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Time to get more conservative with your investments. Just moved my retirement accounts from 100% in a 2050 lifecycle fund to 75% in a 2030 lifecycle fund and 25% in just government bonds.

Not all investment vehicles have a "lifecycle" fund but its intent is to be appropriately conservative for a target date. As the date grows closer, the fund gets more conservative in order to lessen the risk of sudden swings right before you retire.

I don't recommend day-trading, or liquidating all your investments, or anything like that. However, if there's a professionally managed fund with the specific goal of being stable along the timeframe of 11 years, I'm gonna take it.

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Why does low or negative yield bonds mean that you are going to be ok with govt bonds? This is exactly the problem, where bonds are no longer providing interest payments.

I agree that being more conservative is probably necessary, however I think other than specific investments and... burying your cash might be the "conservative" options. Bonds were those, and no longer are now.


> This is exactly the problem, where bonds are no longer providing interest payments.

If interest rates drop even more, the value of bonds go up.

Right now, a 1.68% 10-year bond looks like it sucks. But next year, a 1.68% 9-year bond will beat the pants off of a 1.3% 10-year.

You can sell a 1.68% 9-year bond for a lot more money when everyone else only has 1.3% 10-year bonds. If the 10-year drops to 1%, you'll make even more money. A falling interest rate market benefits those who buy bonds, especially if no one knows where the bottom is.


Thanks for the reply, I was confusing negative yield curves[1] with negative yield bonds (in the EU) [2].

It seems like if you already have high yield bonds, the value will continue to rise, as people exhaust other low yield options... however isn't this total value capped by the yield+face value? I don't really know how bond pricing works, but if you bottom out the yeild, or anticipated yeild... you should only be able to make the face value back or someone is buying negative yields.

EDIT: I _guess_ the bond reaches "maturity" in a much shorter time, which is perhaps your point. "1.68%" over 10 years is shit compared to "1.68%" over 1 year.

EDITEDIT: Also assumes you are not going to be eaten by inflation, which could push you into negative yeilds.

[1] https://www.investopedia.com/terms/i/invertedyieldcurve.asp [2] https://qz.com/1647791/12-trillion-of-negative-yielding-bond...


> It seems like if you already have high yield bonds, the value will continue to rise, as people exhaust other low yield options... however isn't this total value capped by the yield+face value? I don't really know how bond pricing works, but if you bottom out the yeild, or anticipated yeild... you should only be able to make the face value back or someone is buying negative yields.

1. Bond prices are primarily determined by auction.

2. If a big bank (and the US Fed is one of the biggest banks) decides to make a move, smaller banks, and the general market, will shift the prices of bonds.

> EDIT: I _guess_ the bond reaches "maturity" in a much shorter time, which is perhaps your point. "1.68%" over 10 years is shit compared to "1.68%" over 1 year.

No. Its 1.68% per year over 10 years. Bond pricing is standardized upon APY (its a "notational standard": bonds all have their own terms. But you can always math-out an effective APY given any bond structure). US Treasury Bonds physically have a coupon (every year, or maybe twice a year, they give a $$ amount), and a principle (at the end of the term, you get $$ back).

Anything less than 1-year only has principle (and is commonly called a "Bill"). So you get different APYs by shifting the price of the bill. Ex: You may buy a $1000 (principle) 1-year Bill for $980, effectively earning 2.04% APY in this hypothetical example.

In any case: the reason why a 1.68% 1-year is better than a 1.68% 10-year is because you only lock up the money for 1-year (in the case of the 1-year bond). So normally, a short-term bond gives a lower APY.


I know nothing of finance, but I have a normal liquid savings account that's paying 2.25%, apparently "permanently". Why would anyone buy a less-flexible product that pays less?

> normal liquid savings account that's paying 2.25%

Yes. That's what an inverted yield curve means. Liquid funds are "more expensive" than long-term funds. That's why things are inverted right now.

The long-term expectation (over the course of the next 10 years) is that savings accounts will drop. That's why people are willing to "only" be paid 1.6% for a 10-year, because its better to be paid 1.6% for 10 years... rather than 2.25% for this year (and then only 0.5% for the next 9 years).

In essence: the bankers are taking the opposite bet you're making. When the bankers are making a move, you probably should think about the future of money... bankers probably know more than you and I do.

EDIT: > Why would anyone buy a less-flexible product that pays less?

Because they have a pessimistic view of the next 5 to 10 years. When big-money starts to make these pessimistic bets, its a recession indicator.


It's not permanent, it fluctuates with the Fed's interest rates.

That high yield savings account is (likely) unavailable to their tax-advantaged account(s) such as 401k. In that case, their choices may be limited to stocks or bonds.

You can hold CDs in an IRA; currently Navy Federal is offering a 5-Year CD at 3.50% APY available for IRAs with no maximum purchase amount. [1]

Earlier this year I opened up an IRA with them and I put $100 in a 3.680% APY 40 months CD. I did this because they were matching the first $100 on new IRAs, so I deposited $100 and they deposited $100.

[1] https://www.navyfederal.org/products-services/checking-savin...


It's not actually permanent. Your bank almost certainly has the right to change it daily, and once their asset acquisition goals are met, they probably will.

Not knowing exactly how much you want explained; but...

The yield curve is inverting because buyers with serious money are buying medium-term cash instruments in defiance of naive valuation logic that the short-term cash instruments are more competitively priced.

This suggests that they see something in the near future, big enough that they are throwing the easily calculated "Net Present Value with usual assumptions" out the window when they make their purchasing decisions. Since bond buying and selling is usually done on a pure NPV basis this is a big deal and a good signal that it is time to avoid anything that might be risky until we find out what the big thing is.

Hence, buy government bonds as the single most conservative option. NPV might be partially irrelevant.


The bond interest payments are separate from the value of the bond. Which you can sell back at a greater premium and faster than even worrying about maturity.

This is the greatest bull market in bonds of all time and they are starting to behave like cheap deep in-the-money options contracts, which decline slightly in value over time due to theta (time value). Options are fun.


I’m not sure how I get your logic? I do think the US bond yields have a large discrepancy versus other developed market yields, but convexity greater increases as yields fall towards zero. So how is that behavior similar to a deep ITM option?

the only similarity is that a deep ITM option is an asset that decreases in value in one way while gaining in value in another way, due to the same forces.

a negative yielding bond - or a bond going towards negative yield - decreases in value one way while gaining in a value another way, the more it gains in value the deeper the negative yield goes.


Or cash out what you can and wait for the dip to reinvest...

Personally I'm sitting tight, but that's because I'm a long term investor not a day trader.


I missed the big downturn twelve years ago because I procrastinated. My 401k money was in some fund that was no longer being offered, so the money was transferred into a currency fund (I don't recall what it was). I kept meaning to move it to an index fund, but never got around to it and then the market dropped. A year later I did the transfer and as a result I did very well.

I haven't touched it since but now with yield curve warnings popping up, I'm starting to think I should.


I'm 40% in cash, 50% in S&P and 10% in small-cap. The last few months, all of my contributions have been going into cash, so that when the fall happens, I can hopefully scoop up a deal.

Let’s talk in 10 years and see if your cash will beat my S&P allocation.

Yup. I "called" the recession in 2017 and spent 2016 building cash reserves instead of investing.

I was wrong.


Well if this was Nov 1999 (one year before the crash), S&P 500 was at $1.4k, so it would've taken you 14 years for your position to be in the green again

Now do this experiment with reinvesting dividends instead of just looking at the chart.

27% return over 14 years with dividends reinvested (1.86% annualized)[1]. Although when we calculate it with inflation its -7% and -0.5% annualized.

Not exactly a compelling argument since you could've made a risk-free return via savings accounts (Wealthfront currently has 2.3%, which I'm sure has been higher in the past).

[1] Nov 1999 one year prior to crash, to Nov 2012 https://dqydj.com/sp-500-return-calculator/


Additionally you should not spend all your money buying stocks at once. Spreading it across those 14 years would have been quite profitable.

It’s about diversification and timing the market not simply holding cash for 10 years. I also just sold some stock, but I am still 75% in stocks.

"and timing the market"

Hmm. Isn't that known to be impossible?


not impossible, but very unlikely for a layman. it's like trying to win a 1v1 against an NBA player.

Depends on what you mean by timing the market.

Several strategies like keeping a fixed ratio of stocks to bond are effectively timing the market. You pull money out of stocks when they go up, and put money into them when they go down.

Personally, I am less interested in absolutely maximizing my returns as I am maximizing the likelihood of reaching a return threshold.


A fixed ratio like rebalancing? That’s not really timing the market as you typically rebalance after a set period regardless of how the market has moved.

But you still money money the opposite of how the market moved.

Rebalancing is really taking money out of whatever the better investment was and putting it into what was the worse investment. Consider what would happen if you rebalance an asset like a stock that’s slowly going to 0. Over time your portfolio also hits ~zero even if everything else was going well.

Sure, for a sufficiently diversified investment like the S&P 500 it’s unlikely to hit zero. But the question stands why take money out of the better investment for 50+ years? You could be moving from 10% returns to 2% returns. The theory is about timing the market, you get better returns investing after ups than downs.

PS: Though better may in fact relate to stability more than absolute percentages.


Timing the market is exactly what you said about saving cash. Changing your asset allocations based on age or other milestones is not timing the market in any way. It’s reducing risk if you are about to retire.

Changing your asset allocation yearly or quarterly based on news is foolish. I’d call that timing too.


As I said a fixed asset ratio is timing the market. The expected returns for socks are higher than bonds, it’s rebalancing that makes fixed ratios a good idea.

As to changing asset ratios, it likely reduces maximum returns. But, wealth has diminishing marginal utility. I can save a little more to make up for a small loss in returns for a few years, it’s much harder to make up for a 50% market dip.


For the layman? I’d argue any investment professional who correctly timed the market (as a whole) simply got lucky.

As a person who isn't in any way confident in my ability to time the market, I think I'll stick to the old adage of time in the market not timing the market.

Warren Buffet made the same bet, S&P 500 vs some hedge funds. From 2007 to 2017 S&P gained 7.1% vs 2.2% for the hedge funds. The hedge funds arguably know more than you.

The hedge fund must have been doing a different strategy as I did much better than 7.1% from 2007 to 2017. Left at 1500 got back in at 930 and then ignored the market for 10 years.

The bet was for returns AFTER fees, though. S&P was its return minus 0.05%/yr (or whatever it is for vanguard). The hedge funds was their returns (which did suck compared to the S&P500 IIRC) minus 2%/yr plus 20% of final profits.

For the individual investor Buffetts advice was still right. Unless you have millions or billions to manage.

I just sold half of my holdings to have cash for the inevitable dip thats coming

There’s nothing wrong with trying to buy a dip... so long as you know that you’ve left off investing and started gambling instead.

I'd disagree with this approach. If your target retirement date really is 2050, you have more than enough time to weather a downturn in the market.

The key problem with timing the market is it's easy to miss out on the recovery. Most people get back in once the recovery is obvious and the big gains have already happened.

During 2008 I tried to put my money where my mouth was and not touch my investments. My portfolio went down by 35% (several hundreds of thousands). But I was in at the bottom. However, it recovered in less than 2 years and is now up about 250%, mainly because I was fully invested during all the big gains.




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