"Just because the banks are safer doesn’t necessarily mean the financial system is"
Here's a few selected excerpts from davfor's Bloomberg link, just above. The entire article is well worth a read.

Leveraged lending has raised eyebrows partly because of how lightly it’s regulated. Fueled in large part by demand from collateralized loan obligations that offer interest rates that approach 9% on some riskier portions of the debt, the market for leveraged loans has more than doubled since 2012.
One of the ironies of the boom is that much of the risk-taking decried by central banks and regulators is largely of their own making.
Years of ultra-low rates have made it easier than ever for less-creditworthy companies to borrow large sums of money, all while pushing investors toward riskier investments. At the same time, post-crisis bank regulations have fueled the rise of shadow lenders, which helped facilitate the growth of leveraged lending. Then, financial watchdogs appointed by the Trump administration started encouraging Wall Street to dial-up more risk last year by easing guidelines to limit lending to deeply indebted companies, which freed banks to compete more directly with non-bank firms to underwrite the riskiest loans.
• “Whenever you give children toys, you know they’re going to keep playing with them until they break them,” said Phil Milburn, a fund manager at Liontrust Asset Management in Edinburgh, Scotland. “Someone has to come into the room and say put your toys down.”
• Wells Fargo research suggests buyers of CLOs include U.S. banks, insurers and hedge funds, as well as a large number of non-U.S. financial firms.
• Pimco, the world’s largest bond investor, said last month the credit market is “probably the riskiest ever.”
• When the credit cycle finally does turn, UBS estimates investors in junk bonds and leveraged loans could lose almost a half-trillion dollars, more than any downturn since at least 1987.
• Just because the banks are safer doesn’t necessarily mean the financial system is, says Karen Petrou, managing partner at Federal Financial Analytics, a regulatory-analysis firm.

Comment: Well, it certainly won't be this administration that tells anyone to put their toys down.

We seem to be stuck in a low interest rate world where the weak get to survive to fight another day. And the Fed seems to be ready to provide some more help. Maybe some of the cracks in the dam in this strange new world get brushed aside because they haven't caused a major market melt down in the past. Maybe Animal Spirits get to prevail until one of this new breed of cracks actually puts a major hole in the dam. Only then will the markets decide to take notice. Isn't that the way some of the major stock market tops happen?????
Here is one of the articles that talks about some of the cracks in the dam some people are currently noticing....
https://bloomberg.com/news/articles/2019-06-11/regulators-alarmed-by-risky-loans-but-don-t-know-who-holds-them?srnd=fixed-income

@MFO Members: Here's Ed !
Regards,
Ted

Yesterday a slew of junk bond funds closed at all time highs on a total return basis. The proxy index for junk bonds closed at 1343.59 vs its May 1 all time high of 1344.07. Prior to that May 1 top, junk bonds had been making all times highs on a seemingly daily basis since mid February. Unless there is some reversal in today’s trading (anything is possible) the junk bond index will also close at all time highs.. How can this be? If you read the commentary below you will read that the macro and micro economic data continues to deteriorate.
https://www.marketwatch.com/story/this-big-wall-street-bear-warns-his-bleak-scenario-for-2019-is-taking-shape-2019-06-10

This has probably been linked before. But it looks helpful enough to link again. I sometimes recommend specific T. Rowe Price funds to others because that’s the fund group I’m most familiar with. However, low cost leader Vanguard should not be overlooked. This link (from Vanguard) allows you to enter a symbol from another fund house and find the Vanguard fund(s) that are most similar.
https://personal.vanguard.com/us/funds/tools/findsimilarfund?FundId=1595&FundIntExt=EXT

All ratings have been updated on MFO Premium site, including MultiSearch, QuickSearch, Great Owls, Fund Alarm (Three Alarm and Honor Roll), Averages, Dashboard of Profiled Funds, and Fund Family Scorecard. The site now includes several analysis tools, including Correlation, Rolling Averages, Trend, Ferguson Metrics, Calendar Year and Period Performance.
Here's link to some highlights.

- “My issue is related to ... RISK TOLERANCE ... Investing is so emotional for many of us. Its hard to sit by and watch your Account Balance go down the tubes.”
- “I've (incorrectly) gone to cash more often than I want to admit over the years. Though I am shy of my 50s, I am personally still all about preservation of capital.”
- “Combine this president, with his "Tariff policies", alongside a very, very long bull market...... and I am once again (cautious).” I am mostly in CASH. “

Hi @JoeD, You raise a lot of interesting points. Nothing much I can say, but some vague thoughts might help ...
Re risk tolerance - Everybody’s different based on their own life experiences and personality. You remind me of one time in the ‘80s when I had secured a good paying job and wished to do something nice for my aging parents. Knowing they weren’t very astute in money matters, I opened an account in their name in a reputable money market fund that was yielding something like a crazy 15-20% in those days. Gifted them $1,000 which was the minimum to open an account. I hoped they would let it grow into their retirement years, perhaps add to it, and that it might benefit them years later. While grateful, they were suspicious of this new-fangled type of account in a big city somewhere and almost immediately cashed-out and moved the money to their passbook account at a local bank yielding something like 3%. So for them (both products of the Depression), even a money market fund was way beyond their risk tolerance!
Going to cash can be risky from an investment standpoint. Sure, if you will need the money within a few years, it’s a smart move. But if you are doing it with the intent of reinvesting later on, it’s tough to pull-off. I’d rather invest in something like TRRIX (a lame 40/60 fund) if I was really worried about the markets. If your guess is right and the market tanks you will lose something - maybe 20% of your money. But over the very long-term the fund should allow you to sleep better and keep you at least ahead of inflation. FWIW - My gut tells me equities are overpriced. But I’m not going to bet the ranch on that gut feeling.
Missing is reference to the purpose for which you are investing. I’d assume it’s for retirement in another 10-15 years. With retirement that near, I’d be reluctant to go overboard with aggressive equity funds myself. However, I wouldn’t exclude equities completely. I started moving out of the really aggressive stuff at about age 50 (but retired in my early 50s). Again, there are many great conservative funds that will keep you out of deep trouble during a big sell off and still help you accumulate more for retirement than cash would. Furthermore; most of us dollar cost average into our equity positions during our working years. I’d think that during those years the temptation (or need) to “sell all” and move to cash would be lessened.
re: “Bizarro” politics. I may share your foreboding. But I think we do a disservice to @Junkster who devoted considerable time and thought into creating a pretty valuable thread if we move it into the political arena. So I won’t go there and hope others don’t. What I tell myself every day is that regardless of who is President or what type of government we become, great companies like Amazon, Boeing, Apple, Microsoft aren’t going to go away - at least any time soon. So we may be appalled by some of the politics taking place, but that shouldn’t deter us from investing in great capitalist companies and sharing in the wealth they create.
There’s no right answer to any of this. And nothing I said should be construed as investment advice.
Regards

https://mutualfundobserver.com/discuss/discussion/11407/an-exciting-portfolio-backtesting-website
If your question is how to input data into any backtesting tool, I've worked through an example, using FCNTX. According to M*, its top five positions are: AMZN (7.05%), FB (7.01%), BRK.A (5.28%), MSFT (4.62%), and CRM(3.56%). That totals 27.52%.
To construct a portfolio of these five securities, you would divide their percentages by 27.52%, thusly:
AMZN (25.62%), FB (25.47), BRK.A (19.19%), MSFT (16.79%), and CRM (12.94%). Due to rounding, that comes to 100.01%. Round one of these down. BRK.A was rounded up the most (19.1860% was rounded up to 19.19%), so round this one down to 19.18%.
Depending on the backtesting tool you use, you might need to represent Berkshire Hathaway A as BRK.A or BRK-A.
Some tools (e.g. Portfolio Asset Simulator, http://capitalpas.com/Tools/BacktestPortfolioAssetAllocation) offer you a choice of benchmarks (such as the S&P 500 total return) to compare against. Others require you to pick an actual fund to compare with. For S&P 500 I might use VFIAX, or for longer periods, VFINX.
FB went public in May 2012, so one can't backtest this portfolio of five stocks further back than that. Backtesting from end of 2012 to end of 2018 shows that these five stocks did much better than FCNTX, which in turn beat the S&P 500 by a tad. Try running these tools and you can see this yourself.

Great thread.
I’m tempted all the time to move to 100% cash - but don’t. Admittedly, my exposure to equities is probably only in the 40% area anyway. Throw in lower rated bonds (held thru funds) plus international & EM bonds (also thru funds) and there’s probably another 20% at some degree of risk. Why don’t I jump ship? Because I can’t think of any 10 year period in my lifetime when I’d have been better off having 100% in cash. (Yes - that may have been the case for a few years under Paul Volcker in the 80s.) The cost of living continues to rise yearly whether they call it inflation or not. Pickup trucks stickering in the $70,000 - $80,000 range at your local dealer ought to convince you that inflation isn’t dead.
Besides believing that a moderate degree of risk is better at any age, I get some satisfaction knowing that the folks at T. Rowe Price and Dodge & Cox are much smarter and better informed than myself, most media pundits, and many here. Sure - there’s always the possibility of a big loss - as in 2008. So my advice is: Don’t get greedy. Have a plan. Diversify. Know what you own. And keep a longer term focus.

If I had traded based on my opinions or personal biases over the years I would be looking at a very bleak retirement now. More often than not the market has run counter to my expectations. But I learned long ago not to trade based on my opinions and expectations but based on the action of the market itself. A good example was this past December. I was as bearish as anyone and expecting the long awaited corporate credit crisis to hit full force in 2019. I was ready to sit out the year drawing 2.50% in one of Fidelity’s money market market funds. But then out of the blue came a couple of huge and rare momentum days. So as bearish aa I was at the time, I had no choice but to get back into the grind. Trading is a hard game because a good trader has to admit they are often wrong. I think the above would also apply to investors unless one is a strict buy and holder.

I think the decision about the amount of cash or low volatility investments to hold is not much about a "right" answer but is highly individual. The average length of a bear market can be misleading. During the Depression and the beginning of this century there were 2 bad bear markets very close together. If an individual was disciplined and replenished their cash when the market reached its all-time highs again they were a lot better off than if they allowed their equity to run in hopes of recovering a bit for lost time. In the 1970s inflation was a killer and it took around 13 years before the purchasing power of an S&P 500 portfolio was back to equal. In most cases I'm aware of the "average" recovery time for bear markets doesn't include dividends, which helps, or inflation, which hurts.
I use a slightly more dynamic approach to my cash/low volatility investments:
- When I retired I made an estimate of the CAGR I'd need to achieve to cover basic living costs (non-discretionary) and "desired" living costs if I lived to various ages, including "forever", including a static 3% inflation rate. I settled on a goal that I thought was conservative, largely due to the inherent uncertainty.
- As long as the S&P 500 is above its 200 day SMA I hold a minimum of 2 years of non-discretionary living costs in cash or effective equivalents.
- If the S&P falls below its 200 day moving average (at the end of a month) my minimum cash & equivalents increases to the larger of 25% or 5 years of "desired" living cost PLUS "potential" costs like the out of pocket maximum on my health insurance plan or a new car if I'm getting close to needing that- things which my estimates of living costs didn't fully include but could have a fairly significant impact if they occurred.
- Additionally, to the extent that I'm ahead of the CAGR I decided I'd like to target, the excess is invested more conservatively. That doesn't mean cash or equivalents, but lower correlations to the stock market.
- Finally, I keep track of my expenses at a very high level just to make sure my original estimates and/or inflation assumptions aren't way out of line and I would make adjustments if needed but I was pretty conservative so hopefully that won't happen.

>> [@msf] Buffett's [mix] implicitly suggests 2.5 years of "near cash". I'd be inclined to go a bit higher and/or use bonds as a second tier resource between cash and equity investments.
Yeah, this to me is key to withstanding (= usually ignoring) all of these manufactured advice articles:
How many years of safe cashflow are you comfortable with projecting you need, meaning earning very little, and how many years of unlikely-to-dip bondy things after that? Not percentages of your total, only years' worth. 1, 2, 3, 4, what?
I just did major (for me) retirement rebalancing, trying this time to apportion more prudently b/w Roth and taxable, and wound up with 21% bondy-cash. More than 5y, gah.
A year and change is in MINT and non-earning dead cash (BoA savings). Better, 2y or more is in PCI, which can dip, but best of all it matches equity funds over certain stretches. The remainder is in PONAX and FRIFX.
I can live with this, or so I say now, and will move amounts into MINT every few months to keep it at perhaps a year's worth.

January 11 Flag (2015)
Basically correct. To the extent that your taxable income remains within the 15% tax bracket, your cap gains/qualified divs gets taxed at 0%.
In 2014, if a couple had $94,100 in AGI (all cap gains/qualified divs), then line 38 (AGI on p. 2) would be $94,100. Subtracting a standard deduction of $12,400 gets us down to $81,700. Subtracting two exemptions ($3,950 each), gets us to a taxable income of $73,800.
Taxable income under $73,800 is taxed at 15% (or less). So if that's your total income, the cap gains/qualified div portion of it is taxed at 0%.
I guess the rate went up just a little ,50% increase ?
Derf

“Many asset managers’ websites don’t nudge retirement savers into favoring a Roth 401(k), however. The calculators they offer to compare the advantages of Roth and traditional 401(k)s often make Roths look second-rate.”
Think about it. Why encourage people to pay taxes before investing or do a conversion later in life which may result in their not having as much left over to invest? Your fiduciaries stand to get a higher “cut” from your higher pre-tax balance than after you’ve paid taxes on it. They’re charging their management fees on money which you’ll eventually need to cede back to Uncle Sam. Double-dipping in a sense.
I can’t speak to the wisdom (or lack thereof) of contributing to a Roth in the early years. May or may not make sense. But if you can afford to pay those taxes at some later point and convert, I think it makes a lot of sense - especially if you can do it with some depreciated asset that stands to rebound.
The thing to remember: All the money you earn on that Roth going forward (potentially for many years) is fully tax exempt. The gift that keeps on giving ...

About the Mexico announcement, this is lolz:
https://www.nytimes.com/2019/06/08/us/politics/trump-mexico-deal-tariffs.html

Let's look at how we make use of three years of cash.
I'll go along with @MikeM here. One isn't going to start drawing from cash the instant the stock market drops from a peak. That might be daily noise or the beginning of a bear market, you don't know.
So what's the strategy for starting to draw on cash? Say we start once the market is in correction territory. That's down 10%. So money that we kept in the market instead of cash has dropped 10% from the peak. But the value has likely been flat if we look back a year from the beginning of the correction. That's figuring the market earns about 10% a year. This is especially likely since the market was going up before the correction began (by definition).
For clarity, let's call the time we start drawing cash T1 (market down 10%).
Now the market's 10% down, and we're beginning to draw on cash. Let's say the market drops another 30% from this point. All together, the market drops 10% followed by a 30% drop. So it's worth 90% x 70% = 63% of its peak value. That's a 37% drop, or about what @hank suggested.
We'll call the trough T2.
The average duration of a bear market (peak to trough) is about 22 months. Since we start using our cash reserve (of three years) only after we are already down 10%, we almost surely have at least another year's worth of cash past the trough T2 before we run out.
So let's see where our stock is in another year. So far, it's down 30% - it was flat from a year before the correction until T1 (when we started drawing cash), and the market dropped 30% from there. The average first year recovery after a bear market (T2 - trough) is nearly 50% (same link).
Put these together: 70% x 150% = 105%, i.e. 5% higher than where we started. And before running out of cash.
Of course each recovery is different. But what this shows is that by starting to draw on cash only upon entering correction territory one can expect to have enough cash left to hold on for at least a year, possibly a lot longer, after hitting bottom, to get back to that 10% down level.
Even though we lose a little (10%) value in the stock from the peak, we come out ahead over the longer term (since cash wouldn't have made money before the market peak). So we're usually better off keeping money in stock rather than cash. We just need enough to outlast the worst of the dip. Three years seems fine for that.

If the headline, "dividends the IRS can't touch" means that for some taxpayers the IRS can't tax the dividends, we can say the same thing about lots of funds.
For example, VFIAX (Vangard 500) pays dividends the IRS can't touch "if one doesn't make enough". For taxpayers (roughly) below the 22% tax bracket, the IRS can't touch qualified dividends. Lower threshold, but same idea.
Either a fund's dividends are beyond the IRS' reach regardless of who receives them, or they are not. As an investor, I can't blindly buy these funds confident that the IRS cannot touch their dividends. Despite what the headline says. This is especially important since the article is making a big deal about how much the taxable equivalent would be for taxpayers in the highest tax bracket.
States with AMT (though I don't see how that affects whether the IRS could touch the funds' dividends):

@Mark: (Wisconsin adopted AMT repeal in 2017, effective starting in tax year 2019.)
Derf

I can only answer why I don't use it: I maximize my 401k PRE-tax contributions to the extent allowed by law, rather than opting for the Roth.
Very simply, I am in my peak earning years and my marginal tax rate during this time will likely be much higher than when I retire --- primarily as my income in retirement will be much lower.