I am not trying to time the market, I see this as the alternative to holding bonds. So 20% cash is the new old bonds ammo, that will be used in case of something. In the past I used to sell bonds to buy specific corrections. I was getting a little extra above the market by doing so. You can beat the market with proper bonds / ETF allocation, by selling bonds at the right time and buying ETFs.
Let’s say you have the following strategy:
Selling 30% of your bonds to buy ETFs when there is a -10% correction on the ETF market
Selling 45% of bonds to buy ETFs when there is another -20% correction from the moment you bought above.
Above percentages are just an example. Your are basically reducing your bonds portfolio in bear trends and accumulating again on bull trends. Now what I did last year was to keep cash only instead of bonds, since CHF as you saw, had a some of a rally so I am now in a better position.
And of course, tilting to specific factors or regions (I do it on Quality factor in case of a correction) and on EM constantly can also help get a little extra.
And it doesn’t take a lot of time, just having some automated buy sell orders based on above. It’s not something I would recommend to anyone, it’s just what I do.
Sure. The “strategy” (a big word…) is based on an average ATH level for some of my most important ETF’s. As long as the current price level is > 95% I keep CHF 125,000 in cash (note: this is not the liquidity or ‘Notgroschen’, which is a separate amount).
If the price level of my ETF’s is lower than 95%, I start to buy shares thereby reducing the tactical cash reserve. More chunks of cash will be invested if prices continue to drop below certain thresholds.
On the way up, I plan to fill up the cash reserve again before buying more shares, according to the same schedule (no selling of shares, though).
I regret that I did not have any strategy in place yet when prices dropped sharply in February/March 2020.
Btw, my portfolio stands currently at 96.2% of ATH.
You still miss out on the gains when filling up your cash reserve and after a crash the markets tends to recover the fastest. What if the market keeps going down over a long period of time and all your 125k gets invested. How long do you need to fill up those 125k again?
Another resource that lump sum or dollar cost average is the best strategy: Does Market Timing Work?
From that study:
In brief
Given the difficulty of timing the market, the most realistic strategy for the majority of investors would be to invest in stocks immediately.
Procrastination can be worse than bad timing. Long term, it’s almost always better to invest in stocks—even at the worst time each year—than not to invest at all.
Dollar-cost averaging is a good plan if you’re prone to regret after a large investment has a short-term drop, or if you like the discipline of investing small amounts as you earn them.
For 2022 I am hesitating to change from VTI to VT. I don’t like having all just in the USA at the moment. As the 60% of VT is USA I think I will stick to VT. One ETF’s and that’s it.
That’s a fair point. It would take probably three years. While I still don’t feel comfortable to throw 125k at the market right now, I will have to think again about the recovery phase. Your approach would probably be not to build up any new cash reserve but just remain 100% invested, right?
That’s totally fine, do what is best for your risk tolerance. If your risk tolerance includes keeping the 125k in cash and only invest in market downturn that is obviously fine. I only wanted to point out that you are most likely not going to create an overperformance by keeping the cash and investing in dowturns.
If you are not comfortable investing large sums at once what mostly gets suggested is dollar cost averaging over a set timeframe.
Correct. I still have 3-6 months worth of salary, this also depends on ones own risk tolerance, as my emergency reserve but everything else gets invested 100% either with IB or pillar 3a. My timeframe is more than 30 years so I can go full risk but this obviously depends from person to person.
That I was quite young so I could tolerate the risk of having all in the USA market and the gains were higher than with VT, now I don’t like the idea to have everything in the USA market for the next 10 years. So I was thinking to change to VT, but it’s also true that I could buy directly to the VWO and VEA to have low TER compared to VT. So I will have something like 60% of VTI and 40% on the other two.
@Cortana: similar to me, I believe you also fully-invest in VTI, correct? Curious to hear what your rationale is for doing so, and if you ever contemplate switching e.g. to VT.
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