Sold my 1st put - opinions - advice ?

[OverThinkMuch]

I have been on a 25% or so equity allocation for several years, so I would not have sold anything during the drop even if I had the time. I did, however, reduce by a percent or two while the market was high. I typically only make a 1% or 2% adjustment at any one time to mitigate my stupid tendencies.

By the way, 25% is a very low equity allocation. I'm surprised you will take on the much higher risk with options, but won't allocate even 1/3rd of your portfolio to equities.

Have you considered a lifecycle fund? Those place equity and bond allocation all in one basket, and you just get the total amount. That will hide some volatility from you, and let fund managers allocate more equity. Vanguard, Fidelity and Schwab all provide "target retirement date" funds. Any of those is probably better than your 25% equity allocation.

Can I ask why 25%, and if you have lots of individual stocks?

 

[joesxm3]

OverThinkMuch,

I definitely will read and study more before I wade too deeply into options.

I used to run an 80% equity allocation back in the cowboy days of the dot com bubble and was trading individual stocks quite actively. I had wonderful returns . . . until I didn't.

I don't remember exactly, but coming into 2008 I think I had what you guys would consider a normal equity allocation, maybe 60% or so. By this time it was mostly broad market index funds or a spread of funds based on that book by Bernstein (I think it was). I did manage to recover faster from 2008 by loading up on emerging market funds.

Both times I took close to a 50% hit. As I got closer to FIRE in 2016, I decided to tone back the equity allocation until I had a handle on what was going on in retirement. I was convinced that the market was way overvalued.

My current thinking is that the market is highly priced, but not overvalued if you factor in the asset inflation effect of all this money printing.

So, the plan that I have been following is to have a large cash position that I can live off of without paying any income tax while on ACA. Since I am reducing the cash position by spending it, I am effectively increasing my equity allocation little by little.

My plan was to increase the equity position little by little and then increase it more when there would be a market correction.

As far as a 60-40 balanced fund, I have seen some compelling discussion saying that bonds are not a good investment right now. The yield is very low and there is no room under the current rates for bond prices to rise if the rate is dropped, unless we go negative. At this point, aside from the currency devaluation, I think cash is a better alternative.

Right now, the majority of my equity allocation is in some long-held managed funds and total market index funds. The next largest portion is in healthcare focused funds.

I am starting to be more active in managing my portfolio and have taken a very small position in a basket of genomics related companies and have started to accumulate some tech related growth stocks that I plan to hold for five years at least.

My targets to acquire if they dip are TSLA, NVDA, GOOG. I already have some PLTR and ARKK.

As far as options being risky, I think that most options strategies are risky, but I have been led to believe that selling covered calls is not that risky and that selling puts if you plan to buy the stock anyway is not that risky.

My first contract was too long duration, but I realized that when I wrote it. I just wanted to push past 2022 due to ACA taxes. Probably a mistake. If I write puts, they will be closer to my target buy price for the stock and much shorter duration.

I mainly want to learn about options in order to have more control on hedging my long positions. They guy I watch shows how he waits until one of his core holdings seems oversold using TA and then sells covered calls to raise some cash to provide some downside protection and to provide cash to layer in at the lower price. I would like to do that and also try to earn some yield from less volatile stock covered calls.

Well, that is the long winded answer to your questions. Thanks for the responses.

 

[OverThinkMuch]

Maybe I'm misunderstanding, but do you lower your equity allocation every time the market crashes? To be fair, that is roughly what the market overall does... higher buying at the peak so prices go up. And then mass selling during the crash, driving prices down.

Your point about bonds could be right - there isn't much room to fall further. I only have short-term bonds in my portfolio, and the Fed decision to raise rates has to happen sometime.

Did you increase your equity allocation between March and July of 2020? The S&P 500 crashed in March, and recovered by mid-August. If you want to invest during a crash, and you didn't invest then, you might need to ask yourself what happened.

 

[joesxm3]

I cut back on my equity allocation around 2013 or 2014 when I was close to retiring. I checked my old spreadsheets (not sure where the really old ones went) and in 2015 I was around 30% and in 2016 around 20%. I don't know for sure, but I think after 2008 recovered it was probably closer to 40%.

During the 2020 market drop I was totally preoccupied with preparing for the pandemic and frantic over how I could get my mother out of the nursing home and set up my house to take care of her 24x7 and load in enough food and other supplies to stay inside for six months.

I have a beginning of January spreadsheet showing 22% equity allocation and an end of March showing 14%. I checked my brokerage history and it seems that I sold 1% on 2/25/20 just as it started to drop and sold 2% 3/25/2020 a bit after it started to come back up. I also took a small GLD position on 2/25/20.

So, your point is taken, I basically did the opposite of what I should have or say that I will do. I was really preoccupied at the time, but I think I was also acting emotionally and fearful that the uptrend in March was just a dead cat bounce and it would go lower as the pandemic got worse.

 

[joesxm3]

Thinking it over, I agree that you are right that I have not been very good at market timing. I think I did ok in 2008 where I took the hit and then bought after the crash using wage income. In 2020 I probably was paying more attention than I said, but I was not doing my weekly or monthly spreadsheets.

One thing that probably limits the amount of self inflicted damage is that I rarely do more than a 1% or 2% change on a given day. That also probably prevents me from any huge gains as well.

At this point, I agree that I would like a higher equity allocation. But I don't think a large adjustment at the market top is the way to do. Maybe I should just spend more cash . Seriously, maybe a controlled DCA.

Thanks for gently pointing out some flaws in my behavior. It has helped me to better self assess.