How much do you invest when the market is down?

[calmloki]

Curious how big a round others load and fire and at what points. I totally missed buying back around 12/24/2018, then failed to buy as the market climbed back up, leaving a big chunk sitting in VMFXX. Granted, that money did about as well as the cash sitting in our other bank accounts. Finally decided that since I have a poor record for picking when to buy or sell that I should do something to take my mood out of the equation (at least on the buy side).

I keep reading here about people nibbling or still having dry powder or backing the truck up and I just don't get it. Surely there is some magic formula that others buy by that I'm not privy to. What I have done:
Decided that I would want to buy if the market was down 5,10,and 20%. Decided that I would want to buy more if the market was down more and that if the market was down 10% I'd want to buy twice as much as if it were down 5%, ditto a 20% drop. So if 5%=$x, 10%=$2x, 20%=$4x and if all orders are filled and all funds exhausted then $x+$2x+$4x=7x and x=total$/7.

So I started putting in 60 day limit orders for 5,10 and 20% below the rolling 52 week high on VTI. Did that several times as the orders expired, watching my bids increase each time until the latest market stumble resulted in the 5 and 10% orders being filled. It was great - we were on the road to Lake Havasu when the 10% order filled and there was no dithering about whether to buy or not or catching the exact right moment. Granted, both orders filled in the morning-time and VTI ended up lower at the end of day, but I got what I wanted and still have a purchase order and enough in VMFXX to cover it. Considering moving some of our cash from bank to VMFXX and putting in orders for deeper drops in the market.

So. I've shown you mine, what formula or feeling or method do you savvier stock buyers use to inform your purchase times and quantities?

 

[NW-Bound]

I keep reading here about people nibbling or still having dry powder or backing the truck up and I just don't get it. Surely there is some magic formula that others buy by that I'm not privy to. What I have done:
Decided that I would want to buy if the market was down 5,10,and 20%. Decided that I would want to buy more if the market was down more and that if the market was down 10% I'd want to buy twice as much as if it were down 5%, ditto a 20% drop. So if 5%=$x, 10%=$2x, 20%=$4x and if all orders are filled and all funds exhausted then $x+$2x+$4x=7x and x=total$/7...

Sounds reasonable to me.

However, a lot depends on how much stock exposure one already has. For me who is at 60% stock AA, I have enough that I do not buy at 10% drop, which is a mere correction. I already anticipated that to happen anytime, and now with the virus on top of it, I would want to see 20% drop before I get seriously interested.

Additionally, as I am not an indexer, I reserve the right to buy or sell individual stocks at any market level, although I do use the latter as a benchmark.

 

[Tiger8693]

I went in to IVV Friday (about 10% of cash reserves)to see if I could get some benefit when this turns around. If it goes down some more this week, I may go another 10%.

As for my retirement accounts, my AA is usually 60/40, and I am not doing anything yet. If we continue to drop however, I may bump the equity up to 80% since I have a fair amount of recovery time.

 

[RenoJay]

When Buffett publishes OpEds that he’s buying, I back up the truck. When he simply says stocks are great. but continues to sit on a mountain of cash (like now) I mostly sit.

 

[Sunset]

DW set to buy VTI when it dropped 10%, and it did.
We will probably set it for more purchasing at 20% below the high, just in case it goes that far for another amount.

Of course we remember 2008, so don't want to blow the entire amount too early in case it goes down 40%.

 

[Franklin]

I put in play 50% of my cash on hand last Friday with 6 different stocks. I doubt I'll keep them too long but felt it was time to buy a few bargains on quality stocks. I don't use a formula other than a feeling this will pass as it has on other recent major drops

 

[bloom2708]

Stay fully invested at your desired mix of stocks/bonds.

Then you never have "dry powder" to worry about.

I would/will rebalance if we are 5% off. The dip last week didn't get to 5% off.

My 401k did hit on Friday. I just did not deploy an un-invested funds.

 

[DrRoy]

One formula is as good as another, but nothing will work perfectly. Keep in mind that there can be long stretches without a 10% correction, like from spring of 2012 to summer of 2015. In that stretch, the S&P 500 rose over 66%. It would have left 6/7 of your cash on the sidelines for 3 years and a good gain.

 

[iloveyoga]

I wait for my quarterly rebalance date, which is coming right up.

 

[OldShooter]

"savvy" investors don't try to time the market. Amateurs do and when they get lucky they conclude that they are geniuses. They then post their successes, from which other amateurs conclude that market timing works. The amateurs whose schemes fail do not post.

 

[dixonge]

even though retired, we are still saving back each month in order to build a nest egg/emergency fund/self-COLA. Each month is different, but usually I move cash to the brokerage account and buy. I am more urgent about this if the market is down, but will be buying each month regardless. I guess I would say I am happier about it when the market is down.

 

[OldShooter]

In my Adult-Ed investment class I tell them that, in the accumulation phase, they should rejoice when stocks go on sale and should root for down markets.

 

[Dtail]

"savvy" investors don't try to time the market. Amateurs do and when they get lucky they conclude that they are geniuses. They then post their successes, from which other amateurs conclude that market timing works. The amateurs whose schemes fail do not post.

How true and then they don't post in the Investment Performance Thread.....

 

[calmloki]

"savvy" investors don't try to time the market. Amateurs do and when they get lucky they conclude that they are geniuses. They then post their successes, from which other amateurs conclude that market timing works. The amateurs whose schemes fail do not post.

Is what I describe doing market timing? Think I've been pretty open about things I've done that weren't successful - like having cash sit in Vanguard for over a year waiting for the market to fall back to 12/24/2018 values or my earlier selling at a low and staying out for years.
We are all in different situations - gal and I are around 70, have no pensions or annuities or fed/state/retirement, and about $700/month between us from social security after the medicare adjustment amounts are subtracted. However we do have a fat monthly income from our rental apartments and a few outstanding property loans.
At 70 I'm getting real tired of worrying about the rentals, but we need to make sure we have enough to meet our bills til EOL. To that end we have amassed a hefty cash pile equal to about a quarter of our net worth. Those bank accounts and CDs are all pretty short term and probably average about 2% interest. I'd rather that cash worked a little harder, but we are also very security minded. Stocks equal about 18-19% of our net worth and I'm ok with that being a greater percentage but fight a major distrust of the market.
It isn't profitable to swim against the tide of public feeling when you can't add value (as with property). I suck at translating public mood into what the market will do, so I'm trying to set reasonable points at which to purchase, reasonable amounts to purchase at those points and then walk away and let that happen. Even if studies show that being fully invested works out to be more profitable than dollar cost averaging on average I don't see me emptying the bank accounts for one grand buy at whatever point. So I'm looking for how people decide how much they are going to buy. Just don't believe people sink all their cash in the market in one swell foop. (Cue members who do and point out that those stocks are just like bank accounts because they can sell and have funds in a few days)

 

[bloom2708]

Is what I describe doing market timing? Think I've been pretty open about things I've done that weren't successful - like having cash sit in Vanguard for over a year waiting for the market to fall back to 12/24/2018 values or my earlier selling at a low and staying out for years.
We are all in different situations - gal and I are around 70, have no pensions or annuities or fed/state/retirement, and about $700/month between us from social security after the medicare adjustment amounts are subtracted. However we do have a fat monthly income from our rental apartments and a few outstanding property loans.
At 70 I'm getting real tired of worrying about the rentals, but we need to make sure we have enough to meet our bills til EOL. To that end we have amassed a hefty cash pile equal to about a quarter of our net worth. Those bank accounts and CDs are all pretty short term and probably average about 2% interest. I'd rather that cash worked a little harder, but we are also very security minded. Stocks equal about 18-19% of our net worth and I'm ok with that being a greater percentage but fight a major distrust of the market.
It isn't profitable when you can't add value (as with property) to swim against the tide of public feeling. I suck at translating public mood into what the market will do, so I'm trying to set reasonable points at which to purchase, reasonable amounts to purchase at those points and then walk away and let that happen. Even if studies show that being fully invested works out to be more profitable than dollar cost averaging on average I don't see me emptying the bank accounts for one grand buy at whatever point. So I'm looking for how people decide how much they are going to buy. Just don't believe people sink all their cash in the market in one swell foop. (Cue members who do and point out that those stocks are just like bank accounts because they can sell and have funds in a few days)

What level of stocks could you stick with? 30% stocks seems to be a number that is "enough" stocks to get some bumps and not have to worry about huge losses.

Most likely if you would get to 30% stocks and stay there you would be ahead over the long haul.

What if stocks drop to Dec 2018 levels, you invest and then stocks drop to 2014 levels? You have to get to a stock mix that you can ride up and down. 20%, 25%, 30%?

My parents are mid 70s. They are at 35%. My dad wants to be 0% when stocks are dropping and 100% when stocks are flying higher. I convinced them to pick a lowish number and stick with it. 35% has been working for them.

 

[Montecfo]

Stay fully invested at your desired mix of stocks/bonds.

Then you never have "dry powder" to worry about.

I would/will rebalance if we are 5% off. The dip last week didn't get to 5% off.

My 401k did hit on Friday. I just did not deploy an un-invested funds.

True as far as it goes. But anytime you sell, you have dry powder, until it is re-invested. So the time in between selling and reinvestment is what is interesting.

I did a good bit of buying on Friday. Still have a good bit of dry powder.

 

[W2R]

That's easy. I just invest enough to rebalance, and no more.

 

[NW-Bound]

... we have amassed a hefty cash pile equal to about a quarter of our net worth. Those bank accounts and CDs are all pretty short term and probably average about 2% interest. I'd rather that cash worked a little harder, but we are also very security minded. Stocks equal about 18-19% of our net worth and I'm ok with that being a greater percentage but fight a major distrust of the market.

... Even if studies show that being fully invested works out to be more profitable than dollar cost averaging on average I don't see me emptying the bank accounts for one grand buy at whatever point. So I'm looking for how people decide how much they are going to buy. Just don't believe people sink all their cash in the market in one swell foop....

So, you have 18-19% stock AA now, and 25% cash AA. You described in the OP how you are going to purchase more aggressively if stocks drop more.

How high a stock AA would you have if all the orders you allocate to these tiered purchases get exercised? How much of that cash are you willing to commit? No one can guarantee what will work best, but you should ask yourself how you would feel if the market drops more than 20%, the level where you would exhaust the money you earmark for this endeavor. What if it drops to 30% or more? Will you be OK with that?

And on the other side of the coin, suppose the market does not drop down to 20% but rebounds and your cash does not get deployed. Will you kick yourself for missing out?

This kind of questions is what I ask myself all the time. And I want to be able to feel comfortable with either scenario.

 

[jimbee]

That's easy. I just invest enough to rebalance, and no more.

+1 W2R. Just don't say wh...

 

[LOL!]

I usually move between 1% and 5% of my total portfolio value from bond funds to equity funds.

But does it really matter? If I move 5% to equities and that 5% goes up by 10%, then my portfolio performance is only 0.5% better than not having done that. That 0.5% is in the noise of possible performances.

Fortunately, if I do the wrong thing, then my portfolio performance won't suffer very much either.

In my Market Timing Newsletter thread, I post real trades in near real-time. Readers can be the judge.

Thus, folks who suggest that market timing doesn't work are talking about another kind of market timing. I suspect for the most part that market timing just doesn't matter, so if it is your hobby have fun with it.

 

[HarveyS]

OP - I admire your disciplined approach and willingness to share. I did nothing last week - no selling, no buying.
"Don't just do something, stand there" is my motto in times like these.
Your post has inspired me to evaluate an investment plan that includes long term orders like you have implemented. Thanks for sharing.

 

[calmloki]

So, you have 18-19% stock AA now, and 25% cash AA. You described in the OP how you are going to purchase more aggressively if stocks drop more.

How high a stock AA would you have if all the orders you allocate to these tiered purchases get exercised? How much of that cash are you willing to commit? No one can guarantee what will work best, but you should ask yourself how you would feel if the market drops more than 20%, the level where you would exhaust the money you earmark for this endeavor. What if it drops to 30% or more? Will you be OK with that?

And on the other side of the coin, suppose the market does not drop down to 20% but rebounds and your cash does not get deployed. Will you kick yourself for missing out?

This kind of questions is what I ask myself all the time. And I want to be able to feel comfortable with either scenario.

Actually the 18-19% market allocation right now includes the amount in VMFXX that has been sitting for over a year. That amount would fund the 5,10 and 20% drop purchases. Our all time market high was on 2/19, then we made our 5 and 10% drop buys. There's still enough in VMFXX to fund the 20% drop buy. I'd be impatient if we have to keep waiting for the 20% market drop, but VMFXX is doing about as well as the bank accounts, so no real big deal. If the market falls by 30 or 40% I suspect I'd be arguing to deploy more funds from the bank accounts into stocks. Suspect the gal may feel otherwise and bring up my chasing BofA stock down and down till I sold at (?) $3 in 2009. Something about the market being able to stay down longer than one can keep buying that I recall from that time... I like the idea of having 25% of our NW in stocks and 25% in cash though.

 

[calmloki]

OP - I admire your disciplined approach and willingness to share. I did nothing last week - no selling, no buying.
"Don't just do something, stand there" is my motto in times like these.
Your post has inspired me to evaluate an investment plan that includes long term orders like you have implemented. Thanks for sharing.

I am pleased with the way the 60 day limit orders finally worked for us, though the celebration is a bit muted by having that purchase money kinda vanish as the total holding value fell. But more shares! Evaluation is good but stock market savvy is NOT something I have, which is why I'm here looking for other's buying styles.

 

[UnrealizedPotential]

I mostly just ride out the downturn. Just wait it out.

 

[DrRoy]

Is what I describe doing market timing?

It depends on whether you mean to do this just once or repeatedly. If you are just looking to make a one time adjustment to your AA then pick an interval of time, a portion of the cash to invest, and dollar cost average in - like 1/6 of the $ monthly for six months.