Lessor Allocation Loss For Now

[Still Learning]

After holding a 70/30 allocation ratio where stock losses this year were usually much higher than bond losses with only a few short stock gains finally shifted to a 30/70 mix. It has definitely decreased the almost steady market losses but know this is not where I want to be long term.


Treasury Ibond purchase limitations are not much help. Energy/Utility funds have positive numbers currently but are subject to large changes so only a limited purchase for now.


Realize that cash and bonds will slowly erode to inflation/rate increases but that is a lesser loss at the moment than stock funds. Just treading water for now and cut my investment withdrawal rate to 1.8% until a better market returns.

 

[mrfeh]

You have "sold low", the exact opposite of what you should be doing.

https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

 

[target2019]

It sounds like OP may have been more comfortable with a 50/50 portfolio or similar.

 

[VanWinkle]

It sounds like OP needs a good financial advisor to save him from himself. Market timing after the market has taken a dump does not end well. Good luck to you.

 

[OldShooter]

It sounds like OP needs a good financial advisor to save him from himself. Market timing after the market has taken a dump does not end well. Good luck to you.

+100

 

[copyright1997reloaded]

I just don't understand why people think allocations are a binary choice. For example, flip from 70/30 to 30/70 in a short period of time. (A huge 40% change after the market has gone down 20-25%.)

I've been pretty darn pessimistic on these forums, and yet I'm still at 50% equities (I was likely over 60% mid-2021). Even with my pessimistic outlook, my change in allocation was a little bit at a time. Why? Because it is impossible to accurately predict the peak (bubble everything) and it will be impossible to predict when things stop falling.

So even though I am in the market timing (or perhaps more accurately stated trying to
"time" macro changes in our country), I am also in the camp of not making rash decisions because of emotion. For any of us with (what most of our fellow citizens would consider) large asset bases, a 5% shift (e.g. $100,000 on a $2,000,000 net worth) is a pretty big $, and represents (at least) a year of expenses. So for me that represents a big change and provides quite a bit of safety if the market continues to drop.

As target2019 states "It sounds like OP may have been more comfortable with a 50/50 portfolio or similar." It is unfortunate that people don't truly understand how they will react until after the fact (in terms of their emotional, raw, and keeping oneself from panic). It is especially hard AFTER you've retired, because you don't have that steady income stream backing you.

Good luck to the OP.

 

[easysurfer]

I've gone the other route.

My AA is pretty much set (100-age formula).

But with the market taking dives. I usually use my HSA to cover qualified medical expenses during the year. But the cash portion of my HSA is zero. Instead, I've been using contributions to buy those fund shares (Fidelity® Health Savings Index Fund - FHSNX) on sale.

 

[daylatedollarshort]

Even Bill Bengen has urged investors to cut their stock and bond holdings this year - Father of 4% Rule Urges Caution, Cash as Market Risk Rises | ThinkAdvisor. We've never been Bogleheads or had a set and forget AA, so as soon as the Fed started talking tacking inflation and 6 - 7 rate increases for the year we revamped the portfolio - no bond funds, more short term Treasuries, kept the same low allocation to stocks and high allocation to TIPS. We invest more for capital preservation than stock market gains in retirement, so this works for us. I don't want to risk a 50% loss of our life savings in retirement.

 

[Sunset]

OP - You are not quite clear on when you sold lots of the stocks, but if you decide that maybe you acted to hastily, you do have a short time to correct the situation.
You may find it's possible to buy back into some stocks or funds at lower prices than when you sold.
Someday, the prices will go higher.
Key is to know what allocation you are comfortable with.

These are unpleasant, gut wrenching times for many investors as both stocks and bond funds decline, while inflation is extremely high. So pretty much everything loses value.

 

[OldShooter]

... It is unfortunate that people don't truly understand how they will react until after the fact (in terms of their emotional, raw, and keeping oneself from panic). ...

Fred Schwed: "There are certain things that cannot be adequately explained to a virgin either by words or pictures. Nor can any description that I might offer here even approximate what it feels like to lose a real chunk of money that you used to own."
​

Kidding aside, I think it is possible for experience to inform someone's risk tolerance. DW and I had our first down market experience in 1987 and we just sat and watched. We've done the same thing (nothing) during during every market upset since. It gets easier and easier. Now we just joke about it: "It's doing it again."

Said another way, a lot of comments here (the "sleep well" test for example) implicitly assume that risk tolerance is sort of fixed thing. I don't believe that. I think one can become experienced and educated just like on any other subject.

And, anyway, its not really risk tolerance -- it is volatility tolerance.

 

[RobLJ]

I just don't understand why people think allocations are a binary choice. ...
For any of us with (what most of our fellow citizens would consider) large asset bases, a 5% shift (e.g. $100,000 on a $2,000,000 net worth) is a pretty big $, and represents (at least) a year of expenses.

I usually don't peek much during rapid market deflation events, and I used some of my over-allocation of cash to buy stock mutual funds in mid Jan and mid May. The goal is to not drop too far below a 55% allocation.

Anyway, I peeked after last week's drops and found out I had gone down from a 56.5% allocation in mid May after purchases to 55.2%.
I'll probably wait for it to drop below 53 or 52% to purchase again, since I don't want to use up all my cash. I've been withdrawing from my 403bs,but have used up all but 2 years of cash in those accounts, so any purchases will have to come from cash in DW's accounts (5-6 years of planned withdrawals from her accounts); we now can withdraw from her IRAs without penalty.

The bigger question for me I'm pondering is when/how much to rebalance the bond allocation since the last year has reduced that allocation as well, while keeping the cash allocation high due to stocks & bonds falling. I"ll have to ponder this, since I'm more accustomed to trim/add to stock mutual funds in incremental rebalances.

Context: I had been slowly trimming big stock run-ups to cash before COVID and during the post-COVID run-up. Fearing the run-up was way over-blown and I was starting to make big withdrawals from my accounts after I stopped working half-time online, I reduced down to 45% before COVID, then when the allocation dropped below 40 in the crash, in March 2020 I dumped a lot of the cash produced by trimming stocks back into stock funds, although at a 20-25% cheaper price, then watched amazed as the stock allocation kept rising due to the COVID recovery. Better to be lucky than good! The next year or two seems a bit tricky.

 

[Koolau]

With my relatively low equity and high cash position, I'm more concerned about inflation than the looming bear market. In theory, those equity values can (and likely will) come back. Losses to inflation are never coming back.

I don't really plan to change anything and I'm just sort of sitting back, waiting for things to sort themselves out. The good news is that, barring any major catastrophes, I have enough to see me to the end. YMMV

 

[copyright1997reloaded]

With my relatively low equity and high cash position, I'm more concerned about inflation than the looming bear market. In theory, those equity values can (and likely will) come back. Losses to inflation are never coming back.

I don't really plan to change anything and I'm just sort of sitting back, waiting for things to sort themselves out. The good news is that, barring any major catastrophes, I have enough to see me to the end. YMMV

Perhaps we will get a repeat of the early days of TIPS, where the real rate was almost 4%? That is when I bought them in my 401k (unfortunately could only buy funds vs. individual), but did talk a friend into buying a bunch in an IRA (and I bought some in my IRA).

Then again, in that environment equities would likely be much lower (providing perhaps a better risk/reward)?