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“U.S. Stocks Are Now Pricier Than They Were in the Dot-Com Era
The S&P 500 has never been this expensive, or more concentrated in fewer companies” – WSJ 9/1/2025
Edited 9/2/2025 per Morningstar: Morningstar US Market Index +10.90% since June 1, 2025! Tech stocks +16.1% over the same period.
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Furthermore, all of the components of Faber’s ‘Ivy-5’ portfolio are above their 10-month Simple Moving Average.
My philosophy in retirement is to have a portfolio that allows me to sleep well
Of course you need to understand SORR. ask yourself at retirement if you could afford a 50% equity loss and maintain lifestyle. That has happened twice this century. Just be a well educated investor and use index funds as that’s the 50yr proven method superior to any other methodology
I know with 100% certainty that there will be a deep and lengthy drawdown. I just don’t know when, and neither does anyone else. Therefore, you should plan accordingly from the day you start decumulating. As Warren Buffet said “The only value of stock forecasters is to make fortune-tellers look good”
Edited 9/2/2025 per Morningstar: Morningstar US Market Index +10.90% since June 1, 2025! Tech stocks +16.1% over the same period.
You already said that.
I posted my comment at the time I edited the post and added the M* data. I assume that anyone who read my prior post would miss this addition. Some will see this twice. Sorry for that inconvenience.
This, along with the press frequently reminding us of the high CAPE and “Buffett Indicator” does affect my emotions. So what to do? In my opinion, I remind myself of Munger’s timeless advice: “Don’t do something stupid”. In other words, I do nothing.
Similar to Mark Crothers’ comment below, structure your portfolio in such a manner that it will reap some of the benefits from stock indexes if they continue to climb, while only incurring some of the losses should they be about to plummet, because you have sufficient assets in cash/short term treasurys.
The people who should be rattled by these stories in the media are those who haven’t structured their portfolios accordingly. For myself, the main variable I see is deciding how many years worth of future withdrawals to protect: Jonathan has recommended 5 years; some say 7 years. In view of Adam’s recent article on the 4% withdrawal method and the need to hold some 50% or so in stocks for it to work, a 60 stock/40 bond allocation (provided the bonds are all short to intermediate term treasurys) allows you to weather a 10 year downturn. Forget FOMO. My fear of running out of money is much stronger. Seems like a good way to sleep at night.
Agreed. As for what allocation is best, that is determined one’s situation (age, wealth, allocation, tolerance, etc.). No one portfolio fits all.
What to do? Simple look at your target allocation and if >5% off, rebalance. Otherwise do nothing.
Yes.
Thanks Norman. I’m not a market timer, but it’s still good to be aware of our surroundings.
According to this the market has been at an all-time high 30% of the time since 1926. To a buy-and-hold investor this is just noise.
For the most part, I agree with your buy and hold strategy. That said there is a difference between the number of days the market has been at an all time high and the number of days that the price to sales and price to earnings ratios have been at all time highs.
Per the article: “a strategy which switched out of the market and into cash for the next month whenever the market hit an all-time high (and went back in again whenever it wasn’t at one) would only be worth $——- [less]”. That’s a bit misleading. I think most of us don’t jump in and out, but some did when Trump was elected. My point is, periodic rebalancing is beneficial and that has been proven by others. It is better do lock in gains than wait for the inevitable downturn. Of course, as we approach retirement having a cash stash (a cushion) to draw upon if a downturn occurs is frequently suggested. Ditto for those taking annual RMD withdrawals. Some refer to this as part of a “wealth defense” strategy. I agree that for those who are prepared in various ways, what the stocks do, either up or down, is of little or no interest or concern.
Rebalancing has its advocates, although I have also seen claims that it doesn’t make much difference. These days I rebalance, if I rebalance, when I take my RMDs in October.
A couple of articles on the pros and cons of rebalancing: https://www.morningstar.com/columns/rekenthaler-report/when-rebalancing-creates-higher-returnsand-when-it-doesnt and https://www.forbes.com/sites/markkantrowitz/2021/11/14/pros-and-cons-of-rebalancing-stock-market-investments/
I just checked. My target is 50% stocks. I am currently at 53%, meaning I haven’t reached the 5% that usually triggers rebalancing for those that practice it. If it’s still at 53% when I take my RMDs i will probably rebalance, since I will be moving money in any case. I will not rebalance now.
I saw somewhere that the MAG 7 is almost entirely responsible for that and that if you ignore the top 50 the rest of the market is reasonably priced.
Market rotation of some sort is overdue
Thank you for the information. Personally I don’t analyze the markets, and in truth, I don’t pay any attention. A ten-year drawdown wouldn’t bother me because of how I’ve allocated my portfolio. It gives me lower returns, but that’s all I need for my personal “enough.”
Sounds good. I’m positioned with a very diverse portfolio and a “cash stash” available for use during a severe market declines. My last portfolio change of significance was 2020-2021, although I’ve added some equity since then, including re-investment of dividends. There is a purpose on posting this type of information. It is easy to get out of balance when the market is dominated by a sector or a few tech stocks. It is prudent to re-balance on occasion. When the market is high, that may be an opportune time to lock in some gains.
Mark, mind sharing your portfolio’s asset allocation and the reasons therefore?
My approach is unconventional and is based on the premise that Sequence of Returns Risk (SORR) is most deadly during the first 10 years of retirement. Accordingly, I have purchased a 10-year term annuity to cover all my essential expenses. My “wants” spending is covered by a 10-year collapsing bond ladder, and the balance of my portfolio is invested at a 80:20 ratio, with 25% of the stock allocation in dividend accumulation funds to act as a bond substitute or stabilization tool. I also hold bank CDs outside my portfolio with maturities of 1 to 5 years. This plan is a work in progress; at the five-year mark, I will probably de-risk the portfolio, depending on the environment, and start to think more deeply about my consumption needs for years 10 to 20. As I’ve said, it’s different, but it works for me.