bmoochie said:
What are your thoughts of going all cash in 401ks? I know we would never be able to time it but do you think it's worth messing with?
For context I'm 34 so I know when I retire it will overall be higher. That's how it's designed. Just curious on your thoughts.
An alternative I use, but definitely do not recommend to others lightly, is partial directional hedging of existing positions. This breaks the cardinal rule of trying to time the market, so buyer beware:
When I feel things are overheated, instead of liquidating everything and sitting out of the market, I buy significantly medium term out-of-the-money puts. An example:
If I have $100,000, half in SPY and half in XOM, I'd buy $1000-2000 in puts on each component, generally several months out, at a strike price at least 10-15% lower than current. This can be done fairly economically, and serves as catastrophic insurance. Over 80% of the time (in my experience), the puts expire worthless. But if the downturn happens (more severe, the better), you can make 10x-20x+ on the puts, which cushions the blow of losses in the core portfolio.
I was fortunate enough to have used this strategy in 2008 and 2020, and I think a few puts returned 100x. Now, the money lost on the other 80% offsets most of the gains, but provides peace-of-mind and comfort regarding keeping money in the market.
Like I said, it's not for everyone. I'd love to hear oldarmy1 or others expound on their hedging strategies. I think there are better triggers for enacting hedging than "feel", but it's mainly a personal psychology rationale that I use to justify it (an individual's fear of a market decline), and that differs between investors.