[Zhenya]

I know everyone here is a firm believer in investing in ETFs as much as possible and then start diversifying about 5 years before retirement. However right now many say the market is very overvalued and is bound to crash.

It takes a long time to recover and break even and then continue to grow wealth after a crash.

I know for those who are far from retirement it’s not a problem since the market will always recover but for those who are closer to it, it’s probably more on their mind?

Would be great to hear what people think about this and are you putting in any contingencies in place to account for a potential market crash.

Thanks.

[Ellen]

I’m less than 10 years from retirement and am 70%C/30%S and have no plans to change it even after I retire. I’m fine with the market fluctuations.

My pension and SS will cover my basic needs. I have other investments and they, along with the TSP, are just gravy.

Even if I need to tap into them, I certainly won’t need all of the money at once, so that influences my thinking as well.

[Bill]

OK, so your last post was about trying to pick funds that would do well in an apocalypse. Now you want to time the market because you’ve convinced yourself a crash is imminent. Maybe turn of social media for a bit?

All this fear based decision making is not going to serve you well.

Don’t miss: Part of me wants to just have her transfer the funds to a high yield savings account considering the market risk

[Frank]

Many people have been saying the market is overvalued and about to crash since 2011 based on P/E ratios or other valuation metrics. And they were wrong. Over. And over. And over. Again.

So why would you believe people who have a history of being wrong? If they happen to be correct in the future, it will be a random event, not a prescient forecast. Broken clocks are exactly correct twice a day and “kind of close” more often than that.

The premier authority on valuation, Professor Aswath Damodaran of NYU, tells us that broad-based valuation metrics are only about 17% correlated with any near term forecasts, and are therefore useless for decision-making, and he does not use them for that purpose. That is all you really need to know about CAPE’d crystal balls.

If you are close to retirement, then you should already have adjusted your portfolio to a configuration for drawing down on it. But that has nothing to do with “current market conditions”; it’s just matching your investments to your current life.

And you are supposed to make that shift when your current portfolio is at or near an all-time high, NOT when it just dropped 15-20% in the last few months. What often happens is that people get greedy and refuse to make the shift when things are going well.

[Brian]

Not everyone is in ETFs. All of mine are index funds, over 90% VTSAX/VFIAX.

You seem to be pretty positive about a market crash. It could also go sideways or go up another 20%. We never know and it’s foolish to try to predict it.

If you cannot stomach a drop, start diversifying onto more bonds, but keep in mind, all of this noise you are hearing about may never happen and you could miss a massive bull run.

Explore these too: Best ETFs for no tax advantage accounts (brokerage) with Fidelity…

[Golden]

How far from retirement? 5 years? Go 80/20. Get it down to 60/40 by retirement. A few years before retirement start building larger cash cushion so you’ll have 2-3 years of cash by retirement.

If more than 5 years from retirement, I’m good with 90/10. If 10 years from retirement, I’m 100% equities.

[Michael]

You address those concerns through asset allocation well before any cash happens- pick your risk level and roll with it.

I’ve heard the “overvalued and bound to crash” thing continually since I was old enough to pay attention and my investments are still up substantially over time despite investing through 4 bear markets and two major recessions in the interim.

Now that I’m 5 years out from retirement, I keep a portion of my assets in a bond portfolio but I still invest plenty in stocks because even at retirement I plan to live for a long time. I’m not a fan of 100% stock portfolios for anyone over 40, but I’m also not a fan of bond majority portfolios for anyone who still has a pulse.

[Author]

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