Hello.
Below is Old_Skeet’s market barometer report for the weekending January 5, 2018.
This week the barometer closed the week with a reading of 135 indicating that the S&P 500 Index is well into overbought territory. During the past year the Index has risen in valuation from 2239 to 2674 for about a 19.4% valuation increase while earnings have risen by about 13%. With this, investors are now willing to pay more for a dollars worth of earnings over what they paid a year ago. During the month of December short interest in SPY has moved from 2.5 days to cover down to 1.7 days. Indeed, stocks have become very bullish and with the new tax reform package becoming law they will perhaps become even more pricey. How high will valuations trend is anybody’s guess: but, for me stocks are currently very richly priced.
So what is Old_Skeet doing in this richly valued stock market? I am building cash and trading around the edges utilizing spiffs (special investment positions). This brings up my two market compasses. One follows the sectors of the S&P 500 Index while the other follows world regions along with a few other choices.
From my compass I pick the three best performance leaders, also known as the pack, for each compass. From the pack I pick the lead hound and open a position. As long as the lead hound can stay a member of the pack I leave money on it. When the hound falters and falls form the pack I pick another lead hound and repeat the process. Naturally, if stocks begin to pull back and the momentum is lost across the board I close the position(s).
For the S&P 500 Compass the pack consist of XLE (energy), XLK (technology) & XLY (consumer discretionary) with XLY currently being the lead & money hound. In my Global Compass the pack consist of GSP (commodities), EEM (emerging markets) & EWJ (Japan) with GSP being the lead & money hound.
Yes, stocks are richly priced (from my perspective) and looking to become even more so as we move through 2018 and even though earnings are improving stock prices are on an upper move much faster than their earnings growth.
Thanks for stopping by and reading.
I wish all … “Good Investing.”
Old_Skeet

Not sure how good the data are, but M* shows that VWENX with a start point of 10/25/29 (a few days before the so-called crash) took till Feb 1936 to get back to the inception amount.
CENSX, another oldy (widely touted in the 1980s and after (insurance-heavy)), took much much longer, till 1949.
There are a few others to look at starting summer 1929 but I did not delve.

I think everyone is kind of agreeing that it is going to be a tough deal to get 4.8%.
My vote would be something really simple. Keep about 50K in cash (money market for half and 1 yr CD for the other half). The rest of it could be basically on auto-pilot. I'd use Vanguard or Schwab index funds and do a straight 60-40 stock/bond split with a rebalance once a year when taking out the next year's living expenses.
If you wanted to get a little more creative, read Paul Merriman's website. He has a more elaborate breakdown of the investments (introducing some foreign stocks and bonds and adding a small cap value tilt), but still using index funds.

You've identified another problem I had with the column. Definitions weren't clear.
"Recent high-water mark" could be the most recent local maximum, or it could be the last global high-water mark.
Think hills and valleys. A local high water mark would be the last hill you traversed.
But suppose all you cared about was "highest so far" (global maximum), and you traversed hills of 500', 1000' and 800'. The 500' hill would be your highest up to that point (a global high water mark). Then the 1000' hill would be a new high water mark (and the most recent one). When you got to the 800' hill, it wouldn't be a new high water mark. The 1000' hill would still be the most recent high water mark, with the 500' being an older high water mark.
FWIW, that's the way "high water mark" is used with hedge funds, and in Boston, where it was literal.
https://www.investopedia.com/terms/h/highwatermark.asp
http://whdh.com/weather-blog/historic-storm-to-historic-cold/
("major coastal flooding including in Boston. It was high enough to challenge the high level water mark of the Blizzard of ’78!")
Similar problem with his own term "happy day", that he defined as a day that "represented a new high-water mark." He noted that this is something "That works out to 5.4% of all days." Yet in his discussion he said that happy days occurred 36.3% of the time. He meant "benign" or "happy" days (0-5% below high water mark), but confused his own terminology.
He's provided food for thought. Though each of us may need to think it through from our own perspective.

@msf,
Maybe not so thorough...thanks for your input.
Also, wouldn't a portion these new highs (referenced from the previous recent price) be coming off recent lows? If the market drops 20% in one day (Black Monday?) and on Tuesday the market rose to a "new recent high" and then over a number of incrementally higher highs (days...weeks...months...years) many more "new recent highs" would be necessary to retrace that 20% loss (with a 25% gain). In-other-words, markets may need more 'sunny days" to make up for the "dark days" because of the math - a 20% loss requires a 25% gain just to get back to even?
ISTM that losses often happen over fewer days and in larger negative increments...gains often happen over many more days and often in smaller positive increments.

"Likelihood of legislative changes to bring the tax rates back up after 2-4 years seems high."
Conversely, if one assumes there won't be any legislative changes, the tax rates will still revert in eight years (after 2025). So prognostications aside, it seems like a good idea to take advantage of the changes while one can.
If you are in a higher bracket, another change that makes larger conversions more feasible now is the virtual elimination of the AMT. (It hasn't been eliminated, but it now kicks in at such a high level that it's all but gone.)
Normally I consider Roth conversions somewhat of a wash if one uses some of the IRA money to pay the taxes on converting, but now may be an exception. Assuming you're over 59.5 (so that withdrawals are not penalized), the benefit is that you could be paying a lower rate on your pre-tax money now than if you wait and withdraw it later.
For example, suppose you're in the 22% bracket, but were and will be in the 25% bracket. If you've got $1000 in the IRA, you convert $780 and use the remaining $220 to pay taxes. If you wait until your tax rate reverts to 25%, then you'll get a net $750 after-tax.
Of course, paying for the conversion with non-IRA is always better, even now.
You do have to watch for side effects of increasing AGI, as bee noted.
One other gotcha - if you were itemizing deductions before but will be taking a standard deduction now, then your marginal rate just went up on the state level, even if it dropped on the federal level. For example, you might be somewhere like Calif. or NYC where your local income tax rate is around 10%. Previously, that cost you only 7.5% (because you got to deduct it against your 25% federal rate). Now, if you don't itemize, you pay the full 10%. So you're paying around 2.5% more at the local level, essentially wiping out any reduction in your federal marginal rate.
Finally, remember that you can no longer recharacterize if you change your mind.

This is actually not a "roll over" but a 'conversion" if your IRAs are in tax deferred accounts which I am assuming they are since your mentioned taxes.
Be aware that doing these conversions can impact more than just income tax on these conversions. If you are over age 65, conversions can push you into an income range that could triggers added costs to medicare or might reduce or eliminate other tax deductions (student loan interest, ACA premium subsidy, medical expenses, etc.).
If you are young and will be in a lower tax bracket as a result of the new Tax changes I would not hesitate so long as you have a funding source for the tax liability on these conversions. Hell, if you typically get a tax refund, getting less of a tax refund due to a Roth conversion is a perfect way to fund the conversion.
Finally, by doing periodic Roth conversions you are reducing future RMDs (after age 70.5). RMDs essentially force you to distribute away (lose) tax deferred IRA investments incrementally. With a Roth conversion you are electing to 'convert' these tax deferred investments into tax free status. This will benefit you (tax free distributions during your lifetime) and your spouse (spousal roll over of your Roth to them - maintaining its tax free status) and non-spouse (5 year rule - tax free distributions for them).
https://fidelity.com/building-savings/learn-about-iras/inherited-ira-rmd

This leaves me with the impression of numeric legerdemain. Start by bringing up that old chestnut - decades to recover from the 1929 stock market crash to scare you, and then palm it - don't use that crash when looking at market returns. We don't want you to get too scared.
How long did it really take to recover, considering deflation (in the 30s) and dividends? Mark Hulbert wrote this article in the NYTimes, entitled: "25 Years to Bounce Back? Try 4½"
Even using raw stock prices, that's 25 years for the Dow (Nov 23, 1954) per Hulbert, or about 30 years inflation adjusted, or 25 years for the S&P 500 (Shiller data) or 26 years inflation adjusted. It looks like the 28 year figure was pulled out of a hat.

He says that "Starting in 1941 still encompasses a large part of those dark days in the market, and World War II". But by starting in 1941 (so that the initial high water mark is Jan 2, 1941), many of those "dark days", especially between 1943 and 1946 appear to be "happy" or "benign" days (new high water mark or within 5% of the most recent high).
Watch him turn dark nights into bright days.
Taking days at random strikes me as dubious. What's the chance that a day will be within 5% of the most recent high? Very good if the previous day was. Likewise, if yesterday the market was down 40%+ from its high, then the chances are much better that it will be down 40%+ tomorrow than if the market just hit a new high (it has never fallen 40% in a single day). While each day's movement may be random, one day's price is usually pretty close to the previous day's.
Certain things are obvious. Since the market has an upward bias, it will spend more time near highs than near lows. Just as obvious is that new highs will bunch - you're not going to hit a new high unless you're currently at or near a high. 2017 was a good example.
What are the odds of falling into a bear market if the market is already in a correction? Better than if it's hitting new highs. That's also obvious because it has a lot less to fall (a bear must begin as a correction). Conversely, if you're already in a bear market, what are the odds of entering a "second" bear market (i.e. falling 20% more)? Pretty small, because rarely does the market drop 40% or more.
So making use of any of this is tricky - too slow a trigger and you may smooth things out (miss the very bottom) but risk missing the rebound; too fast a trigger and you may get faked out and miss a rising market because it dipped for a week or a month.

A great shortened trading week for bonds - lead by emerging markets, high yield corporates, and world. Added to my existing positions there and sold half of my lagging bank loan. That puts me at 70% in the three strongest and 15% bank loan with 15% in cash which I hope to deploy next week. Junk corporates historically have been especially strong in Januaries so not sure what to expect after this strong opening week. We have heard ad nauseum about the tightness in credit spreads and junk not offering much value. I am not enamored of junk but open to being surprised. I thought I was going to be less aggressive than I was this week in Bondland. Old habits are hard to break.
Not a popular opinion but not a fan of PIMIX/PONDX - at least if you are looking for open end bond outperformance in 2018. Otherwise with the best bond manager on the planet an excellent fund for contented retirees. A bit too staid the past many months and wondering if asset bloat is finally catching up. Non agencies have hit a wall and that may have contributed to its lack of oomph recently. I actually hope though I am wrong and it is a another great year like 2016 and 2017 for PIMIX. That would mean like in the aforementioned years double digit gains in other areas of Bondland for 2018. That would sure be a pleasant surprise.
Edit: I would also include PTIAX having an uninspired 2018.

@msf, you mentioned:
"$5/order once you have a position at Fidelity"
How is it possible to buy mutual funds for $5 for each trade?

... use their automated investment system and live with a lag of a day or so in getting your order filled. ($5/order once you have a position at Fidelity).
https://www.fidelity.com/cash-management/automatic-investments
From that page: "After the initial investment, a $5 fee is charged per automatic investment into a FundsNetwork transaction fee fund."
You can set up a schedule of automatic investments and cancel after the first one is executed. The system used to be called "Automatic Account Builder."
http://socialize.morningstar.com/NewSocialize/forums/t/346014.aspx

Good stuff bee. I used to use these probability calculations to figure out the risk in my portfolio. So, given the info in your post, a 60:40 portfolio (equity 50:50 split between US and Int) you would expect your yearly returns to fall in the range of +26.9% and -15.9%, 95 times out of 100. That seems safe, but the problem is that damn 5% on the down side of the curve. Like seen in 2008, that can be a whole lot worst then losing -15.9%. I believe 60:40 portfolios lost more like -30%+ on average.

@msf, you mentioned:
"$5/order once you have a position at Fidelity"
How is it possible to buy mutual funds for $5 for each trade?

This article seems like a good 2018 read for market forecast returns:
Some sniglets:

Quote: I totally reject the notion that bonds have more risk than stocks. A broadly diversified stock fund has more risk in a day than a similarly diversified high-quality bond fund, such as iShares Aggregate Bond Fund (AGG), has in a year. Never forget that on Black Monday 1987, stocks lost over 20% in one day, which equates to six standard deviations (six sigma) of the AGG in one year, meaning it should happen no more often than once out of every 294,117 years.

seven-warning-signs-of-market-gurus-and-which-forecasts-you-can-trust

Well ... well ... well! What do we have here?
There are many ways to price the market. I can remember within the past couple of years Liz Ann Sonders of Charles Schwab use to tout the Rule of Twenty as being plenty. I have not heard her speak much on P/E Ratios recently.
Old_Skeet uses a blended P/E approach using both the TTM and FE. In this way credit is given for what stocks have done and are expected to produce. Then, I apply the Rule of Twenty as being plenty. My number computes to a P/E ratio of 20.7 as of market close 12/29/17. Still pricey at this number indicating the 500 Index is about 4% overvalued, by my p/e mythology.
The 500 Index Blended P/E ratio is one of the feeds I use in my market barometer.
And, so it goes ...

I had to switch over my 401k at the beginning of 2017 as my employer was acquired by another company. Thinking that market is at a high and due for correction, I held 60-70% in stable value fund and invested the remaining conservatively in a bond fund, OAKBOX, and a few aggressive domestic and international funds. Though out the year, I moved the money to these funds from stable value fund, but still kept it at around 50% - a bad move in retrospect.
I brought down the Stable value fund to 30% of my 401k as part of 2018 adjustments, still relatively high but not getting the courage to go all stocks at this high of all markets. Added to OAKBX, FTBFX, GTDIX, and FIDKX.
In my IRA accounts, I moved cash to VIAIX - V'rd International Divident Appreciation index fund. Opened a position in PRLAX.

FYI: As the S&P 500 climbs higher and higher, its trailing 12-month P/E ratio continues to climb as well. And there won’t be much opportunity for multiple compression until the bulk of S&P 500 companies report Q4 numbers in late January.
As shown below, the S&P’s 12-month P/E is now at 22.88 — just a hair below 23.
Below is a chart showing the S&P’s P/E ratio going back to 1980. The line is red when the P/E ratio is above the level it’s at right now. As you can see, there have only been a few periods over the last 35+ years where the index’s P/E was higher. It didn’t once get above this level during the 2002-2007 bull market, but it was consistently above 23 during the final three years of the bull market that ended in early 2000. From 1998 to 2000, the S&P’s P/E expanded from 23 up to 30+ as the Dot Com bubble reached its zenith. Over this period, the S&P experienced a massive rally as the Tech sector soared. While valuations are indeed elevated right now, we always note that high valuations alone are not a catalyst for corrections or bear markets.
Regards,
Ted
https://www.bespokepremium.com/think-big-blog/sp-500-pe-ratio-approaching-23/

@Old_Joe & @DavidV,
@Ted suggested VWELX which is Vanguard Wellington (65 Equity/30% Bond) fund. VWINX is Vanguard Wellesley (32% Equity/58% Bond) fund. Ted's suggestion might a bit more aggressive, but a consideration for longevity risk (living a long life).

~2y of cash (say) would leave ~$450k; how to get $24k/y out of that with a fine mix of fine bond funds? >5% is needed.
When I run 'money last' calculators, it does not show making it to age 70. (6% return, 2.5% inflation, 10% fed marginal bracket -- reasonable?)
$476k (1y cash) with the above data gets one to 30y, yes, but no farther.
Not seeing how such bond heaviness is going to work.

FYI: The Dogs of the Dow strategy suggests investors buy the blue-chip index's 10 highest-yielding names at the start of a given year with the idea that the stocks can potentially top the broader market in the year ahead. “Dogs” strategies are not confined to the Dow or U.S. stocks, as confirmed by the newly minted Arrow Dogs of the World ETF DOGS, +0.00% DOGS tracks the ex-U.S. AI Dogs of the World Index. The index selects the five worst-performing countries where a return reversal or move back toward the mean or average is anticipated. The index has a contrarian approach that looks for deep value among a universe of 44 countries,” according to Arrow Funds.
Regards,
Ted
https://www.marketwatch.com/story/a-howling-good-idea-country-dogs-in-an-etf-2018-01-04-10464722/print
ETF. Com: 1st New ETF Of 2018 Debuts:
http://www.etf.com/sections/daily-etf-watch/1st-new-etf-2018-debuts
Arrow Funds Website: DOGS
http://arrowfunds.com/default.aspx/MenuItemID/1450/MenuGroup/Arrow+Dogs+of+the+World+ETF+(DOGS).htm

FWIW
I have been handling the brokerage investment account for a disabled sister for almost 20 years. Periodic withdrawals from that account together with SS (previously SSDI) have been her only source of income since her husband passed away several years ago. (By income, I mean dollars available to pay for living expenses. This could include some withdrawals of principal as I think on a total return basis.)
My first thought is there needs to be a set-aside of CASH. At minimum, I would suggest a 1 year set-aside, significantly more if rapidly increasing medical expenses are a significant concern. That set-aside provides a cushion for emergencies and also helps you to roll with the punches through the decades as the markets churn.
The comments @bee made about VWINX make sense to me. That fund has been around since the mid-1970's and has successfully navigated both rising and falling interest rate environments as well as both bear and bull stock markets. The comments @LewisBraham made about the challenging current market environment also make sense to me. So, going 100% into VWINX does not currently seem advisable to me. My SWAG suggestion would be putting maybe 35% of the assets available for investment into VWINX.
The general idea behind the suggestions @LewisBraham make for an investment mix also makes sense to me -- for the remaining 65% of the assets available for investment. My sister's account has included both RPAGX and ZEOIX since January 2016 (January is when most portfolio changes for the year are made).
VWAHX makes sense to me with maybe a little VWEHX mixed in if medical expenses will keep taxes from being an issue. Taxes might not be an issue anyway given the new personal exemption limits. That's something to look into.
Including a multi-sector bond fund in the mix also makes sense to to me - @Mark suggested PONDX. That fund has significantly outperformed VWINX when viewed since inception in 2007 due to its relatively strong performance during the bear stock market. But, can it continue to perform that well? Perhaps mixing it 50/50 with PTIAX in this component of the portfolio would make sense. Lumping GTEYX into your thinking about multi-sector bonds might also make sense.
If rapidly rising medical expenses are a potential concern, including a conservative bond fund such as DLSNX also makes sense to me. Holding a fund like this can also be a comfort when the markets turn against the portfolio.
A final thought. There needs to be some flexibility to decrease the withdrawal rate in the years following a major market decline unless STRICT NECESSITY does not permit this to happen. Otherwise, accepting the strong possibility/probability of the portfolio being exhausted as some point in the future is necessary.
I hope these general comments are helpful.....