So, i have been a very bad investor, i always held huge cash allocation ~75%, and now that i am hitting mid thirites, i think it is a terrible strategy to save for retirement, but at this point i think market is overvalued. What to do? Like like every single class is trading above sustenance levels. Your suggestions? Should i just not worry about current levels if this money are for retirement?
I think market timing is very difficult to do on a consistent basis. If you are saving for retirement, it’s hard to make a case against a diversified portfolio that is focused on equities. Sure, you could be buying in right before a correction; maybe invest in installments so you can smooth out the experience.
I think you are correct about valuations across many of the major asset classes. Our future returns are probably going to be lower than we are used to. For me, the solution is to save more so I can stay on track.
If you agree that market timing isn’t doable and that stocks will go up over time, I think you know what your next steps are for your portfolio. Good luck out there!
well you are not alone, there’s been somewhat on a rotation into "safer " names, just look at some of your traditional consumer names with decent dividends trading way way above stupid valuation levels.
the good is that your horizon is 30-50 years that’s a long enough time to set it and forget it. I have half autopilot really broad mkt weights and half actively managed in super concentrated investments.
you can actually think about real estate, rates still relatively low, and still good prices in certain markets
This is the problem I’m facing now. I’ve got 90% in cash and I don’t know what to do with it. People say that it’s been the longest bull market we’ve had. My time horizon is long since I’m 24 but I still don’t want to invest when the market is high. My networth is pretty low so I’ve been only looking at certain funds and ETFs, not individual stocks.
Given your super long time horizons, you shouldn’t be too worried about what the market will do tomorrow, next year or even in 5 years. By the time you need money for retirement, there is a 99.999% chance that the market will be higher in 30+ years.
I, too, feel like the market is due for a pullback – but that probably won’t start to happen until the Fed bumps up interest rates. Even then, I think a lot of people will stay with equities since fixed income is a losing proposition for now (generally speaking) and TINA (there is no alternative).
Instead of buying back into the market all at once, I suggest dollar cost averaging in 3 tranches. You should also consider tactical asset allocation (think US vs Non-US securities, and LC vs SMID vs Intl Developed vs Intl Emerging) – the smart investor will plan ahead and theorize where people will put their money in the future.
I’ve heard this line of reasoning before and I disagree with it. Regardless of how long you plan to invest, “buy low, sell high” still beats “buy high, sell higher”.
By Tozerrt’s reasoning, if you have a long time horizon, you should invest immediately, regardless of how high stock valuations are. So if he has $100 to invest, he will invest it all. The market tanks by 50%, then immediately rebounds to 150%. So his $100 is now worth $150. Good on him.
On the other hand, Greenman waits until stocks pull back, invests $100, then watches as the market soars. He now has $300. And unless my math fails me, $300 > $150.
(Again, this is predicated on the idea that you can time the top and the bottom. I’ve been wrong before. I was wrong in 2007. When the Dow went from 14 to 11.5, I said “Now’s the time to invest,” and I was wrong. I’ve also been wrong since 2012, because I said “Now’s the time to pull back”, and stocks have done nothing but climb since.)
I agree with Tozerrt–I think stocks are overpriced. P/E’s are high and market values are high. Had prices gone up and P/E stayed the same, then that just means that companies are that much more profitable, But since that’s not the case, I think we’re entering bubble territory. This is a good reason not to invest in stocks.
^ Yes I agree with your buy high, sell higher comment. I want to wait for a dip but who knows when that’s going to happen? People have been saying that for the past couple of years now.
The question is, if stocks are overpriced and bonds are not worth it, what else is left? Housing prices are in a bubble as well and earning GIC returns aren’t attractive.
^Pay off your personal debt or hold cash.
You might invest in the Euro area, since it’s probably depressed by the Ukraine/Greece problems, and the Euro is weak against the dollar right now. You might also invest in oil stocks or gold, since they’ve come down a long way off their highs.
^ I don’t have any debt right now.
Most of my money is in a TFSA (Roth), which doesn’t allow for investment in Euros. But I do have the rest sitting in cash so I’ll look into Euro and oil.
There are ETF’s that track the Euro. Look at FXE, ERO, and ULE. (When the Euro goes up, they go up.)
And their opposites, EUO and DRR, go up when the dollar appreciates (vs. the Euro).
Do I really need to say it? *cough*
Neither Euro or Oil is depressed, because everyone thinks it must be undervalued and money has poured in. Euro has ouperformed USA this year (last I checked).
Are you saying the euro has outperformed the dollar? Or that European stocks have outperformed American stocks?
and if you believe (like I do) that euro stock prices have a high correlation with US stocks, then to get European-style diversification, you need only invest in the currency itself. (One of our analysts with all the tools can tell us what the correlation between euro stocks and US stocks are–once the effects of currency appreciation are stripped away.).
Euro stocks. Investing in Euro in general for retirement is questionable, since you’ll be retiring in dollars and the stressors impacting the Euro also threaten the existence of the currency in the long run
Oil is actually pretty good for a longer term bet. Entry housing is good too given all the millenials that got royally screwed with high tuition and being forced to rent/live with parents. That’ll kick in also in the longer run
if you are putting money in a 401kaccount then it dont matter. max it to stocks? why?
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you woulda paid it in taxes anyways. about 30%. so you already came up since a definition of a bear market is typically 20%+ downside.
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you share risk with govt. if you do well. the govt do well. vice versa
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hsitorically speaking a 15 year time frame should be enough to be higher. like 2 stds good.
you my friend are suffering from regret aversion and are helping cause myopic loss aversion. lotta millenials suffer from it due to the last 2 bear markets in the last 2 decades.
imo. forget dca. juss max out your 30 mang. this aint no bubble. in terms of vlauation 2000 was a bubble. 2015 and 2008 sorta similar but no way near bubble territory at 17x. i woulda gotten pwned in the 2008 market, good think i was still in hs. haha
If you’re talking about trailing P/E, then the multiple is 21.6 as of May 22, 2015.
Look at Greenman. Somebody has been reading up on equity investing.
Anyway, yes, in my opinion, if you really intend to hold the stocks for 20-30 years, just throw it in now and don’t bother about averaging it over 1-2 years. The level any time this year is going to look the same relative to a couple of decades of price movements. The market will surely crash at some point in your investment time, but you will probably get the money back.
Can you elaborate? Do you mean investing in RE? Housing prices (in Canada) are ridiculous.
Think he meant US. Yeah RE prices in Canada seem to have little sense in fundamentals or reality. I love the thing online, crack shack or Vancouver $1 million house. I saw another thing on twitter once saying “we’re teaching an entire generation of Canadians that the best investment they can make is granite countertops”
I think he means that there is a growing number of unhoused millenials who will probably buy entry level houses at some point. If this is the case, we probably want to ask “where will be the best housing that costs $XXX in 5 to 10 years”? XXX is wherever normal people can afford to buy. It probably is pushed a bit out from the most expensive housing areas now; at some point, NY or San Francisco housing becomes so expensive that the price is relevant only to some class of investor, and not millenials buying their first home.