be fuel for higher valuations.

There will always be corrections. Corrections are healthy for markets long-term and nothing to be overly concerned about, at least from the POV of a long-term investor.

I think the notion of trying to predict a bubble and moving in and out of risk assets is a fool's errand. Nobody can reliably predict when a correction will happen, how extensive it will be, and how long it will last. Sure you might be lucky/right and spare yourself some losses, but more likely you'll be wrong which comes with an opportunity costs of missed gains, plus probably some transaction costs.

Klinker said:

The problem here is that a correction is almost certainly in the works.  There is no way asset and market growth match the rate of increase in the market.  Its like the real estate market in 2006.  Everyone with eyes can see that there is a bubble that is about to burst.



plenty of people have gotten rich ding exactly what you say can't be done. I'm not trying to get rich doing it but I'd like to protect my assets. 


Fair enough. If you're at a stage in your life where you've made a lot and ready to take some risk off the table, by all means do so. As Jim Cramer says, you only have to get rich once. 

But as a counterpoint to your plenty of people argument, plenty of other people have missed out and set back their finances by trying to time the market. I have a friend who moved a lot of money to cash and gold around 5-6 years ago because he thought stocks were in a bubble at the time. And there's no saying anyone's perception of a bubble today will prove truer than his was.


I’d only reduce the risk for a short amount of time. I am thinking about selling/re-allocating to much safer funds. Then if it crashes, go back to moderately aggressive after that. Is that what people mean when they say “getting out”?


Your friend moved assets to cash and gold but it’s not like there was some great loss. Golds up, no? And he protected his assets. No big loss other than a few years of growth.


"getting out" to me means selling stocks and not being in the market anymore.

 

As for my friend -- s&p 500 has about doubled over past 5 years, whereas gold hasn't done much of anything. Given his age and income, i imagine the opportunity cost of his incorrect call is well into six figures.


I know several people who significantly reduced their holdings when Trump was elected (including one who sold short). Their timing didn't work out very well, to say the least.

There's a reason that index funds generally outperform managed funds over time: even the "experts" can't consistently time the market.

Just as an aside: Cash is not the worst place to be these days. Capital One money fund is paying 1.4%, Vanguard Prime is around 1.25%. Those rates are high enough to question the wisdom of CDs, especially in an interest-rate-rising environment.


At those rates your investment is constantly losing real value.


Historically and in aggregate people tend to get out too early and in too late so those who stay the course do better long term.



unicorn33 said:

I know several people who significantly reduced their holdings when Trump was elected (including one who sold short). Their timing didn't work out very well, to say the least.

There's a reason that index funds generally outperform managed funds over time: even the "experts" can't consistently time the market.

Just as an aside: Cash is not the worst place to be these days. Capital One money fund is paying 1.4%, Vanguard Prime is around 1.25%. Those rates are high enough to question the wisdom of CDs, especially in an interest-rate-rising environment.

Me too.   They were certain they were being smarter than everyone else.   I am happy for my 21% returns since then.


Fair enough.


Getting out doesn’t mean that to me though. I certainly intend to get back in. Timing is everything.


Smedley said:

"getting out" to me means selling stocks and not being in the market anymore.

 

As for my friend -- s&p 500 has about doubled over past 5 years, whereas gold hasn't done much of anything. Given his age and income, i imagine the opportunity cost of his incorrect call is well into six figures.



True on cash. Nobody will get rich on cash returns but they have crept up to pay more than the pittance they were paying for many years.

I've been allocating money into CDs. The yield curve is flat which means you don't get paid much more for longer terms, which is fine with me. Synchrony Bank pays 2% on a 1-year CD, which isn't horrible -- I've been putting 1/12 of my CD allocation into one of those puppies every month, so I'll have 12 one-year CDs when I'm done. I think this is a good plan because it keeps things pretty liquid with maturities every month, and also each new one I start (and later, reinvest) goes in at the current (and generally higher) rate.

unicorn33 said:

I know several people who significantly reduced their holdings when Trump was elected (including one who sold short). Their timing didn't work out very well, to say the least.

There's a reason that index funds generally outperform managed funds over time: even the "experts" can't consistently time the market.

Just as an aside: Cash is not the worst place to be these days. Capital One money fund is paying 1.4%, Vanguard Prime is around 1.25%. Those rates are high enough to question the wisdom of CDs, especially in an interest-rate-rising environment.




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