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Change of Investment Strategy?


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2012 Oct 10, 3:43pm   5,995 views  18 comments

by Scagnetti   ➕follow (0)   💰tip   ignore  

I was wondering if anyone is changing their investment strategy given the present conditions of the market? The DJI and the S&P seemed to be sliding somewhat following a tremendous recovery signaling things to come. The election is on the near horizon and the fiscal cliff is just a stones throw away. China's growth is continuing it's downward trend and the IMF is warning of a new recession.

I find there are some savvy people on this forum and would appreciate any thoughts you may have as far as getting out of stocks, into bonds, shorting the market, playing wait and see, etc.

#investing

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1   Scagnetti   2012 Oct 10, 4:01pm  

Yup says

I am hiding in my basement with hordes of cash, guns, and bullets, awaiting inevitable DEFLATION..........;)

I have enough guns and plenty of ammo already. Ha! I also have plenty of cash but.....people's 401k, including mine, have to be invested in something. Unless I want to take a huge hit cashing out, which is off the table for me. Time to switch to my "Fixed Income" fund and a bond fund I'm thinking.

2   sf_peasant   2012 Oct 10, 4:11pm  

im no expert..but i could sense that the stock market is very high and will likely go down (or wont go higher), so i cashed out end of last week while i was ahead. im pretty happy i did. at this point, i have the money waiting for a downpayment or re-investment once the stock market tanks more than 10%.

3   Scagnetti   2012 Oct 10, 4:20pm  

sf_peasant says

im no expert..but i could sense that the stock market is very high and will likely go down (or wont go higher), so i cashed out end of last week while i was ahead. im pretty happy i did. at this point, i have the money waiting for a downpayment or re-investment once the stock market tanks more than 10%.

I didn't "cash out" my 401k but I did split it between the two funds I mentioned above (Fixed income/Intermediate US treasuries). Sometimes "gut" feelings are wrong, but I find I almost always regret not following my instincts.

5   Eman   2012 Oct 10, 4:52pm  

Scagnetti,

I think the market will keep on sliding to 1,416 before we see a bounce. I agree that the market is high and companies earnings outlook don't look too rosy. However, the homebuilder and the bank stocks are doing well so that give me hope that this is only a correction. I'm 25% in cash and will put some cash to work at 1,416. It's a little early to go all cash now in my opinion.

Good luck to all of us.

6   sf_peasant   2012 Oct 10, 5:17pm  

yes, all my 401k i switched to "stable asset"..I doubt it will get any interest. Im tempted to remove it and pay the 10% penalty plus tax.

7   Eman   2012 Oct 10, 5:34pm  

sf_peasant says

yes, all my 401k i switched to "stable asset"..I doubt it will get any interest. Im tempted to remove it and pay the 10% penalty plus tax.

I've had this debate with myself for the last 2 years. If history is any indication, I can turn $100k to $600k-$700k investing in RE now. However, taking $200k out of my IRA will only net me $100k. So $200k in my IRA only needs to grow to $600k-$700k to match my RE investment. As long as I can earn 11%-12% return annually in my IRA, that should match with my RE investment. For this reason, I didn't cash out.

You'd better have a good game plan for that money before cashing it out. Don't do it for the wrong reason.

Good luck with your decision.

8   Scagnetti   2012 Oct 10, 5:45pm  

E-man says

sf_peasant says

yes, all my 401k i switched to "stable asset"..I doubt it will get any interest. Im tempted to remove it and pay the 10% penalty plus tax.

I've had this debate with myself for the last 2 years. If history is any indication, I can turn $100k to $600k-$700k investing in RE now. However, taking $200k out of my IRA will only net me $100k. So $200k in my IRA only needs to grow to $600k-$700k to match my RE investment. As long as I can earn 11%-12% return annually in my IRA, that should match with my RE investment. For this reason, I didn't cash out.

You'd better have a good game plan for that money before cashing it out. Don't do it for the wrong reason.

Good luck with your decision.

Agree...once you're in you're in. You will take too large a hit to get out. Just switch to some safe bets until you're confident the market is fairly priced. The question is, will the market be allowed to make a proper adjustment without interference, or will we continue this false economy?

10   Eman   2012 Oct 10, 6:05pm  

Thanks for posting that video clip. I'm a HUGE fan of Sam Zell.

Three points I got from that clip.

1) too much capital chasing too few opportunities in the world. Other than the real estate and stock markets, where else do people put their money to get some yields?

2) we're on the verge of a recession.

3) if we don't make some major changes in our policy, I guess we'll muddle along for awhile.

11   Eman   2012 Oct 10, 6:18pm  

Well, the politicians have been able to kick the can down the road for a while. What makes you think they cannot kick it for another 7-10 years before we go kaboom?

12   bob2356   2012 Oct 11, 4:54am  

Scagnetti says

Agree...once you're in you're in. You will take too large a hit to get out.

Not true, you can move over to a self directed IRA and invest in real estate or any other legitimate financial instrument if you choose.

Where the hell is E-man getting 11-12% annually?

13   Scagnetti   2012 Oct 11, 5:20am  

bob2356 says

Scagnetti says

Agree...once you're in you're in. You will take too large a hit to get out.

Not true, you can move over to a self directed IRA and invest in real estate or any other legitimate financial instrument if you choose.

Where the hell is E-man getting 11-12% annually?

Admittedly, I really should know more about my retirement account through work than I do. My retirement account through work is called a thrift savings plan. In effect, it seems to me to be the same as a 401k. The company does matching up to a certain point, with a bump on the max percentage if we make money. My understanding is I can't roll the account over into a true IRA until I quit, get fired, or make it to retirement. That being the case, I have certain funds I can select through the broker my company goes through. I believe the only way I could get access to the money, without cashing it out and leaving a lot of money on the table, would be to take a loan out against it. Although I would have to show "financial hardship" to even do that.

14   Eman   2012 Oct 11, 7:15am  

bob2356 says

Where the hell is E-man getting 11-12% annually?

Bob, I love you. :)

That was an analysis to know what kind of a return I need from the IRA to match my RE investment. How can I consistently earn 11%-12% return? My take is convert it to a SDIRA and buy notes and tax liens. Is this the right idea? I'm heavily leaning toward this option. :)

Converting my IRA to a SDIRA to invest in RE is not the best option FOR ME because I lose a couple of things:

1) I cannot leverage like I can with what I'm doing now, which significantly reduces my return.

2) I lose the depreciation tax advantage.

3) There are fees associated with having a SDIRA, which would cut into my profit.

As you already aware, the cashflow in CA is not the same as fly-over states. That's why leverage, borrowing at 4%-4.5%, increases our return.

Hope all is well. Cheers.

15   Eman   2012 Oct 11, 7:22am  

Bob,

On another note, 1/2 of my portfolio consists of dividend stocks to yield an average return of 5.5% even when the other 50% is sitting in cash. You already know most of the stocks that I own since we have this exchange before.

Last year wasn't that good for me, but YTD has just over 20% return in my IRA with 25% sitting in cash now. This is purely luck as you know I'm not a stock wizard, but I do quite well with RE. I can make $100k with 2 RE deals, but how much can I really make with trading and investing in stocks? For that reason, I will eventually convert my IRA to a SDIRA to buy tax liens and notes. In the mean time, I just leave that money alone.

16   B.A.C.A.H.   2012 Oct 11, 3:05pm  

E-man says

How can you compare our situation to Japan?

You can't. They won't allow the kind of immigration that they need for growth. And they're not having a good time over there, with such a low birth rate and aging population. Our situation is that the floodgates are open to immigrants, and our population of non-immigrants is also growing.

17   Michinaga   2012 Oct 11, 3:16pm  

E-man says

From a context standpoint, RE in Japan has appreciated over 250% from the 80's to mid 2000's, and over 300% from the 80's to now.

The value of the yen has nearly tripled from what it was in the '70s (220/$ -> 80/$). If you had the foresight to convert your dollars to yen and buy residential property in Japan in the mid-1970s, you're still sitting on a handsome profit even after Japan's two decades of stagnation.

Today the pace of Japanese RE's decline is gentle enough that even though the value of your house is going down every year, you're "paying" less than you would be spending on rent. It's an unusual form of stability, but I like it more than old-style booms and busts.

18   Eman   2012 Oct 11, 5:20pm  

Michinaga says

If you had the foresight to convert your dollars to yen and buy residential property in Japan in the mid-1970s, you're still sitting on a handsome profit even after Japan's two decades of stagnation.

That's exactly what the Japan real estate graph indicates. Due to the magnitude of the Japan bubble, it's easy for the 300%+ in housing appreciation over a period of 20 something years to be overlooked.

Are you planning on moving back to America one of these days, or is Japan your permanent residence?

To echo what BACAH said above, do you know why the birth rate is low in Japan? Does it have anything to do with the cost of living, etc?

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