Carlos:
Let's look at your options given your situation:
1. Sell some portion of your holdings. Uncle Sam would appreciate your contribution to reducing the deficit if you chose this option. By choosing this option, you have become a market timer. I would assume that you want to invest in equiteis for the long term, so you would have to guess when to get out and when to get back in and you would have to overcome Uncle Sam's take on your gains when you come back to market. Not a good game to play in a bull market. Now if you are fully invested in your equity portion of your portfolio, then nobody can blame you for wanting to take money off the table, especially in the large cap S & P types, where valuations are highest. (Remember, BB states that you could see a pull back of 4% - 7% at anytime).
2. Hold on and continue to dollar cost averaging. BB would probably favor this option. Let's take the S & P. Even though the top 10 companies in the S & P comprise about 20% of the index and the top 50 companies comprise about 50% of the index and the P/E ratio on trailing earnings is somewhere around 21x which hasn't been achieved since the 1960's, there is nothing to say how long this will last until next week or until the next century if interest rates remain steady and earnings continue to grow. Besides, you are putting money in a little at a time over a long period of time. That is the essence of dollar cost averaging. It is a discipline.
I see the benefits of this approach, but I agree that the S & P type stocks, have gotten ahead of themselves. If I were a pure indexer across the board, I would look to dollar cost averaging money into the Vanguard Extended Market Fund or the Small Cap Index Fund which are more reasonably valued. (BB made the valuation distinction between small caps and large caps last weekend). If and when you feel the S & P is more attractive, go into that index fund. In essence, with the combination of the above three funds, you have created something not unlike the Total Index Fund only you get to choose what segments of the markets seem more reasonably valued at any point in time. You must decide whether this approach is worth the extra time.
3. Hold on but postpone dollar cost averaging. Personal preference. You have become a market timer but to a lesser extent. You are only trying to guess when to get in and not when to get out and then back in. I think the choice of this option may depend upon what portion of your desired equity asset allocation is already in the market. For example, if you are already 100% in equities, this becomes a reasonable choice because additional dollar cost averaging sums are probably minor in comparison. Nothing wrong with raising some cash given this position.
I hope this helps. BTW, BB sees no bear market for the forseeable future. He is bullish. Don't confuse overvaluation issues with a bear market. |
