The Wealthy Accountant gave away money this week! On Wednesday I set the random number generator a spinning and in a nanosecond a subscriber was $100 richer.
Sara N of Buffalo, NY was our winner. I give a choice of a PayPal transfer or an Amazon gift card. Sara asked for the gift card and Amazon emailed the code straight to Sara. Congratulations, Sara! Thank you for subscribing.
If you didn’t win this drawing there are plenty more. The dates and terms are published on the Where Am I calendar. There are two drawings for three winners in February. I never recommend the lottery, but if you get a ticket for free, why not!
I poked the hornets this week and ran like hell to no avail. I was stung. I made the mistake of mentioning on Facebook I moved to my highest cash position of my adult life in late January. Then the market introduced some reality this week.
Of course, if you call for a bitcoin decline and then it happens and do the same for the stock market you qualify as a guru. On the farm we call it being luckier than a two peckered Billy goat.
Before anyone starts to bow, please reference Elaine Garzarelli. She is the kind lady who accurately called the market crash of 1987 and hasn’t made many accurate calls since. A few, but not many.
My reasoning for the cash position is simple; I no longer understand how the market can go higher. Yesterday’s post explains my reasoning in more detail.
And now I’m getting lots of questions on how I think people should invest. Nothing has changed, kind readers!!! Steady as she goes.
Keep filling retirement accounts to the max. Stop watching market news if it bothers you or freaks you out. And for the love of God, DON’T SELL BECAUSE YOU ARE SCARED BECAUSE THE MARKET IS DOWN!!!
For readers with large net worth’s, consider moving some percentage of your portfolio to cash. Locking in a gain isn’t a crime, especially when the gains in the last decade exceed 400%.
I’m at 52% cash and my cash balance will not go higher. I’m willing to forgo future gains at this point. This level of cash is still a six figure income even with the low money market rates. I’m in no danger of starvation! (Though I have been looking a bit pale lately.)
Where will the market go from here? people are asking. How would I know? I’m just a country accountant from the backwoods of Nowhere, Wisconsin. But since you asked . . .
There tends to be a repeating pattern when the market gets carried away (goes parabolic). Without belaboring all the details, it seems to this accountant we are headed for a market crash. The tax cuts will overstimulate the economy, cause inflation (read yesterday’s post again), interest rates will rise and the market will catch a case of the hives.
This said, DON’T TRY TO TRADE AROUND THIS MARKET!!! If you do, I will find you and kick you in the . . .
The “crash” pattern usually starts with the warning shot across the bow as we had this last week. There generally is some type of recovery as the last buyers (the general public, aka the weaker hands) push in. New highs are not reached and the decline renews, accelerating until massive fear sets in and people rush the exits faster than they greedily wanted in.
If you have cash sitting around, I recommend casually buying when you see blood in the streets. When the crowd is in full panic mode start loading up on those index funds!
As your portfolio grows you might want pretty charts and data on your growing stash. PERSONAL CAPITAL is a program perfect for monitoring your net worth. You can’t control what you don’t know so it’s a good idea to have a firm understanding where you stand financially.
‘nough said about the markets. Time for some FUN!
What I’m Reading
This is the second book I’ve read in the last few months involving climate change and extinction. Chris D. Thomas did an excellent job of discussing the facts in our modern world as it relates to extinction of species. Inheritors of the Earth: How Nature is Thriving in an Age of Extinction set my heart at ease. All the Chicken Littles screaming something about the sky falling are way off base! Yes, species are going extinct, but diversity is increasing at an incredible rate, a rate even faster than the extinction rate. A highly recommended read.
What I’m Watching
There was plenty of cool stuff I saw when reviewing my YouTube history. The first was this short video from the Mars Curiosity Explorer showing a panoramic of everywhere the explorer traveled.
Here is an interesting video on the farthest look our species has ever looked into space. Fascinating.
Finally, a money nerd like me couldn’t go a week without falling prey to a money video on how the Federal Reserve works.
What I’m Listening to
Here is an oldie that rocked my office as I plugged numbers. It’s a catchy tune. If you remember when this song was all the rage, you’ve been dated.
Have an awesome weekend, kind readers!!!
Be good.
See y’all Monday!
Kenneth
Saturday 3rd of February 2018
The link shown here is a 90+ year history of US Bear and Bull markets. I have printed this out and framed it over my desk. It's a good reminder of what the stock market ups and downs look like.
https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=4ecfa978-d0bb-4924-92c8-628ff9bfe12d
Kenneth
Saturday 3rd of February 2018
It is not a dumb idea for someone with high net worth to be 50 percent in stocks and 50 percent in money markets. I would recommend VUSFX Vanguard ultra short term bonds as an alternative to money markets. Currently yielding 1.98%, will move a few pennies up or down as rates change. $50,000 minimum.
Personally, I don't think this is "The Big One" yet. There is a far reaching global expansion going on that we are a part of. I don't smell any trouble in the economies of the world. The market is having a mild tantrum over the 10 year bond having reached a 2.84% yield. The sky is falling. I think there are three reasons the yield is rising. One, the Fed is running off its 4.4 trillion dollar bond portfolio, by not reinvesting the payments it is receiving. This run off is being managed according to a set plan, increasing the run off rate every quarter. If things get out of hand a little, they could cease and desist for a while. No other central bank is running off their bond portfolio. Two, the US government has just cut taxes, in a major way for corporations, and in a minor way for average citizens. This will greatly increase the rate at which we are adding to the national debt - especially since the ruling party wants to spend more and more on military and (border) security. Funny how the party that is supposed to be conscious about spending is spending more than ever. Three, we are finally getting a whiff of inflation. Wages are actually rising, maybe reaching a rate of 3 percent. That's a good thing. All in all, I think we are just in for a minor 3-5 percent correction and then will resume our stock market up trend. But then again, I'm no Elaine Garzarelli. We all have to play our cards the way we feel is best. I try to work a 75/25 stocks/cash portfolio. I rebalance once a year on my birthday. But if the market is down more than 10 percent from its all time high on rebalancing day, I will skip rebalancing that year. A 4 percent withdrawal rate will last 6 years out of my VUSFX cash component, before I have to withdraw from the stocks component.
The Physician Philosopher
Saturday 3rd of February 2018
So, what I am gathering is that you are holding a high volume cash position in an attempt to time the market when it goes down? Couldn't tell if you were encouraging people to keep plugging away through their typical investment strategy or just saying "keep going with the retirement accounts but keep some cash on the side for when it tanks."
Interesting position for sure, particularly in the personal finance community where people often focus on telling others they can't time the market even if they want to.
Keith Schroeder
Saturday 3rd of February 2018
Physician, I look at the broad market like I view individual companies, including my own. Think of it this way. If someone offered me $20 million for my tax office I'd sell. I'd sell because the price was high, not because I thought the business was dead. No, business is good and growing, but if someone offers me a dollar for a nickle I'm liable to bite.
Most people need to keep a steady course through the storm. Unfortunately the evidence indicates too many people investing in the stock market are new arrivals. They are chasing a hot market and will be scared out of a down market. They will lose as they always do!
My employees asked the same question readers have. I tell employees to keep pushing as much as they can afford into their company retirement accounts, collecting matching funds. Then retire debt as fast as possible. Then, if you still have more, I might wait until sanity returns to the market. I'm most fearful when greed is rampant. Current greed is at a level seen during the dotcom bubble.
Most people need to take a "steady as she goes" approach. I've done the same! I still have >$7 million invested. Cash isn't a crime. Even Buffett, my investing hero, has a large pile of cash as we speak. Patience is as high a trait as holding steady in "all" market conditions.
But if anyone wants to pay an incredible premium for any asset I own I will sell. The wife and kids are the only thing not for sale and the some days the kids start me to thinking.