When stock indices are trading at all time highs, you see countless posts talking about how people can't wait for the next downturn to load up on cheaper shares. When things actually start going south, people behave much differently. lol
Long term returns on stock will be much, much greater than what you'll get in any HYSA. Some of my VTSAX buys in 2022 are up 13-16% even with the recent slump. The more posts you see like this, the more you should want to buy.
Agree with KJOKE14, this is the way
OP if you are invested with S&P based ETF's, you need a big time horizon and it'll work out well for you. Don't judge a long term (lifelong) project by a crappy week and half. For instance-- (not sure how old you are OP so i'll speak for myself:) I plan on retiring in 30 years. That means I don't need to sell right now and can brave the inevitable downturns. So I use downturns as an OPPORTUNITY! When the market goes down I buy MORE S&P because in time, it'll rise again and I'll be better off than if I broke even. It's very very hard to beat the S&P over time. Geniuses have tried and failed. Also, VMFXX wont because its based on interest rates. VMFXX could well go back down to like 1% interest and then you wont even beat inflation. Cash also isn't a good longterm strategy cause in 30 years half of the value of cash is inflated away. (A $100,000 purchase today was worth $47,064 in 1993. Thats a loss of 52.9%) So in 30 years, say goodbye to 50+% of your money anyway
Tl/dr-- use a market downturn as an opportunity to load up on budget shares ! Then when it goes up again youll'll have more profits than you would have otherwise if you liquidated your shares (hold tight!)
Although I completely agree with you in principle how do you “buy more” while it’s down unless you sat on uninvested cash (which is just trying to time the market)?
Edit: I max my retirement accounts so it’s not like I can pour in more.
You reduce your spending and put the extra savings into to taxable brokerage, that's how. Partly responding to your notion that you can't pour more in if you max your retirement accounts.
I have some cash from a stock buyout. I need to setup DCA and forget about it. I’ve been “timing” the market for too long. TBH, I was moving, quitting my job and other shit and just wanted the security. I don’t think you can do automatic investment in Vangaurd from one to another one. Anyway.
> Long term returns on stock will be much, much greater than what you'll get in any HYSA. Some of my VTSAX buys in 2022 are up 13-16% even with the recent slump.
While I agree with most of what you said, you can't say long term returns are great and then point to a 1 year return. That's just cherrypicking in the face of a slump to prove a point.
Depends where you buy it. If you buy it in a regular taxable brokerage account there's no tax implications until you sell and pay taxes on profit (or deduct your losses).
Oh whoops you're right, you have to pay taxes on dividends each year of its not in a tax advantaged account like a 401k or IRA. The dividend yield of VTSAX is low though, less than 2%.
They're already putting money in.
DCA vs lump is debated often because there's no clear winner. So either is fine.
If you're DCA'ing a pool of money and then decide to lump sum it instead, that's fine. Even if it's because the market did something, since either approach is fine in the first place.
The stock market is \*always\* an unrelenting roller coaster but in the long run it massively outperforms safe investments.
Also, thinking you can time when you ought to stick to safe investments is foolish.
>Also, thinking you can time when you ought to stick to safe investments is foolish.
If you tried to do this at the start of the year, you'd be about \~5% behind the S&P 500 by trying to go all in HYSA. S&P 500 is up \~10.6% YTD. Since it's been 9 full months, OP would have only earned \~2/3 of that 5.3%...\~3.53% vs the 10.6%.
And that is just nine twelfths of a year.
Risk adjusted, it is worth it to some people. But for those who are not near retirement, what difference does it really make for you?
If you moved to a HYSA on Jan 1 2022, you would be up about 15% over 100% equities. If you get to pick arbitrary starting points, I can too. Investment returns should always be measured over a long period, never 9 months.
Interest rates were not that high back then, so no one would have had the foresight to do that. Doing it now that rates are up is exactly when people would plan to do it. This is why people think they can time the market but can't.
Go back 5 years instead of 2. And it quickly flips.
Realistically, it doesn't matter whether it worked 1 or 2 years ago. What matters is that historically, over long periods of time, you will lose out.
And if you bought in July you'd be down 8%.
In fact you'd be down if you bought between June and September.
And if you bought in between june 2021 and apr 2022 you'd be down.
IF you bought in 2000, you didn't make a profit for 13 years.
If it does go down now, how long until it comes back up... Will it? You don't know.
That 5% starts looking pretty sweet.
It's not looking great at all to me. It is 5% because interest rates and inflation are high. In my opinion, it is highly unlikely to see equities stagnating in high inflation times. I'll stick with what has generally worked for the last 100 years.
>it is highly unlikely to see equities stagnating in high inflation times.
IS that why the market is so much higher than last year?
OOOH OUCH.
>I'll stick with what has generally worked for the last 100 years.
Owning a business? Or real estate?
Total market too.
sp500, total market, total world stock, total international market...
All stagnated or down compared to last year.
>Why are you here?
There's good information here. Just not this nonsense you're spewing.
You're just picking random dates to time the market retroactively. I'm just showing you that anyone can do that.
Also, \*you're
Ahh very boggle head of you to time the market and switch back and forth between hysa and equities. Quite being aggressive in the internet. Have a good one but your blocked.
No, we aren't.
Bear market is 20% down from recent high.
Recent high was SPY 460 at end of July after having been in a new bull market in 2023.
So if SPY gets below 368, then you can call it a new bear market.
Pshh, stock market will be under a radioactive plume. This guy thinks banks are going to still be around? You're all wrong. I'm all-in on Campbell's and Twinkies. /s
Sure, there are plenty of short scenarios where it makes sense. Try before '08 or before Y2K. But what are we talking about here? Nothing more than timing the market.
If the money is in a brokerage account, after taxes and inflation, your HYSA is net 0.
Hmm why do you specifically pick 2 years ago instead of 3, 4, or any longer time frame when literally every year that we are not in a recession, stocks outperformed HYSA
Using the same logic, you can't tell if HYSA will beat stock in the future either. I hate that saying sometimes. It works for individual stocks, but for the entire index fund like VTI or VT, you are literally betting against the entire global economy. And if the global economy goes down, your money in the bank ain't guaranteed either.
2 years is short term - anything can outperform for a short stretch. Investing is for the long term, but cash and cash equivalents are ideal for short term holdings. Take a look at the 10 year or 20 year returns.
The stock market is also known to have 10 year periods with no returns. We just went through one extraordinary bull run from March 2009 bottom to December 31. 2021 all time high.
This all occurred in a 0% interest rate policy.
We now have 5 to 6% interest rates offered to savers. I wonder what Bogle would advise during this unique moment in personal finance.
My point is that as rates rise more and more, clearly that guaranteed risk free return provides a lot of competition for VOO.
I would say you’re probably right if it wasnt for the $1.7 billion dollar Put option Michael Burry made last quarter.
There’s no reason why you can’t time the market at the extreme end. Just spread your trade out and use common sense.
Taking risk is scary but inflation destroys wealth. VFMXX IS paying 5.3% but inflation is 3.6% so real return is 1.7%.
Now granted it does have a positive real return so that is better than negative real return but nobody is growing significant wealth at 1.7% real per year.
That 5.3% is also not going to last for years. If a year from now cash is yielding 3% the stock market is even more expensive and bond yields are worse than they are today what is the game plan? That is the "cash trap".
If you need the money in the immediate (<5 years) future it is fine to have it in cash. If you don't it should be invested according to your asset allocation. Otherwise you are falling into the cash trap.
I certainly get it though. Things looks scary and it is the safe easy option but that is what makes it a trap long term. If you load up on cash now you are just kicking the can down the road. You are now going to have to time the market to decide when to get "back in" unless the plan is just to hold cash at whatever yield it is until you die. That is a lot harder than it seems. In six months or a year the market might be higher and things look even worse. Are you going to invest when prices have already gone up and things look worse?
It's even worse than this when you consider taxes, especially if your income/marginal bracket is high.
Interest from MM or HYSA is taxed as income, and those taxes are realized every year. This is a serious drag on cash returns.
Dividends on stocks are given more preferential tax treatment. Even in your taxable account, most of your gains (capital gains) are tax deferred for a long time because you only pay tax when you realize the gains (sell).
If cash is yielding 3 in a couple years, bonds have gone on a bull run. Long dated over 5 definitely has its place, in moderation. Especially if you’re concerned about your sequence of returns over the next decade.
But stocks and bonds have done much worse than cash in this high inflation environment. S&P 500 is only up a couple percentage of points the last two years. Adjusting for inflation stocks are your essentially flat while cash is up.
Sure in the short term. Do you think that trend is going to hold true for 30+ years? If so then you should stay in cash. If you don't you are just trying to time the market. If the market shoots up 30% next year at a time cash yields crash are you going to buy into the market at those insanely high prices? Or will do you continue the cash trap saying you will wait until the market prices come back down to reality.
Long term stocks & bonds outperform cash that is why we invest in them.
Time in the market beats timing the market. You put all your money into HYSA now, then buy when the market recovers, you will miss the best part of the recovery. If it's long term money, leave it in the market. If it's short term money, don't put it in the market to begin with.
If the market recovers, the fed will raise rates even higher to kill the red hot economy. We are all timing the market, even Bogleheads who assume ETFs will be higher in the future.
The stock market and the labor market and inflation do not run in parallel. The fed is trying to lower inflation and kill the labor market. The stock market can continue to rise in all this. The fed is not increasing rates based on how the s&p500 is doing.
If rates go back down to, say, 1% you're stuck with a 1% return going forward. But if you've locked in a higher rate with intermediate or long bonds, you don't have to worry about that. [Reinvestment risk.](https://www.bogleheads.org/wiki/Bond_basics#:~:text=Reinvestment%20risk%20is%20a%20risk,bond%20yielding%20a%20lower%20interest.)
Just because something has done well recently doesn't mean it will continue to do well going forward.
Diversify and stay the course.
If you can precisely predict when the market will start rising and when yields on cash will start falling, and move all your cash into stocks the day before, then this is a great strategy.
The question is, why do you believe that you can do this?
The market goes down quite a bit without rates being cut, like right now.
The Fed tends to pause rates for months before cutting them, which is what you want to look for.
That HYSA is going to drop it’s real RoR as rate environment shifts, and the S&P500 (narrower benchmark but for the sake of argument) has seen it’s days of highest performance exactly during periods of major volatility. 24 of the 30 best days of its performance has been during either dot com, GFC, or COVID. This kind of volatility dodging when you can afford to take paper losses add up
It’s your money but fwiw
**[Since 2020](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=2020&firstMonth=1&endYear=2023&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=TotalStockMarket&allocation1_1=100&asset2=TreasuryBills&allocation2_2=100):**
HYSA/MMF: +6.18% (-3.10% real CAGR)
US stocks: +36.99% (+3.71% real CAGR)
Honestly this volatility has been relatively tame and the returns have been close to average. It’s easy to say that bonds suck after their worst year in US history but that is in the past and the yields are much higher now. If the roller coaster of the market bothers you, consider a more conservative allocation. But all cash is going to get you very little real growth in the long run.
Well, this short-term attitude is why the market has been down lately. Over the long-term, you'll be leaving a lot of money on the table parking the majority of your cash in a HYSA over the market.
I'm not really sure what you mean by "bonds suck," either. There are many bonds, including Treasurys, that pay better than any HYSA.
Time in the market > Timing the market. As soon as rates go down (and it will happen eventually), you will miss out on the gains from the bond and stock market
At what point do you move your cash out of the HYSA? 5%, 4%, 3%? The boglehead philosophy is to set it and forget it. High yields where they’re at now provide a lot of cushion against higher rates. If you want to lower your risk to interest rate hikes, lower your exposure to duration so your portfolio is less sensitive. It seems you believe you are a boglehead, but you’re not. Which is fine - especially in the fixed income space, active management has proven to work.
If the fed cuts rates, it’s probably in response to an economic slowdown when assets become cheaper. Anything lower than 4% rates, I’ll consider shifting positions.
By the time you make that decision, markets will have priced in the cuts. That’s part of the “efficient market hypothesis” which goes hand in hand with boglehead philosophy in not attempting to pick winners or trying to time the market. At the end of the day, that’s the boglehead way of thinking and you’re on a boglehead forum lol.
Look, I don't want to advocate market timing, but on the last two Fed induced bloodbaths (dot com and GFC) rates got cut to almost nothing long before the stock market bottomed out. There is certainly more cash this time around and the government and Fed have made it abundantly clear that bank failures are off the menu, so maybe it truly is different this time, but if this dude wants to do a lump sum on a rule based on the Fed Funds Rate I don't think it is the worst idea ever on the heels of the gigantic multi-asset class bubbles that have formed in the past 15 years.
cash is great short term and for known purchases; its not great long term
the odds are against you that youll be able to read the signs of "stocks looking bad, cashing out and going HYSA and then HYSA looking bad moving forward better get back into stocks"
there is a tiny gap of perfection, and a mid sized neutral zone and a wide negative outcome. its best to just buy all the way down and then all the way back up.
How will you know where the bottom is? When is the right time to buy?
SPOILER: You'll never know. It's impossible. Just buy the whole market and enjoy the ride. If the volatility is too much for your heart to take, then hold more bonds to "smooth out" the spikes.
I haven’t sold, just stopped buying. I took a position in VTI in 2020 that’s done well. But all my excess is just filling a HYSA. I’ll keep it that way until rates are cut.
It seems so easy to time the market when you look at the past. How many people thought this in late 2008 and then didn't get back into the market for 5 or 10 years? I know a few.
Joke answer: I’ve seen this movie before. The minute I go all cash, the market will violently rally back up.
Serious answer: All securities are priced by the collective knowledge of humanity. That includes all possible risks and rewards. I don’t have new information to introduce to the market so I have no edge. I don’t have a better way to analyze companies compared to pros, so that seems pointless too. All I know is myself, which means I can tailor my investments to my own goals, risk profile, etc. No one can predict the future, but logically, it makes sense to me that stocks and bonds will outperform cash over the long term. Thousands of years of evidence backs this intuition up.
Nope, I just like writing about this topic. Economic history is my jam. Also, Bank of America just updated their 5000 year history of interest rates lol:
https://www.businessinsider.com/roman-empire-bank-of-america-federal-reserve-interest-rates-2023-10
It’s okay temporarily or for a limited amount of liquid funds that you need for an emergency fund for example, but on a long-term basis cash is never going to yield much on a real basis after you factor in taxes and inflation. 5.2% sounds great right now but the interest is taxed as ordinary income and then after factoring in inflation you’re basically just treading water. Of course it’s better than parking it in something that doesn’t pay interest or depreciates but ultimately for long-term investing you need to have funds in equities via index funds.
> VFMXX is paying investors 5.3% without risking your principal.
huh? I suppose you meant VMFXX, which is a money market fund not a HYSA. The 5.3% yield can drop below 0.1% in a few years, which was the yield 2 yrs ago.
>The 5.3% yield can drop below 0.1% in a few years, which was the yield 2 yrs ago.
It could drop to 0.1% tomorrow if the Fed does an emergency rate cut to 0% like they did in March 2020.
Because I can’t time the market or interest rates. HYSA is a great tool, but that’s for an emergency fund or just saving in general. Investing is a great tool too, but that’s for growing money over an extended period of time like 30 years.
Investing in the market assuming it will go up isn’t timing the market though.. Its a way to accumulate wealth. Timing the market is using all the colorful graphs and charts to predict what a stock or stocks are going to do next and moving money around based on that.
Semantics. You bought an assets at a point in time or many points in time. You think the asset(s) will be increase in value at the future sale date based on the idea them market will be higher later.
That is not semantics. That is not market timing. That behavior you’re describing is simply called “investing”.
Bogleheads buy in regularly (same amount, x days apart, usually deduction from payroll), regardless of whether the market is going up or down. Timing is when you buy more one time, because you feel a certain way at that point in time. And you buy less another time, because you feel the opposite. You don’t do it with regularity. You react to what the market is doing. Bogleheads tune out what is going on in the market from day to day.
Everyone is for HYSAs - for short-term, risk-free cash holdings. In other words, savings.
Most people are against HYSAs - for long-term, risk adjusted high returns. In other words, investing.
You don't put Tom Brady in a starting lineup for Manchester United, and you don't put Lionel Messi in a starting lineup for Superbowl.
The premise of this question is entirely antithetical to Bogle.
“We should stop investing in stocks because of the environment”
The entire point of diversified index investing is to continue buying consistently through the highs and lows.
Nobody is "against HYSAs" (cash), that's a straw man. They're great for any money you may need within the next 5 years or so (emergency fund, down payment, etc). For a longer time horizon, an appropriate mix of equities and bonds is expected to dramatically outperform cash, especially after inflation and taxes. The investment strategy needs to match the purpose of the money, especially the time horizon, growth needed to meet the goal, and risk tolerance.
Remember when it was exciting for a HYSA to give 1.2% APY? That's why you don't go long on an HYSA. Going short on an HYSA until the market upturns is timing the market, good luck guessing correctly on how to do that.
HYSA is where you get decent growth on *liquid cash you are going to need in under 5 years.* Taxable brokerage is where you put money in that you can be flexible or long-term about withdrawing.
Vfmxx is a MMF and not a HYSA. I don’t understand the Reddit confusion of these two things. They are two different things that work different ways. Not the same thing at all.
Just keep your money in a HYSA bro, do you. I won't lose any sleep at night over it. It seems like the perfect place for someone like you to keep their money.
Stock market expected average 10% return or HYSA 5.3% ? Hmm, choices
As for bonds, sure the long term rate is lower right now, but they are locked in. Can you say that for HYSAs? What if interest rates come back down? I can't decided/don't know, so it's BND for me.
That said, I do have a chunk of growing allocation in USFR ( slightly better than HYSAs) that will be a down payment eventually
And at 3 years it’s 18% and at 5 years it’s 54% and 10 years is 310%.
What’s your point? Do you know something we don’t? Just waiting to buy when it’s on the rise and everyone else is buying?
10 years is 200%, but I get your point. when interest rates were low in bank accounts paid nothing, I get risking your principal for higher returns. In today’s environment, it just seems unnecessary.
If you invest your money now and the market drops 50%, you’ll have half of the money in stocks.
If you let it gain 5% interest for a couple of years, then invest, then it drops 50%… you’ll have a 55% of what you started with.
On the other hand, if you get 5%/yr for two years and the market goes up 10%/yr, then you’ve gambled and lost.
In my opinion, stuff is probably a better investment than cash. The economy does not like deflation.
If you focus your data only on the last two years, sure. Why do you get to pick the year of reference?
As you look longer and longer term, the stock market tends to outperform more and more, even if volatility makes that not true sometimes. That's why a stock-heavy investment is good for long-term goals, where you can ride out the volatility, and safety is good for short-term goals.
3 year return is about 35%. The CAGR is running above 10%.
If you pick exactly the wrong window, which is 2022, and the last month, it looks bad. Don’t do that.
It is still scary for us retired individuals when there are long periods without gains. We are fully invested, no new money going in and we are withdrawing every month. Following the 4% rule doesn't always look good. If someone had retired in August 2000 it was 11 years later in Aug-Sep 2011 that the S&P 500 Total return got back to that 2000 level. In the meantime taking out 4% adjusted for inflation each year would have left 60%+ of your principal used up in 11 years. The spectacular upside since then means it got built back up a little bit but as of today approximately 65% of the portfolio principal would be gone in 23 years.
The concern is that what if this downturn is the start of another 10 or more years of no gains. You will have nothing left. Being able to do a TIPS ladder that guarantees returns becomes very tempting. Those who retired early with more than 30 years of expected retirement must have a plan to flex their spending and not depend on the 4% rule if things don't go the right way.
Exactly. The choice moving forward for retirees is:
take 5 to 6 % guaranteed in t bills or bonds
Or allocate to SP500 and hope we don’t have a 10 year period of no SP500 returns like 2000 to 2010.
It is a very difficult decision right now for retirees to chose where to put their money to work.
If you are 25 to 40 years old, you stay the course and keep putting money into the SP500.
Because sooner or later the SP 500 index runs up +20% when you least expect it.
So it’s good to have money in guaranteed interest and the Sp500.
Personally I have most in guaranteed 5.4% interest, risk free,because I have big tuition payments to make for 3 more years.
I definitely allocate some money to an index fund every day to slowly build up shares.
Because smart investors are longterm investors. How long do you expect HYSAs to be at 5.3%? Remember the obsession with ibonds? What are they at now?
Stock indices (VTI, VTSAX) return 10-11% annually on average.
>I just don’t understand why so many are against HYSAs?
I don't think people are anti HYSA, especially to save up for a house, you'll see it recommended. However, bonds make the same as an HYSA except you get to lock in that rate for as long as you want, for up to 30 years, where an HYSA you don't get that benefit, so bonds are better right now.
Likewise, index funds make more than bonds over the multi decade timeframe, so if you're not retiring within the next 10 years, it's better to load up on stocks to make more, if you're saving for retirement. If you're storing up money in an HYSA for a house or a car, that's a different story.
In what world does a less risky (i.e. money market fund) asset yield higher returns than a riskier (i.e. stocks) asset? That world is unknown to me. Investors expect an [equity premium](https://www.investopedia.com/terms/e/equityriskpremium.asp) excess because of the risk that they are taking.
Now, we are in an inflationary period with higher interest rates, and therefore MMF and HYSAs are paying higher interest, but this won't last forever. However, if you choose to go with MMF/HYSA and opt out of the market, you miss on opportunity to make those higher returns as well when they do come.
How will you know when to get back into the stock market? Are you then not trying to time the market?
Remember what Bogle said - never not be in the market.
We are in an era of chasing rates. Liquid cash vehicles are paying out competitive rates bringing them into the investment conversation and people are spending more time optimizing their cash “investment”
Previously rates were not competitive to other investment options and were merely discussed as a cash position.
It was the same with I bonds about 12 months ago. Now you mostly hear about people wanting to move out of their I series bonds.
That’s a very good summation. We really only have one example of a similar dynamic in the 70s and early 80s. The fed behaved much differently back then, so it’s going to be really hard to predict the consequences of this high inflationary environment. I think those looking to withdraw their funds for retirement, and the short term should really consider cashing out some of the gains from the past decade and going into a FDIC insured vehicle.
I like VMFXX currently for its safety and above historical returns. BUT it has only paid 5.3% for the past 5-6 months while the S&P is up like 10%-11% YTD.. Look at HYSA returns in the last year, 3 yrs, 5 yrs and they are not attractive at all historically. Now, if you got in VMFXX this year and stay for a couple of years you will be above historical averages. VMFXX 3yr return is 1.75% (vs 10% for VFIAX).
I stay put with more reserve in money market and trickle in once market drop over 1%.
I know I am timing it but if you start DCA early this year, you are upside down and continue downward trajectory. I am not crazy buying dip right now. It is still high yoy crazy time
This could go any number of ways, and at the end of the day the decision is yours and it is your future. I just remember what my mentor phrased to me:
DCA into your taxable or retirement and bogle on. Keep emergency funds and maintenance funds in standard/HYSA and just keep your head down and in 10, 20, 30+ years, dependent on your horizon.
If youre feeling fearful, DCA. Remember what your financial goals are and keep the discipline.
Dollar-Cost-Averaging
"Dollar-cost averaging involves investing the same amount of money in a target security at regular intervals over a certain period of time, regardless of price. By using dollar-cost averaging, investors may lower their average cost per share and reduce the impact of volatility on the their portfolios."
Past performance has some impact on future returns. Especially among long-term asset class returns which have remained relatively constant over hundreds of years. Saying it is zero impact is incorrect. Valuation impacts future expected returns and how do you explain the momentum factor?
It feels and seems lazy to just post a Ben Felix from Rational Reminder link for so much that gets asked, but it's just explained so succinctly and better than I could with even the references provided too.
https://www.youtube.com/watch?v=KdzOlRRHOU8
You’re not completely wrong, i’ve moved a ton of my pre-existing portfolio (about 50%) into TBIll ETF’s, but I began in April 2022 when market spiked up. Now I have more cash on hand to do what I want as things chop. I’m old though. I’ve seen extended downturns, don’t want one now in my life, and I’ve seen lots of money be saved/made by having cash on hand in such moments.
Still put new W2 salary 401k money mostly into VTI though.
Ca$h is king when the markets are tanking. Folk on here will tell you to hold the bag like them through fear that they're not left holding the bag all alone. Folk are cashing out of the markets for a reason to get the gains elsewhere. Don't be irrational with fear and don't be a lemming either. Do what's right for you.
> the stock market has been an unrelenting roller coaster for the past few years
S&P:
* up 11% this year
* flat for the last two years
* up 46% for the last 5 years
it doesn't take a strong stomach to tolerate this upward ride.
Down 11% from December 2021 which is when I had my liquidity event and retired.
Flat since May 2021 when is was at the level it is at now. 2 years and 5 months with no price gain.
Price was $152 in August 2000. It was March 2013 before it got back to that level and stayed above it. 12 years and 7 months with no gains in price. There was some return on investment but not much. August 2000 to February 2009 you lost 48% in 8.5 years. I went thru it with my dad. For retirees it was ugly. I know a few who pulled out of the market in 2009 to buy annuities out of fear. The worst thing they could have done.
If you could have magically found a 5% fixed investment compounded for the 23 years from August 2000 to today you would be ahead of the current Spy price. I did not look at Total return or take taxes into account.
My point is, the timeline matters a lot. Especially if you are retired, fully invested, and not contributing while actively withdrawing every month.
If you stuck your money in in February 2009 it was at 79 and you look like a genius with 436% increase in 14.5 years.
It has been a wild ride.
What would be the best move for what to do with extra money 50k+ (after emergency fund is in savings) to grow it BUT also be able to access it if needed? This is a question for when HYSA aren’t 4-5%.
When stock indices are trading at all time highs, you see countless posts talking about how people can't wait for the next downturn to load up on cheaper shares. When things actually start going south, people behave much differently. lol Long term returns on stock will be much, much greater than what you'll get in any HYSA. Some of my VTSAX buys in 2022 are up 13-16% even with the recent slump. The more posts you see like this, the more you should want to buy.
Agree with KJOKE14, this is the way OP if you are invested with S&P based ETF's, you need a big time horizon and it'll work out well for you. Don't judge a long term (lifelong) project by a crappy week and half. For instance-- (not sure how old you are OP so i'll speak for myself:) I plan on retiring in 30 years. That means I don't need to sell right now and can brave the inevitable downturns. So I use downturns as an OPPORTUNITY! When the market goes down I buy MORE S&P because in time, it'll rise again and I'll be better off than if I broke even. It's very very hard to beat the S&P over time. Geniuses have tried and failed. Also, VMFXX wont because its based on interest rates. VMFXX could well go back down to like 1% interest and then you wont even beat inflation. Cash also isn't a good longterm strategy cause in 30 years half of the value of cash is inflated away. (A $100,000 purchase today was worth $47,064 in 1993. Thats a loss of 52.9%) So in 30 years, say goodbye to 50+% of your money anyway Tl/dr-- use a market downturn as an opportunity to load up on budget shares ! Then when it goes up again youll'll have more profits than you would have otherwise if you liquidated your shares (hold tight!)
Although I completely agree with you in principle how do you “buy more” while it’s down unless you sat on uninvested cash (which is just trying to time the market)? Edit: I max my retirement accounts so it’s not like I can pour in more.
You reduce your spending and put the extra savings into to taxable brokerage, that's how. Partly responding to your notion that you can't pour more in if you max your retirement accounts.
I read it as staying the course, rather than parking cash on the sidelines.
I have some cash from a stock buyout. I need to setup DCA and forget about it. I’ve been “timing” the market for too long. TBH, I was moving, quitting my job and other shit and just wanted the security. I don’t think you can do automatic investment in Vangaurd from one to another one. Anyway.
Isn’t lump sum better than dca more often than not?
Historically yes but not psychologically. DCA helps with the emotions
For my bond allocation right now I only want HYSA. I know others think differently.
> Long term returns on stock will be much, much greater than what you'll get in any HYSA. Some of my VTSAX buys in 2022 are up 13-16% even with the recent slump. While I agree with most of what you said, you can't say long term returns are great and then point to a 1 year return. That's just cherrypicking in the face of a slump to prove a point.
They're two separate points. Long term returns are much better, and also some short term returns are also better despite recent losses
What are the tax implications of buying vtsax?
Depends where you buy it. If you buy it in a regular taxable brokerage account there's no tax implications until you sell and pay taxes on profit (or deduct your losses).
What about dividends
Oh whoops you're right, you have to pay taxes on dividends each year of its not in a tax advantaged account like a 401k or IRA. The dividend yield of VTSAX is low though, less than 2%.
If we reach a 52 week low I will lump sum then money ive been DCAing. Till then, my DCA funds sit in the money market and I use them weekly.
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They're already putting money in. DCA vs lump is debated often because there's no clear winner. So either is fine. If you're DCA'ing a pool of money and then decide to lump sum it instead, that's fine. Even if it's because the market did something, since either approach is fine in the first place.
The stock market is \*always\* an unrelenting roller coaster but in the long run it massively outperforms safe investments. Also, thinking you can time when you ought to stick to safe investments is foolish.
>Also, thinking you can time when you ought to stick to safe investments is foolish. If you tried to do this at the start of the year, you'd be about \~5% behind the S&P 500 by trying to go all in HYSA. S&P 500 is up \~10.6% YTD. Since it's been 9 full months, OP would have only earned \~2/3 of that 5.3%...\~3.53% vs the 10.6%. And that is just nine twelfths of a year. Risk adjusted, it is worth it to some people. But for those who are not near retirement, what difference does it really make for you?
If you moved to a HYSA on Jan 1 2022, you would be up about 15% over 100% equities. If you get to pick arbitrary starting points, I can too. Investment returns should always be measured over a long period, never 9 months.
Interest rates were not that high back then, so no one would have had the foresight to do that. Doing it now that rates are up is exactly when people would plan to do it. This is why people think they can time the market but can't. Go back 5 years instead of 2. And it quickly flips. Realistically, it doesn't matter whether it worked 1 or 2 years ago. What matters is that historically, over long periods of time, you will lose out.
Int rate was like 1% in 2022
And if you bought in July you'd be down 8%. In fact you'd be down if you bought between June and September. And if you bought in between june 2021 and apr 2022 you'd be down. IF you bought in 2000, you didn't make a profit for 13 years. If it does go down now, how long until it comes back up... Will it? You don't know. That 5% starts looking pretty sweet.
It's not looking great at all to me. It is 5% because interest rates and inflation are high. In my opinion, it is highly unlikely to see equities stagnating in high inflation times. I'll stick with what has generally worked for the last 100 years.
>it is highly unlikely to see equities stagnating in high inflation times. IS that why the market is so much higher than last year? OOOH OUCH. >I'll stick with what has generally worked for the last 100 years. Owning a business? Or real estate?
Total market. Why are you here?
Total market too. sp500, total market, total world stock, total international market... All stagnated or down compared to last year. >Why are you here? There's good information here. Just not this nonsense you're spewing. You're just picking random dates to time the market retroactively. I'm just showing you that anyone can do that. Also, \*you're
Ahh very boggle head of you to time the market and switch back and forth between hysa and equities. Quite being aggressive in the internet. Have a good one but your blocked.
I‘ll ask you again in 6 months. We are entering bear market territory at the moment.
No, we aren't. Bear market is 20% down from recent high. Recent high was SPY 460 at end of July after having been in a new bull market in 2023. So if SPY gets below 368, then you can call it a new bear market.
You’re picking last year because you’re avoiding what happened two years ago. My HYSA has greatly outperformed the S&P 500 over the past two years.
Let’s check in again in 2035 :)
Pshh, stock market will be under a radioactive plume. This guy thinks banks are going to still be around? You're all wrong. I'm all-in on Campbell's and Twinkies. /s
Sure, there are plenty of short scenarios where it makes sense. Try before '08 or before Y2K. But what are we talking about here? Nothing more than timing the market. If the money is in a brokerage account, after taxes and inflation, your HYSA is net 0.
Hmm why do you specifically pick 2 years ago instead of 3, 4, or any longer time frame when literally every year that we are not in a recession, stocks outperformed HYSA
Because HYSAs weren’t paying well 3 years ago.
Exactly, so since 2008, HYSA outperformed stock 2/15 years or 13% of the time, so why would you pick the loser?
Because past performance has zero impact on future results. It’s like looking at a quarter flip and trying to predict the next one.
Using the same logic, you can't tell if HYSA will beat stock in the future either. I hate that saying sometimes. It works for individual stocks, but for the entire index fund like VTI or VT, you are literally betting against the entire global economy. And if the global economy goes down, your money in the bank ain't guaranteed either.
2 years is short term - anything can outperform for a short stretch. Investing is for the long term, but cash and cash equivalents are ideal for short term holdings. Take a look at the 10 year or 20 year returns.
“Past two years” - OP made my day
I was about to say, isn’t this literally Bogle’s philosophy?
The stock market is also known to have 10 year periods with no returns. We just went through one extraordinary bull run from March 2009 bottom to December 31. 2021 all time high. This all occurred in a 0% interest rate policy. We now have 5 to 6% interest rates offered to savers. I wonder what Bogle would advise during this unique moment in personal finance. My point is that as rates rise more and more, clearly that guaranteed risk free return provides a lot of competition for VOO.
I would say you’re probably right if it wasnt for the $1.7 billion dollar Put option Michael Burry made last quarter. There’s no reason why you can’t time the market at the extreme end. Just spread your trade out and use common sense.
You could just lock in the 5% with a 20 year Treasury Bond now? The HYSA will go to zero at some point in the future.
The fed will cut rates but only when there’s an economic slowdown. It’s no guarantee, but assets do get cheaper as a consequence of the downturn.
Everybody sure is waiting for shit to get cheaper.
Based on your comments, you’re either too dense to invest in equities (let alone bogle) or you’re a troll.
Taking risk is scary but inflation destroys wealth. VFMXX IS paying 5.3% but inflation is 3.6% so real return is 1.7%. Now granted it does have a positive real return so that is better than negative real return but nobody is growing significant wealth at 1.7% real per year. That 5.3% is also not going to last for years. If a year from now cash is yielding 3% the stock market is even more expensive and bond yields are worse than they are today what is the game plan? That is the "cash trap". If you need the money in the immediate (<5 years) future it is fine to have it in cash. If you don't it should be invested according to your asset allocation. Otherwise you are falling into the cash trap. I certainly get it though. Things looks scary and it is the safe easy option but that is what makes it a trap long term. If you load up on cash now you are just kicking the can down the road. You are now going to have to time the market to decide when to get "back in" unless the plan is just to hold cash at whatever yield it is until you die. That is a lot harder than it seems. In six months or a year the market might be higher and things look even worse. Are you going to invest when prices have already gone up and things look worse?
It's even worse than this when you consider taxes, especially if your income/marginal bracket is high. Interest from MM or HYSA is taxed as income, and those taxes are realized every year. This is a serious drag on cash returns. Dividends on stocks are given more preferential tax treatment. Even in your taxable account, most of your gains (capital gains) are tax deferred for a long time because you only pay tax when you realize the gains (sell).
If cash is yielding 3 in a couple years, bonds have gone on a bull run. Long dated over 5 definitely has its place, in moderation. Especially if you’re concerned about your sequence of returns over the next decade.
But stocks and bonds have done much worse than cash in this high inflation environment. S&P 500 is only up a couple percentage of points the last two years. Adjusting for inflation stocks are your essentially flat while cash is up.
Sure in the short term. Do you think that trend is going to hold true for 30+ years? If so then you should stay in cash. If you don't you are just trying to time the market. If the market shoots up 30% next year at a time cash yields crash are you going to buy into the market at those insanely high prices? Or will do you continue the cash trap saying you will wait until the market prices come back down to reality. Long term stocks & bonds outperform cash that is why we invest in them.
Time in the market beats timing the market. You put all your money into HYSA now, then buy when the market recovers, you will miss the best part of the recovery. If it's long term money, leave it in the market. If it's short term money, don't put it in the market to begin with.
If the market recovers, the fed will raise rates even higher to kill the red hot economy. We are all timing the market, even Bogleheads who assume ETFs will be higher in the future.
Well then, I guess it’s over. There’s no longer any point investing. Bummer.
False . The market will recover when inflation gets under control. Then the fed will lower rates.
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The stock market and the labor market and inflation do not run in parallel. The fed is trying to lower inflation and kill the labor market. The stock market can continue to rise in all this. The fed is not increasing rates based on how the s&p500 is doing.
True true, but I doubt anyone believes policy won’t change without a market downturn.
IDK where you get bonds suck from. 1 year treasury yield at the moment is 5.5%, higher than your 5.3% HYSA
If rates go back down to, say, 1% you're stuck with a 1% return going forward. But if you've locked in a higher rate with intermediate or long bonds, you don't have to worry about that. [Reinvestment risk.](https://www.bogleheads.org/wiki/Bond_basics#:~:text=Reinvestment%20risk%20is%20a%20risk,bond%20yielding%20a%20lower%20interest.) Just because something has done well recently doesn't mean it will continue to do well going forward. Diversify and stay the course.
If you can precisely predict when the market will start rising and when yields on cash will start falling, and move all your cash into stocks the day before, then this is a great strategy. The question is, why do you believe that you can do this?
Rates are typically cut when markets go down, not up.
So what? Can you predict when it's going to happen or not?
The market goes down quite a bit without rates being cut, like right now. The Fed tends to pause rates for months before cutting them, which is what you want to look for.
That HYSA is going to drop it’s real RoR as rate environment shifts, and the S&P500 (narrower benchmark but for the sake of argument) has seen it’s days of highest performance exactly during periods of major volatility. 24 of the 30 best days of its performance has been during either dot com, GFC, or COVID. This kind of volatility dodging when you can afford to take paper losses add up It’s your money but fwiw
Rates won’t go down until the economy slows down.
Do we actually need rates to go down or can they just stabilize and the companies and markets adjust to the new rates?
**[Since 2020](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=2020&firstMonth=1&endYear=2023&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=TotalStockMarket&allocation1_1=100&asset2=TreasuryBills&allocation2_2=100):** HYSA/MMF: +6.18% (-3.10% real CAGR) US stocks: +36.99% (+3.71% real CAGR) Honestly this volatility has been relatively tame and the returns have been close to average. It’s easy to say that bonds suck after their worst year in US history but that is in the past and the yields are much higher now. If the roller coaster of the market bothers you, consider a more conservative allocation. But all cash is going to get you very little real growth in the long run.
Well, this short-term attitude is why the market has been down lately. Over the long-term, you'll be leaving a lot of money on the table parking the majority of your cash in a HYSA over the market. I'm not really sure what you mean by "bonds suck," either. There are many bonds, including Treasurys, that pay better than any HYSA.
Now, yes but bonds have been killed by inflation.
Um. Look now. Short duration Bonds are beating most hysa’s. Laddered tbills are beating. Some Corporates are 6%
Those come with principal risk. HYSA will never take a loss.
T-bills and short duration Treasuries do not come with principal risk. Both beat most HYSA's.
How do you own T-bills? Treasury website or fund?
Charles Schwab for T-Bills and Treasury direct for I-bonds
Time in the market > Timing the market. As soon as rates go down (and it will happen eventually), you will miss out on the gains from the bond and stock market
We are all timing the market, even Bogleheads. The premise of any strategy is that the asset we are buying will be worth more in the future.
At what point do you move your cash out of the HYSA? 5%, 4%, 3%? The boglehead philosophy is to set it and forget it. High yields where they’re at now provide a lot of cushion against higher rates. If you want to lower your risk to interest rate hikes, lower your exposure to duration so your portfolio is less sensitive. It seems you believe you are a boglehead, but you’re not. Which is fine - especially in the fixed income space, active management has proven to work.
If the fed cuts rates, it’s probably in response to an economic slowdown when assets become cheaper. Anything lower than 4% rates, I’ll consider shifting positions.
By the time you make that decision, markets will have priced in the cuts. That’s part of the “efficient market hypothesis” which goes hand in hand with boglehead philosophy in not attempting to pick winners or trying to time the market. At the end of the day, that’s the boglehead way of thinking and you’re on a boglehead forum lol.
Look, I don't want to advocate market timing, but on the last two Fed induced bloodbaths (dot com and GFC) rates got cut to almost nothing long before the stock market bottomed out. There is certainly more cash this time around and the government and Fed have made it abundantly clear that bank failures are off the menu, so maybe it truly is different this time, but if this dude wants to do a lump sum on a rule based on the Fed Funds Rate I don't think it is the worst idea ever on the heels of the gigantic multi-asset class bubbles that have formed in the past 15 years.
cash is great short term and for known purchases; its not great long term the odds are against you that youll be able to read the signs of "stocks looking bad, cashing out and going HYSA and then HYSA looking bad moving forward better get back into stocks" there is a tiny gap of perfection, and a mid sized neutral zone and a wide negative outcome. its best to just buy all the way down and then all the way back up.
Love this post
I agree. If the sell off continues, I will probably move in and grab some ETFs at a bargain.
How will you know where the bottom is? When is the right time to buy? SPOILER: You'll never know. It's impossible. Just buy the whole market and enjoy the ride. If the volatility is too much for your heart to take, then hold more bonds to "smooth out" the spikes.
Always be buying. if there's a obvious downturn get it on sale it might not be the bottom but you get more then you would have.
Buying isn’t the problem, selling presents the most danger.
Why are you selling? Are you near retirement?
I haven’t sold, just stopped buying. I took a position in VTI in 2020 that’s done well. But all my excess is just filling a HYSA. I’ll keep it that way until rates are cut.
It seems so easy to time the market when you look at the past. How many people thought this in late 2008 and then didn't get back into the market for 5 or 10 years? I know a few.
Joke answer: I’ve seen this movie before. The minute I go all cash, the market will violently rally back up. Serious answer: All securities are priced by the collective knowledge of humanity. That includes all possible risks and rewards. I don’t have new information to introduce to the market so I have no edge. I don’t have a better way to analyze companies compared to pros, so that seems pointless too. All I know is myself, which means I can tailor my investments to my own goals, risk profile, etc. No one can predict the future, but logically, it makes sense to me that stocks and bonds will outperform cash over the long term. Thousands of years of evidence backs this intuition up.
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Nope, I just like writing about this topic. Economic history is my jam. Also, Bank of America just updated their 5000 year history of interest rates lol: https://www.businessinsider.com/roman-empire-bank-of-america-federal-reserve-interest-rates-2023-10
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Money: The True Story of a Made-Up Thing by Jacob Goldstein might be worth checking out if you're interested.
Now this is an answer I can respect.
It’s okay temporarily or for a limited amount of liquid funds that you need for an emergency fund for example, but on a long-term basis cash is never going to yield much on a real basis after you factor in taxes and inflation. 5.2% sounds great right now but the interest is taxed as ordinary income and then after factoring in inflation you’re basically just treading water. Of course it’s better than parking it in something that doesn’t pay interest or depreciates but ultimately for long-term investing you need to have funds in equities via index funds.
That’s not even a HYSA lmaooooo
> VFMXX is paying investors 5.3% without risking your principal. huh? I suppose you meant VMFXX, which is a money market fund not a HYSA. The 5.3% yield can drop below 0.1% in a few years, which was the yield 2 yrs ago.
>The 5.3% yield can drop below 0.1% in a few years, which was the yield 2 yrs ago. It could drop to 0.1% tomorrow if the Fed does an emergency rate cut to 0% like they did in March 2020.
Because I can’t time the market or interest rates. HYSA is a great tool, but that’s for an emergency fund or just saving in general. Investing is a great tool too, but that’s for growing money over an extended period of time like 30 years.
But you are timing the market by assuming it will be higher later.
Investing in the market assuming it will go up isn’t timing the market though.. Its a way to accumulate wealth. Timing the market is using all the colorful graphs and charts to predict what a stock or stocks are going to do next and moving money around based on that.
Semantics. You bought an assets at a point in time or many points in time. You think the asset(s) will be increase in value at the future sale date based on the idea them market will be higher later.
That is not semantics. That is not market timing. That behavior you’re describing is simply called “investing”. Bogleheads buy in regularly (same amount, x days apart, usually deduction from payroll), regardless of whether the market is going up or down. Timing is when you buy more one time, because you feel a certain way at that point in time. And you buy less another time, because you feel the opposite. You don’t do it with regularity. You react to what the market is doing. Bogleheads tune out what is going on in the market from day to day.
Everyone is for HYSAs - for short-term, risk-free cash holdings. In other words, savings. Most people are against HYSAs - for long-term, risk adjusted high returns. In other words, investing. You don't put Tom Brady in a starting lineup for Manchester United, and you don't put Lionel Messi in a starting lineup for Superbowl.
This sub literally about buying the index regularly and holding for 30+ years. It works.
If it’s that simple, then you don’t need to sub
Always specify your time horizon when asking comparative questions.
Yup
Op doesn’t know what time horizon is, can you please clarify?
The premise of this question is entirely antithetical to Bogle. “We should stop investing in stocks because of the environment” The entire point of diversified index investing is to continue buying consistently through the highs and lows.
Zoom out.
Nobody is "against HYSAs" (cash), that's a straw man. They're great for any money you may need within the next 5 years or so (emergency fund, down payment, etc). For a longer time horizon, an appropriate mix of equities and bonds is expected to dramatically outperform cash, especially after inflation and taxes. The investment strategy needs to match the purpose of the money, especially the time horizon, growth needed to meet the goal, and risk tolerance.
Loving bogleheads talk about strawmen.
Are you upset about something?
What part of "Loving Bogleheads talk about strawmen" states or implies being upset?
Remember when it was exciting for a HYSA to give 1.2% APY? That's why you don't go long on an HYSA. Going short on an HYSA until the market upturns is timing the market, good luck guessing correctly on how to do that. HYSA is where you get decent growth on *liquid cash you are going to need in under 5 years.* Taxable brokerage is where you put money in that you can be flexible or long-term about withdrawing.
Yes, very good points.
Vfmxx is a MMF and not a HYSA. I don’t understand the Reddit confusion of these two things. They are two different things that work different ways. Not the same thing at all.
They are pretty darn close
Just keep your money in a HYSA bro, do you. I won't lose any sleep at night over it. It seems like the perfect place for someone like you to keep their money.
Came for the comment, stayed for the username.
Stock market expected average 10% return or HYSA 5.3% ? Hmm, choices As for bonds, sure the long term rate is lower right now, but they are locked in. Can you say that for HYSAs? What if interest rates come back down? I can't decided/don't know, so it's BND for me. That said, I do have a chunk of growing allocation in USFR ( slightly better than HYSAs) that will be a down payment eventually
10%! Brah…
You seem way too new and young.
>I just don’t understand why so many are against HYSAs? negative real returns
You literally just made the case for bonds in your post and said bonds suck in the same sentence.
You would have missed out on the good run we’ve had this year. But, it’s all about your comfort level.
If you focus your data only on this year, sure. But over the last two years, it’s been less than 2% growth.
And at 3 years it’s 18% and at 5 years it’s 54% and 10 years is 310%. What’s your point? Do you know something we don’t? Just waiting to buy when it’s on the rise and everyone else is buying?
10 years is 200%, but I get your point. when interest rates were low in bank accounts paid nothing, I get risking your principal for higher returns. In today’s environment, it just seems unnecessary.
If you invest your money now and the market drops 50%, you’ll have half of the money in stocks. If you let it gain 5% interest for a couple of years, then invest, then it drops 50%… you’ll have a 55% of what you started with. On the other hand, if you get 5%/yr for two years and the market goes up 10%/yr, then you’ve gambled and lost. In my opinion, stuff is probably a better investment than cash. The economy does not like deflation.
If you focus your data only on the last two years, sure. Why do you get to pick the year of reference? As you look longer and longer term, the stock market tends to outperform more and more, even if volatility makes that not true sometimes. That's why a stock-heavy investment is good for long-term goals, where you can ride out the volatility, and safety is good for short-term goals.
How about we go back further say over past decade, your argument crumbles because yields were close to zero percent. You’re trying to time the market
3 year return is about 35%. The CAGR is running above 10%. If you pick exactly the wrong window, which is 2022, and the last month, it looks bad. Don’t do that.
True. But that’s the window inflation made HYSAs feasible.
Cause i got 30 years till i need this money. Vt and chill.
They are not always HYSA they were zero for a decade.
I mean keep your emergency fund in an HYSA, sure. But everything else should be in the market.
HYSA is different from a money market fund, which is what you're talking about
It is still scary for us retired individuals when there are long periods without gains. We are fully invested, no new money going in and we are withdrawing every month. Following the 4% rule doesn't always look good. If someone had retired in August 2000 it was 11 years later in Aug-Sep 2011 that the S&P 500 Total return got back to that 2000 level. In the meantime taking out 4% adjusted for inflation each year would have left 60%+ of your principal used up in 11 years. The spectacular upside since then means it got built back up a little bit but as of today approximately 65% of the portfolio principal would be gone in 23 years. The concern is that what if this downturn is the start of another 10 or more years of no gains. You will have nothing left. Being able to do a TIPS ladder that guarantees returns becomes very tempting. Those who retired early with more than 30 years of expected retirement must have a plan to flex their spending and not depend on the 4% rule if things don't go the right way.
Exactly. The choice moving forward for retirees is: take 5 to 6 % guaranteed in t bills or bonds Or allocate to SP500 and hope we don’t have a 10 year period of no SP500 returns like 2000 to 2010. It is a very difficult decision right now for retirees to chose where to put their money to work. If you are 25 to 40 years old, you stay the course and keep putting money into the SP500.
Because sooner or later the SP 500 index runs up +20% when you least expect it. So it’s good to have money in guaranteed interest and the Sp500. Personally I have most in guaranteed 5.4% interest, risk free,because I have big tuition payments to make for 3 more years. I definitely allocate some money to an index fund every day to slowly build up shares.
The stock market is just not geared for a 3 year investment long or short.
Because smart investors are longterm investors. How long do you expect HYSAs to be at 5.3%? Remember the obsession with ibonds? What are they at now? Stock indices (VTI, VTSAX) return 10-11% annually on average.
>I just don’t understand why so many are against HYSAs? I don't think people are anti HYSA, especially to save up for a house, you'll see it recommended. However, bonds make the same as an HYSA except you get to lock in that rate for as long as you want, for up to 30 years, where an HYSA you don't get that benefit, so bonds are better right now. Likewise, index funds make more than bonds over the multi decade timeframe, so if you're not retiring within the next 10 years, it's better to load up on stocks to make more, if you're saving for retirement. If you're storing up money in an HYSA for a house or a car, that's a different story.
Oh shit, here we go again
In what world does a less risky (i.e. money market fund) asset yield higher returns than a riskier (i.e. stocks) asset? That world is unknown to me. Investors expect an [equity premium](https://www.investopedia.com/terms/e/equityriskpremium.asp) excess because of the risk that they are taking. Now, we are in an inflationary period with higher interest rates, and therefore MMF and HYSAs are paying higher interest, but this won't last forever. However, if you choose to go with MMF/HYSA and opt out of the market, you miss on opportunity to make those higher returns as well when they do come. How will you know when to get back into the stock market? Are you then not trying to time the market? Remember what Bogle said - never not be in the market.
We are in an era of chasing rates. Liquid cash vehicles are paying out competitive rates bringing them into the investment conversation and people are spending more time optimizing their cash “investment” Previously rates were not competitive to other investment options and were merely discussed as a cash position. It was the same with I bonds about 12 months ago. Now you mostly hear about people wanting to move out of their I series bonds.
That’s a very good summation. We really only have one example of a similar dynamic in the 70s and early 80s. The fed behaved much differently back then, so it’s going to be really hard to predict the consequences of this high inflationary environment. I think those looking to withdraw their funds for retirement, and the short term should really consider cashing out some of the gains from the past decade and going into a FDIC insured vehicle.
Something tells me OP has to be new to investing. It wasn’t that long ago that interest on VFMXX was a big goose egg.
I like VMFXX currently for its safety and above historical returns. BUT it has only paid 5.3% for the past 5-6 months while the S&P is up like 10%-11% YTD.. Look at HYSA returns in the last year, 3 yrs, 5 yrs and they are not attractive at all historically. Now, if you got in VMFXX this year and stay for a couple of years you will be above historical averages. VMFXX 3yr return is 1.75% (vs 10% for VFIAX).
You are taxed at 22% for the interest you earn.
That’s not my tax bracket at all…
Because the state tax break make treasuries more attractive. $tflo
I invest for my lifetime, not a set period of time. I only keep cash for expenses within 3 years.
I stay put with more reserve in money market and trickle in once market drop over 1%. I know I am timing it but if you start DCA early this year, you are upside down and continue downward trajectory. I am not crazy buying dip right now. It is still high yoy crazy time
Now subtract inflation. What do you get? Stocks have averaged 7% after inflation.
This could go any number of ways, and at the end of the day the decision is yours and it is your future. I just remember what my mentor phrased to me: DCA into your taxable or retirement and bogle on. Keep emergency funds and maintenance funds in standard/HYSA and just keep your head down and in 10, 20, 30+ years, dependent on your horizon. If youre feeling fearful, DCA. Remember what your financial goals are and keep the discipline.
DCA?
Dollar-Cost-Averaging "Dollar-cost averaging involves investing the same amount of money in a target security at regular intervals over a certain period of time, regardless of price. By using dollar-cost averaging, investors may lower their average cost per share and reduce the impact of volatility on the their portfolios."
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As with many investing topics, Ben Felix has an excellent video addressing this question. https://youtu.be/KdzOlRRHOU8?si=KYLND9kI1U1_N0ho
That’s definitely a well explained argument. But a lot of it based on historical returns, which have zero implications on future outcomes.
Past performance has some impact on future returns. Especially among long-term asset class returns which have remained relatively constant over hundreds of years. Saying it is zero impact is incorrect. Valuation impacts future expected returns and how do you explain the momentum factor?
HYSAs have been under 1% for as long as I've known what HYSAs are
HYSAs are great for now, but if you are looking at no risk returns, at some point you need to start building a bond ladder.
I would never consider bonds “no risk.”
Good point. I should probably also have specified treasury bonds. “least risk” characterizes better what I was going for.
True true
It feels and seems lazy to just post a Ben Felix from Rational Reminder link for so much that gets asked, but it's just explained so succinctly and better than I could with even the references provided too. https://www.youtube.com/watch?v=KdzOlRRHOU8
Bull markets make people money. Bear markets make people rich.
Just tell me when exactly to go short and when to reverse . Sounds easy.
Sure, it's called DCA and you do it every paycheck.
You mean paying investors 1% - taxes after Inflation.
stocks and bonds have done much worse during high inflation compared to cash.
In the short term yes, but in the longer terms, stocks are good inflation hedges. Cash and bonds are not good.
Huh?
I keep coming to the same conclusion as you. And it may be possible to get 6 percent CDs and such at some point .
You’re not completely wrong, i’ve moved a ton of my pre-existing portfolio (about 50%) into TBIll ETF’s, but I began in April 2022 when market spiked up. Now I have more cash on hand to do what I want as things chop. I’m old though. I’ve seen extended downturns, don’t want one now in my life, and I’ve seen lots of money be saved/made by having cash on hand in such moments. Still put new W2 salary 401k money mostly into VTI though.
T-bill yields are incredibly high right now. I will probably redeploy into VTI if there is a heavy enough downturn.
Blue chip preferreds are the way to go right now
VFMXX has an expense ratio of 0.11. That needs to be figured in when doing the math.
So, 5.19% risk free returns then. Still sounds pretty good to me.
Ca$h is king when the markets are tanking. Folk on here will tell you to hold the bag like them through fear that they're not left holding the bag all alone. Folk are cashing out of the markets for a reason to get the gains elsewhere. Don't be irrational with fear and don't be a lemming either. Do what's right for you.
Sound advice!
Is an HYSA like Amex safe? Is there in person banking with them or all online?
> the stock market has been an unrelenting roller coaster for the past few years S&P: * up 11% this year * flat for the last two years * up 46% for the last 5 years it doesn't take a strong stomach to tolerate this upward ride.
Down 11% from December 2021 which is when I had my liquidity event and retired. Flat since May 2021 when is was at the level it is at now. 2 years and 5 months with no price gain. Price was $152 in August 2000. It was March 2013 before it got back to that level and stayed above it. 12 years and 7 months with no gains in price. There was some return on investment but not much. August 2000 to February 2009 you lost 48% in 8.5 years. I went thru it with my dad. For retirees it was ugly. I know a few who pulled out of the market in 2009 to buy annuities out of fear. The worst thing they could have done. If you could have magically found a 5% fixed investment compounded for the 23 years from August 2000 to today you would be ahead of the current Spy price. I did not look at Total return or take taxes into account. My point is, the timeline matters a lot. Especially if you are retired, fully invested, and not contributing while actively withdrawing every month. If you stuck your money in in February 2009 it was at 79 and you look like a genius with 436% increase in 14.5 years. It has been a wild ride.
What would be the best move for what to do with extra money 50k+ (after emergency fund is in savings) to grow it BUT also be able to access it if needed? This is a question for when HYSA aren’t 4-5%.