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Switching to a 50% cash portfolio


Juxtatarot

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I suppose I would get questions about this if I didn’t address it, so I will start with some background information. I’m 37 years old, single, and have no kids. I have no debt other than my mortgage. I have a sufficient cash emergency fund. When I refer to my “portfolio,” I’m referring to long-term investments -- either retirement savings or money saved for no specific purpose. I’ve invested almost entirely in equities since 1994. I try to be a passive investor and mainly invest in index funds. I know that many of you prefer a more aggressive approach. That’s great if it works for you, but it’s not something I’m interested in. Please keep this in mind if you decide to give advice.

Since I started investing, I promised myself that I would remain a long-term investor. I wouldn’t stress over short-term fluctuations since the market has always bounced back in the past. This worked well for most of the ‘90s. I then painfully rode out the bursting of the tech bubble and 9/11 but, like most investors, have done reasonably well since then.

However, I’ve become increasingly bearish over the last few years. Specifically, I’m worried about such things as:

1. The housing bubble

2. Consumer debt levels (people can’t continue to spend at the rates they have been)

3. The weakening of the dollar

4. Dependence on foreign goods and the erosion of U.S. manufacturing

5. The National Debt

6. The aging population

I could elaborate further on some of these points or list further worries, but I won’t for now. To put it simply, I foresee rough economic times ahead. Yet the stock market is near its high. I think this is unlikely to continue. The downside potential is currently much greater than the upside potential.

Accordingly, I’m considering abandoning my investment strategy and moving to a 50% cash portfolio. I don’t want to completely pull out but I’m beginning to believe that reducing my exposure to a down turn is prudent for at least the next few years or until there are significant economic changes.

Obviously, this is a major change. Does anyone else feel this way? Have you recently changed your portfolio allocation like this or have you been thinking about it?

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I suppose I would get questions about this if I didn’t address it, so I will start with some background information. I’m 37 years old, single, and have no kids. I have no debt other than my mortgage. I have a sufficient cash emergency fund. When I refer to my “portfolio,” I’m referring to long-term investments -- either retirement savings or money saved for no specific purpose. I’ve invested almost entirely in equities since 1994. I try to be a passive investor and mainly invest in index funds. I know that many of you prefer a more aggressive approach. That’s great if it works for you, but it’s not something I’m interested in. Please keep this in mind if you decide to give advice. Since I started investing, I promised myself that I would remain a long-term investor. I wouldn’t stress over short-term fluctuations since the market has always bounced back in the past. This worked well for most of the ‘90s. I then painfully rode out the bursting of the tech bubble and 9/11 but, like most investors, have done reasonably well since then.However, I’ve become increasingly bearish over the last few years. Specifically, I’m worried about such things as:1. The housing bubble2. Consumer debt levels (people can’t continue to spend at the rates they have been)3. The weakening of the dollar4. Dependence on foreign goods and the erosion of U.S. manufacturing5. The National Debt6. The aging populationI could elaborate further on some of these points or list further worries, but I won’t for now. To put it simply, I foresee rough economic times ahead. Yet the stock market is near its high. I think this is unlikely to continue. The downside potential is currently much greater than the upside potential. Accordingly, I’m considering abandoning my investment strategy and moving to a 50% cash portfolio. I don’t want to completely pull out but I’m beginning to believe that reducing my exposure to a down turn is prudent for at least the next few years or until there are significant economic changes.Obviously, this is a major change. Does anyone else feel this way? Have you recently changed your portfolio allocation like this or have you been thinking about it?

I think your logic is sound and if I was a conservative investor I'd consider a similar move.I will say that I've found a contrarian perspective to be generally more accurate over time, but it sure does seem like the economy has its back up against the wall right now.
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I suppose I would get questions about this if I didn’t address it, so I will start with some background information. I’m 37 years old, single, and have no kids. I have no debt other than my mortgage. I have a sufficient cash emergency fund. When I refer to my “portfolio,” I’m referring to long-term investments -- either retirement savings or money saved for no specific purpose. I’ve invested almost entirely in equities since 1994. I try to be a passive investor and mainly invest in index funds. I know that many of you prefer a more aggressive approach. That’s great if it works for you, but it’s not something I’m interested in. Please keep this in mind if you decide to give advice. Since I started investing, I promised myself that I would remain a long-term investor. I wouldn’t stress over short-term fluctuations since the market has always bounced back in the past. This worked well for most of the ‘90s. I then painfully rode out the bursting of the tech bubble and 9/11 but, like most investors, have done reasonably well since then.However, I’ve become increasingly bearish over the last few years. Specifically, I’m worried about such things as:1. The housing bubble2. Consumer debt levels (people can’t continue to spend at the rates they have been)3. The weakening of the dollar4. Dependence on foreign goods and the erosion of U.S. manufacturing5. The National Debt6. The aging populationI could elaborate further on some of these points or list further worries, but I won’t for now. To put it simply, I foresee rough economic times ahead. Yet the stock market is near its high. I think this is unlikely to continue. The downside potential is currently much greater than the upside potential. Accordingly, I’m considering abandoning my investment strategy and moving to a 50% cash portfolio. I don’t want to completely pull out but I’m beginning to believe that reducing my exposure to a down turn is prudent for at least the next few years or until there are significant economic changes.Obviously, this is a major change. Does anyone else feel this way? Have you recently changed your portfolio allocation like this or have you been thinking about it?

I share similar theories about the overvalued state of US Equity markets. I'm not 50% cash though. Seems a bit drastic. I'd shift some of your US exposure to Europe, Asia and other emerging markets (i love the ETF funds for this. Singapore has done me well the past few years). Maybe 70% Equity (40% US/30% Foreign), 20% Bonds, 5% Cash, 5% Gold
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You have to be careful with moving 50% of your assets in "cash", i.e. the USD, if the dollar continues to weaken, which I think is where we are headed in the long term. Also I read that over 40% of commercial paper has exposure to CDO's so puting your cash in a money market fund isn't necessarily a good idea either.

Consider diversifing your cash to 1/3 US Treasury notes, 1/3 foreign currency (Merk Fund/Everbank) and 1/3 precious metals (gold & silver 60/40). Stocks should be focused in the areas of agriculture, consumer staples, natural resources, healthcare - basically asset classes that do well in an inflationary environment.

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You have to be careful with moving 50% of your assets in "cash", i.e. the USD, if the dollar continues to weaken, which I think is where we are headed in the long term. Also I read that over 40% of commercial paper has exposure to CDO's so puting your cash in a money market fund isn't necessarily a good idea either.Consider diversifing your cash to 1/3 US Treasury notes, 1/3 foreign currency (Merk Fund/Everbank) and 1/3 precious metals (gold & silver 60/40). Stocks should be focused in the areas of agriculture, consumer staples, natural resources, healthcare - basically asset classes that do well in an inflationary environment.

This is solid advice here. The Treasury notes, foreign currency, and precious metals are good ways to hedge against a possible economical meltdown here in the U.S.. I am not big on the other suggestion of foriegn markets and even more so not excited about it if we are talking about China or India which has had a lot of attention and likely should see a cooling in their growth. Further, if there is an American recession that will impact those foreign markets as well. My only concern of the foreign currency and precious metals is that you are now buying with limited buying power being that the dollar is weak and metals have had strong showings recently.
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Shark move: 50% iridium, 20% ruthenium, 20% assorted minor metals, 5% cash, 5% wadded paper artwork

5% wadded paper artwork seems a bit low. The OP has a rather conservative outlook. I think 15% in more in line. This would place the OP at giving 110%, which as we know, is really the only way to do anything.
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Shark move: 50% iridium, 20% ruthenium, 20% assorted minor metals, 5% cash, 5% wadded paper artwork

5% wadded paper artwork seems a bit low. The OP has a rather conservative outlook. I think 15% in more in line. This would place the OP at giving 110%, which as we know, is really the only way to do anything.
secretly, i like to make sure everything adds up to 120% in uncertain markets. that way i have a 20% cushion.
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Shark move: 50% iridium, 20% ruthenium, 20% assorted minor metals, 5% cash, 5% wadded paper artwork

5% wadded paper artwork seems a bit low. The OP has a rather conservative outlook. I think 15% in more in line. This would place the OP at giving 110%, which as we know, is really the only way to do anything.
secretly, i like to make sure everything adds up to 120% in uncertain markets. that way i have a 20% cushion.
:genius:
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I don't agree with your assessment of the economy, or that you should even worry about that at your age. But what do I know? If your gut is telling you now's the time to move away from stocks I'd listen to it. If you're wrong you could miss out on riding the market higher, but if you're right you'll be kicking yourself for not getting out when you "knew" you should.

I wouldn't put that money in cash, especially with the dollar heading lower. I'd go with bonds or bond funds. They won't increase a lot in value, but they will increase and at a predictable level.

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You have to be careful with moving 50% of your assets in "cash", i.e. the USD, if the dollar continues to weaken, which I think is where we are headed in the long term. Also I read that over 40% of commercial paper has exposure to CDO's so puting your cash in a money market fund isn't necessarily a good idea either.Consider diversifing your cash to 1/3 US Treasury notes, 1/3 foreign currency (Merk Fund/Everbank) and 1/3 precious metals (gold & silver 60/40). Stocks should be focused in the areas of agriculture, consumer staples, natural resources, healthcare - basically asset classes that do well in an inflationary environment.

I'll look into this further. Thanks for the advice.I want to hold most of my cash in my 401K and IRAs for obvious tax reasons. This limits my options but I'll try to figure something out. Thanks to everyone who has responded so far.
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Shark move: 50% iridium, 20% ruthenium, 20% assorted minor metals, 5% cash, 5% wadded paper artwork

5% wadded paper artwork seems a bit low. The OP has a rather conservative outlook. I think 15% in more in line. This would place the OP at giving 110%, which as we know, is really the only way to do anything.
On the other handf, if your wadded paper artwork is Performance Origami, it is probably too high.
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Horrible idea.

While I share some of your concerns, what good is it going to do to hold cash? If you're biggest worries come to fruition there will be a huge collapse of the US economic system and your cash will basically be worthless anyway. A little fear is good. Too much fear is irrational. Could it happen someday, sure it can, but if/when it does, there is not much you can do to protect yourself except maybe hoarding guns and ammo.

You feel the US economy is heading to recession? There are plenty of ways to insulate your portfolio from this becoming catastrophic. First and foremost, there are other economies in this world, which are easily accessible to you. Try foreign investments. You can also try your hand in commodities, which as the population grows, will become scarcer and scarcer. Aging population? try health care, those elderly are going to need drugs, doctors and hospitals to keep them going. If after all of this you still feel the need to hold some cash, why not try bonds? they offer at least a little better return, if just slightly more risk.

You're 37. You may have 50-60 more years here on this planet. You are going to need money for those years, so you need to maximize your returns while you're young. Cash is not ideal for growing, unless you happen to have a money tree in the backyard.

This is unsolicited advice from a non-trained, non-professional investor, so it's probably not even worth the minute it took to read.

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Horrible idea.While I share some of your concerns, what good is it going to do to hold cash? If you're biggest worries come to fruition there will be a huge collapse of the US economic system and your cash will basically be worthless anyway. A little fear is good. Too much fear is irrational. Could it happen someday, sure it can, but if/when it does, there is not much you can do to protect yourself except maybe hoarding guns and ammo.You feel the US economy is heading to recession? There are plenty of ways to insulate your portfolio from this becoming catastrophic. First and foremost, there are other economies in this world, which are easily accessible to you. Try foreign investments. You can also try your hand in commodities, which as the population grows, will become scarcer and scarcer. Aging population? try health care, those elderly are going to need drugs, doctors and hospitals to keep them going. If after all of this you still feel the need to hold some cash, why not try bonds? they offer at least a little better return, if just slightly more risk.You're 37. You may have 50-60 more years here on this planet. You are going to need money for those years, so you need to maximize your returns while you're young. Cash is not ideal for growing, unless you happen to have a money tree in the backyard.This is unsolicited advice from a non-trained, non-professional investor, so it's probably not even worth the minute it took to read.

I agree with this.Another idea would be to hedge your portfolio...in the same way that the Masters do (think Buffett)...and that is with options. For instance you could purchase LEAP (Long term options...1 year+ out) Puts on the S&P500 as an insurance policy. This way if the market moves higher your portfolio captures those gains. If it crashes, you will be protected. Many people think options are risky...however, when used properly, they are actually risk hedging instruments. So just like you have an insurance policy on your house in case it burns down (which statistically occurs less than 1x per lifetime), Puts insure your stock portfolio against a market crash or prolonged bear market (which will occur a few times in a lifetime (lets say once per decade).Another way to insure your portfolio would be the use of a cashless collar. You would write out-of-the-money covered calls on the stock you own, and use the proceeds to purchase protective puts. This is the strategy Mark Cuban used when he sold Broadcast.com to Yahoo...so that when the bubble burst and Yahoo crashed he still kept his profits from the sale.The last thing to remember is that although bear markets exist, everything is designed to help the markets move UP. From the Fed, to congress, to global trade, banking laws, to 401k plans to white criminal activity to CNBC propoganda. EVERYTHING. Markets love to climb walls of worry, and it is very probable that the market correction that just occurred will surge this market MUCH MUCH higher in the coming months. Look back at the market in March 2003...lots of things to worry about there too...look how the market performed on that wall of worry..
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I honestly share a lot of the concerns expressed. I'm 33 and run my own business that is fairly capital intensive. I need to keep cash for inventory on an annual basis as my business is seasonal and it is bought mostly all at once. However I have cash above and beyond that as well. I honestly think I have too heavy of a cash weighting. Some of it is required by the business, some is just my own conservative nature. I was burned on several aggressive investments when I first got out of college and in some ways may have learned that lesson too well.

What I'm trying to do now is practice moderation. If you are concerned about the devaluing dollar, etc. I would also recommend solid bond funds. They are a conservative approach while not being the laggard that a cash holding or CD can be. Also, any new investment funds you have I would make sure to at least allocate some to the stock market.

You can't know with certainty the way the market will act going forward. If your instinct is to be more conservative then you definitely should be. Just don't totally write off investing in stocks. I have a certain amount each month that goes into different mutual funds on varying days each month. That takes all the emotion out of it and keeps averaging my price in the various funds. While there are ups and downs, I have made much better returns with these investments than any cash type holdings.

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Horrible idea. These two guys have the following opinions:

"If you spend more than 13 minutes analyzing economic and market forecasts, you've wasted 10 minutes."---Peter Lynch

"It is absurd to think that the general public can ever make money out of market forecasts."---Benjamin Graham

But I'm sure random FBGs know more than they do, so ruthenium it is. For the record I think the markets are relatively fairly valued at the moment. We are right on the typical 10% CAGR track we have been on for the last 40 years.

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I honestly share a lot of the concerns expressed. I'm 33 and run my own business that is fairly capital intensive. I need to keep cash for inventory on an annual basis as my business is seasonal and it is bought mostly all at once. However I have cash above and beyond that as well. I honestly think I have too heavy of a cash weighting. Some of it is required by the business, some is just my own conservative nature. I was burned on several aggressive investments when I first got out of college and in some ways may have learned that lesson too well.

No need to ever go here. Latest studies have shown that more conservative = higher return. This paper shows that fairly clearly. Page 12 is striking.

Stick to investing in companies with good dividend yields and growing dividends at fair prices and history shows you'll do well. Dividend reinvestment provides the cushion you need for recessions. I am in cash only when I sell out of investments that look overvalued and am having a hard time finding undervalued ones. Another study (Siegel?) found that, by far, the biggest correlation to return in the markets was simply exposure to the markets. Timing, choice of stocks, etc. had much less effect on the whole.

More good papers from that outfit here.

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I don't have a lot of time to spend on this, but your move is a market timing one, and doesn't make a lot of sense. The best investors with the most sophisticated tools can't time the market, so why should you be able to?

Put some money outside the US and allocate some to fixed income if you want to lower the volatility of your portfolio but don't try to time the market.

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I honestly share a lot of the concerns expressed. I'm 33 and run my own business that is fairly capital intensive. I need to keep cash for inventory on an annual basis as my business is seasonal and it is bought mostly all at once. However I have cash above and beyond that as well. I honestly think I have too heavy of a cash weighting. Some of it is required by the business, some is just my own conservative nature. I was burned on several aggressive investments when I first got out of college and in some ways may have learned that lesson too well.

No need to ever go here. Latest studies have shown that more conservative = higher return. This paper shows that fairly clearly. Page 12 is striking.

Stick to investing in companies with good dividend yields and growing dividends at fair prices and history shows you'll do well. Dividend reinvestment provides the cushion you need for recessions. I am in cash only when I sell out of investments that look overvalued and am having a hard time finding undervalued ones. Another study (Siegel?) found that, by far, the biggest correlation to return in the markets was simply exposure to the markets. Timing, choice of stocks, etc. had much less effect on the whole.

More good papers from that outfit here.

I don't disagree. I was just ultra aggressive and stupid then. You learn and move on.
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I don't have a lot of time to spend on this, but your move is a market timing one, and doesn't make a lot of sense. The best investors with the most sophisticated tools can't time the market, so why should you be able to?

I agree with this for the short-run but not the long-run. A good example was the tech bubble. In hindsight, it was obvious that it would burst. There was no reason to believe in all that "New Economy" bull####. I think we might be in for a similar fall soon. I certainly know that I can't time the market for a day or a month but longer trends can be more certain.
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IS THERE ANYWAY TO POST A PICTURE HERE?

If so, I will post a picture of a long term chart of the S&P 500. It goes back to the mid-90's. This is a trend based trading system I developed. Though it won't pick absolute tops and bottoms it is an excellent tool for being on the correct side of the market.

Again, if someone can tell me how to post a picture I'll happily do it.

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I don't have a lot of time to spend on this, but your move is a market timing one, and doesn't make a lot of sense. The best investors with the most sophisticated tools can't time the market, so why should you be able to?

I agree with this for the short-run but not the long-run. A good example was the tech bubble. In hindsight, it was obvious that it would burst. There was no reason to believe in all that "New Economy" bull####. I think we might be in for a similar fall soon. I certainly know that I can't time the market for a day or a month but longer trends can be more certain.
Agree with the first part, disagree with your second, IMO. When looking at market and stock prices it is important to look at them in a way that gives you a sense of the compound annual growth rate and the deviation around that rate.

Have a look at this chart: http://www.filespace.org/Sand101/dji.jpg

This is a plot of the Dow Jones for the last 30 years. From row 16 you can see it has been growing at a ~10% CAGR. On this plot are the average CAGR along with 1 and 2 standard deviation lines. We have had 2 major crashes in the last 30 years. 1987 and the tech bubble. Guess which times we have popped the +2 standard deviation line? Both times and only those times. So yes, I agree the tech bubble was fairly easily identifiable. 1987, too.

On the other hand, your statement that we are close to bursting again is belied by much data, including this chart and a whole lot of companies still producing strong earnings. Obviously we could still suffer a recession (heck, we may be in one now), but we are nowhere close to a bubble at the moment. There are, obviously, areas now which may be bubble areas. Earlier this was in real estate - this chart shows the REIT index. Darn near close to the +2 standard deviation line before the fall. Now near nominal. One good thing to note here, though, is the average return - 13.75%, a full 3% higher than the market as a whole (REITs should be part of a healthy portfolio).

Biggest key to looking at the markets is looking at them (or at least understanding them) in log space. It makes things so much easier to analyze.

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IS THERE ANYWAY TO POST A PICTURE HERE?If so, I will post a picture of a long term chart of the S&P 500. It goes back to the mid-90's. This is a trend based trading system I developed. Though it won't pick absolute tops and bottoms it is an excellent tool for being on the correct side of the market.Again, if someone can tell me how to post a picture I'll happily do it.

Upload it to imageshack, flickr, etc. and post the link here.
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IS THERE ANYWAY TO POST A PICTURE HERE?If so, I will post a picture of a long term chart of the S&P 500. It goes back to the mid-90's. This is a trend based trading system I developed. Though it won't pick absolute tops and bottoms it is an excellent tool for being on the correct side of the market.Again, if someone can tell me how to post a picture I'll happily do it.

Can't post pictures. Posting links is fine, as long as there aren't any visible naked chicks holding up your chart.I would love to see your trend system.
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ok see if this link works.

This is a LT monthly chart of the S&P 500 under the ticker SPY.

A green bar indicates the Trend is Up.

A red bar indicates the Trend is Down.

We've been bullish since March 2003.

Currently the trend would change to bearish if we were to close BELOW 139.00 on a monthly chart...thats $SPX @ 1390.

The trend is similar on the DOW, Russell 2k, Nasdaq.

Basically the trend is saying now is not the time to go to cash.

http://www.snapdrive.net/qs/da47b3d27308

Hope that works.

Good luck.

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Biggest key to looking at the markets is looking at them (or at least understanding them) in log space. It makes things so much easier to analyze.

I can see why charting with logs is the way to go since both inflation and growth act exponentially. Why is it that you didn't post the chart with a semilog - y axis? Wouldn't that make more sense? It would be easier to read the '87 +2 stddev bump.
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I could elaborate further on some of these points or list further worries, but I won’t for now. To put it simply, I foresee rough economic times ahead. Yet the stock market is near its high.

NASDAQ is just barely 50% of its all time high.
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I honestly share a lot of the concerns expressed. I'm 33 and run my own business that is fairly capital intensive. I need to keep cash for inventory on an annual basis as my business is seasonal and it is bought mostly all at once. However I have cash above and beyond that as well. I honestly think I have too heavy of a cash weighting. Some of it is required by the business, some is just my own conservative nature. I was burned on several aggressive investments when I first got out of college and in some ways may have learned that lesson too well.

What I'm trying to do now is practice moderation. If you are concerned about the devaluing dollar, etc. I would also recommend solid bond funds. They are a conservative approach while not being the laggard that a cash holding or CD can be. Also, any new investment funds you have I would make sure to at least allocate some to the stock market.

You can't know with certainty the way the market will act going forward. If your instinct is to be more conservative then you definitely should be. Just don't totally write off investing in stocks. I have a certain amount each month that goes into different mutual funds on varying days each month. That takes all the emotion out of it and keeps averaging my price in the various funds. While there are ups and downs, I have made much better returns with these investments than any cash type holdings.

This makes no sense to me and a number of people have posted this concept. One of the biggest impacts of a weakening dollar is higher inflation those eroding bond returns. Bond prices drop in a high inflation environment thus making your holdings less valuable. I would much rather be in stocks than bonds in weak dollar scenerio - especially commodity companies, diversified multinationals that can bring earnings in foreign currencies and turn them into dollars, and exporters. If you are really worried about the dollar then you would buy gold.
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I agree with Sand's comments ..and generally with the 'horrible idea' thoughts. Diversify your portfolio, but don't play chicken. Get into international stock funds and/or emerging markets, but don't pull out of equities.

The financial world, she is a changing when someone states "please keep in mind that I am a very conservative investor" and another responds with "Get into international stock funds and/or emerging markets"
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Biggest key to looking at the markets is looking at them (or at least understanding them) in log space. It makes things so much easier to analyze.

I can see why charting with logs is the way to go since both inflation and growth act exponentially. Why is it that you didn't post the chart with a semilog - y axis? Wouldn't that make more sense? It would be easier to read the '87 +2 stddev bump.
I can plot it either way - semilog or linear. Note the curves on the chart are exponential curves in that linear chart. It was just what I had out there right now.I personally find the linear charts easier to read and analyze - the important thing is understanding that the markets are most relevant in semilog space.
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I agree with Sand's comments ..and generally with the 'horrible idea' thoughts. Diversify your portfolio, but don't play chicken. Get into international stock funds and/or emerging markets, but don't pull out of equities.

The financial world, she is a changing when someone states "please keep in mind that I am a very conservative investor" and another responds with "Get into international stock funds and/or emerging markets"
Having an all US equity portfolio is riskier than having an all equity portfolio with an international component.
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I agree with Sand's comments ..and generally with the 'horrible idea' thoughts. Diversify your portfolio, but don't play chicken. Get into international stock funds and/or emerging markets, but don't pull out of equities.

The financial world, she is a changing when someone states "please keep in mind that I am a very conservative investor" and another responds with "Get into international stock funds and/or emerging markets"
Having an all US equity portfolio is riskier than having an all equity portfolio with an international component.
what part of "The financial world, she is a changing" did you not get??
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I agree with Sand's comments ..and generally with the 'horrible idea' thoughts. Diversify your portfolio, but don't play chicken. Get into international stock funds and/or emerging markets, but don't pull out of equities.

The financial world, she is a changing when someone states "please keep in mind that I am a very conservative investor" and another responds with "Get into international stock funds and/or emerging markets"
Having an all US equity portfolio is riskier than having an all equity portfolio with an international component.
what part of "The financial world, she is a changing" did you not get??
This is not a new development.
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I agree with Sand's comments ..and generally with the 'horrible idea' thoughts. Diversify your portfolio, but don't play chicken. Get into international stock funds and/or emerging markets, but don't pull out of equities.

The financial world, she is a changing when someone states "please keep in mind that I am a very conservative investor" and another responds with "Get into international stock funds and/or emerging markets"
Depends on your time scale. If it is 20+ years you are throwing away money by not being relatively aggressive. "Relatively aggressive" here is perceptual. Since there has been no 20 year period in which stocks have not beaten out bonds (most of the time by a healthy margin), if you are investing for 20+ year time horizon not being fully in equities is much riskier than being 100% into equities. I believe the margin of safety in international and emerging markets comes by choosing dividend producers - these are, in general, more robust holdings. Exposure here can be done in baskets - ETFs:

DEM - Emerging Market Dividend

DOO, DOL - Larger cap International Dividend.

In fact, I refuse to hold any stock that doesn't have at least a minimum dividend and isn't growing it - 1% or so is my minimum. I don't like placing my money at risk in which I am hoping for all my return to come through internal company gains. Only exceptions here are companies specifically designed as "wealth producers" - BRK, MKL, etc.

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Considering the difficulties in trying to time any market, is there any historical evidence that having 50% of your portfolio in cash during anything that could reasonably determined as a long-term time horizon has ever been a shrewd decision?

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Considering the difficulties in trying to time any market, is there any historical evidence that having 50% of your portfolio in cash during anything that could reasonably determined as a long-term time horizon has ever been a shrewd decision?

Sorry for not having any link on this, but I recall reading a study on how investing in equities at some of the worst market peaks still - over the long-range - ends up being favorable versus a more conservative investment (fixed instruments). Again ...long-range. Given a long-range plan, I'd use market downturns as an opportunity to dollar-cost average ...buy in at those lower prices.ETA: One simple rule of thumb is to have 100 minus your age invested in equities.
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Considering the difficulties in trying to time any market, is there any historical evidence that having 50% of your portfolio in cash during anything that could reasonably determined as a long-term time horizon has ever been a shrewd decision?

Sorry for not having any link on this, but I recall reading a study on how investing in equities at some of the worst market peaks still - over the long-range - ends up being favorable versus a more conservative investment (fixed instruments). Again ...long-range.

Given a long-range plan, I'd use market downturns as an opportunity to dollar-cost average ...buy in at those lower prices.

ETA: One simple rule of thumb is to have 100 minus your age invested in equities.

We had a discussion on here not too long ago about market dips. Turns out it took only 8 years to break even after the great crash of '29.

On this subject, this is a great story about the behavior of the market during recessions. Turns out since 1945 the average recession has seen a stock market rise of 3%.

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  • 5 months later...

Update: After listening to some of you guys, I decided to stay put. Of course, I blame myself for going against my better judgement but (tongue in check) I say to those that convinced me wrongly: #### you.

Why on earth would you take advice from a bunch of guys living in mansions with hot wives, perfect bodies, and six-figure salaries?
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