Market timer sitting on cash needs help with deployment
- northbynorthwest
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Re: Market timer sitting on cash needs help with deployment
I am of similar mindset to the OP on market frothiness and preference to deploy cash when there's more clearly a sale happening.
One way to do this is to simply tune out until the next time a correction is officially declared and market decline is topping newscasts and front pages. Then you wake up and start placing buy orders.
Another option, and I think you're looking for methodology, is along these lines:
Decide what you intend to buy and price points/actions as the market declines as you expect/hope.
ie
You want to buy XIC and VUN:
Commit to buying tranches at:
-5% from today's price
-8%
-12%
-15% <---- buy remaining to reach your 50-50 AA target at this point
-20% Rebalance selling FI to buy equity
-25% Rebalance again
-30% Rebalance again and consider overweighting equities in your AA or otherwise scraping up new cash to invest
Determine those purchase price points now and place orders, then keep rolling forward expiry dates as needed.
By enforcing some sort of structure like the above you may, I think, reduce the emotions and second guessing about when to invest. But that's just an idea. I can't tell you I've road tested it against my own psychology.
You need to imagine and accept that Mr. Market will go down through all of those hypothetical drop levels, only one or two, or none at all. And in the latter none at all scenario, you may well be in an identical position or worse a year from now. The market may seem more palatable to buy lump sum by then, or it may look just as pricey but has ascended another 10 or 15% without you.
Personally, I expect some significant volatility this year. But in your shoes I'd try to get big chunks deployed at -5 to -10% because I think it's less likely it will be much more than that.
I'm at 22% cash right now. Been raising it since summer from my normal 5-10%. Was down to zero last Jan/Feb when I backed up the truck on Cdn banks.
One way to do this is to simply tune out until the next time a correction is officially declared and market decline is topping newscasts and front pages. Then you wake up and start placing buy orders.
Another option, and I think you're looking for methodology, is along these lines:
Decide what you intend to buy and price points/actions as the market declines as you expect/hope.
ie
You want to buy XIC and VUN:
Commit to buying tranches at:
-5% from today's price
-8%
-12%
-15% <---- buy remaining to reach your 50-50 AA target at this point
-20% Rebalance selling FI to buy equity
-25% Rebalance again
-30% Rebalance again and consider overweighting equities in your AA or otherwise scraping up new cash to invest
Determine those purchase price points now and place orders, then keep rolling forward expiry dates as needed.
By enforcing some sort of structure like the above you may, I think, reduce the emotions and second guessing about when to invest. But that's just an idea. I can't tell you I've road tested it against my own psychology.
You need to imagine and accept that Mr. Market will go down through all of those hypothetical drop levels, only one or two, or none at all. And in the latter none at all scenario, you may well be in an identical position or worse a year from now. The market may seem more palatable to buy lump sum by then, or it may look just as pricey but has ascended another 10 or 15% without you.
Personally, I expect some significant volatility this year. But in your shoes I'd try to get big chunks deployed at -5 to -10% because I think it's less likely it will be much more than that.
I'm at 22% cash right now. Been raising it since summer from my normal 5-10%. Was down to zero last Jan/Feb when I backed up the truck on Cdn banks.
Re: Market timer sitting on cash needs help with deployment
This is how I see it as well. Besides, OP is quitting the race (retirement in 4 years) so market performance is no longer the main goal. The main goal is to secure retirement, which I imagine he can do even if his performance lags a bit. If this is not true, his is probably not ready to retire.ockham wrote:Anyway, having come to appreciate that decision-regret is a psychological vulnerability for me, I now automatically DCA if I'm in the happy position of having a lump sum to deploy. I pick a deployment schedule, and stick to it. But in doing so, I'm managing my emotions, not my market performance.
Another thought: If OP was talking about buying cad dividend stocks, would the advice be a lump sum deployment? Probably not, right? (e.g., pipelines are expensive today)
Re: Market timer sitting on cash needs help with deployment
If I was in the OPs position, given the current stage in the market cycle, I would put 50% into the market in index funds that would be split between Canada, US and international. The other 50% I would keep in a high interest savings account and only invest when opportunities appeared to present themselves (eg significant market declines). This presents opportunities whether the market advances, declines or stays flat.
If life seems jolly rotten, then there's something you've forgotten -- and that's to laugh and smile and dance and sing. - Eric Idle
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Re: Market timer sitting on cash needs help with deployment
Hmm, what if the market doesn't correct?
Everyone says the market is overvalued (here in the U.S.). It makes me think of a quote: "everything popular is wrong".
You call yourself a market timer, I'm a particular fan of that strategy, but what is your methodology?
Two people can be market timers but focus on very different time frames. One might chose to exit before corrections of 5-10% and another may just want to avoid big bear markets ('00-'03 and '07-'08). I can really only comment on the latter longer term strategy since that's what we do. So, with that said, I see absolutely no reason why anyone would have sold over the past several months or years. None.
If your methodology prompted to incorrectly sell (which it did since you seek advice with "deployment"), then you methodology will likely be a poor guide for a reentry.
If I were you I would just DCA.
Everyone says the market is overvalued (here in the U.S.). It makes me think of a quote: "everything popular is wrong".
You call yourself a market timer, I'm a particular fan of that strategy, but what is your methodology?
Two people can be market timers but focus on very different time frames. One might chose to exit before corrections of 5-10% and another may just want to avoid big bear markets ('00-'03 and '07-'08). I can really only comment on the latter longer term strategy since that's what we do. So, with that said, I see absolutely no reason why anyone would have sold over the past several months or years. None.
If your methodology prompted to incorrectly sell (which it did since you seek advice with "deployment"), then you methodology will likely be a poor guide for a reentry.
If I were you I would just DCA.
Re: Market timer sitting on cash needs help with deployment
Hello, my fellow market timer ! People say you're a fiction ( like Spidey)Spidey wrote: ... and only invest when opportunities appeared to present themselves (eg significant market declines). This presents opportunities whether the market advances, declines or stays flat.
Re: Market timer sitting on cash needs help with deployment
I'm no market timer: 'twas just click-bait, sorry. No method, either.MackResearch wrote: You call yourself a market timer, I'm a particular fan of that strategy, but what is your methodology?
Nonetheless, one disciplined investor only needs to guess the bottom right once or twice. Then he can espouse finiki 100% and thru the powers of compounding, retire doubly wealthy.
I've got this couple posts up. Do they count as methodologies ?
https://www.portfoliovisualizer.com/exa ... ngAverages
tx and happy weaving
Re: Market timer sitting on cash needs help with deployment
Thanks. I went straight to the market timing scenariosDanH wrote:There is also Steadyhand's Volatility Meter
Re: Market timer sitting on cash needs help with deployment
SO, who deals with a lateral move at work, dragged me to the RV show. Wants to travel some and live in our 1mil house, when done. Me, only need a shack and an internet connection (would retire tomorrow) but socially conditioned not to leave money at the table, soften it for progeny etc. Ergo, we could play it supersafe, but frugal. Or not. Still debating.gobsmack wrote: The main goal is to secure retirement, which I imagine he can do even if his performance lags a bit. If this is not true, his is probably not ready to retire.
Another thought: If OP was talking about buying cad dividend stocks, would the advice be a lump sum deployment? Probably not, right? (e.g., pipelines are expensive today)
Too early(mentally) for divs: FI first
many thanks
Re: Market timer sitting on cash needs help with deployment
Averaging down the market - fair enough: 100k per 5% drop. Noted, decent mehod. Not expecting '08, just couple of breaks.northbynorthwest wrote: Commit to buying tranches at:
-5% from today's price
-8%
-12%
-15% ...
But in your shoes I'd try to get big chunks deployed at -5 to -10% because I think it's less likely it will be much more than that.
Thank you
Re: Market timer sitting on cash needs help with deployment
A lot to chew on, saved it for later.BRIAN5000 wrote: There was a link posted to https://www.portfoliovisualizer.com/ earlier and Norms Asset mixer is always good http://www.ndir.com/cgi-bin/downside_adv.cgi I would suggest you play arround with that. Try putting in $1 mil 25% XIC, 10% VTI, 5% EFA, 50% XBB, 10% CASHX and a $50,0000 fixed withdrawal and see how it lasts. (In portfolio visualizer with these ETF's portfolio has a very short time frame but its a start and I'm not suggesting this is any good)
First glance: market timing scenarios look good.
Re: Market timer sitting on cash needs help with deployment
Probably Bigass DCA. LSD seem to be psychotropicjay wrote:There is evidence that value averaging is superior to DCA but might end having you less invested, which seems to be OK given that you are quite cash heavy at this point.KFried wrote:I was hoping to start a conversation with, say, the merits of a big-bang vs. a phased deployment.
Last edited by KFried on 22 Jan 2017 20:31, edited 1 time in total.
Re: Market timer sitting on cash needs help with deployment
Same as most people I fear loss more. I need to educate myself on investing to the point where I have the illusion of some control. Then, I'll place the money and not look back. I think.tinypotato wrote:Would you feel way worse if you bought and the market went down? Or way worse if you missed out on some gains?
Cheers, tt. (FWFers are very generous)
Re: Market timer sitting on cash needs help with deployment
Will curiously look up VA. Learning new investment concepts/ideas is fun!(satisfies my greed )jay wrote: There is evidence that value averaging is superior to DCA
- Shakespeare
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Re: Market timer sitting on cash needs help with deployment
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
Re: Market timer sitting on cash needs help with deployment
I agree for a few reasons. At some point you need to make a decision and commit. For a lot of new investors their lack of discipline is a greater detriment vs. their knowledge. Following the couch potato index strategy requires minimal knowledge and offers a framework for executing (discipline). I commonly recommend 3-5 purchases to DCA over a 1 year period. If the markets do go down you have your buying opportunity. If they don't and you're still worried then commit 5-10% in cash for such an event.Shakespeare wrote:I've come to the conclusion that a "tranche" approach is best for most individuals despite the Vanguard research. The optimum number of tranches seems to be 3-5. Note that 5 tranches gives a 3-month interval for a one-year deployment.
You will lose money; its inevitable. Whether is opportunity cost, fees, inflation, taxation or material losses in value you will lose. The sooner you realize that its about maximizing your gains and minimizing your losses you're ahead of 70% of retail investors already (FWF Members are in that 30%)
Triage Investing Blog - A Source for Value & Dividend Investing and Business Fundamentals
Re: Market timer sitting on cash needs help with deployment
Are u saying it's a zero-sum game and top 30% retail takes the bottom 70%'s money ? How about the private/institutional? Are they so restricted/tax disadvantaged that they lose too?brad911 wrote: The sooner you realize that its about maximizing your gains and minimizing your losses you're ahead of 70% of retail investors already (FWF Members are in that 30%)
Re: Market timer sitting on cash needs help with deployment
Just my humble opinion but I think the tranche system would make sense for an younger investor in, say, their 30's. But the PA is 4 years from retirement and the Dow is at all time highs. Suppose he executes the tranche system over one year and the market does another 2008 repeat the next year? Not likely, but not impossible. And sure if he waits it out another 5 years after such a crash, there is a good chance he will recoup his losses but he is going to have to start drawing down on those equities during that time.
However, 50/50 equity/cash allows the PA to have half his money taking advantage of any further equity gains. If there is either a crash or downturn, which we appear overdue for, he can start looking for bargains - maybe even going close to 100% equity if the opportunity seems right. The worst case scenario, over fully investing this year, would be that the market keeps gaining and the PA hasn't maximized his return. But half the portfolio will have participated in the gains and the other half would almost keep even with inflation. Seems less of a worst case scenario than some other alternatives.
Market timing to some extent, I know, but the PA did say that he is a market timer.
However, 50/50 equity/cash allows the PA to have half his money taking advantage of any further equity gains. If there is either a crash or downturn, which we appear overdue for, he can start looking for bargains - maybe even going close to 100% equity if the opportunity seems right. The worst case scenario, over fully investing this year, would be that the market keeps gaining and the PA hasn't maximized his return. But half the portfolio will have participated in the gains and the other half would almost keep even with inflation. Seems less of a worst case scenario than some other alternatives.
Market timing to some extent, I know, but the PA did say that he is a market timer.
If life seems jolly rotten, then there's something you've forgotten -- and that's to laugh and smile and dance and sing. - Eric Idle
- Shakespeare
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Re: Market timer sitting on cash needs help with deployment
The tranche system makes sense in most cases - in fact, it is the younger investor who would most benefit from the lump sum. But what needs to be decided is the timing. Putting things in over a multi-year period is not excluded, although I would disagree.I think the tranche system would make sense for an younger investor
The 50% equities is an asset mix decision, not a tranche decision, and needs to be decided first.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
Re: Market timer sitting on cash needs help with deployment
I think you missed my point. What I'm saying is that the sooner you adopt an approach of discipline you're going to be ahead of 70% of other retail investors who are acting irrationally, without any structure and chasing performance.KFried wrote:Are u saying it's a zero-sum game and top 30% retail takes the bottom 70%'s money ? How about the private/institutional? Are they so restricted/tax disadvantaged that they lose too?
I advocate that a retail investor act the same as a portfolio manager would.
Triage Investing Blog - A Source for Value & Dividend Investing and Business Fundamentals