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2:02 pm
February 11, 2013
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Sunil from The Extra Money Blog
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by no means an expert in investing thus reaching out to the best community that came to mind
people often talk about entering markets when low and exiting when high (such as now).
the question is, when they use these terms loosely are they referring to mainly stocks or mutual funds as well?
reason for the question being that stocks are fluid/liquid and funds less mobile when comes to trading. funds charts/performance are based on asset value, not a "per share / stock price"
also, while markets are down, the dividends issued by funds are used to reinvest/repurchase shares at lower prices, thus an auto dollar costing mechanism in place.
having said all that, i will resort back to my main question. do you exit the market entirely (funds included) when you say you will "get out" (because you foresee a correction/recession, etc)? or do you get out of individual stocks and hang on to the funds trusting the managers to do the best they can???
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The Extra Money Blog– Expedited Wealth Building Through Multiple Streams of Active & Passive Income (Entrepreneurship, Internet Marketing, Personal Finance)
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5:34 am
February 12, 2013
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jaicatalano
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You are going to hear various opinions on this but here are some questions to ask yourself.
What is your risk tolerance level?
Do you want income or capital?
My suggestion to you is put your toe in the water and feel it out. I watch CNBC all the time and the analysts rarely agree and sometimes to the point of being on different planets.
You never want to "exit" the market. For example I was invested in 2008. I lost 60 percent of my portfolio but hung in there. Yes there were many sleepless nights but I hung in there. Today I am completely back to where I was in 2008 and beyond.
Read stuff from Warren Buffet.
Enter the market when there is blood in the streets and run for the hills when the shoe shine guy starts investing.
Good Luck.
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11:35 am
February 13, 2013
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Barbara Friedberg
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Okay, I am an expert in this area. Simple, choose an asset allocation based on your age and risk tolerance, invest in index funds and rebalance every year. You will beat 65% of active managers.
Here are a couple of great resources for sample asset allocations;
http://www.marketwatch.com/lazyportfolio
check out my free ebook; 20 Minute Guide to Investing for a really quick and dirty look at investing http://www.aweber.com/users/web_forms/preview_form/1963831100 (if you don't want the "wealth tips" newsletter, you can unsubscribe after you download the free book)
Do not worry about the market ups and downs, no one can predict the future. If you can't stand volatility, keep a bit more of your portfolio in cash and bonds.
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12:22 pm
February 13, 2013
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Sunil from The Extra Money Blog
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Barb and Jai
Thanks. I do have a big chunk in target and index funds. My question however is very specific to the specific mutual funds (about 12 of them) I have selected over the years. Do I (do people usually) leave those in through the thick and thin or do I (do people usually) exit out of those when they feel a correction/recession is nearing?
Please let me know your thoughts
Thanks
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The Extra Money Blog– Expedited Wealth Building Through Multiple Streams of Active & Passive Income (Entrepreneurship, Internet Marketing, Personal Finance)
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2:46 am
February 14, 2013
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Sei Kitajima
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Great
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10:08 am
February 14, 2013
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Barbara Friedberg
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Sunil from The Extra Money Blog said:
Barb and Jai
Thanks. I do have a big chunk in target and index funds. My question however is very specific to the specific mutual funds (about 12 of them) I have selected over the years. Do I (do people usually) leave those in through the thick and thin or do I (do people usually) exit out of those when they feel a correction/recession is nearing?
Please let me know your thoughts
Thanks
Sunil, You raise a very important point. There is a newer view in asset allocation called tactical asset allocation, where investors adjust their asset allocation based upon market conditions and their personal assessment of market valuations. In other words, if you feel that markets are becoming overvalued in the USA based on a valuation metric such as PE ratio as compared with historical levels, you may choose to dial back your allocation to the overvalued class. On the other hand, if you see another asset category as undervalued (ie European stocks), you may consider increasing your allocation to the undervalued asset class.
With regard to completely exiting the market; That decision requires you to be right twice. Once when you sell, and then again when you decide to reenter the market. This is very difficult for anyone to correctly time.
The biggest market moves in a a year are made on a surprisingly few number of days. Thus if you are out of the market on a few days-weeks of large upward movements, you really miss out.
Another consideration is your personal risk tolerance and time until you will need the funds. If you are in your 30's or 40's and expect to keep your funds invested for another 20 years or so, if history is any guide, maintaining a steady asset allocation and riding the ups and downs usually offers better risk adjusted returns than jumping in and out of the markets.
If you cannot tolerate watching your portfolio decline in value, dial down your exposure percentage to stocks, and consider putting more cash in Treasury I bonds (http://www.treasurydirect.gov/…..ibonds.htm) which will protect your cash from losing purchasing power. Best regards, Barb
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6:04 pm
February 17, 2013
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Sunil from The Extra Money Blog
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thanks Barb. good information.
what I am still trying to understand is whether there are apparent benefits to staying vested in mutual funds even as one has exited the individual stocks. my rationale being dividends that are reinvested to purchase shares at lower prices when markets are down – essentially dollar cost averaging it for you over time.
this is why I wonder when folks "exit" the market with their individual security holdings, do they normally mean exiting out of mutual funds as well.
I am not referring to target date funds in the context of this question.
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The Extra Money Blog– Expedited Wealth Building Through Multiple Streams of Active & Passive Income (Entrepreneurship, Internet Marketing, Personal Finance)
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5:02 pm
February 28, 2013
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Barbara Friedberg
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Hi Sunil,
With regards to your question about exiting the market from individual stocks and remaining invested in funds:
My personal opinion is that if you choose to invest in individual stocks, you need to research their prospects regularly, look at earnings, growth, profitability ratios, debt ratios, valuation ratios etc. and make individual decisions based upon the merits of the individual stocks. Personally, in our own family portfolios and the professional portfolio that I manage, I've slowly transitioned from most of our individual stock holdings into index mutual funds and etfs covering usa and world stock markets as well as reits (US and intl).
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7:30 pm
February 28, 2013
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PK @ DQYDJ
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Barb has given you excellent advice in this thread, but with regards to this comment: "essentially dollar cost averaging it for you over time" – note, you can do that with (some) individual stocks too.
Read up about 'DRIP' investing. Some people swear by that method.
For one more viewpoint, I'm generally fully invested in stocks. I don't really try to charge out of stocks when I think the market is overvalued, although I do sell when I believe a stock is close to fairly valued.
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9:10 am
March 1, 2013
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Barbara Friedberg
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Drips are a nice approach for stock investing, but not available on all stocks. Some companies allow investors to buy the stocks at a slight discount through their drip (dividend reinvestment program).
If you are younger and not afraid of some volatility in your portfolio, a higher allocation to equities can offer potentially higher returns. Just make sure to only invest funds you can leave in the market to grow over time. Don't put next years xmas funds in the stock market because it may be worth less by the time the holiday rolls around:).
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