Question on war chest and market timing

[pubster]

I'm mostly a silent reader since I'm still a novice with not much experience/knowledge to contribute. But I had benefit a lot from many of the postings from the generous folks here. Let me start by giving my most utmost thanks to everyone here.


I had this question for the longest time but till now I do not have a clear answer. With the bull market running for 5 years now, this question weighs even heavier.

Question 1: Should we be 100%(or close to 100%) vested all the time since many always said market timing is impossible(at least for normal folks like me)? Plus some also said cash is a dead weight in the portfolio since it is eroding its value with inflation.

Question 2: If we are 100% (or close to 100%) vested, do that mean that we will have no war chest? If we do have a war chest, we are considered not 100% vested already... (Emergency funds are not included as they will never be used in stocks purchase)


For me, I'm currently I am 80% vested with the rest of 20% in my OCBC 360 account earning 3% interest (trying to make the dead weight more useful). I will buy in again whenever the cash portion grows over 30%. But with the market become higher, it seems to be harder to buy as well...


Question 3: With the market getting higher, should I cut down on the ratio and fatten my war chest? But will it contradict on the theory of "do not time the market"


I know there is no right or wrong and there are many different ways to successful investing. Wanted to hear what are the others views on these.

Thank you very much in advance.

[opmi]

stay around the middle path. no need to maximise profit. leave some money as backup to make comeback if go pok.

the key to prosperity to survive the next downturn - YK Pao, HK shipping tyccon

[NTL]

I'm mostly a silent reader since I'm still a novice with not much experience/knowledge to contribute. But I had benefit a lot from many of the postings from the generous folks here. Let me start by giving my most utmost thanks to everyone here.


I had this question for the longest time but till now I do not have a clear answer. With the bull market running for 5 years now, this question weighs even heavier.

Question 1: Should we be 100%(or close to 100%) vested all the time since many always said market timing is impossible(at least for normal folks like me)? Plus some also said cash is a dead weight in the portfolio since it is eroding its value with inflation.

Question 2: If we are 100% (or close to 100%) vested, do that mean that we will have no war chest? If we do have a war chest, we are considered not 100% vested already... (Emergency funds are not included as they will never be used in stocks purchase)


For me, I'm currently I am 80% vested with the rest of 20% in my OCBC 360 account earning 3% interest (trying to make the dead weight more useful). I will buy in again whenever the cash portion grows over 30%. But with the market become higher, it seems to be harder to buy as well...


Question 3: With the market getting higher, should I cut down on the ratio and fatten my war chest? But will it contradict on the theory of "do not time the market"


I know there is no right or wrong and there are many different ways to successful investing. Wanted to hear what are the others views on these.

Thank you very much in advance.

Pretty much a novice investor myself, thus I will prefer to hold some cash. My ideal level is 33% cash, 66% invested. Reason is if my equity down by half, I can double up my investment. When things recovers, I will be 33% richer.

Am I considered timing the market? I don't think so.

Will like to hear from those who 100% vested on how to survive a downturn. Thanks.

[vesfreq]

I am also a freshie at this though i had started during 2008 financial crisis. An investment operation is like operating a biz. Always need to have a reserve to fall back on.

Peirsonally, i would stand by 30 percent. But my portfolio should also consist of some defensive stocks. I suppose no best answer and depends on individual preference.

[thor666]

Personally, I think is more important to look at self needs as priority. With at least 3-6mths of salary in banks etc. If one need emergency funds or feel the market is overvalued, then keep cash closer to 6 mths.

Having a proportion may skew your planning - for some, 3mths salary may mean 5%, for others, 50%.

Myself, I am building towards 6mths now as am starting to look at house purchasing. Happens to coincide with the historical trend of bull-bear cycle, so I would adjust slowly and accordingly.

(anyway, thumbs up for ocbc360. Works and I know quite a few people switching over despite the hassle.)

Sent from my D5503 using Tapatalk

[MINX]

I am also a freshie at this though i had started during 2008 financial crisis. An investment operation is like operating a biz. Always need to have a reserve to fall back on.

Peirsonally, i would stand by 30 percent. But my portfolio should also consist of some defensive stocks. I suppose no best answer and depends on individual preference.

Just to share my 2 cents worth. I think it's wise to keep a war chest for the upcoming downturn in the stock market, especially since we're towards the end of the bull market. How much to allocate to this warchest would vary with the individual's investment strategy and risk tolerance. I believe it's not prudent to be 100% invested at any one time as you've no spare bullets to recover if the downturn is serious & also you will be kicking yourself when you've no more bullets when the fire sale is on.

[crosscalibre]

Sharing an article that was recently written on Wealth of Common Sense

http://awealthofcommonsense.com/the-psyc...g-in-cash/

[pubster]

Thanks for all the replies. I especially like opmi comment on staying around the middle path and not trying to maximise profit. As I am still 35, I am trying to aggressively accumulate wealth with my higher risk tolerance. Guess I should temper my thinking and start going slower a bit.

A bit more about myself. I currently have 12 months of expenses as my emergency fund that will not be touched for any stock purchase. Also had a stock portfolio of 70k with another 20k ready to buy in if I see a bargain.

What is the preferred choice of action for many if you have such a situation?

a) Sit on the 20k and wait for the next correction/recession?
b) Buy in and stay 100% vested
c) With the market so high, sell off a bit and stay 50/50 or even lesser?

My portfolio is too small to generate enough dividends and also my income is below the national average. As such, that's the reason for holding me back for staying 100% vested as I know that my dividends and income will not be fast enough to generate a war chest in times of recession to take advantage of the bargains.

Also for my portfolio (Wilmar, Hotung, LKH, Singapore Ship, Guocoleisure, Valuetronics), I am not sure if they are of good enough quality to survive a recession. I know most likely I will not be able to stomach paper loss of more than 50%. Hence I am tempted to sell off all or trim off some counters to enlarge the war chest.

But the main reason I am hesitating to sell off or enlarge the war chest is because I always read that market timing is impossible. Stay vested and if recession comes, just continue to hold and add more. Holding a large war chest seems to be contradicting to this teaching. That's why I am at 80% vested. 20% cash due to the fact that my small dividends and lower income will not generate me enough ammo in times of bargains. Trying to seek a compromise here...

Love the hear from those who being through the same and those who being through a few recessions.

[Caelitus]

I reduced my holding of equities starting around early Sep 14. My allocation stands at 39.14% Equities, 8.88% Precious Metals and 51.98% in Cash/Cash Equivalents. I am squirreling cash away to prepare for current and future opportunities e.g. investing in two Exchange Traded Funds and reinforcing my current holdings as what NTL plans to do too. I cannot sleep well with a 100% invested scenario =)

[Life is a game]

Thanks for all the replies. I especially like opmi comment on staying around the middle path and not trying to maximise profit. As I am still 35, I am trying to aggressively accumulate wealth with my higher risk tolerance. Guess I should temper my thinking and start going slower a bit.

A bit more about myself. I currently have 12 months of expenses as my emergency fund that will not be touched for any stock purchase. Also had a stock portfolio of 70k with another 20k ready to buy in if I see a bargain.

What is the preferred choice of action for many if you have such a situation?

a) Sit on the 20k and wait for the next correction/recession?
b) Buy in and stay 100% vested
c) With the market so high, sell off a bit and stay 50/50 or even lesser?

My portfolio is too small to generate enough dividends and also my income is below the national average. As such, that's the reason for holding me back for staying 100% vested as I know that my dividends and income will not be fast enough to generate a war chest in times of recession to take advantage of the bargains.

Also for my portfolio (Wilmar, Hotung, LKH, Singapore Ship, Guocoleisure, Valuetronics), I am not sure if they are of good enough quality to survive a recession. I know most likely I will not be able to stomach paper loss of more than 50%. Hence I am tempted to sell off all or trim off some counters to enlarge the war chest.

But the main reason I am hesitating to sell off or enlarge the war chest is because I always read that market timing is impossible. Stay vested and if recession comes, just continue to hold and add more. Holding a large war chest seems to be contradicting to this teaching. That's why I am at 80% vested. 20% cash due to the fact that my small dividends and lower income will not generate me enough ammo in times of bargains. Trying to seek a compromise here...

Love the hear from those who being through the same and those who being through a few recessions.

Hi pubster, for my personal experience I will look for quality stocks with a margin of safety in my purchase price. So even when recession comes I can suffer a 30% to 50% drop in current price and still not suffer a cut in my original capital outlay. Dividend yield is impt too. So even if u meet a recession, the capital gains are gone but the dividends you earn are yours to keep. Hope this helps.