My SIPP switch is complete - investment timing question

jamesd

There are good reasons for having more cash or bonds than usual at the moment, in the form of the cyclically adjusted price/earnings ratio for many markets, particularly the US. Because bonds look quite unattractive as well, cash is a valid alternative at present.

[Deleted User]

…has been said for a looong time.  I recall people following through on this concept 10 years ago.  They lost out. Big time. Eventually the naysayers will be right but who knows in which decade or century?  Meanwhile Sheer keeps adjusting his CAPE theory to reflect that it hasn’t worked after it was developed. 

jamesd

If they followed it they potentially did well during the covid crash in 2020, deploying some of the higher non-equity at 2017 S&P500 equity market values. And before that, back in 2009, buying at prices last seen in 1997, and the subsequent bull market. It's not a market timing tool, though, and the recent long mostly bull market shows signs of continuing for a while.

It's lower than usual equities, not no equities. How high lower than usual is depends on the person. It's currently about 70% equities for me, with enough cash to live on for many years.

Up to each individual to read up on it and decide.

[Deleted User]

jamesd said:

If they followed it they potentially did well during the covid crash in 2020, deploying some of the higher non-equity at 2017 S&P500 equity market values. And before that, back in 2009, buying at prices last seen in 1997, and the subsequent bull market. It's not a market timing tool, though, and the recent long mostly bull market shows signs of continuing for a while.

It's lower than usual equities, not no equities. How high lower than usual is depends on the person. It's currently about 70% equities for me, with enough cash to live on for many years.

Up to each individual to read up on it and decide.

CAPE was superhigh in 2011 and every year since. Particularly so in the US.  Thats the market which outperformed everything else in the next 10 years. By a huge margin.  I consider the likelihood of someone rebalancing out of equities just before March 2020 and then back into equities in April as very close to zero.  Certainly not what CAPE would have told you. You’d be minimizing US equities back in 2011. Not a winning strategy. 

older_and_no_wiser

Sorry but I really don't understand why anyone would invest in both VLS40 and VLS60. Why not just go with the 40 and use spare cash to invest in a few of the bond funds that are inside the VLS funds? 

Besides that,  I'd suggest for someone with a long investment road ahead into and throughout retirement, 50-60% bonds is extremely cautious. 

Thrugelmir

older_and_no_wiser said:

Besides that,  I'd suggest for someone with a long investment road ahead into and throughout retirement, 50-60% bonds is extremely cautious. 

Greed drives markets higher than the underlying fundamentals would consider reasonable. While it's not possible to time the market per se. When enough indicators align. It's fairly certain that a correction will occur. All that's required is a trigger. Holding back some firepower should prove profitable. Even it means sitting out for a while. 

jamesd

Deleted_User said:

jamesd said:

If they followed it they potentially did well during the covid crash in 2020, deploying some of the higher non-equity at 2017 S&P500 equity market values. And before that, back in 2009, buying at prices last seen in 1997, and the subsequent bull market. It's not a market timing tool, though, and the recent long mostly bull market shows signs of continuing for a while....

CAPE was superhigh in 2011 and every year since. Particularly so in the US.  Thats the market which outperformed everything else in the next 10 years. By a huge margin.  I consider the likelihood of someone rebalancing out of equities just before March 2020 and then back into equities in April as very close to zero.  Certainly not what CAPE would have told you. You’d be minimizing US equities back in 2011. Not a winning strategy. 

I wouldn't be in 2011 and didn't. And it's not about minimising equities but reducing their percentage from their normal long term position.

[Deleted User]

jamesd said:

Deleted_User said:

jamesd said:

If they followed it they potentially did well during the covid crash in 2020, deploying some of the higher non-equity at 2017 S&P500 equity market values. And before that, back in 2009, buying at prices last seen in 1997, and the subsequent bull market. It's not a market timing tool, though, and the recent long mostly bull market shows signs of continuing for a while....

CAPE was superhigh in 2011 and every year since. Particularly so in the US.  Thats the market which outperformed everything else in the next 10 years. By a huge margin.  I consider the likelihood of someone rebalancing out of equities just before March 2020 and then back into equities in April as very close to zero.  Certainly not what CAPE would have told you. You’d be minimizing US equities back in 2011. Not a winning strategy. 

I wouldn't be in 2011 and didn't. And it's not about minimising equities but reducing their percentage from their normal long term position.

The average CAPE value for the 20th century was 15.21. Apparently this corresponds to an average annual return over the next 20 years of around 6.6 per cent. Supposedly, according to the theory, CAPE values above this produce corresponding lower returns, and vice versa. On January 1 2011 CAPE reached 23.  n 2014, Shiller expressed concern that the prevailing CAPE of over 25 was "a level that has been surpassed since 1881 in only three previous periods: the years clustered around 1929, 1999 and 2007. Major market drops followed those peaks".

So, if you followed CAPE theory you’d be underweight in US stocks on January 1st of every single year since 2009. Meanwhile US stocks returned well over 10% annually. 

michaels

Deleted_User said:

jamesd said:

Deleted_User said:

jamesd said:

If they followed it they potentially did well during the covid crash in 2020, deploying some of the higher non-equity at 2017 S&P500 equity market values. And before that, back in 2009, buying at prices last seen in 1997, and the subsequent bull market. It's not a market timing tool, though, and the recent long mostly bull market shows signs of continuing for a while....

CAPE was superhigh in 2011 and every year since. Particularly so in the US.  Thats the market which outperformed everything else in the next 10 years. By a huge margin.  I consider the likelihood of someone rebalancing out of equities just before March 2020 and then back into equities in April as very close to zero.  Certainly not what CAPE would have told you. You’d be minimizing US equities back in 2011. Not a winning strategy. 

I wouldn't be in 2011 and didn't. And it's not about minimising equities but reducing their percentage from their normal long term position.

The average CAPE value for the 20th century was 15.21. Apparently this corresponds to an average annual return over the next 20 years of around 6.6 per cent. Supposedly, according to the theory, CAPE values above this produce corresponding lower returns, and vice versa. On January 1 2011 CAPE reached 23.  n 2014, Shiller expressed concern that the prevailing CAPE of over 25 was "a level that has been surpassed since 1881 in only three previous periods: the years clustered around 1929, 1999 and 2007. Major market drops followed those peaks".

So, if you followed CAPE theory you’d be underweight in US stocks on January 1st of every single year since 2009. Meanwhile US stocks returned well over 10% annually. 

The fat lady hasn't sung yet.  No way of knowing how 40+ years of retirement will go overall for someone who started in 2009 and went higher or lower percentage of equities.  If we saw values plunge by 60% suddenly the high equities wouldn't look such a good strategy.

[Deleted User]

michaels said:

Deleted_User said:

jamesd said:

Deleted_User said:

jamesd said:

If they followed it they potentially did well during the covid crash in 2020, deploying some of the higher non-equity at 2017 S&P500 equity market values. And before that, back in 2009, buying at prices last seen in 1997, and the subsequent bull market. It's not a market timing tool, though, and the recent long mostly bull market shows signs of continuing for a while....

CAPE was superhigh in 2011 and every year since. Particularly so in the US.  Thats the market which outperformed everything else in the next 10 years. By a huge margin.  I consider the likelihood of someone rebalancing out of equities just before March 2020 and then back into equities in April as very close to zero.  Certainly not what CAPE would have told you. You’d be minimizing US equities back in 2011. Not a winning strategy. 

I wouldn't be in 2011 and didn't. And it's not about minimising equities but reducing their percentage from their normal long term position.

The average CAPE value for the 20th century was 15.21. Apparently this corresponds to an average annual return over the next 20 years of around 6.6 per cent. Supposedly, according to the theory, CAPE values above this produce corresponding lower returns, and vice versa. On January 1 2011 CAPE reached 23.  n 2014, Shiller expressed concern that the prevailing CAPE of over 25 was "a level that has been surpassed since 1881 in only three previous periods: the years clustered around 1929, 1999 and 2007. Major market drops followed those peaks".

So, if you followed CAPE theory you’d be underweight in US stocks on January 1st of every single year since 2009. Meanwhile US stocks returned well over 10% annually. 

The fat lady hasn't sung yet.  No way of knowing how 40+ years of retirement will go overall for someone who started in 2009 and went higher or lower percentage of equities.  If we saw values plunge by 60% suddenly the high equities wouldn't look such a good strategy.

Perhaps but CAPE isn’t about asset allocation. It purports to divine when the equities are expensive and what the future returns will be.  People use it to time the market.   Academic theories on how to beat the market all work for long periods prior to publication. And - you guessed it - stop working after. CAPE is no exception.   Lately the author has been busy modifying his theory.  Common problem is that we have no idea about future earnings so can’t really tell what’s “expensive”. I’ll pass on CAPE but you are welcome to pick Shiller’s old or new version. Or the intermediate one.