5 ms·

to feel better or to perform better? feeling better: 100% cash. let the feeling of safety wash over you as the market continues to climb while you bathe in ris

to feel better or to perform better? feeling better: 100% cash. let the feeling of safety wash over you as the market continues to climb while you bathe in risk-free dollars (that are always depreciating due to Fed policy, but whatever). eventually, use your expertise in market timing to identify the hour the market bottoms out; scoop up assets at bargain levels. perform better: stay in the market, knowing that there are many more recessions ahead of you, that you can't time the market, and that time in market is by far the best predictor of long term performance. understand that if you aren't retiring soon, recessions are sort of like sales: the same companies still produce the same assets (Apple still makes hardware, ...), they're just valued less due to silly emotions. of course, if you're retiring soon or don't have outside income you may want to get out of stocks and into bonds, depending on your appetite for risk.

goldenchrome 7y ago
As someone who has spent a long time researching personal investing, this is the correct answer.
nostromo 7y ago
Do people remember the "taper tantrum" or the correction in 2016? A curve inverted then (2016) too, and there was a lot of market volatility. There were even calls that "we're due for a recession!" https://blogs.wsj.com/moneybeat/2016/02/03/the-yield-curve-inverted/ https://blogs.wsj.com/moneybeat/2016/02/03/the-yield-curve-i... Then in 2017 and 2018 we saw record profits, low unemployment, and general economic gains all around.
- peteradio 7y ago
  All while taking on massive governmental debt.
  - vkou 7y ago
    This is false. [1] The federal debt/gdp ratio has hardly changed in the past few years. The state + local government debt/gdp ratio has declined substantially over the last few years. The government, as a whole, is paying its debts down (Or not expanding them, as the economy expands around it.) If there's too much money sloshing around, it's not because Uncle Sam opened the checkbooks. It's because interest rates are near-zero. [1] https://www.usgovernmentdebt.us/state_debt https://www.usgovernmentdebt.us/state_debt
- jfengel 7y ago
  Well, "record profits, low unemployment, and general economic gains" are precisely what happens before a recession. That's not to say that they're indicators of an immediate recession, but that's just the nature of the boom and bust cycle. If the profits were low and unemployment were high, then we're already in a recession. They always do well when the economy is overheating, and gains are driven by paper rather than real-world value. At some point people chicken out, cash in their paper gains, and you have a bust. And then the cycle repeats. That cycle has happened dozens of times, and at some point in the cycle people start saying, "No, this time we've figured out how to keep things even, the gains are all real, and we'll never have a bust again." And then there's a bust... though when, exactly, is hard to forecast. Just beware of "this time it's different" talk: maybe this time it is, but it has a lousy track record.
- the-dude 7y ago
  This reminds me of a 'myth' I have heard about ICEs ( internal combustion engines ) : the minutes before they blow, they run really really nice.
  - EpicEng 7y ago
    "everything works until it doesn't". That's true, but not terribly useful advice.
datpuz 7y ago
To perform better, do you think buying in now when you're already sitting on cash would be a smart move? Assuming a recession hits in the next two years, and I'm able to invest at a considerable discount, wouldn't it be better for performance to wait? Are these assumptions bad?
- yan 7y ago
  https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/ https://awealthofcommonsense.com/2014/02/worlds-worst-market...
  - deleted 7y ago
    [deleted]
- maximente 7y ago
  notice the implicit assumed negative event in your statement. why should we assume that a 2 year window is anything near appropriate for the next recession? you seem to be falling prey to a psychological tendency that optimizes for protecting against loss rather than missed potential opportunity: https://en.wikipedia.org/wiki/Loss_aversion https://en.wikipedia.org/wiki/Loss_aversion as well as market timing, which is the simply asinine idea that you can pick the "best" moment to invest. instead, i'd frame the issue thusly: what upside am i missing by sitting on cash for 2 years? or 10 years? or until i'm ready? you and everyone else necessarily fall into one of two categories: those who believe past performance has some effect on future performance (even slightly), or do not. if you do not believe past matters, then you necessarily have no insight into what strategies are optimal, so there's no way to answer your question. you should just do whatever your heart tells you, i guess, which may include 'wait 10 years for the market to drop, losing out on 10 years of gains'. that hardly seems rational to me. if you do believe that past performance is indicative of what to expect in the future, let's consider an example. practically, if you live in the US you can generally invest a certain amount of money each year in your retirement plan. for example's sake let's say that's capped at $5200. and let's also assume you want to hit the cap. you could invest $5200 on Jan 1. historically, this is the optimal strategy for long term performance, but it is vulnerable to periods of decline inside those years. you could also use dollar cost averaging to, say, invest $100 every week * 52 = $5200. you still hit the cap but you "average" the risk over the entire year, so that if Jan 2 the market goes to 0 you aren't left with nothing, trading off the fact that you miss out on the upside of the year as well. so just generalize that to your own timelines and amount of money. you can do 100% today, which mathematically based on the past is the optimal solution, but get ready for some gut busting potential failures. or smooth out risk by investing small sums periodically. the tradeoff is that smaller sums don't get the same gains as the large sum would.
mars4rp 7y ago
keeping 100% cash is not risk-free if feds keep lowering dollars we could run into inflation and hyper inflation. so keeping cash could be the riskiest thing to do in that scenario!
- javagram 7y ago
  Interest-yielding savings accounts and treasury savings bonds such as I-bonds and TIPS can provide some measure of protection against inflation.

goldenchrome 7y ago

As someone who has spent a long time researching personal investing, this is the correct answer.

nostromo 7y ago

Do people remember the "taper tantrum" or the correction in 2016? A curve inverted then (2016) too, and there was a lot of market volatility. There were even calls that "we're due for a recession!" https://blogs.wsj.com/moneybeat/2016/02/03/the-yield-curve-inverted/ https://blogs.wsj.com/moneybeat/2016/02/03/the-yield-curve-i... Then in 2017 and 2018 we saw record profits, low unemployment, and general economic gains all around.

peteradio 7y ago
All while taking on massive governmental debt.
- vkou 7y ago
  This is false. [1] The federal debt/gdp ratio has hardly changed in the past few years. The state + local government debt/gdp ratio has declined substantially over the last few years. The government, as a whole, is paying its debts down (Or not expanding them, as the economy expands around it.) If there's too much money sloshing around, it's not because Uncle Sam opened the checkbooks. It's because interest rates are near-zero. [1] https://www.usgovernmentdebt.us/state_debt https://www.usgovernmentdebt.us/state_debt
jfengel 7y ago
Well, "record profits, low unemployment, and general economic gains" are precisely what happens before a recession. That's not to say that they're indicators of an immediate recession, but that's just the nature of the boom and bust cycle. If the profits were low and unemployment were high, then we're already in a recession. They always do well when the economy is overheating, and gains are driven by paper rather than real-world value. At some point people chicken out, cash in their paper gains, and you have a bust. And then the cycle repeats. That cycle has happened dozens of times, and at some point in the cycle people start saying, "No, this time we've figured out how to keep things even, the gains are all real, and we'll never have a bust again." And then there's a bust... though when, exactly, is hard to forecast. Just beware of "this time it's different" talk: maybe this time it is, but it has a lousy track record.
the-dude 7y ago
This reminds me of a 'myth' I have heard about ICEs ( internal combustion engines ) : the minutes before they blow, they run really really nice.
- EpicEng 7y ago
  "everything works until it doesn't". That's true, but not terribly useful advice.

datpuz 7y ago

To perform better, do you think buying in now when you're already sitting on cash would be a smart move? Assuming a recession hits in the next two years, and I'm able to invest at a considerable discount, wouldn't it be better for performance to wait? Are these assumptions bad?

yan 7y ago
https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/ https://awealthofcommonsense.com/2014/02/worlds-worst-market...
- deleted 7y ago
  [deleted]
maximente 7y ago
notice the implicit assumed negative event in your statement. why should we assume that a 2 year window is anything near appropriate for the next recession? you seem to be falling prey to a psychological tendency that optimizes for protecting against loss rather than missed potential opportunity: https://en.wikipedia.org/wiki/Loss_aversion https://en.wikipedia.org/wiki/Loss_aversion as well as market timing, which is the simply asinine idea that you can pick the "best" moment to invest. instead, i'd frame the issue thusly: what upside am i missing by sitting on cash for 2 years? or 10 years? or until i'm ready? you and everyone else necessarily fall into one of two categories: those who believe past performance has some effect on future performance (even slightly), or do not. if you do not believe past matters, then you necessarily have no insight into what strategies are optimal, so there's no way to answer your question. you should just do whatever your heart tells you, i guess, which may include 'wait 10 years for the market to drop, losing out on 10 years of gains'. that hardly seems rational to me. if you do believe that past performance is indicative of what to expect in the future, let's consider an example. practically, if you live in the US you can generally invest a certain amount of money each year in your retirement plan. for example's sake let's say that's capped at $5200. and let's also assume you want to hit the cap. you could invest $5200 on Jan 1. historically, this is the optimal strategy for long term performance, but it is vulnerable to periods of decline inside those years. you could also use dollar cost averaging to, say, invest $100 every week * 52 = $5200. you still hit the cap but you "average" the risk over the entire year, so that if Jan 2 the market goes to 0 you aren't left with nothing, trading off the fact that you miss out on the upside of the year as well. so just generalize that to your own timelines and amount of money. you can do 100% today, which mathematically based on the past is the optimal solution, but get ready for some gut busting potential failures. or smooth out risk by investing small sums periodically. the tradeoff is that smaller sums don't get the same gains as the large sum would.

mars4rp 7y ago

keeping 100% cash is not risk-free if feds keep lowering dollars we could run into inflation and hyper inflation. so keeping cash could be the riskiest thing to do in that scenario!

javagram 7y ago
Interest-yielding savings accounts and treasury savings bonds such as I-bonds and TIPS can provide some measure of protection against inflation.