investing at the top of the market

[Dr Oli]

With stocks at all time highs and bonds moving in the wrong direction, is anybody else having stomach pains when investing in a taxable account right now? I know that in theory we should all just stick to our investment plans and not follow the current numbers, but boy am I finding it hard right now!

I don't consider myself an emotional investor at all...in fact I was chomping at the bit wishing I had cash to invest back in 2008/2009. At that point I was just beginning residency and only had a few thousand each year to throw at a Roth... Now that I've got enough to invest a significant amount in a taxable account the markets are at all time highs...

Anybody else out there struggling with this right now?? I max all tax deferred vehicles and my taxable account is with Vanguard and looks like this with about 50k new cash per quarter split between:

50% Total stock market index admiral

50% Intermediate term munipal bond fund admiral

 

I'm pretty sure the responses will just be to stick with the plan...but maybe people are looking at alternative investments harder right now? Just blowing some smoke and looking for some support I suppose!

[Zaphod]

Change your time frame thinking. ATHs are true and would be an issue if your target date or draw down period was right around the corner. However, it sounds like you have a few years to go until then. So I would say, sure these are ATHs, but they are unlikely to be so a few years and decades from now. At that time it will look like a steal!

This is pretty much what I have to tell myself as well so you're not alone. Just try not to get caught up in the day to day and focus on the overall plan and goal.

[The White Coat Investor]

Dr Oli wrote:

With stocks at all time highs and bonds moving in the wrong direction, is anybody else having stomach pains when investing in a taxable account right now? I know that in theory we should all just stick to our investment plans and not follow the current numbers, but boy am I finding it hard right now!

I don’t consider myself an emotional investor at all…in fact I was chomping at the bit wishing I had cash to invest back in 2008/2009. At that point I was just beginning residency and only had a few thousand each year to throw at a Roth… Now that I’ve got enough to invest a significant amount in a taxable account the markets are at all time highs…

Anybody else out there struggling with this right now?? I max all tax deferred vehicles and my taxable account is with Vanguard and looks like this with about 50k new cash per quarter split between:

50% Total stock market index admiral

50% Intermediate term munipal bond fund admiral

 

I’m pretty sure the responses will just be to stick with the plan…but maybe people are looking at alternative investments harder right now? Just blowing some smoke and looking for some support I suppose!

Click to expand...

Far better to be investing in taxable at the high than a Roth IRA at the high. At least if you have losses Uncle Sam will share your pain.

Here's what I find hilarious about your post- you don't want to invest in stocks because they went up and you don't want to invest in bonds because they went down.

Best to just invest when you have the money. You'll then be investing in times like 2007 and times like 2009. In times like 2013 and times like 2016. In times like 1999 and times like 2002.  It'll work out.

[Dr Oli]

I actually do wish to invest more in bonds than stocks right now exactly because they are down in relative terms... it's just that my allocation has deviated somewhat from 50/50 recently and already is heavy on the bond side, so I don't want to stray too far from my target allocation just because one asset class is currently "down" and the other isn't. I'd venture that most would say the most important thing in my target allocation.

I also understand that I'll be cost averaging in anyways with a quarterly deposit into this taxable account, and so shouldn't concentrate too much on the lows and highs.

 

Good advice, all.

 

[Craigy]

At least you'll have a lot of basis

One of my father's friends cashed out of the market in the mid-90s when he knew it couldn't go any higher.  There was just no way it could go higher than 6,000.

[BurnedoutDoc]

Remember, as the bogelheads say, "Time in the market is better than timing the market."

That being said, I am a soft market timer.  If you have control over when the money goes in, you can wait for a pullback in the market.  Seems like 1-2 times a year since the recession there is a mini-crisis (China panic, Japanese earthquake, Ebola, Brexit).  Put some money in now, then 2 or 3 times over the next year.  But I only do this with taxable accounts/529.  The big retirement money is on auto pilot every 2 weeks, cost averaging.

When you start overthinking things look at a graph of the U.S. stock market over the past 100 years.

[Lithium]

Saying that we're "investing at the top of the market" requires that you know what both sides of the market look like, not just before, but in the future.  I assume this means that you weren't similarly nervous every other time we've looked like we're hitting the "top" the last three years, and that this time we should be worried?

The Mid-2000s Cyclical Bull Market (2007)[edit]

[hide]

Milestone	Closing Level	Date First Achieved
1,527.466	1,530.23	May 30, 2007
1,550	1,552.50	July 13, 2007

The Mid 2010s Bull Market (2013-Present)[edit]

[hide]

Milestone	Closing Level	Date First Achieved
1,565.157	1,569.19	March 28, 2013
1,600	1,614.42	May 3, 2013
1,650	1,650.34	May 14, 2013
1,700	1,706.87	August 1, 2013
1,750	1,754.67	October 22, 2013
1,800	1,804.76	November 22, 2013
1,850	1,854.29	February 27, 2014
1,900	1,900.53	May 23, 2014
1,950	1,951.27	June 9, 2014
2,000	2,000.02	August 26, 2014
2,100	2,100.34	February 17, 2015
2,130.828	2,137.16	July 11, 2016
2,200	2,202.94	November 22, 2016

 

 

What do you think people who pulled their money out in 2013 would tell you to do?

[TheGipper]

Every month my excess disposable income (after feeding 401k, cash balance plan, 457b, 529s and all monthly expenses) is split between Vanguard taxable account and extra mortgage principal pay down.

Every year the market climbs higher, I find myself putting a higher % of monthly disposable $ into mortgage principal. Currently at about 60/40.

Is this flawed market timing rationale. Probably. Will I continue do it? Yes.

When the inevitable recession comes (maybe next year, maybe 5 years, maybe 10 years), once the market drops more than 20%, I will shift back to near 100% taxable account with excess monthly funds.

Is this also likely mathematically flawed market timing. Yup. Will I keep doing it? Yes.

[Dicast]

TheGipper wrote:

Every month my excess disposable income (after feeding 401k, cash balance plan, 457b, 529s and all monthly expenses) is split between Vanguard taxable account and extra mortgage principal pay down.

Every year the market climbs higher, I find myself putting a higher % of monthly disposable $ into mortgage principal. Currently at about 60/40.

Is this flawed market timing rationale. Probably. Will I continue do it? Yes.

When the inevitable recession comes (maybe next year, maybe 5 years, maybe 10 years), once the market drops more than 20%, I will shift back to near 100% taxable account with excess monthly funds.

Is this also likely mathematically flawed market timing. Yup. Will I keep doing it? Yes.

Click to expand...

We have the same plan at our house.  I think it is more about your debt aversion that you are putting money into the mortgage than it is about being a market timer.  I can't say that I'll feel bad when our mortgage is paid off at age 40 and I'll probably run the math to see how much it hurt us.  We just don't want the debt hanging around and even at 50/50 we'll be putting more in taxable than retirement accounts each month.

[WealthyDoc]

In my opinion the Efficient Market Hypothesis (EMH) explains most stock prices.  There are deviations though.  I share your concern that the equity market is overpriced.  For example the Shiller PE is now 27 (with an average of 17 or so).  On the other hand, we can't time the market exactly.  I prefer the approach of Benjamin Graham (mentor to Warren Buffett) who adjusted his asset allocation in a contrary fashion.  50:50 was his default ratio.  He allowed each to range from 25-75 though.  At a time like this he would recommend decreasing the equity portion below 50%.  I have done something similar and it really saved my bacon in 2000.  I'm currently at 40:40:20 (bonds:stocksther) but it is a highly personal choice.

[hightower]

I'm rather new to investing and I too have been struggling feeling good about putting more money into the market right now.  (Especially since I don't trust our incoming administration and I'm afraid they are going to really screw things up).  HOWEVER, I hear you all loud and clear that since I'm 20-30 years away from retirement, I need to focus on the long term.  Its hard to ignore stories like this though:

http://www.barrons.com/articles/bill-gross-stocks-are-vulnerable-raise-cash-1481058844?mod=BOL_hp_highlight_8

And to be honest, I don't really know what he means "raise cash."  Does that mean sell some stocks and buy bonds?  All I own, for the most part, is index funds, 80/20 stocks and bonds.

Curious to hear people's thoughts.

 

[The White Coat Investor]

My thought is Bill Gross is a permabear. I've never heard him write anything positive about the future as far as investing returns.

[jhwkr542]

hightower wrote:

I’m rather new to investing and I too have been struggling feeling good about putting more money into the market right now.  (Especially since I don’t trust our incoming administration and I’m afraid they are going to really screw things up).  HOWEVER, I hear you all loud and clear that since I’m 20-30 years away from retirement, I need to focus on the long term.  Its hard to ignore stories like this though:

http://www.barrons.com/articles/bill-gross-stocks-are-vulnerable-raise-cash-1481058844?mod=BOL_hp_highlight_8

And to be honest, I don’t really know what he means “raise cash.”  Does that mean sell some stocks and buy bonds?  All I own, for the most part, is index funds, 80/20 stocks and bonds.

Curious to hear people’s thoughts.

 

Click to expand...

A couple of points to make:

1. If this most recent election has taught us anything, it's that people don't need to have any knowledge about anything to write anything anymore.  Just throw out anything on the internet you want and people will read it.  The more fear/anger inducing, the more likely people are to both read it and worry it's true.  You can find any stat to back up just about any argument too to make it look legit.  #hottakes

2. I'm assuming by cash, he means what you put in savings/money market accounts/CDs, not bonds. (article blocked for me)

3. These articles seem to come out every week, and you should always ignore them.  Anecdotal point:  If you look at the original poster from 11/28/2016 when there was hesitation to invest at that time to now, VTSMX (Vanguard total stock index) has gone from $55.39 to $56.49 as of 12/7/2016.  The original poster, by not investing on 11/28, would have lost 2.0% potential returns so far.  Are they set to lose more? Nobody knows. The market goes up, it goes down, goes up a little, down a little, up a lot, down a lot.  You just can't predict it.  If you gamble and miss out on those 2 weeks where it goes up 2%, then that's not an insignificant loss.  This is why the majority of studies have simply said the passive investor, by putting their money in passive index funds and leaving it, outperforms active investors, even those who are paid to manage money.

[East coast]

Gross is a master salesman - wants to create fear/uncertainty, so you give him your $$$ to manage since only he knows the way!

I will say having read a few of Gross's investment outlooks in the past - they are entertaining. He is a downright bizarre writer, so as long as you look at it as entertainment and not wisdom, it's good fun!

[hightower]

Okay good to know that this guy has a reputation for being a bit of an alarmist.  And that is where my ignorance on the subject could potentially hurt me if I were to actually act on these sort of "predictions" or whatever you want to call them.

I will stay the course and continue to save/invest regularly.  It makes me feel better knowing what others think though, hence why I'm hanging out in these forums