# S&P 500 at all time high - time to sell?



## dubmac (Jan 9, 2011)

I'm wondering whether to move all my equities to cash after seeing how far the S&P 500 has moved over the past 4.77 years. Wondering whether any of you (in the forum) have transferred any gains out of the US markets/global markets/Cdn mrkets and into something "safer" (cash) recently. I know this all smecks of market timing, - maybe even a little like chicken little - but a closer look at the S&P 500 http://en.wikipedia.org/wiki/File:S&P500_(1950-12).jpg enough to make a lil dizzy! An investment advisor sent me the following chart, and the quote below to help put things in perspective. this also got me thinking about moving money out of equities. 
*The average bull market lasts 1702 days and the average bear market lasts 396 days. The current bull market that began on 03/31/2009 has now been in place for 1,559 days. We are 143 days or 4.77 months away from the average length of a bull market. This does not mean that we immediately head south, but it does mean we have be on the alert for changes in the direction and be able to move to more defensive position should we get the outright sell signal. Until the sell signal is given we remain invested.* - click on to enlarge chart below -


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## Andrew (May 22, 2009)

I've started to take some money off the table yes.


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## Synergy (Mar 18, 2013)

Some feel that's there's still a lot of room for the markets to continue to climb...

http://blogs.wsj.com/moneybeat/2013...ifts-into-second-gear-dow-20000-here-we-come/


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## doctrine (Sep 30, 2011)

You might say that an all time high would make you more likely to sell than to buy. But then again when this started 5 years ago, US stocks had a very poor image.

Personally, I wouldn't say sell, but you might want to add new money to other asset areas instead. Commodity stocks are the current bad guy - lots of institutions publicly stating they want nothing to do with them.


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## AltaRed (Jun 8, 2009)

US markets are going to get considerably more volatile after Labour Day when Congress reconvenes and has to deal with both the debt ceiling and the 2014 fiscal year budget, the 2014 fiscal year starting Oct 1, I believe. The debt ceiling was reached last May but Treaury had ways to Finangle the debt ceiling for awhil in their bag of tricks. Those with little stomach for this roller coaster might want to trim their holdings. 

FWIW, I have a substantial cash position but waiting to deploy it in Cdn markets. But not in any additional commodities which I think are in a funk for some time.


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## My Own Advisor (Sep 24, 2012)

Not selling, keeping my U.S. stocks, just wanting to save more cash for a pullback and some stocks I want to buy come down.


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## james4beach (Nov 15, 2012)

Some factors to consider

1. Yes typically there is a 4 to 5 year business cycle, and we're obviously near the tail end of that
2. S&P 500 earnings (eps) have been stagnant for around 6 quarters, *but* new earnings are coming in now. They may be stronger.
3. On a shiller CAPE basis, yes, the S&P 500 is overvalued. Then again it's been overvalued for many years.
4. Not sure you can sell the index just because it's overvalued. Some believe that due to ZIRP and QE, stocks will be permanently high

#2 is pretty important because we don't know the full earnings picture yet. If earnings turn out to be very strong, this could break the 6 quarter stagnation slump and that *could* propel the S&P 500 further.

I presume these are long term investments for you. In such a case I certainly wouldn't sell the whole position, but it can be wise to take profits (sell some) especially when presented with a rare opportunity like this. Some people just do this in the natural course of rebalancing their positions.


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## CanadianCapitalist (Mar 31, 2009)

IMHO, the question should be: what's your rebalancing policy? Mine is 27 percent with a rebalancing band of +/- 5 percent. US stock allocation is currently 28.4 percent, so I'm just holding on. I put new savings to work on whatever asset classes are lagging the most. These days the dogs are Emerging Markets, REITs and Canadian stocks in that order, so that's where new money is headed. It is as simple as it gets and quite conservative and the results have been acceptable.


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## Jon_Snow (May 20, 2009)

My Own Advisor said:


> Not selling, keeping my U.S. stocks, just wanting to save more cash for a pullback and some stocks I want to buy come down.


Amen to that MOA... Done buying for awhile. Time to save money like only a couple of debt free D.I.N.K.S can.


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## dubmac (Jan 9, 2011)

CanadianCapitalist said:


> IMHO, the question should be: what's your rebalancing policy? Mine is 27 percent with a rebalancing band of +/- 5 percent. US stock allocation is currently 28.4 percent, so I'm just holding on. I put new savings to work on whatever asset classes are lagging the most. These days the dogs are Emerging Markets, REITs and Canadian stocks in that order, so that's where new money is headed. It is as simple as it gets and quite conservative and the results have been acceptable.


I'm aiming for 25% Foreign Equity (US & Global equites 2gether). I have 18%. After 2009, I didn't put much (any) into the Foreign Equity portion, and only really started in late 2011. I'm paying for that decision having seen US equities take off in the past 10 months or so. I'd like to keep buying US and foreign equity to add more to it, but the S&P 500 high spooks me. 

I've decided to hold what US and Foreign equity I have, and wait until the Spring before I buy more, or a correction. I'll put my future contrubutions in a low int. MMF or equivalent safe place. I know this sounds alot like "trying to time the market", but it's a chance I'll take for contributions to the Foreign equity portion given I'm uncertain on what will happen in the next 4-6 months.


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## donald (Apr 18, 2011)

Aren't we still ''missing'' a cycle or 2 in the psychology of the market!If all bull markets have 5 stages were far from the euphoria?The general public is still **** scared of stocks/economy-(People are still reeling from 08)

Isn't a ''top'' in when everybody is taking stocks @ cocktail parties?and the ''boy's'' @ the golf course are giving tips and showing up in new cars?(maybe they are)Not sure that is happening yet.....seems like were still missing the dumb money?cnbc is @ a all time low in viewership +godfather warren b is still buying,doesn't he usually say at tops he can't find anything to buy....i haven't bought anything new but i don't think the clock is close to midnight yet,feels like there is still legs to this.
This is purely a physiological opinion,leaving earnings out of it------Could be dead wrong!This great rotation out of bonds,has that happened yet,what assets class is still hated?I have a hard time believing fixed income products are going to be looking good against stocks anytime in the near term.Feels like the usa is still attractive and rebounding still.(with a lot of pauses/starts/stops/fear/wall of worry/head fakes)


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## james4beach (Nov 15, 2012)

I think people are very excited about stocks. Look at the record high margin loan usage ... retail investors are borrowing tremendous margin loans to fund stock purchases. You don't do that when you're scared of stocks declining.

And in these forums I do see stock euphoria (certainly for dividend stocks and banks).


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## donald (Apr 18, 2011)

You could be very right!I know i have read so- so much that the demo under 45 is no where near stocks(americans),this could be the heavy concentration of 55+ citizen of the us that are in stocks(retail)(ie wealth-gap,heavily in the pockets of the ''older'' americans)
I think it is some what concentrated.I can see the market it self having reached a peak(fed manipulated) but the ''real'' economy(earnings) still seems like it's dawning on new ''days'' i know the two don't always go hand in hand but i do feel like america is poised for a great next decade.
I know when i was in the states last winter(comparing to 2010) there was optimism,real-estate is def on the up and up and the country itself feels/seems like it's gaining traction once again.(main street not wall street)
I know i talked to a quite a few americans and they seem quite positive,could be wrong!I would still rather be invested state side than in canada(that is just M.O)I admit i'm not going to pretend i know for certain(i'm not selling though nor buying-holding)


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## CanadianCapitalist (Mar 31, 2009)

james4beach said:


> I think people are very excited about stocks. Look at the record high margin loan usage ... retail investors are borrowing tremendous margin loans to fund stock purchases. You don't do that when you're scared of stocks declining.


Source?

To me, it seems the opposite. US investors are still shying away from stocks. Look at mutual fund flows available here: 

http://www.ici.org/research/stats/flows/flows_07_31_13

Since Sept. 2008, US mutual fund investors have pulled out $484 billion out of US stocks. During the same time frame, they've added $1 trillion to their bonds. Doesn't sound like a mania for stocks to me.


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## Sampson (Apr 3, 2009)

CanadianCapitalist said:


> During the same time frame, they've added $1 trillion to their bonds. Doesn't sound like a mania for stocks to me.


This is just crazy.

So just to mix the conversation from the indexing vs. stock picking conversation going on in the other thread, people making smart decisions like moving all their money from equities to bonds during the past 5 years surely weighs down the 'average' returns of investors. Eliminate the 'not-so-wise' people from the mix and surely the rest beat the market handily.


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## cainvest (May 1, 2013)

CanadianCapitalist said:


> Source?
> 
> To me, it seems the opposite. US investors are still shying away from stocks. Look at mutual fund flows available here:
> 
> ...


Do ETFs have something to do with the loss in Mutual funds investing?


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## CanadianCapitalist (Mar 31, 2009)

cainvest said:


> Do ETFs have something to do with the loss in Mutual funds investing?


Good question. Some of the outflows from mutual funds were probably captured by ETFs. However, ETFs still make up only a fraction of the mutual fund industry that I'd be very surprised if the narrative of US investors avoiding stocks changed when you include ETF flows.



Sampson said:


> So just to mix the conversation from the indexing vs. stock picking conversation going on in the other thread, people making smart decisions like moving all their money from equities to bonds during the past 5 years surely weighs down the 'average' returns of investors. Eliminate the 'not-so-wise' people from the mix and surely the rest beat the market handily.


Not sure I follow you Sampson. Money flowing out of stocks were also supplied by a set of investors and that set of investors would still have earned market returns as a group, right?


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## Toronto.gal (Jan 8, 2010)

james4beach said:


> 1. And in these forums I do see stock *euphoria *
> 2. (certainly for *dividend stocks* and banks).


*1.* To exaggerate, I see stock dysphoria from some as well. :confused2:

*2.* Companies are sitting on record amounts of cash; you know what that means for dividend paying stocks & its investors. 

Not selling either, except where the stock has become too large a portion of my port., ie: BAC.


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## cainvest (May 1, 2013)

CanadianCapitalist said:


> Good question. Some of the outflows from mutual funds were probably captured by ETFs. However, ETFs still make up only a fraction of the mutual fund industry that I'd be very surprised if the narrative of US investors avoiding stocks changed when you include ETF flows.


Asset wise looks like ETFs are ~10% of the MF total based on that link you provided above. They say there is a 21% increase in ETFs in the past 12 months.


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## james4beach (Nov 15, 2012)

CanadianCapitalist said:


> Source?
> 
> To me, it seems the opposite. US investors are still shying away from stocks. Look at mutual fund flows available here:
> 
> ...


Regarding my first claim: margin loans reach record high April 2013, surpassing previous July 2007 high:
http://wallstreetonparade.com/2013/...reet-hits-all-time-high-but-whose-debt-is-it/
http://www.usatoday.com/story/money/markets/2013/05/11/investors-margin-debt-nears-record/2149827/
http://softcurrencyeconomics.com/2013/07/26/margin-debt-a-potential-sign-of-trouble/ (nice charts here)

Regarding the second, flows into stocks. The data I see agrees with the $1 trillion into bonds (and let's face it, there's a serious bond bubble) but the -$484 billion from stocks may not be counting ETFs. Count the stock ETFs and more money has flowed in:

http://blogs.wsj.com/moneybeat/2013/08/06/u-s-stocks-the-king-in-2013/

"Between January 2008 and December 2012, $1.25 trillion flow into bond mutual funds and exchange-traded funds and $122.6 billion outflow from stock mutual funds and ETFs, according to TrimTabs."

So that was -$123 billion flow balance at end of 2012. Look at what they're reporting about stock inflows in 2013, there has been +$206.9 billion in 2013 which now makes it a *net $84 billion inflow into stock mutual funds & ETFs since January 2008*. So all the money that fled stocks has now come back. How on earth is this "shying away from stocks"? Stocks are more popular now than before the '08 crisis.

And in particular look at stock popularity in 2013 (quoting from WSJ article)
- "This year through the end of July, investors poured $206.9 billion into stock mutual funds and ETFs"
- "U.S. equity mutual funds and exchange-traded funds received $40.3 billion in July, surpassing the previous record of $34.6 billion in February 2000"


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## james4beach (Nov 15, 2012)

So to summarize there (with my references provided)

Record high margin loans at stock brokerages (previously occurring at the 2000 and 2007 peaks), and total net *inflow* into stock funds from 2008 to now.

It's the 2013 equity inflows in particular that are amazingly high.


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## jcgd (Oct 30, 2011)

If you call a market crash now, how far in the future can the crash occur and you are still considered correct? Some members have been sayin the bull market is going to tank since the day I joined. Some are still waiting for a chance to get in. 

If the market increases YOY 75% of the time, why would someone waste their time trying to time the drop? Wouldn't it be easier to time an increase? If this year is that 1 in 4 you could buy the dip. 

Which makes you more money long term? Missing the dips or missing the rips?


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## ShowMeTheMoney (Apr 12, 2009)

I don't know, that's my problem. I have happened onto lot of cash to invest, and being a couch potato, index etf type investor, I know I'm not supposed to time the market, but I feel uncomfortable at this point to invest. I'm not selling what I have invested, and I hate having so much cash doing almost nothing. However, according to my age (I'm not getting any younger) I should be allocating more to bonds, I've been very aggressive up to this point, and been meaning to put more in bonds, but the outlook for bonds sucks a lot more that stocks at this point I think. Can I consider this cash (earning 1.25 to 3%) as my fixed income for now? If I do, then I'm pretty much in line with my allocations for the portfolio, and don't need to rebalance much at all. Maybe get a bit more emerging markets, that's all that looks somewhat attractive to me at the moment. I'd appreciate any comments on any of this.


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## Feebz13 (Jun 23, 2011)

Great thread, I've been thinking the same thing myself. Appreciate all the opinions. 
I've rebalanced a few times so far this year and have been putting money into emerging markets and unfortunately bonds. I feel like the bonds is a bad idea, but it's part of the strategy so I'm sticking to it. Trying to avoid timing but looking at the run on VTI it's hard not to think the drop is coming.


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## james4beach (Nov 15, 2012)

ShowMeTheMoney: I wouldn't feel good about putting money into bond funds either - they're very overpriced. That's why I opt for GICs or buy individual bonds and hold them to maturity. Even if the couch potato strategy says "bonds" I think GICs are a better alternative, when laddered. And yes I think high interest savings also qualifies as fixed income. My own "fixed income" allocation consists of high interest savings accounts, bonds, and GICs in a ladder.

jcgd: regarding the likelihood of the market rising. I think that statistic is a bit misleading because it makes it sounds like any given year in the stock market is the same as any other. But there are times the market is overvalued, and times its undervalued. Buying in the undervalued (or fair value) times produces much better returns. Buying in overvalued times gives poor returns. See the graphs here for an illustration of this.

So if you're thinking of plowing a whole bunch of new money into the S&P 500 today, you have to be aware that this is a period of over-valuation and the odds are not in your favour, for getting good long term returns. Some have observed (and I agree with them) that secular bear markets [poor performance periods] begin at valuations like we observe at present


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## ShowMeTheMoney (Apr 12, 2009)

Thanks James, you're confirming my biases! This probably should be on a different thread, but I have no idea how to buy individual bonds, without committing lots of $. I'm with TD Waterhouse it's not clear how to do a GIC ladder there either. I need to spend more time on the fixed income part of the site, I'm really a newbie when it come to fixed income.


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## james4beach (Nov 15, 2012)

ShowMeTheMoney said:


> Thanks James, you're confirming my biases! This probably should be on a different thread, but I have no idea how to buy individual bonds, without committing lots of $. I'm with TD Waterhouse it's not clear how to do a GIC ladder there either. I need to spend more time on the fixed income part of the site, I'm really a newbie when it come to fixed income.


Yeah I'd love to help, maybe you can start a new thread. Briefly though you can do it all through TD Waterhouse. Government of Canada bonds come in minimum $5,000 face value sizes. Under 'fixed income' you can browse the government bonds and get a quote (price consists of mkt price + accrued interest, and it tells you the total cost to purchase, and the resulting yield to maturity). GICs are all listed also under fixed income (click here to go right to list). If you see a rate you like, phone the fixed income TDW desk and they will purchase it with no fees.


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## jcgd (Oct 30, 2011)

james4beach said:


> jcgd: regarding the likelihood of the market rising. I think that statistic is a bit misleading because it makes it sounds like any given year in the stock market is the same as any other. But there are times the market is overvalued, and times its undervalued. Buying in the undervalued (or fair value) times produces much better returns. Buying in overvalued times gives poor returns. See the graphs here for an illustration of this.
> 
> So if you're thinking of plowing a whole bunch of new money into the S&P 500 today, you have to be aware that this is a period of over-valuation and the odds are not in your favour, for getting good long term returns. Some have observed (and I agree with them) that secular bear markets [poor performance periods] begin at valuations like we observe at present


Exactly. It is one thing not to buy any more equities. It's completely different to sell out current positions in hopes of a correction that you likely cannot predict with any accuracy... a few years likely, if not more.


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## james4beach (Nov 15, 2012)

ShowMeTheMoney said:


> Thanks James, you're confirming my biases! This probably should be on a different thread, but I have no idea how to buy individual bonds, without committing lots of $. I'm with TD Waterhouse it's not clear how to do a GIC ladder there either. I need to spend more time on the fixed income part of the site, I'm really a newbie when it come to fixed income.


I started this thread
http://canadianmoneyforum.com/showthread.php/16014-Fixed-income-bond-amp-GIC-ladder


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## CanadianCapitalist (Mar 31, 2009)

james4beach said:


> (and let's face it, there's a serious bond bubble) but the -$484 billion from stocks may not be counting ETFs. Count the stock ETFs and more money has flowed in:


Huh? Don't you advocate 90% allocation to bonds? If there is a "serious bond bubble" why would you put pretty much your entire portfolio in bonds?

Okay, let's pretend for an instant that investors are stampeding into stocks (I beg to differ on this. It seems to me that the numbers you are citing includes all stocks, including inflows into foreign developed markets, emerging markets etc., so without some context, the numbers could mean anything). I suggest that these fund flows aren't some sort of bell that rings when the stock market reaches a peak. I'm very skeptical of crystal ball gazing to divine short term stock market movements. Better to put long-term money to work as one generates savings. Surely some of those investments would be during market peaks but one would also be investing through market lows and on average, one would achieve respectable returns. At least, that's my experience so far.

PS: I should add here that I'm holding onto my US stocks, not adding to them. That follows from my asset allocation plan, not reading the entrails of the stock market. I have absolutely no idea where US stocks or any other stocks are headed. I also believe no one else does either, though there will be no shortage of Oracles.


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## james4beach (Nov 15, 2012)

CanadianCapitalist said:


> Huh? Don't you advocate 90% allocation to bonds? If there is a "serious bond bubble" why would you put pretty much your entire portfolio in bonds?


I advocate heavy cash & fixed income exposure, not necessarily all into bonds. And I have never recommended the bond funds. I have repeatedly told people to stay away from the bond funds, and go instead for HISA, GICs or bonds held to maturity.

In a bond bubble, the risk is that you buy a bond fund and watch the market price fluctuate and drop. That doesn't happen if you buy GICs and bonds held to maturity.

Yes bonds are in a bubble, yes they are overpriced. But properly managed (avoid bond funds; keep average maturity low) this is not a very great risk. The stock market is also dramatically overvalued, in a bubble. Given the choice between these two overvalued asset classes, I'd rather go with fixed income.



> Okay, let's pretend for an instant that investors are stampeding into stocks (I beg to differ on this. It seems to me that the numbers you are citing includes all stocks, including inflows into foreign developed markets, emerging markets etc., so without some context, the numbers could mean anything). I suggest that these fund flows aren't some sort of bell that rings when the stock market reaches a peak. I'm very skeptical of crystal ball gazing to divine short term stock market movements. Better to put long-term money to work as one generates savings. Surely some of those investments would be during market peaks but one would also be investing through market lows and on average, one would achieve respectable returns. At least, that's my experience so far.


Good point that some of those inflows may be into foreign stock funds. And yes I agree they don't ring a bell at the top.


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## ShowMeTheMoney (Apr 12, 2009)

james4beach said:


> Yeah I'd love to help, maybe you can start a new thread. Briefly though you can do it all through TD Waterhouse. Government of Canada bonds come in minimum $5,000 face value sizes. Under 'fixed income' you can browse the government bonds and get a quote (price consists of mkt price + accrued interest, and it tells you the total cost to purchase, and the resulting yield to maturity). GICs are all listed also under fixed income (click here to go right to list). If you see a rate you like, phone the fixed income TDW desk and they will purchase it with no fees.


Very helpful, Thanks!


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## CanadianCapitalist (Mar 31, 2009)

james4beach said:


> In a bond bubble, the risk is that you buy a bond fund and watch the market price fluctuate and drop. That doesn't happen if you buy GICs and bonds held to maturity.


Sure it will. If Portfolio A is made up of a bond ladder and Portfolio B is made of bond funds and both have the same duration, the impact of a rise in interest rates on both is exactly the same. In a rising interest environment, the market value of a ladder of bonds will also fall. 

There is one scenario in which bonds and bond funds perform differently. That is when one is saving to meet a specific liability in the future. In that case bonds are clearly better because you can buy them with maturities matching the liability. For someone saving regularly for retirement at some point in the really long term, they are seriously mistaken if they believe that they won't experience losses if they hold a ladder of bonds instead of a bond fund.


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## james4beach (Nov 15, 2012)

CanadianCapitalist said:


> Sure it will. If Portfolio A is made up of a bond ladder and Portfolio B is made of bond funds and both have the same duration, the impact of a rise in interest rates on both is exactly the same. In a rising interest environment, the market value of a ladder of bonds will also fall.


Except that bond funds are constantly selling bonds in their portfolio, which means they incur a trading loss in a rising rate environment. In the laddered bonds, there is never a trading loss. You never lock in a loss on a bond if it's held to maturity.

Conceptually I don't see any difference between the bond held to maturity, versus a GIC. Both have a fixed starting and ending value, and thus a constant yield right? The market value fluctuates until maturity but it always ends up at the same ending value.

It's true that the portfolio of bonds fluctuates in value just like a bond fund. For instance one of my pure bond accounts dropped -1% between June 6 and August 1. However the portfolio's value at maturity was identical on June 6 and August 1. Over the horizon of your investment, there is no possibility of incurring a loss, and the yield is predetermined the moment you buy a bond... unless an issuer defaults.

Compare to a bond fund where you can definitely have an irreparable loss since you never reach portfolio maturity. Plus the trading losses. Of course the bond fund can also have trading gains, which I don't benefit from.


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## james4beach (Nov 15, 2012)

CanadianCapitalist said:


> For someone saving regularly for retirement at some point in the really long term, they are seriously mistaken if they believe that they won't experience losses if they hold a ladder of bonds instead of a bond fund.


Non-realized losses yes, but they certainly won't realize any losses.

Say you've got a ridiculously long, 20 year bond ladder made up entirely of government bonds. In can tell you *today* exactly what your tax slips will be for the next 20 years... capital gain is (face value - purchase value) and interest income is coupon rate. And each time you buy a new bond I can recalculate and tell you all future tax slips with 100% certainty.

Can you do that with a bond fund? To me that illustrates the difference between uncertainty and risk of loss in a bond fund, versus the certainty and perfect foresight in a bond ladder.


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## dubmac (Jan 9, 2011)

james4beach said:


> Except that bond funds are constantly selling bonds in their portfolio, which means they incur a trading loss in a rising rate environment. .


There are Target Bond Funds that are composed of bonds that have been purchased, *AND* held to maturity. BMO offers these - Rob Carrick did a review about a yr ago.http://www.theglobeandmail.com/glob...ng-aim-at-bigger-bond-returns/article4625463/
Not sure whether these types of ETF's include bonds other than corporate bonds.


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## andrewf (Mar 1, 2010)

I sometimes wonder about that. Many bond funds sell bonds once they have <1 year to maturity, and these days those will have a low yield. So, they yield you actually earn on a bond fund that buys 5 year bonds and sells 1 year bonds is not the weighted YTM, but rather the implied yield between 1 year and 5 year bonds.


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## ShowMeTheMoney (Apr 12, 2009)

andrewf said:


> I sometimes wonder about that. Many bond funds sell bonds once they have <1 year to maturity, and these days those will have a low yield. So, they yield you actually earn on a bond fund that buys 5 year bonds and sells 1 year bonds is not the weighted YTM, but rather the implied yield between 1 year and 5 year bonds.


What about laddered bond funds (eg. CLF), they don't actually hold the bonds to maturity necessarily right?


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## CanadianCapitalist (Mar 31, 2009)

james4beach said:


> Non-realized losses yes, but they certainly won't realize any losses.
> 
> Say you've got a ridiculously long, 20 year bond ladder made up entirely of government bonds. In can tell you *today* exactly what your tax slips will be for the next 20 years... capital gain is (face value - purchase value) and interest income is coupon rate. And each time you buy a new bond I can recalculate and tell you all future tax slips with 100% certainty.
> 
> Can you do that with a bond fund? To me that illustrates the difference between uncertainty and risk of loss in a bond fund, versus the certainty and perfect foresight in a bond ladder.


No, I can't forecast with "perfect foresight" the return from a bond ETF. But surely, you can't forecast returns from a bond ladder with any certainty either since you have little idea what interest rate you are going to earn on maturing bonds that you are rolling into new ones. 

I've agreed in an earlier comment that since a typical bond fund does not have a maturity date, it is not suitable in certain scenarios such as those saving with a certain liability date in mind. But for investors who are going to save and accumulate for a long time, bond funds do have appealing characteristics (one can invest small amounts, getting precision exposure in a diversified portfolio etc.).


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## james4beach (Nov 15, 2012)

ack sorry for perpetuating this conversation in the wrong thread



CanadianCapitalist said:


> No, I can't forecast with "perfect foresight" the return from a bond ETF. But surely, you can't forecast returns from a bond ladder with any certainty either since you have little idea what interest rate you are going to earn on maturing bonds that you are rolling into new ones.
> 
> I've agreed in an earlier comment that since a typical bond fund does not have a maturity date, it is not suitable in certain scenarios such as those saving with a certain liability date in mind. But for investors who are going to save and accumulate for a long time, bond funds do have appealing characteristics (one can invest small amounts, getting precision exposure in a diversified portfolio etc.).


I see what you mean. True, I don't have perfect knowledge with the ladder either because new purchases are a wildcard.

Perhaps this is an issue of _perceived_ control. I feel like the ladder gives me better control because for a snapshot, I know exactly what it contains and the exact maturity value. On the other hand looking at a bond fund, as a snapshot, doesn't tell me much... I know what it holds, but I don't know which of those bonds will be allowed to mature, versus traded. In practice though since the perpetual ladder has to be filled in all the time, the uncertainty is still there ... and so maybe I'm just getting caught up in the perception.

We're definitely in agreement on the maturity date issue.

Yes for long term saving, I do see some advantages of the bond funds. It's also less effort than maintaining a ladder. At other times in the past, with higher interest rates and larger spreads on corporate debt, bond funds were even more appealing vs GIC ladder.

At current interest rates and spreads though I have trouble seeing how any bond ETF is better than a bunch of GICs. And sometimes even a GoC bond. For instance XBB (at 10 yr maturity) yields 2.33% after MER, whereas one can buy the 10 yr GoC bond for 2.40% after fees. How could XBB possibly be a good deal? I think it's showing just how high bond fund MERs are versus today's yields, and how low the corporate spreads are.


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## MoreMiles (Apr 20, 2011)

jcgd said:


> If you call a market crash now, how far in the future can the crash occur and you are still considered correct? Some members have been sayin the bull market is going to tank since the day I joined. Some are still waiting for a chance to get in.
> 
> If the market increases YOY 75% of the time, why would someone waste their time trying to time the drop? Wouldn't it be easier to time an increase? If this year is that 1 in 4 you could buy the dip.
> 
> Which makes you more money long term? Missing the dips or missing the rips?


+1

For those in accumulation mode, you may have new spare money just becoming available these days. What do you do then? You keep waiting and let that cash sit for who-knows-when?

With this logic... should we skip the RRSP buying this year? How about next year then? When is "the right time or right level" to buy?


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## james4beach (Nov 15, 2012)

I'm probably the biggest bear you'll find on this forum, and even I'm not calling for an imminent S&P 500 crash. The furthest I'm willing to go was saying "I certainly wouldn't sell the whole position, but it can be wise to take profits (sell some)"

On the question MoreMiles raises about how you deploy new money in a portfolio: if you have a diversified portfolio and *a few choices* (within your allocation budgets), I would say S&P 500 would be one of your last choices at this price.

I realize this is crude but I have a rule of thumb that has served me well over the years. When buying an index, I look to buy below the 100 day moving average. Illustrated here with XRE (in August it's below the 100 day average).

This tends to work because it points you to the out-of-favour parts of your portfolio and more importantly, it steers you away from buying things at extreme highs. Instead of accumulating an asset when it's at an extreme high, you are accumulating it when it's out of favour.

So here are common investments that currently look out of favour, below the 100 day:
- Bonds
- Precious metals & miners
- Utilities
- REITs
- Emerging markets

I'm not saying go out and buy these. I'm saying if you have a long-term portfolio with defined allocations% for the above, and you have new money to fill in, these are probably better areas to buy into rather than say S&P 500, NASDAQ, or Russell 2000.


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## james4beach (Nov 15, 2012)

Here's another article talking about record high margin use, and the euphoric state of stock investors. From the UK's Telegraph

Investors euphoric as US margin debt reaches 'danger' levels , quoting some of it:

Bank of America’s monthly survey of investors showed a dramatic rise in confidence in August, with a net 72pc expecting growth to accelerate over the next year. It is the highest in reading since 2009. 

Almost everybody expects bond yields to rise as deflation fears evaporate, with just 3pc still worried about the risk of an economic relapse. Managers have slashed their bond allocation to a 28-month low. 

The survey is watched by veterans as a "contrarian indicator", tracking herd mentality at key moments. Michael Hartnett, the bank’s investment strategist, advised clients to take the opposite trade and buy US Treasury bonds.

The exuberant mood comes as margin debt on Wall Street hovers near $377bn, just below its all-time high and well above peaks before the dotcom crash and the Lehman crisis. 

“Investors have rarely been more levered than today,” said Deutsche Bank, warning that the spike in margin debt is a “red flag” and should be watched closely. 
. . .

“When everybody is jumping up and down and partying, that is the time to worry. Once the market turns nasty we could see a negative feedback loop. Debt is always a killer in the end,” he said.


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## avrex (Nov 14, 2010)

Source: Credit Suisse - Global Equity Research


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