All the experts preach not timing the market, I get it. There’s some smart people on here and was hoping to get some discussion on options of parking your money to reduce the risk and still get some returns. I’m not confident in the stock market currently and given the bond yield curve maybe it’s best to just roll short term. Thoughts on other options some of you are considering?
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Trying to time the markets or make bets without risking capital is easy.
Example: Assume a timeframe of 6 months, a risk tolerance of 0 (no risk to principal), and that an investor is ok with a 6 month lockup with $100k of capital.
Trade: 1- buy 6 month US t-bills yielding 2.54% (annualized, so 1.2% or so for 6 mo) that will yield 100k total return (approx 98.8k) 2- with the remaining cash, buy futures or an options trade on the S&P that expires in 6 months 3- if the S&P rises, you'll make money--if it falls, you haven't lost a penny
You can tweak this by your risk tolerance (e.g. willing to risk 2% or 5%) to safely make bets in a prudent manner.
What indicators can you use to "time" the market? Well, a timetable of upcoming events (including major economic data releases like PMI), and evaluate the potential impact to market. Then, consider what you think the market is worth (price multiple, gordon growth model, etc.) and solve for the price that meets your required return (e.g. "all trades should aim to make 15%"). There are no strategies that will help you find the "perfect bid", so instead, make smart bets instead.
Made some edits to clarify the language.
I see your point and generally agree with it. Attempting to time the market is not a smart thing to do unless you do it in a way where your likelihood of losing money goes down to (close) zero.
In the method I posted above, I explained a way to time the market without losing money. I should have been more clear in that when I write "timing the market is easy" I really mean "**trying **to time the market is easy." I figured the subsequent sentence would have made it clear that most people who try to time the market don't just get it wrong but also lose money. Sorry for the confusion.
Not sure if you understand the trade.
There are two legs: Leg 1: 98.8k in 6-mo US T bills that will pay 1.24% (means the future value of this trade is 100k) Leg 2: with 1.2k, buy index futures or make an options trade
This method will allow you to make bets without the risk of losing principal. The cost of this trade is the opportunity cost of just holding a t-bill sans trade (e.g. guaranteed 1.24% vs. volatility 1.6-2%). In any case, the post wasn't meant as financial advice. It was instructions on strategy that can be used to reduce risk and still get some returns.
Are you recommending buying $1.2k of notional exposure on futures or $100k?
So, you are suggesting using $1.2k of notional exposure in futures? Why wouldn’t you just buy $1.2k of SPY? The guy is asking the time and you’re describing a balance wheel.
The OP asked where to park a small amount of cash. I’m a little unsure how trading futures helps him. You showed him the most rudimentary equity linked note concept (bonds + option). I’m still not sure how futures helps at all here.
I would probably just do something simple like have money in a high yield savings account and throw a little bit in the market, given his stated objective. It doesn’t really sound that different than what you’re suggesting.
The problem is that I have read too much BS on WSO and I like to call out bullshit. I assumed that you were telling him to dump everything in S&P futures. My apologies for calling out something that likely wasn’t there.