Conservative Stock Market Based Retiremnent Plan?

[Green Sub]

So I'm having a good time learning to trade stocks at my new online brokerage the past week. See http://www.rolexforums.com/showthread.php?t=71562

I've been in Mutual Funds since the early 90's, read "Making the most of your money" by J.B.Q., believe in Vanguard, low expense ratios, and dollar cost averaging.

I hate market melt downs like last October.

Lately I've learned about "Trailing Stop Orders" and ETF's (Exchange Traded Funds).

Guess what, Vanguard offers ETF's

So instead of Dollar Cost Averaging in to your favorite mutual fund, why not Dollar Cost Average in to a slow moving ETF like Vanguard's Total Stock Market and on each purchase set up a trailing stop order of say 15% or so.

Ride the market up, but if it takes a significant drop, it automatically moves you back in to cash.

Is this a crazy idea? Anybody here done something like this?

This isn't meant to be an endorsement of Vanguard, any fund, or any brokerage. I'm just batting around an idea.

[clew84]

Well, not a bad idea but I would have a few questions/comments.

- First, what is your goal (retirement, etc.) and how long do you have to go to get there?
- Second, don't forget to add in what commissions will cost you on the buy and sell of these ETFs when you get stopped and when you decide to buy back in. Which brings me to the next point...
- When will you decide to get back in? With the market volatility we have seen, with markets moving 3-4% up or down in a day, it can be difficult decision to make and very easy to miss. Take today, for instance.
- So, you sell when the market goes down 15%, locking in your loss. And then buy on the way back up? Forget the low fees charged by Vanguard for the ETF, the trading will add costs (dependent on the amount traded can be a high percentage or a low one).
- Depending on your goal and timeframe, I would say don't try and time the market with funds/ETFs. It's very difficult to do and most people don't get it right - they buy high and sell low and kill their long-term returns.

So, having been in the business for 13 years, I would suggest having a pool of money to play the stock market with. I would then have the main part of investing dollars in funds/etfs/diversified individual stock portfolio that you dollar cost average into over time regardless of what the market does. And when the market goes down, you buy more shares, and vice-versa.

I know it's easy, but really, dollar cost averaging DOES work over time. Especially with a smart asset allocation program that you adjust as you get closer to your goal.

Just my 2 cents... Good luck!

[Green Sub]

Clew84,

Thanks for your comments, I'll take them to heart.

I've never been a very lucky man over the years, except for marrying my wife and on Oct 1, 2008. We pulled 95% of our investments out of the market after a 3% loss. I'm itching to get back in with some real money, but I AM SO NERVOUS ABOUT IT!

I would like to retire in 10 years (I am 49.5 right now).

The $2,500 at the brokerage firm is basically a learning experience. What to do with the real nest egg is the main question in May. That's when a jumbo CD at 3.75% matures.

Thanks again for your comments.

[clew84]

Good luck! It's a really difficult environment and I appreciate the situation that we are all in (down still 50% over the past 18 months or so). I didn't want to assume too much and wasn't really trying to give you guidance without knowing too much about your situation, of course.

One of these days, we are all going to look back on these times as an amazing buying opportunity. Of course, I have no idea where the bottom is or if we have already seen it. But, unless you think that companies will never make any money again, that the collapse of the US economy is inevitable, the long-term will still be a good bet.

Good call on getting out after the 3% loss. But remember that lightening doesn't strike twice (okay that's a fallacy, but you know what I mean). I would take cautious steps, maybe talk to an advisor, and come up with a good plan to get back in. With 10 years to go, my bet is you should be about 60-65% stocks with the portfolio. That may seem a little high but remember that retirement isn't the end of the road - you will need assets in retirement and that means having enough equities to grow some of the assets over inflation.

Remember - investing right feels wrong.