If you found yourself with $5000 in your pocket... and you knew full well you had a $5000 expense coming up in 2-3 years... where would you park that $5k to maximize returns while minimizing risk?
For example... Let's say my rich uncle dies and leaves me $5k... and I know my kid is going to need braces in 2-3 years... so like... I don't need need the money... but dropping the cash makes a lot more sense than financing straight teeth.
I basically need to park some money for 2-3 years, and I kinda, really need it to be there on the other end (meaning I don't have the risk tolerance to throw it in Ether or Bitcoin).
My first (and laziest) option is a CD earning like... 1.193%
Any suggestions?
The majority of investment professionals I follow right now are all cash-heavy. The general consensus seems to be that we're either just before or smack dab in the middle of the euphoria phase of stock market lifecycles: With pullback being estimated between 30% (Rosenberg) and 70% (Blumenthal) expected between Q1 2018 and Q3 2018. Those that have to find somewhere to dump an investment are being encouraged to buy commodities, France or Japan. I'm mostly cash right now but I've done okay with a France ETF that doesn't make me sad. I also dumped some cash into Alaska Airlines last week because they've basically beaten Delta for the West Coast and they're expanding into new airports (and they missed earnings by a few pennies so the market punished them by dropping them from a 52-week high to a 52-week low). I've said it before. I like TD Ameritrade because it's easy to deal with and they give you the play money account which tends to curb my stupidest instincts. EDITED TO ADD: interest rates right now are punishing savers. They were specifically chosen to keep money from being placed in cold storage and to encourage investment. Expect the Fed to attempt to remedy this so they have some gas, but expect them to overcompensate because their models are dependent on the Philips Curve and because, frankly, recessions do have to happen at some point. With Yellen out, and William Dudley (NY Fed) walking away, that isn't iron-clad but the guys that have been forestalling a depression by fucking over retirees are about to be out.
No way. So, let's say the Q1 2018 and Q3 2018 prediction is right, somewhere in that time period/before that time period would be a "good" (loosely used) time to switch to cash, at least to mitigate risk of the market pullback?
the best time is now. You don't need to yank all of it, but you could sure as shit yank some of it. More than that, you could call up the company that sends you your 401k statement every month and say "I want to pull back while the pulling is good, what do you recommend I put this money in to shelter it against what I think is likely to be a downturn in the next 18 months?" Remember: you can't buy low if you don't sell high. You don't have to sell all of it. You don't have to sell half of it. Let's pretend you have $100. Let's say you liquidate $25. The market goes up another 10% - you have $102.50 instead of $110. You're still making money. Let's instead assume the market goes down 25%. You have $81.25 instead of $75. And now you dump your $25 cash into stocks that are down 25%. When it goes back to where it was, you have $112.50 instead of $100. And that's if you only liquidate 25% of your portfolio. The gestalt of the market right now is that there's a lot more downside risk than upside return. The entities invested in the markets are largely those that have to be - ETFs, pension funds, etc. If you don't mind making 3% rather than 10%, go partially to cash.
I mean, it's just math. It's barely algebra. I think you'll find that if you call the number on your statements and say "I have questions" they'll leap at the chance to give you opinions. At least then you're getting advice that directly relates to you, rather than the current whim of some blowhard on the internet.
What are the prevailing thoughts on bonds during a recession?
I haven't seen any. Mostly what I've seen cautions that the common knowledge that stocks are down when bonds are up and vice versa has been thrown in utter disarray simply by how much the markets (stocks'n'bonds both) are owned by governments. Something like 80% of Japanese paper is owned by the Bank of Japan. Something like 20% of Apple is owned by Switzerland (they also own more of Facebook than Mark Zuckerberg does). Mostly I see people throwing out "this time it's different" as proof positive that it's never different and it's all going to be the same cycles as always while also throwing out "this time it's different" to point out that interest rates are the lowest they've been in the history of banking and that the mechanisms that have driven investment cycles since the dawn of investment are no longer applicable.
Thanks. My own struggle is looking at my 401k and the 12 month growth and trying to figure out how to avoid a decline I agree is likely. It's tough to understand options and what they mean, but I remember the decline a decade ago. It sucked then, and my 401k is valued significantly higher than it was then.
A harum scarum discussion that I see a lot (and that mk originally posted, and I pooh-poohed, and as is often the case, I'm coming around to his way of thinking) is that ETFs are, effectively, derivative products and that in a period of extreme volatility, they may not act like stocks. They may act like derivatives (tank way faster than the stocks that make them up). A lot of the chatter I'm seeing these days talks about risks/rewards. I pulled everything to cash a year ago. That means I gave up on what? 30% of the market? But if I backtest my portfolio I'd be up like 8%. I wasn't 100% FAANG which is what's driving the tops right now. Instead I'm up 0%. But if things crash, I'm down 0%. Whereas if someone suddenly decides a car company that sells ten thousand cars a year and loses between $4k and $13k on each one of them might not be worth $300 a share, anyone holding Tesla stock might be feeling bad. I have extreme loss aversion. I dump my stuff into things I think are safe. I don't think the market is safe right now, and I don't think there are a lot of opportunities in any publicly-traded company at the moment.
Nothing wrong with a CD or savings account. Both yeild about 1.2% and can be FDIC insured. Also it's totally reasonable to throw XX% in a CD and the rest in something with a chance of bigger gains - that might get you to a risk/reward you like.
If you know you need it and can't risk it why would you want to do anything except the safest thing? $5000 isn't exactly a large amount for an investment that you don't want to lose. High yield is high risk. It's like you're asking for the winning lottery numbers. You want a sure thing that will pay off and I wish you luck. I'd put it somewhere I know I couldn't touch it but I have zero self control and I'd nickel and dime it away in less than a year
I acknowledge that I'm asking for the magical unicorn financial solution that everyone wants... but I think what I'm really saying is... I can afford to take a slightly higher risk than a CD (essentially 0) but not a huge risk, like stocks, or crypto... wondering if anyone had suggestions for an in between.