Since we all know that a correction is coming some day, the question is… What is your cash level, percent of total holdings.? One advisory service I use is now at 16%.
Raymond Borger: We all know that a new high is coming too, so how much do you have invested?
Alex Spillane: At the moment I have almost everything invested but it is slightly scary
Brian Fey: 15-20% cash
Guru Ranbros: 15-18%cash
Wade Yandell: 0. My dividends roll in regardless of market highs/liws
Alex Spillane: I like this. I recently had one company cancel their dividend ☹️
Bob Southard: Of course, we’re all getting dividends. But wouldn’t you like to have some cash available if/when there is a market correction, that is, drop of 10% or more? Usually a high market has some of us thinking about raising some cash for the inevitable drop.
Wade Yandell: Outright canceled it? Ouch.
Alex Spillane: Yep CLLN in the UK. it’s quite rare though isn’t it
Alex Spillane: Bob – I guess once the drop comes everyone will withdraw, wait for the bottom or as near as possible, and then reinvest
AJ Singh: Alex Spillane I wouldn’t withdraw I’d wait for the clearance and add.Add PFE KO BAC JNJ MSFT DIS T
Gwen Nguyen Mcalister: 31%, looking to raise another 5-7%.
Forrest Wong: 25% equal allocations to stocks, bonds, cash, and gold at all times. 🙂
Bob Southard: Interesting asset allocation.
Forrest Wong: Definitely an unusual one! The Globe and Mail wrote a brief article on it a few years ago — if you are so interested. https://beta.theglobeandmail.com/…/article13698927/…&
The Permanent Portfolio: the only investment plan you’ll ever need?
beta.theglobeandmail.com
Bob Southard: Oh, I remember the Permanent Portfolio! I think there was a fund designed around this at one time.
Justin-Lee Renfro: actually sounds like a smart way to diversify. I like this.
Bob Southard: I found it. PRPDX, mutual fund, Permanent Portfolio. I might have even owned this at one time. Morningstar rating of 2 stars out of 5. Over a 1% management fee too. Not so good.
Justin-Lee Renfro: The only thing I would change is the bonds tbh
Justin-Lee Renfro: I’d bee more interested in 60% stock 20% cash 20% gold allocation. I’m only 27 though. Its everything I got just to fill my Roth and match that in a liquid cash savings. Adding gold, separate stock account, or anything for that matter isn’t currently in my finances. My next focus is to add a separate stock account through my broker. Hoping next year.
Bob Southard: Justin-Lee Renfro Good for you. Wish I had done that at your age. Keep it up.
Justin-Lee Renfro: Its not picture perfect. There are times other things in my life might lack just to maintain the future investments. But nothing straining. But, with self – employment it’s important to me I build my own retirement otherwise I won’t have one ?
Bernie Klunder: The permanent portfolio (PRPFX) has had a lifetime annualized return of 8%. There are two balanced funds with similar long term returns: (1) Vanguard Wellington (VWELX) in the U.S. and Mawer Balanced Fund (MAW104) in Canada.
Greg Williamson: Zero!
John Shore: “since we know a correction is coming”1. We don’t know anything2. A correction could happen at ANY time.3. About 10%.
Bob Southard: I guess if a correction could happen at ANY time, we do know something. That was all that I implied in my question. I have NO idea that a correction is coming soon, but it WILL come some day.
John Shore: You seemed to be implying a correction is somewhat imminent.It could be a week away it could be a decade away…..Really you or I have no idea when.
Bob Southard: John Shore I have no clue. I just know it will happen some day.
AJ Singh: Equal in cash, stocks, gold.
AJ Singh: Amazing how many times a day you see a post about the “crash or correction.” If you are diversified why does that matter except it’s a good time to buy buy buy.
Michael Morse: You can’t buy a dip if your fully invested.
AJ Singh: Michael Morse of course not. You should never be full invested. Always have some cash on reserve for those dips.
Caleb Conner Ananda-Stout: Why would you buy when the market is overvalued. Makes no sense.
AJ Singh: Caleb Conner Ananda-Stout when would you buy? Folks have been waiting for a crash correction for two years. A stock which was $30 is now $70?
Bob Southard: AJ Hannah And thus my question, how much cash are people reserving for those dips.
AJ Singh: Bob Southard I don’t know about people but I have enough to buy my favorite dividend paying in my portfolio currently and pad them so I can sleep even better at night?
Caleb Conner Ananda-Stout: AJ Hannah People have been waiting since 08′. I can’t get behind the strategy buy high, sell low. It makes no sense to me.
Caleb Conner Ananda-Stout: I would wait until after a major correction.
AJ Singh: Caleb Conner Ananda-Stout why buy high since there’s enough out there which is pretty low right now buy that so at least someone he continues to work till that correction comes.
Caleb Conner Ananda-Stout: For example:
Jason Hall: Depends on your situation. If you’re young and adding new cash regularly, it may not make much sense to keep much at all uninvested. If you’re near or in retirement, your situation would require a lot more cash. I’ve been fully invested at times over the past six or seven years but have seen my cash balance grow over the past year or so. It’s maybe 12% of my retirement portfolio which is the bulk of my invested wealth. But not from selling. This is from adding new cash and just not investing it just yet. Personally I’m not waiting on a correction as much as just being more opportunistic.
Stephen Wallace: ZERO
Michael Morse: 40%
Tecunseh Amos: A correction is possible at any time but there are many factors to watch for such as home sales, cpi of durable good… and it goes on.I am watching 3 things as well as all of those other bench marks…1. The Fed raising lending rates… sure they have raised a handful of quarter points but it’s still cheap to borrow.2. In the last 6 months the dollar has slid in value to other currencies so foreign countries are more willing to purchase American goods and services3. Inflation rate… when the dollar slides the Fed has to take measures to control inflation… which is highly disruptive to the macro economy… but inflation is currently okayPersonally I think the economy should be screaming like a high powered fighter jet but it seems to putting along like a model A with a exhaust leak. I’m still seeking answers to my opinion
Michael Morse: It’s cheap for banks to borrow…not cheap for consumers.
Tecunseh Amos: You might have bad credit
Raymond Borger: In June I got a home loan for 3.5% I think that’s pretty cheap.
Tecunseh Amos: Nice
Milton T Eaton: My cash approximately 0.5% or less of my portfolio. I like to stay fully invested. My small cash % will be invested within a month. When market goes down I put new cash in
Nichole Taylor: A broken clock is correct twice a day
Jeremy Lvancevic: I’ve been hearing about this correct for 7 years now. SP500 up 100% since 2010. Not going to wait out a 10% correction.
Bob Southard: Perhaps you haven’t been paying attention, but there have been many corrections in the last 7 years. Here’s a reference. No problem staying fully invested, but don’t pretend that the market never goes down.
Milton T Eaton: Jeremy, a 10% correction occurres on average every 1.5 years. It’s just a bump.
Caleb Conner Ananda-Stout: -Major correction happens every 8-12 years on average. We are overdue-We don’t know when it will happen due to quantitative easing.-If my DD has been right it should come crashing down within the next couple(1-3) years because the markets are far too overvalued.Overcorrection probably down to estimate: 8 thousand then a bounce to 15 or 16 thousand to be at equal value in the market, pre 08′ levels. Based on DOW.Allocated 67% of residual cash into Bond’s, TIPS and ETF‘s. These run Inversely to the market. Waiting for large correction to diversify back into vanguard emerging markets, foreign markets and a few handpicked ETF’s.
Justin James: When the Federal Reserve increases the federal funds rate, bonds decline in value. Since we’ve been on perpetual standby on higher Fed rates, and the probability of rates rising through the next few years, I second thought and avoided trimming stocks, to go into bonds, as a part of my rebalance.
Tecunseh Amos: True that the market runs in cycles but cheap borrowing and the slide in value of the dollar is propping up the economyBTW just bonds are directly affected by interest rates. TIPs are a great hedge for rising interest rates but generally bonds lose value when interest rates raise…and even then you may lose spending power when they mature from inflation
Caleb Conner Ananda-Stout: Justin James The feds increase rates in response to inflation. Bonds do not take much of a hit at all, they are considered to have an APY and (EDIT) not really influenced all that much by fundamental data. When the feds increase rates it’s because they are anticipating a crash…then when a crash happens they lower those rates.
Caleb Conner Ananda-Stout: Amos Tecunseh Very minor fluctuations in Bond’s currently. Not a big concern since hedging against a downturn is entirely the reason i have it this way in the first place.
Tecunseh Amos: True, but I believe the Fed will over time to raise interest rates and before maturity if you sell,it will be a discount
Roger Brinkhaus: What do they mean by what is your cash level how much cash you have in the bank?
JC Catalano: No, how much of the money you separate for investments is actually still invested and not sitting in the wings. Not necessarily in your bank.
Roger Brinkhaus: So 401 k investments arent considered cash then if they are currently invested in something
Bob Southard: Roger Brinkhaus If you look at your 401k as 100% of your investments, then the amount that is in a money market is your cash amount. If you have no money in a money market, and everything in investments, then your cash position is 0%.
JC Catalano: Bob is technically very correct. Without knowing you had a 401k operating, I was thinking you meant money in cash account “unsettled or settled funds” vs everything invested somewhere. Those details sort of mattered. Bob, good answer!
Roger Brinkhaus: Thanks Bob,and JC!!!
Raymond Lee: cash doesn’t yield any returns so it’s a discussion about downside risk vs opportunity cost. Why not buy something that will go up in a market down turn? That way at least you are invested. IEF for 10 yr treasury, GLD for gold, FXY for Japanese Yen. There is always something out there. If you must be fully invested stick to equities like most equities fund managers are mandated to do, then maybe something different that out performs in down markets such as EWL or IWD or defensives.
Nick Lee: like 1%. The decline from peak to valley can take months. So as long as I’m still able to contribute money and the dividends keep rolling in.
Eric Brooks: Thats my thought too. If I can still average down during the bear market and own quality stocks I should be just fine staying in them.
Nick Lee: S&P 500/DJIA took from Oct 12,2007 until March 6, 2009 to reach the rock bottom. I’ll take my chances averaging down over the course of time so I don’t buy in too early.
Andy Pickett: You don’t know when a correction is going to happen. You are missing out on growth by not having that cash invested. A correction won’t happen overnight.
Mark Morelli: I use a bucket approach. I don’t have a set %. I hold enough cash to pay expenses over the next 2 years. All other funds are invested in fixed income and stocks. A correction will not affect my dividend income (or any income).
Justin-Lee Renfro: Is fixed income bonds and cds? Or is that Etfs, indexes, mutual funds, etc? (Sorry I’m still new to all the lingo)
Mark Morelli: Justin-Lee Renfro Fixed income can be bonds or bond funds) or a stable value fund in your 401k. CDs can be considered fixed income too. Go to the Investopedia for other examples.
Justin-Lee Renfro: thank you Mark Morelli
Ryan Jackson: I’ve got my accounts in advisory. 2% in cash inside both IRAs. All my excess cash goes into mutual funds. I’d say if you’re scared of a correction to throw some cash in a good bond fund. When stocks are weak, bonds usually are stronger. Scared money makes no money.If you’re a long term investor, keep your money in the market. Keep adding to it on a dollar cost average monthly. Let the money managers do their thing.
Kathy Moore: I’m about 45% in equities, the rest is a mixture of bonds, CDs and cash. I’m pretty conservative since I’m retired now. If we have a correction I might put more into the market.
Bob Southard: Some people took my question on cash level and possible correction as some alarmist statement. Far from it. I am close to fully invested, and pretty bullish on the market. I run a balanced portfolio. If there is a down turn, you could sit on cash to await the opportunity. However, rebalancing a balanced fully-invested portfolio is a way of taking advantage of the lower prices. That is, you end up moving money from assets that are stable or going up, like bond funds for example, to equities that are depressed in price. Some of the comments allude to this, like keeping cash in bond funds etc. I thought I’d just bring in the rebalancing idea as it works pretty well. BTW, I am retired, and do not have income to add to equities when they are depressed. You folks with income have other opportunities. Our situations vary a lot, which is something to keep in mind before you jump to judgement.
Raymond Lee: well done. sounds like you got it covered. hats off to you
Peggy Morton: Excellent discussion, Bob Southard. This is something that has been on my mind, but didn’t quite have the full picture thought out. This discussion helped me alot!
Peggy Morton: This is a great discussion, but not getting apples to apples without some other variables added in. If everyone indicated their % distribution of stocks, bonds, ETFs, minerals and cash, then how many years until retirement, and their risk aversion level (low, medium, high), then this would be a fantastic take-away.
Michael Morse: I’ll retire when my assets equal $500,000
Mary Gee: Michael Morse : You could live well on $500,000 for the rest of your life?
Raymond Lee: Peggy Morton. If your approach is to leave it or cannot touch it but deep down you know you will log on the account every week to see how it is doing, then here is one suggestion that I have some knowledge on. By all means not the only possibility but can leave you something to think about.You could have twice as much notional value on 10yr treasury as equities and half as much notional value on commodities as equities and same for Gold. for example for every 1000USD in equities I would suggest 2000USD in 10yr treasuries and 500USD in a mix of commodities (33% oil, 33% copper, 17%wheat,17%corn) and 500USD of gold. Rebalance annually. Low risk = no leverage, medium risk=2:1 leverage, high risk=4:1 leverage. This portfolio will average 6% annual return over decades for no leverage,12% for 2 to 1 leverage and 24% annually if levered 4:1. Last time this portfolio (or a slightly more complex version of it) lost money was early 90s and the 4:1 high risk portfolio would have been down ~15% whereas the low risk one would have been down just shy of 4%. Since the great depression in the late 20s this portfolio has only been down less than 10years. For more complex and sophisticated folks you could add a derivatives overlay and currency overlay and it would be almost bomb proof.Hope this helps.
Joshua True: im 20 years old, i have about $50 in cash and 14k in stocks
Sam Smith: I’m at 5%…if one doesn’t need the $ in 5 years leave it be…
Justin James: I’m 48. I just skimmed 10% to cash, today. It’s the second time, this year, I’ve rebalanced into a cash position. If things keep going, I’ll put it right back to work. There are definitely small pullbacks along the way, if the doozie doesn’t show up.
Tyler Kline: Sell everything ya got and immediately re-open small positions, then average down as the market allows.
Mary Gee: Tyler Kline: Preplanning for the crash/correction?
Mary Gee: Tyler Kline: If so do you see it occurring before the end of the year or at the beginning of next year?
Tyler Kline: I’d say before the new year
Mary Gee: I’m sitting on cash… waiting
Tyler Kline: I try to keep about 50% cash at all times, although it is usually a little less than that.
Roger Brinkhaus: What do you mean by sitting on cash
Mary Gee: Roger Brinkhaus under my mattress!! 😛
Mary Gee: Roger Brinkhaus : Money market/sweep accounts/etc.
Roger Brinkhaus: Where do you put index funds then
Andy Pickett: People have been sitting on cash since 2010 waiting for a correction…
Roger Brinkhaus: Well i been hearing from the pros if the dollar crashes your cash is worhtless like back in the great Depression
Michael Morse: Yeah…remember what happened to the ruble? The world would have to put trade restrictions on the US if they wanted the dollar to crash.
Tyler Kline: buy low, sell high
Bob Southard: If you don’t want any of those nasty old dollars, please send them to me.
Mathieu Litalien: I have some cash, but if I could find an undervalued or fairly valued company that I am interested in, I would have 0 cash. No sense in holding on if you see opportunities today.