what percentage of a retirement fund should be in stocks?
Ooh, I came up with a formula! The formula is designed to automatically invest more in stocks when they are cheap, and less in stocks when they are expensive.
Percentage in stocks = 80% - (Shiller PE Ratio - 10) / 50 -- But with minimum of 20% and maximum of 80%.
Right now = 22.38%, because stocks are nearly as expensive as they've ever been.
This is very close to where my retirement fund is currently, 22.99% stocks, via the TSP Lifecycle Income Fund. So I won't bother to make an adjustment right now.
Very close to my minimum boundary of 20% for stocks -- I'd always have at least 20% in stocks, and no more than 80% in stocks.
Where to put the other 77.62% right now? I'd put it in short-term bonds (duration under 2 years) or money market funds. Literally every other asset class is overbought right now. I can see keeping up to 10% in gold as a global meltdown hedge -- my own retirement fund manager doesn't offer a precious metals option. [I own a bit of gold in my play money account.]
Long-term bonds are almost never worth buying. There's literally no upside to long-term bonds in a retirement account, they can only pay you back their face value. If the market price of long-term bonds do go up, it is because the interest rates they pay go down proportionally, so over time any price increases are entirely illusory. Meanwhile, inflation relentlessly destroys the value of long-term bonds. Short-term bonds are better because you get to reinvest them at then-current interest rates which do a better job of tracking future inflation surprises.
I wouldn't buy TIPS right now (inflation protected bonds) because they're paying negative interest rates. I'd never purchase a negative interest rate bond of any sort. I'd rather have the paper cash and put it in an insured bank safe deposit box LOL. Note to central banks -- that's why negative interest rates don't stimulate the economy, they encourage people to pull their cash out of the banking system entirely, which makes it more difficult for banks to finance transactions.
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I don't know when the current Everything Bubble is going to pop, but as I'm retiring in six years I don't want to see half my retirement funds go poof before then. I'd say the odds of popping during the next six years is pretty darn high, even if I can't predict exactly when it will happen. I hope it doesn't happen until Biden's second term, but the last time stocks were this expensive the bubble started to pop less than two years later.
And stocks have only been this expensive that one other time, in December 1998. The market peaked one year later. Party like it's 1999, bro. BTW, Prince released that song in 1982, when stocks were the lowest anybody had seen since the Great Depression. Interesting coincidence.
Alright, it's 1999
You say it, 1999
1999
1999 don't stop, don't stop, say it 1 more time
Two thousand zero zero party over,
Oops out of time
Percentage in stocks = 80% - (Shiller PE Ratio - 10) / 50 -- But with minimum of 20% and maximum of 80%.
Right now = 22.38%, because stocks are nearly as expensive as they've ever been.
This is very close to where my retirement fund is currently, 22.99% stocks, via the TSP Lifecycle Income Fund. So I won't bother to make an adjustment right now.
Very close to my minimum boundary of 20% for stocks -- I'd always have at least 20% in stocks, and no more than 80% in stocks.
Where to put the other 77.62% right now? I'd put it in short-term bonds (duration under 2 years) or money market funds. Literally every other asset class is overbought right now. I can see keeping up to 10% in gold as a global meltdown hedge -- my own retirement fund manager doesn't offer a precious metals option. [I own a bit of gold in my play money account.]
Long-term bonds are almost never worth buying. There's literally no upside to long-term bonds in a retirement account, they can only pay you back their face value. If the market price of long-term bonds do go up, it is because the interest rates they pay go down proportionally, so over time any price increases are entirely illusory. Meanwhile, inflation relentlessly destroys the value of long-term bonds. Short-term bonds are better because you get to reinvest them at then-current interest rates which do a better job of tracking future inflation surprises.
I wouldn't buy TIPS right now (inflation protected bonds) because they're paying negative interest rates. I'd never purchase a negative interest rate bond of any sort. I'd rather have the paper cash and put it in an insured bank safe deposit box LOL. Note to central banks -- that's why negative interest rates don't stimulate the economy, they encourage people to pull their cash out of the banking system entirely, which makes it more difficult for banks to finance transactions.
-----
I don't know when the current Everything Bubble is going to pop, but as I'm retiring in six years I don't want to see half my retirement funds go poof before then. I'd say the odds of popping during the next six years is pretty darn high, even if I can't predict exactly when it will happen. I hope it doesn't happen until Biden's second term, but the last time stocks were this expensive the bubble started to pop less than two years later.
And stocks have only been this expensive that one other time, in December 1998. The market peaked one year later. Party like it's 1999, bro. BTW, Prince released that song in 1982, when stocks were the lowest anybody had seen since the Great Depression. Interesting coincidence.
Alright, it's 1999
You say it, 1999
1999
1999 don't stop, don't stop, say it 1 more time
Two thousand zero zero party over,
Oops out of time