Time to Move Investments to Safety? Implications?

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Gilberto de Piento
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Time to Move Investments to Safety? Implications?

Post by Gilberto de Piento »

I have about 2/3 of my investments in a Vanguard target date 2055 fund in a 457b (like a 401k). I have 1/3 of my investments in a taxable fund with Vanguard. In the Vanguard fund I have some 2055 fund, some VTSAX (all US stocks), and some vanguard dividend growth due to various investing ideas i have had over the years. When I invest now it all goes into the 2055 fund in both the 457b and the taxable fund. I am invested something like 90% stocks.

Due to the coronavirus I am down about 25%. This is not a problem, I don't think I will be able to retire for at least 5 years, probably longer. It doesn't really bother me.

I've been a Boglehead style indexer for as long as I've been investing. I think it is fine but for the last week or so I've been having thoughts that maybe I am being a sucker. I didn't see the big drop coming, probably in part because I don't even think about trading, but now that I am thinking about it I wonder if maybe I should reallocate my money to something safer for the time being. I think the markets will drop more but I don't have any real analysis supporting that, just general thoughts and feelings about it.

As far as I know I can move money in my 457b with no tax implications. If I switch investments in the taxable account I believe I would have to pay taxes on the sales. Another option would be to start putting my recurring investments ($30,000 / year) into something safer though it wouldn't protect what I already have invested. "Trading" is against my current investing philosophy and I am worried I would be changing course without any real foundation for it.

I know what answer I would get at bogleheads or MMM (stay the course, follow investment plan). I like the diversity of thinking here. What do you think?

IlliniDave
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Re: Time to Move Investments to Safety? Implications?

Post by IlliniDave »

I believe you are right regarding the exchange of investments within a given tax-advantaged retirement plan. I've never had a 457b, but I've never heard that ongoing dividends and capital gains are taxable.

Is this your first big drop since paying attention to investing? This is my fifth (I count 2000-2002 as two, the dot-com bubble and 9/11). My observation is that identifying the cause of a drop is easy in hindsight but not so easy in foresight. We can wake up every day and say we're approaching the next crash, but that's not actionable.

There is nothing wrong with changing course as you learn more about your personal risk tolerance. That is what I sense is happening from your OP. You say "for the time being" but you might want to consider ratcheting your risk down partway and leaving it there. In other words, rewrite your investment plan from your now more experienced position. Target date funds are too aggressive for a lot of investors.

Even over at bogleheads there are varying degrees of non-orthodoxy. In the end you have to find the best approach for you, which is almost by definition a moving target.

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C40
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Re: Time to Move Investments to Safety? Implications?

Post by C40 »

I'm not familiar with your account types so I have no advice relating to that..

...

None of us know for sure what will happen in the future. Maybe the stocks do down a lot more and stay down for years. Maybe they get back up to recent highs soon and then go up another 25% this year.

Did you already have a strategy before this year -- about that you would do when the next recession/price drop happens? What was the plan? Are you changing it now?

If you sell and switch to something 'safer' now:
- I the prices do go down more, when would you convert that back to stocks?
- What would you do/how would you feel if the prices go up, rather than down, and just keep going up?

slowtraveler
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Re: Time to Move Investments to Safety? Implications?

Post by slowtraveler »

Basically, there are 2 ends of this.

1) Lockdown ends soon and this means stocks are cheap now, you'll make good bank on them.

2) Lockdown continues long term, companies collapse from 0 revenue, a cascade of bankruptcies follow that send us into a collapse worst than the great depression where only the mega companies like Google, Walmart, and Amazon survive.

Nobody knows the future. I'm all in on stocks but future cash flow gets saved for the small chance of the collapse.

2Birds1Stone
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Re: Time to Move Investments to Safety? Implications?

Post by 2Birds1Stone »

I would at most put a few years of spending in either bonds or money market, and leave the rest. So many people are locking in losses after getting a bit squeamish from the recent drop. Unless you have a crystal clear plan for getting back in, I would ride it out for now. Most gains happen in big unpredictable moves, very easy to miss if you're on the sidelines.
Last edited by 2Birds1Stone on Sat Mar 28, 2020 10:01 pm, edited 1 time in total.

Gilberto de Piento
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Re: Time to Move Investments to Safety? Implications?

Post by Gilberto de Piento »

Thanks for thinking this through with me. This is my second big drop, though when 2008 happened I was fresh into my career, I had little in the market, and had no ideas about retiring other than it was 40 years off. I made just enough to live on so there wasn't much money to think about.

Since I made the first post in this thread I have been rereading old pages on Bogleheads (I haven't been there in years) and refreshing my memory on why I decided to get into this style of investing in the first place. I also read through some threads where the true believers are talking other people out of changing course.

I'm feeling OK about things now and I plan to ride it out. I'm confident it will drop further but I'm OK with that. If I could pull off some sort of sell "high" buy low move I could do better in the long run but part of the point of going with Bogleheads style investing is that I don't think trading is for me. Thinking about it more I realize that I wasn't panicking but getting greedy (expecting bigger gains than I deserve for the amount of time I've put into learning how to trade, which is no time at all).

Thanks!

Seppia
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Re: Time to Move Investments to Safety? Implications?

Post by Seppia »

Can't remember who said it, but in order for buy and hold to work, you have to do both also when stocks go down.

Having an emergency fund in cash or equivalent is specifically to survive moments like this one we're living through. If you don't have an emergency fund, I would look into selling some stocks and build one.
This is a very risky moment in history to have big debts or zero liquidity.

sky
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Re: Time to Move Investments to Safety? Implications?

Post by sky »

Now is the time to buy the 2055 target plan with cash. This is not the time to sell the 2055 plan.

I am about 70% in a 2015 plan (heavy on bonds) and 30% in a 2035 plan (heavy on equities). I am considering shifting that balance soon, maybe in a few weeks. I expect blood to be running in the streets about easter.

Peanut
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Re: Time to Move Investments to Safety? Implications?

Post by Peanut »

I would sell 50% and re-buy when funds drop, whether you think that'll be another 20 or 40 percent down from where we are now. That's what I did with my stock portfolio because I'm over 50% persuaded there will be a big leg down still coming in 2020.

steelerfan
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Re: Time to Move Investments to Safety? Implications?

Post by steelerfan »

To be honest, I have not done anything different. I could have gone to cash. In fact I rolled 45K cash from an old 401K into my TD Roth/Traditional IRAs. I am down big and my accounts are stock heavy. Most of the stocks are defensive dividend payers but a few CEFs with bonds. Got/Getting hammered in the fossil fuel positions. Not worried. I have accumulated cash and actually am considering upping my current contribution in my Fisher Accounts. Not planning any draw downs any time soon. The fisher stuff is 20% MMA, 30% large cap 30% corporate bonds and 20% midcap. I have not had the courage to look at Lending Club. Obviously letting the cash (whatever is left) to accumulate.

As I am in my 50s, I have seen this play out before several times. We are fortunate to still have jobs (work from home). We also will have pensions which I am glad we did not take the cashouts in Nov. I have younger coworkers that are feeling some pain and are cashing out and shorting positions. I hope it works for them. I have never had the temperament to do that. Glad my kids can live at home right now. Glad my mom is financially secure and cash heavy. I realize we are fortunate. But still I would tell my kids it is no time to panic. If you are young and you keep your head you can make a fortune. A good company is still a good company except in many cases it is available for fire sale prices. As long as the business model still works.

I honestly believe the market will come back to at least 80% of the peak by 1Q21 which will make us whole or at least close. Best of luck to you all and think carefully before you make drastic moves.

The Old Man
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Re: Time to Move Investments to Safety? Implications?

Post by The Old Man »

Gilberto de Piento wrote:
Sat Mar 28, 2020 9:18 am
Due to the coronavirus I am down about 25%. This is not a problem, I don't think I will be able to retire for at least 5 years, probably longer. It doesn't really bother me.
We have entered a recession. Whether it turns into a depression will be dependent on governments' response to the pandemic. Even when things go back to normal, the travel industry will not return to normal. This significant depression in demand (both the travel industry and the larger economy) will have a negative feedback effect on the rest of the economy.

Stock prices were at bubble prices. All metrics indicated unrealistic valuations.

Once things settle down people will be able to conduct a sober assessment. This assessment will be negative and their will be renewed and extended stock market declines. Stock market prices will at a minimum decline to valuations that are not bubble prices. The long term CAPE (Shiller P/E ratio) is about 15.

Personally, if you need cash then you need to sell now. Otherwise, just ride it out. If you have excess cash, then the coming weeks-months-years will become the buying opportunity of a lifetime.

Gilberto de Piento
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Re: Time to Move Investments to Safety? Implications?

Post by Gilberto de Piento »

Seppia wrote:
Sat Mar 28, 2020 11:33 am
Having an emergency fund in cash or equivalent is specifically to survive moments like this one we're living through. If you don't have an emergency fund, I would look into selling some stocks and build one.
This is a very risky moment in history to have big debts or zero liquidity.
I think I am in a good position as far as cash as I am holding about $20,000. I was going to buy a better car with part of that money but I probably won't now unless there is a deal to be had.

The only debt is the house. The payments on that are very reasonable as is and I assume it could be refinanced to a 30 year if needed. I don't plan to get in debt for anything else.

jacob
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Re: Time to Move Investments to Safety? Implications?

Post by jacob »

Two very important points:
  • Your strategy should follow your level of investment education/skill, temperament, market insight, and wealth/risk-profile.
  • Your tactics should follow the market and the mechanics/methods set by your strategy.
In particular, strategy should never follow/react to the market, that is, you should not change strategy based on what the market does but whether your knowledge, time/energy, wealth, situation, investment education has changed. Has it?

Practically every good strategy has a method for dealing with the emotional aspect. If it doesn't, it's not a complete strategy. Unless you've recently learned something that causes you to reevaluate your strategy, you should just do what your strategy tells you to do. (A good piece of advice is to write this down in advance to prevent second-guessing like this.)

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jennypenny
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Re: Time to Move Investments to Safety? Implications?

Post by jennypenny »

@GdP -- This podcast with Mohamed El-Erian talks about what to do near the end. El-Erian talks about risk minimization and mistakes you're willing to make. I thought it was a pretty good take on the current situation, but that may be because I agree with him that you need to figure out where you're willing to be wrong.

bostonimproper
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Re: Time to Move Investments to Safety? Implications?

Post by bostonimproper »

Nobody can tell you what is going to happen with the markets, but this is a good opportunity for you to game out your investing strategy and get a better hold on your personal risk profile.

Consider "likely" (based on information you know) actions and outcomes 3 months out, 1 year out, 5 years out, e.g.
Scenario 1: sell now, market recovers to peak in 3 months and stabilizes
Scenario 2: keep holding, market recovers to peak in 3 months and stabilizes
Scenario 3: sell now, market recovers to 10% below peak in 3 months, drops again over year to 40% below peak, slow recovery to peak+ over 5 years.
And so on.

How do you feel at each check-in interval? How much do you regret your previous decision based on recent market action? What is your instinct going to be on future market moves? What risks are you susceptible to in this scenario?

ertyu
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Re: Time to Move Investments to Safety? Implications?

Post by ertyu »

@jp, thanks, listened to podcast. i appreciated his "least catastrophical mistake" approach.

bigato
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Re: Time to Move Investments to Safety? Implications?

Post by bigato »

bostonimproper: it’s not so much about whether the market is recovering or not, as it is about not loosing too much value. In that sense, you have to park your value somewhere, and will your allocation be loosing purchasing power? Will it be loosing value relative to the other assets? It’s impossible to be “outside” the market.
Last edited by bigato on Sun Mar 29, 2020 7:13 pm, edited 1 time in total.

bostonimproper
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Re: Time to Move Investments to Safety? Implications?

Post by bostonimproper »

@bigato That's fair. It's worthwhile to consider hyperinflation or deflationary scenarios relative to your home/reserve currency of choice, commodities, etc.

I think GdP is American and I'm not particularly worried about inflation here in the 1-2 year term, but it's something to think and worry about.

classical_Liberal
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Re: Time to Move Investments to Safety? Implications?

Post by classical_Liberal »

Also consider how your personal situation can be impacted by your investment decisions. Where are your personal weak points.

For example: Someone relying on stable employment wages with only a few years of expenses saved should probably not be too concerned about inflation at this point, wages tend to rise with inflation. Stable employment also provides DCA power into investment purchases. Weak point is that wages could be lost in the short to medium term. Do you have "insurance" for such an event? Contrast that with someone who just recently retired and is looking a nightmare sequence of return possibility. Etc...

Think of your investments and investment strategy as part of the whole, not something independent of life circumstances at this point in time. This means the best strategy for one person may not be the best strategy for another, despite both working within the same market, and even with the same level of skill or psychological leanings. It also means you will change strategies, not only as skill increases, but also as life circumstances/goals change.

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