Its time to tilt back to a more conservative allocation
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Its time to tilt back to a more conservative allocation
I have been over tilting my equity allocations since the Covid Crash of 20, but now I'm easing back and over tilting to bonds/TIPs.
What has me spooked is margin debt to GDP. Check out the charts at this link:
https://www.advisorperspectives.com/dsh ... cord-trend
IMHO - Any significant correction is going to quickly snowball into an avalanche of margin call forced liquidation.
Am I wrong?
What has me spooked is margin debt to GDP. Check out the charts at this link:
https://www.advisorperspectives.com/dsh ... cord-trend
IMHO - Any significant correction is going to quickly snowball into an avalanche of margin call forced liquidation.
Am I wrong?
Institutions matter
- arcticpineapplecorp.
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Re: Its time to tilt back to a more conservative allocation
what does your IPS tell you to do?
https://www.bogleheads.org/wiki/Investm ... _statement
if you don't have an IPS, you will be changing your allocation everytime you read some article.
when you have an IPS you have a predetermined allocation that allows you to take only the risk you have the need, ability and willingness to take. You are not changing your long term strategy based on short term events. You can change an allocation based on changes in your life, but not because of economic factors which have likely already been priced into the market already. Do you believe the market doesn't already know and factored that info (from the article) into prices already?
make sense?
https://www.cbsnews.com/news/asset-allo ... -you-take/
https://www.cbsnews.com/news/asset-allo ... tolerance/
https://www.cbsnews.com/news/asset-allo ... -you-need/
https://www.cbsnews.com/news/asset-allo ... ing-goals/
https://www.bogleheads.org/wiki/Investm ... _statement
if you don't have an IPS, you will be changing your allocation everytime you read some article.
when you have an IPS you have a predetermined allocation that allows you to take only the risk you have the need, ability and willingness to take. You are not changing your long term strategy based on short term events. You can change an allocation based on changes in your life, but not because of economic factors which have likely already been priced into the market already. Do you believe the market doesn't already know and factored that info (from the article) into prices already?
make sense?
https://www.cbsnews.com/news/asset-allo ... -you-take/
https://www.cbsnews.com/news/asset-allo ... tolerance/
https://www.cbsnews.com/news/asset-allo ... -you-need/
https://www.cbsnews.com/news/asset-allo ... ing-goals/
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
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Re: Its time to tilt back to a more conservative allocation
Not wrong, but what does your crystal ball say as to when they will take the punch bowl away?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: Its time to tilt back to a more conservative allocation
This is a common trope (if that fits) in financial media that margin debt is at all time highs and so we should be worried. The problem with this is margin debt largely tracks the market. It goes up and down as the market goes up and down.
Recommend reading this blogpost that outlines this and other myths in financial media.
That all being said, it is important to figure out an asset allocation that one can sit with in good times and bad. It sounds like you may have found that and it includes more bonds, which is ok. Though maybe stick with that instead of tweaking the portfolio.
Recommend reading this blogpost that outlines this and other myths in financial media.
That all being said, it is important to figure out an asset allocation that one can sit with in good times and bad. It sounds like you may have found that and it includes more bonds, which is ok. Though maybe stick with that instead of tweaking the portfolio.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
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Re: Its time to tilt back to a more conservative allocation
My IPS tells me to reduce my equity allocation as PE ratios go up above 35. I had resisted doing that until I saw the charts and some anecdotal stories about the ways people are using margin loans. Now I'm falling more in line with my IPS.
Institutions matter
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Re: Its time to tilt back to a more conservative allocation
My IPS tells me to reduce my equity allocation as PE ratios go up above 35. I had resisted doing that until I saw the charts and some anecdotal stories about the ways people are using margin loans. Now I'm falling more in line with my IPS.
Institutions matter
- dogagility
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Re: Its time to tilt back to a more conservative allocation
Need more specifics from your take... when will the correction happen? What percentage will the total stock market index decrease? How long will it take to recover?Tigermoose wrote: ↑Mon Jun 14, 2021 3:06 pm IMHO - Any significant correction is going to quickly snowball into an avalanche of margin call forced liquidation.
Am I wrong?
You are virtually certain to be wrong on predicting these details.
Whatever you might be feeling about the market is not actionable.
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
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Re: Its time to tilt back to a more conservative allocation
The expectation of the punch bowl being taken away is just one trigger that could start sell off.Grt2bOutdoors wrote: ↑Mon Jun 14, 2021 3:32 pm Not wrong, but what does your crystal ball say as to when they will take the punch bowl away?
Another trigger could be reduced corporate earnings due to input costs from supply chain and wage disruptions.
There are unknown triggers that in a normal period would result in a minor correction. The margin loans are going to accelerate that into a major correction imho.
I tend to think we are in a game of chicken where everyone senses that this cannot go on without some sort of major correction. But everybody has their foot poised over the break and their hands hovering over the wheel ready to turn at the first sign of a correction.
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Re: Its time to tilt back to a more conservative allocation
How much do you reduce it?Tigermoose wrote: ↑Mon Jun 14, 2021 4:55 pmMy IPS tells me to reduce my equity allocation as PE ratios go up above 35. I had resisted doing that until I saw the charts and some anecdotal stories about the ways people are using margin loans. Now I'm falling more in line with my IPS.
Also, when E goes to zero — which happens in some circumstances when you’d really like to be buying, near the bottom of bear markets — P/E spikes. Your signal may need some tweaking for those circumstances. (I don’t try to time or trend follow or anything, so maybe this is an ignorant remark — I haven’t thought it through carefully.)
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Re: Its time to tilt back to a more conservative allocation
I figure in the next 2 years the S&P 500 might go up some, but the correction is going to wipe out those gains and more. I'll start shifting my tilt back to equities once we've dropped at least 25%. Some of it depends on the level of panic and if it seems likely the Fed will intervene. As long as the financial system is not falling apart I don't see the Fed intervening this time.dogagility wrote: ↑Mon Jun 14, 2021 5:00 pmNeed more specifics from your take... when will the correction happen? What percentage will the total stock market index decrease? How long will it take to recover?Tigermoose wrote: ↑Mon Jun 14, 2021 3:06 pm IMHO - Any significant correction is going to quickly snowball into an avalanche of margin call forced liquidation.
Am I wrong?
You are virtually certain to be wrong on predicting these details.
Whatever you might be feeling about the market is not actionable.
Institutions matter
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Re: Its time to tilt back to a more conservative allocation
Yea the PE ratios are just kind of an additional signal. A lot of it has to do with debt levels and investor sentiment. During COVID, when everyone was convinced we were doomed and we would never be the same, that's when I timed the bottom perfectly and over-tilted by equity allocation. 25% skill, 75% lucktheorist wrote: ↑Mon Jun 14, 2021 5:03 pmHow much do you reduce it?Tigermoose wrote: ↑Mon Jun 14, 2021 4:55 pmMy IPS tells me to reduce my equity allocation as PE ratios go up above 35. I had resisted doing that until I saw the charts and some anecdotal stories about the ways people are using margin loans. Now I'm falling more in line with my IPS.
Also, when E goes to zero — which happens in some circumstances when you’d really like to be buying, near the bottom of bear markets — P/E spikes. Your signal may need some tweaking for those circumstances. (I don’t try to time or trend follow or anything, so maybe this is an ignorant remark — I haven’t thought it through carefully.)
Institutions matter
Re: Its time to tilt back to a more conservative allocation
Attach a date range and a specific target and we can check in hind sight. Impossible to say in advance without a crystal ball.
Personally, I've been expecting a crash for several years now (we did get one last year... but that recovered way faster than I was expecting). Glad I have stuck to my Asset Allocation through it all. I get tempted to market time like you are thinking of doing, and then I dont... because I remember how bad my track record has been.
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Re: Its time to tilt back to a more conservative allocation
My IPS says to reduce equity allocation by 5% for every 5 point PE move above 35. I don't follow it perfectly but I have significantly reduced my equity exposure. I went from 80/20 to 68/32. I figure I can re-tilt back to something like 75/25 when we hit the major correction (25% drop) of the S&P 500.theorist wrote: ↑Mon Jun 14, 2021 5:03 pmHow much do you reduce it?Tigermoose wrote: ↑Mon Jun 14, 2021 4:55 pmMy IPS tells me to reduce my equity allocation as PE ratios go up above 35. I had resisted doing that until I saw the charts and some anecdotal stories about the ways people are using margin loans. Now I'm falling more in line with my IPS.
Also, when E goes to zero — which happens in some circumstances when you’d really like to be buying, near the bottom of bear markets — P/E spikes. Your signal may need some tweaking for those circumstances. (I don’t try to time or trend follow or anything, so maybe this is an ignorant remark — I haven’t thought it through carefully.)
Institutions matter
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Re: Its time to tilt back to a more conservative allocation
Within 2 years. I am a long term investor. I figure the correction will wipe off all the gains from now until the crash and more.bligh wrote: ↑Mon Jun 14, 2021 5:11 pmAttach a date range and a specific target and we can check in hind sight. Impossible to say in advance without a crystal ball.
Personally, I've been expecting a crash for several years now (we did get one last year... but that recovered way faster than I was expecting). Glad I have stuck to my Asset Allocation through it all. I get tempted to market time like you are thinking of doing, and then I dont... because I remember how bad my track record has been.
Institutions matter
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Re: Its time to tilt back to a more conservative allocation
Have heard that same story since 2014 or so. Like a dead clock, financial news is wrong much more than it is right but that has never stopped them from confidently sounding the alarm every 15 minutes.Tigermoose wrote: ↑Mon Jun 14, 2021 5:14 pmWithin 2 years. I am a long term investor. I figure the correction will wipe off all the gains from now until the crash and more.bligh wrote: ↑Mon Jun 14, 2021 5:11 pmAttach a date range and a specific target and we can check in hind sight. Impossible to say in advance without a crystal ball.
Personally, I've been expecting a crash for several years now (we did get one last year... but that recovered way faster than I was expecting). Glad I have stuck to my Asset Allocation through it all. I get tempted to market time like you are thinking of doing, and then I dont... because I remember how bad my track record has been.
You have predicted the top, now let's watch you predict the bottom. Have to be right twice for this to pay off. You think the news is right on equities but is wrong on fixed income values (which you have just increased your exposure to).
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
- canadianbacon
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Re: Its time to tilt back to a more conservative allocation
Have fun tilting!
Bulls make money, bears make money, pigs get slaughtered.
Re: Its time to tilt back to a more conservative allocation
You're wrong to think you can time the market.
BUT... you're doing small moves, and it makes you feel better to DO SOMETHING, so it won't hurt you too much if you're wrong.
Of course, it won't help that much if you're right either...
I mean, 68/32 to 75/25? You're doing a lot of work researching and keeping up with the news for this.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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Re: Its time to tilt back to a more conservative allocation
I find it entertaining, and I am not doing that much work.HomerJ wrote: ↑Mon Jun 14, 2021 5:35 pmYou're wrong to think you can time the market.
BUT... you're doing small moves, and it makes you feel better to DO SOMETHING, so it won't hurt you too much if you're wrong.
Of course, it won't help that much if you're right either...
I mean, 68/32 to 75/25? You're doing a lot of work researching and keeping up with the news for this.
Institutions matter
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Re: Its time to tilt back to a more conservative allocation
Yea, they are wrong most of the time. I am not going to predict the bottom, but I am going to tilt back to equities at around a 25% decline in the S&P 500. It might go lower, but in the long run i will be better off then simply buying and holding in the current extreme market conditions.Olemiss540 wrote: ↑Mon Jun 14, 2021 5:21 pmHave heard that same story since 2014 or so. Like a dead clock, financial news is wrong much more than it is right but that has never stopped them from confidently sounding the alarm every 15 minutes.Tigermoose wrote: ↑Mon Jun 14, 2021 5:14 pmWithin 2 years. I am a long term investor. I figure the correction will wipe off all the gains from now until the crash and more.bligh wrote: ↑Mon Jun 14, 2021 5:11 pmAttach a date range and a specific target and we can check in hind sight. Impossible to say in advance without a crystal ball.
Personally, I've been expecting a crash for several years now (we did get one last year... but that recovered way faster than I was expecting). Glad I have stuck to my Asset Allocation through it all. I get tempted to market time like you are thinking of doing, and then I dont... because I remember how bad my track record has been.
You have predicted the top, now let's watch you predict the bottom. Have to be right twice for this to pay off. You think the news is right on equities but is wrong on fixed income values (which you have just increased your exposure to).
Institutions matter
Re: Its time to tilt back to a more conservative allocation
What if the market goes up 60% before the next 25% decline?Tigermoose wrote: ↑Mon Jun 14, 2021 5:59 pmYea, they are wrong most of the time. I am not going to predict the bottom, but I am going to tilt back to equities at around a 25% decline in the S&P 500. It might go lower, but in the long run i will be better off then simply buying and holding in the current extreme market conditions.Olemiss540 wrote: ↑Mon Jun 14, 2021 5:21 pmHave heard that same story since 2014 or so. Like a dead clock, financial news is wrong much more than it is right but that has never stopped them from confidently sounding the alarm every 15 minutes.Tigermoose wrote: ↑Mon Jun 14, 2021 5:14 pmWithin 2 years. I am a long term investor. I figure the correction will wipe off all the gains from now until the crash and more.bligh wrote: ↑Mon Jun 14, 2021 5:11 pmAttach a date range and a specific target and we can check in hind sight. Impossible to say in advance without a crystal ball.
Personally, I've been expecting a crash for several years now (we did get one last year... but that recovered way faster than I was expecting). Glad I have stuck to my Asset Allocation through it all. I get tempted to market time like you are thinking of doing, and then I dont... because I remember how bad my track record has been.
You have predicted the top, now let's watch you predict the bottom. Have to be right twice for this to pay off. You think the news is right on equities but is wrong on fixed income values (which you have just increased your exposure to).
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: Its time to tilt back to a more conservative allocation
The last time I thought something similar, I seem to recall the S&P hit something like a 19.8% decline and never the 20% I was waiting for. The problem is that by the time you get to 19.8%, you have feeling you'll hit your number any day now. And you feel like any uptick will just be temporary. You can't really bite at 19.8, because that's a slippery slope where you can say 19 is good enough, or 18, or 10, or... the next thing you know you're all in at 5% down, which you could have done a few weeks before the downturn, when you thought the market was overvalued.Tigermoose wrote: ↑Mon Jun 14, 2021 5:59 pm Yea, they are wrong most of the time. I am not going to predict the bottom, but I am going to tilt back to equities at around a 25% decline in the S&P 500. It might go lower, but in the long run i will be better off then simply buying and holding in the current extreme market conditions.
Re: Its time to tilt back to a more conservative allocation
So your desired AA is a constantly moving target?Tigermoose wrote: ↑Mon Jun 14, 2021 3:06 pm I have been over tilting my equity allocations since the Covid Crash of 20, but now I'm easing back and over tilting to bonds/TIPs.
Yes, I think so.Am I wrong?
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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Re: Its time to tilt back to a more conservative allocation
My IPS says to ignore valuations. It doesn't mention "margin debt." So I guess I do nothing.
Re: Its time to tilt back to a more conservative allocation
With all of the price and wage inflation we are seeing, are you really comfortable holding cash and bonds? That would make more uncomfortable than holding total stock market
Re: Its time to tilt back to a more conservative allocation
Is this really conservative? The long bonds looks like a short more than a long at these rates.
- arcticpineapplecorp.
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Re: Its time to tilt back to a more conservative allocation
exactly.HomerJ wrote: ↑Mon Jun 14, 2021 6:01 pmWhat if the market goes up 60% before the next 25% decline?Tigermoose wrote: ↑Mon Jun 14, 2021 5:59 pmYea, they are wrong most of the time. I am not going to predict the bottom, but I am going to tilt back to equities at around a 25% decline in the S&P 500. It might go lower, but in the long run i will be better off then simply buying and holding in the current extreme market conditions.Olemiss540 wrote: ↑Mon Jun 14, 2021 5:21 pmHave heard that same story since 2014 or so. Like a dead clock, financial news is wrong much more than it is right but that has never stopped them from confidently sounding the alarm every 15 minutes.Tigermoose wrote: ↑Mon Jun 14, 2021 5:14 pmWithin 2 years. I am a long term investor. I figure the correction will wipe off all the gains from now until the crash and more.bligh wrote: ↑Mon Jun 14, 2021 5:11 pm
Attach a date range and a specific target and we can check in hind sight. Impossible to say in advance without a crystal ball.
Personally, I've been expecting a crash for several years now (we did get one last year... but that recovered way faster than I was expecting). Glad I have stuck to my Asset Allocation through it all. I get tempted to market time like you are thinking of doing, and then I dont... because I remember how bad my track record has been.
You have predicted the top, now let's watch you predict the bottom. Have to be right twice for this to pay off. You think the news is right on equities but is wrong on fixed income values (which you have just increased your exposure to).
If you had market timed after the maestro (Alan Greenspan) had proclaimed investors where exhibiting irrational exuberance in Dec 1996 and exited the market, you'd have missed out on the doubling of your money (100% ROI) over the next 3 years (1997-1999). Even after the market decline from 2000-2002, you still would have had a positive (albeit not great and probably worse than bonds) return of 25.94% over those 6 years...because you lost 38% of your money (2000-2002) after you made 100% on your money first (1997-1999):
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
- arcticpineapplecorp.
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Re: Its time to tilt back to a more conservative allocation
only if you sell.Tigermoose wrote: ↑Mon Jun 14, 2021 5:14 pmWithin 2 years. I am a long term investor. I figure the correction will wipe off all the gains from now until the crash and more.bligh wrote: ↑Mon Jun 14, 2021 5:11 pmAttach a date range and a specific target and we can check in hind sight. Impossible to say in advance without a crystal ball.
Personally, I've been expecting a crash for several years now (we did get one last year... but that recovered way faster than I was expecting). Glad I have stuck to my Asset Allocation through it all. I get tempted to market time like you are thinking of doing, and then I dont... because I remember how bad my track record has been.
did the correction in 2020 between Feb and March wipe out all your gains if you held until the end of 2020 (and thereafter?). No. Money you had on Jan 1, 2020 and held until 12/31/2020 went UP 20% for the year (US, 11% International) after LOSING 32% between Feb and March:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
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Re: Its time to tilt back to a more conservative allocation
I've been saying that since roughly 2013.Tigermoose wrote: ↑Mon Jun 14, 2021 5:01 pm I tend to think we are in a game of chicken where everyone senses that this cannot go on without some sort of major correction. But everybody has their foot poised over the break and their hands hovering over the wheel ready to turn at the first sign of a correction.
I'm getting accustomed enough to being wrong that the temptation to play with my investments has almost completely disappeared. In the meantime, I've been fortunately (unfortunately, really, but there's a silver lining) too busy to fiddle.
I recall a conversation probably about 3 years ago with a relative about this. In particular, I was struck by how hollow it sounded to me when I argued that even though it seemed inescapable to me that the market was overvalued, it could still see significant gains before crashing, or it could merely stagnate, and in either case, a radical asset allocation change had its own risks that could be worse than buying and holding through the crash.
It was shocking to see the last few years worth of returns.
I understand the logic behind your investing strategy, and I don't think you'd be taking any unreasonable risk in moderate asset allocation changes following it, but I would not recommend a massive change in your allocation, and I'm not planning anything similar.
Last edited by iamlucky13 on Mon Jun 14, 2021 8:12 pm, edited 1 time in total.
- FrugalInvestor
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Re: Its time to tilt back to a more conservative allocation
I don't buy/sell my home based on what the housing market is doing in the short-term because I know I will be living in it (or a very similar replacement) for the long term. I handle my investments in a similar fashion.....I'm not going to change the way I invest in the short-term because I know I'm in it for the long-term.
Have a long-term plan, invest accordingly and ignore the noise! You'll likely be more successful and definitely much less stressed.
Have a long-term plan, invest accordingly and ignore the noise! You'll likely be more successful and definitely much less stressed.
Have a plan, stay the course and simplify. Then ignore the noise!
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Re: Its time to tilt back to a more conservative allocation
Then my 68% allocation to equities is going to make me a lot of money. I'm well positioned for my retirement goals, so that would suit me just fine.
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Re: Its time to tilt back to a more conservative allocation
I have a glide path set year by year. But when I see extreme market conditions I tilt either aggressive or conservative depending on the situation. COVID panic -> buy equities. Now -> buy TIPS.BolderBoy wrote: ↑Mon Jun 14, 2021 6:56 pmSo your desired AA is a constantly moving target?Tigermoose wrote: ↑Mon Jun 14, 2021 3:06 pm I have been over tilting my equity allocations since the Covid Crash of 20, but now I'm easing back and over tilting to bonds/TIPs.
Yes, I think so.Am I wrong?
Institutions matter