Billionaires and other "smart money" are pulling out of stocks...

Rainy Day wrote:

Bad Wigins wrote:

it has been flat as a pancake for 8 months now.

But it’s been going up since 2009, besides a flat 2015 and down 6% 2018. The DOW is up over 5X since the bottom 12 years ago.

I’m thinking about watching the Big Short and how obvious it seemed looking back. I think there are a lot of red flags today.

- Buyers paying 10-20% over asking price on real estate.

- Used cars going for more than new MSRP

- New cars going for $10K over sticker (or more like some exotics going for $200K over sticker).

- My Rolex is worth double what I paid for it 4 years ago.

- Cryptocurrency valuations

- Million $ NFTs

People are more invested in equities than ever, which may be a good thing for the future, but also may have a domino effect if things turn South. All of these investment classes are at/near all time highs, and one big drop could cause the rest of the house of cards to come down with it. I hope I’m wrong, and I’m not one to short the market, but a way out of the money put position might not be a bad strategy right now.

mr38 wrote:

Flagpole wrote:

If the market tanks a lot, then that's a BIG buying opportunity. Buy as much as you can. And NO, this is not timing the market, because you are not selling, and you are doing your regular purchases despite how the market is doing...just putting in EXTRA if it goes down a lot. MUTUAL FUNDS only, not individual stocks.

This advice never made sense to me. If you had been consistently investing in the market before the crash, then where does the money come from to "buy as much as you can" after the crash? You (1) would have had a bunch of cash sitting around if the crash hadn't come, or (2) you would have to curb consumption after the crash in order to buy mutual funds, or (3) you would have to borrow money in order to buy after the crash.

Option (1) is exactly the misallocation of capital you advocated against earlier. Somehow I doubt you're advocating for option (3), although it could technically be sound advice. Option (2) is the most reasonable but if you have a bunch of frivolous spending, better financial advice would be to cut it out in favor of investment regardless of the market's recent performance.

WiTuLo wrote:

Flagpole wrote:

[

Just as an aside, what happens if you retire with a very good retirement account AND a lot of money in a checking account? Well, you COULD live off the money in the checking account for a while (years perhaps), allowing your money in stocks to sit there and grow while at the same time not paying any income tax. This strategy also lowers potential health insurance payments. So, a boat load of cash isn't necessarily a bad thing.

Hope that helps.

This is exactly what I've done. I'm sitting on 4 or 5 mil in retirement accounts 90% in the market. Mostly index funds. Also have about 600K in cash. If the market craps the bed (and it will, at some point) I'm gambling that I can live on that 600K until the market comes back. Retired, no debt, no mortgage, own my home and a rental condo. Problem is, look at the Dow historically ... it has fallen by 50% or more and did not recover to that level for 30 years! More than once! I couldn't last 30 years. Doing a shot now.

Flagpole wrote:

mr38 wrote:

This advice never made sense to me. If you had been consistently investing in the market before the crash, then where does the money come from to "buy as much as you can" after the crash? You (1) would have had a bunch of cash sitting around if the crash hadn't come, or (2) you would have to curb consumption after the crash in order to buy mutual funds, or (3) you would have to borrow money in order to buy after the crash.

Option (1) is exactly the misallocation of capital you advocated against earlier. Somehow I doubt you're advocating for option (3), although it could technically be sound advice. Option (2) is the most reasonable but if you have a bunch of frivolous spending, better financial advice would be to cut it out in favor of investment regardless of the market's recent performance.

Ok, good question. I will give you THE answer. Right off the bat, you are correct, NO, I would not borrow money to do this.

My advice is always along the lines of people following the minimum principles and doing so in the order in which they are to be done.

1) Pay off all debt except for a mortgage and a LARGE student loan. Do this quickly.

2) Invest 15% MINIMUM into retirement accounts made up of diversified mutual funds.

3) Pay off student loan.

4) Pay off house.

5) Add more to retirement accounts, OR you can now buy individual stocks if you want if you buy no fewer than 5 and have them all ~equally dispersed into different sectors. OR you can now spend money more freely, give some more to charity, to children, etc.

So, given the above, let's say you are done with step 3, you are currently putting in 15% or even 20% of your income into the market, you have paid off your large student loan and now you are throwing money at the house. If the market tanks like it did in 2008, it is now a good time to put extra money into the market. Suspend throwing money at the mortgage to do so...yes, curb some of your spending if you want to do so. Sell some unwanted things to do so if you want. If you have unexpected income during this time throw that in (larger than expected tax refund, a bonus at work, small inheritance, someone who owes you money you never thought you'd see but now you do, etc.). Also, you COULD be a person who operates with a 3 month Emergency Fund in cash, and when that fund gets higher than 3 months, you spend it...maybe for a trip you want to take, whatever. Time to take that overflow over the 3 month limit and put it in the market. Finally, as long as you are putting 15% minimum into the market and have either gotten rid of ALL loans or are actively getting rid of all loans including your mortgage, I don't mind too much if there is a big cash buildup in an account somewhere even above and beyond the typical emergency fund level. Yes, that's not the most efficient thing to do with money, but the WEALTH building comes from getting rid of ALL debt and invested 15% MINIMUM into retirement accounts. SO, if you for some reason end up with more money than you planned to have in CASH, if the market tanks, it's a good time to put that into the market. Even the most organized of us could let a cash reserve get too big if unwatched. Might seem silly to say, but once you have ZERO debt and kids aren't living at home anymore (as is the case with me), and you've got two professional incomes, it's EASY to be sitting on extra cash. Yes, I realize that is not the case for most people.

Just as an aside, what happens if you retire with a very good retirement account AND a lot of money in a checking account? Well, you COULD live off the money in the checking account for a while (years perhaps), allowing your money in stocks to sit there and grow while at the same time not paying any income tax. This strategy also lowers potential health insurance payments. So, a boat load of cash isn't necessarily a bad thing.

Hope that helps.

WiTuLo wrote:

Flagpole wrote:

[

Just as an aside, what happens if you retire with a very good retirement account AND a lot of money in a checking account? Well, you COULD live off the money in the checking account for a while (years perhaps), allowing your money in stocks to sit there and grow while at the same time not paying any income tax. This strategy also lowers potential health insurance payments. So, a boat load of cash isn't necessarily a bad thing.

Hope that helps.

This is exactly what I've done. I'm sitting on 4 or 5 mil in retirement accounts 90% in the market. Mostly index funds. Also have about 600K in cash. If the market craps the bed (and it will, at some point) I'm gambling that I can live on that 600K until the market comes back. Retired, no debt, no mortgage, own my home and a rental condo. Problem is, look at the Dow historically ... it has fallen by 50% or more and did not recover to that level for 30 years! More than once! I couldn't last 30 years. Doing a shot now.

WiTuLo wrote:

Flagpole wrote:

[

Just as an aside, what happens if you retire with a very good retirement account AND a lot of money in a checking account? Well, you COULD live off the money in the checking account for a while (years perhaps), allowing your money in stocks to sit there and grow while at the same time not paying any income tax. This strategy also lowers potential health insurance payments. So, a boat load of cash isn't necessarily a bad thing.

Hope that helps.

This is exactly what I've done. I'm sitting on 4 or 5 mil in retirement accounts 90% in the market. Mostly index funds. Also have about 600K in cash. If the market craps the bed (and it will, at some point) I'm gambling that I can live on that 600K until the market comes back. Retired, no debt, no mortgage, own my home and a rental condo. Problem is, look at the Dow historically ... it has fallen by 50% or more and did not recover to that level for 30 years! More than once! I couldn't last 30 years. Doing a shot now.

stay the course wrote:

Flagpole wrote:

Ok, good question. I will give you THE answer. Right off the bat, you are correct, NO, I would not borrow money to do this.

My advice is always along the lines of people following the minimum principles and doing so in the order in which they are to be done.

1) Pay off all debt except for a mortgage and a LARGE student loan. Do this quickly.

2) Invest 15% MINIMUM into retirement accounts made up of diversified mutual funds.

3) Pay off student loan.

4) Pay off house.

5) Add more to retirement accounts, OR you can now buy individual stocks if you want if you buy no fewer than 5 and have them all ~equally dispersed into different sectors. OR you can now spend money more freely, give some more to charity, to children, etc.

So, given the above, let's say you are done with step 3, you are currently putting in 15% or even 20% of your income into the market, you have paid off your large student loan and now you are throwing money at the house. If the market tanks like it did in 2008, it is now a good time to put extra money into the market. Suspend throwing money at the mortgage to do so...yes, curb some of your spending if you want to do so. Sell some unwanted things to do so if you want. If you have unexpected income during this time throw that in (larger than expected tax refund, a bonus at work, small inheritance, someone who owes you money you never thought you'd see but now you do, etc.). Also, you COULD be a person who operates with a 3 month Emergency Fund in cash, and when that fund gets higher than 3 months, you spend it...maybe for a trip you want to take, whatever. Time to take that overflow over the 3 month limit and put it in the market. Finally, as long as you are putting 15% minimum into the market and have either gotten rid of ALL loans or are actively getting rid of all loans including your mortgage, I don't mind too much if there is a big cash buildup in an account somewhere even above and beyond the typical emergency fund level. Yes, that's not the most efficient thing to do with money, but the WEALTH building comes from getting rid of ALL debt and invested 15% MINIMUM into retirement accounts. SO, if you for some reason end up with more money than you planned to have in CASH, if the market tanks, it's a good time to put that into the market. Even the most organized of us could let a cash reserve get too big if unwatched. Might seem silly to say, but once you have ZERO debt and kids aren't living at home anymore (as is the case with me), and you've got two professional incomes, it's EASY to be sitting on extra cash. Yes, I realize that is not the case for most people.

Just as an aside, what happens if you retire with a very good retirement account AND a lot of money in a checking account? Well, you COULD live off the money in the checking account for a while (years perhaps), allowing your money in stocks to sit there and grow while at the same time not paying any income tax. This strategy also lowers potential health insurance payments. So, a boat load of cash isn't necessarily a bad thing.

Hope that helps.

So your advice of putting more money into the market when it dips is for someone who has already won the game and reached financial independence?

I think for most people, it’s best to have set amount going into their investment whether or not market is up or down as when you try to buy when it’s low, it introduces behavioral issues. Let’s say you guess it correct, and make good amount of money. It makes you feel like a genius! Then, you try to do it again and again, but not have as much success.

It’s just best to not mess with your investment at all and stay the course with your long term plan and forget about it.

applied economics wrote:

WiTuLo wrote:

This is exactly what I've done. I'm sitting on 4 or 5 mil in retirement accounts 90% in the market. Mostly index funds. Also have about 600K in cash. If the market craps the bed (and it will, at some point) I'm gambling that I can live on that 600K until the market comes back. Retired, no debt, no mortgage, own my home and a rental condo. Problem is, look at the Dow historically ... it has fallen by 50% or more and did not recover to that level for 30 years! More than once! I couldn't last 30 years. Doing a shot now.

I assume you are (60 to 75) years old. When you state, "In the market," does that mean equity markets? Ninety percent, far too risky! You need to go to a N.Y.S.E. full service investment firm. If you do not know a N.Y.S.E. full service advisor, ask for Broker of the Day.

Flagpole wrote:

stay the course wrote:

So your advice of putting more money into the market when it dips is for someone who has already won the game and reached financial independence?

I think for most people, it’s best to have set amount going into their investment whether or not market is up or down as when you try to buy when it’s low, it introduces behavioral issues. Let’s say you guess it correct, and make good amount of money. It makes you feel like a genius! Then, you try to do it again and again, but not have as much success.

It’s just best to not mess with your investment at all and stay the course with your long term plan and forget about it.

Nope. You ALWAYS have a set minimum that you put into the market regardless of how the market is doing. IF the market drops a lot, and IF you have extra (you do never know when you might come into some extra money), and IF you want to, put more money in. My CORRECT philosophy doesn't allow for behavioral issues (changes). You must ALWAYS be doing 15% or more into retirement accounts and then working on getting rid of the mortgage. Also, you are attaching intelligence to this, and there absolutely isn't any. If you (not YOU, but anyone) buy when the market dips and then the market goes back up (because it will) and you feel like a genius, then you have something wrong with you.