Or is it too soon?
I’m talking about transitioning from a balanced portfolio to a growth portfolio over the next year.
Just looking for opinions.
My opinion is you shouldn’t try to time the market. Just when you think you know what’s coming next, the world will throw you a curve ball. Outside of a few bizarrely studious savants (see Michael Burry and the subprime market crash in the 2000s), nobody can reliably tell you how to time the market.
When did you transfer to the balanced portfolio I assume you’re currently holding? What prompted you to do so? How optimal was your timing compared to what the market did before or after you made the change?
I’ve been in a balanced portfolio for five years, up to and including my retirement.
I didn’t do anything this year and watched my portfolio drop 14%, because I didn’t want to “time the market”. Could drop another 10%, who knows?
In any case, I’m thinking of being a bit more aggressive, now that the market has tanked.
I would echo the “don’t time the market” sentiment. We’re still at a good place with respect to unemployment; stocks have only dropped due to interest rates being raised, and tend to go down when there’s good economic data because it tends to mean even higher interest rates are coming. If the Fed doesn’t ease up at the right time, we could easily see the market tank even further as unemployment rises after the end of the rate hike cycle. You’ll wish you had waited a year in that case.
I also would never be more aggressive over time. My plan is to very slowly be less and less aggressive as I get older so that there’s not one single point where I drop all my risky assets to pick up safe assets, which would be terrible to try to time. The only reason to become more aggressive is if you suddenly come in to more money than you have use for in retirement or whatever else you need money for, and can risk blowing it all on something risky.
FWIW, when I read the thread title, I was going to chime in with “don’t try to time the market.” I see I’ve been beaten to it a few times.
You don’t really know if the market won’t tank further, and if it does, an aggressive portfolio will probably sink worse than a balanced one.
The smart thing to do is wait and see what happens. The worst-case scenario is you lose a little profit; in the best case, you avoid buying into a significant downturn. With world tensions the way they are, nobody can predict what the market will or won’t do in the short term.
I’ve been retired six years. Do you need to take money out of your portfolio? If not, what do you care if its value drops?
Dan Ariely’s investment advice during the 2008 crash was “don’t look at your investment statement.” I followed it, and I did very well.
I discovered that when you are retired the important metric is cash flow. Is your portfolio generating enough money to live on, given social security and any other income sources? If so, don’t worry. I’ve been expecting a correction for years now, and put my money in income generating positions that went up less than the S&P during the boom but going down less than it now.
All this assumes a diversified portfolio, of course.
Oh, and don’t time the market.
I have enough cash to last about a year and a half before I have to touch my investments.
But 8% inflation was not part of the plan.
You should have a portfolio that is balanced against your need and ability to take risks with your savings.
If your portfolio is down significantly, particularly in the equity portion, then rebalancing back to your desired allocation would be a way to “be more aggressive” without engaging in market timing.
But changing your allocation strategy (going from “balanced” to “growth”, whatever that means to you) based on market performance rather than an underlying change in your ability to afford risk-taking and your need to do so is generally a “bad idea”.
I am a stockbroker but I am not yours and don’t work in investment advice.
I’d suggest clarifying your question. There’s a world of difference between backing up the truck and using every drop of margin available versus some idle cash sitting around in a retirement account and you’re looking for long term investments.
I’ve been in the stock market for 30 years. (As part of my 401K.) I look forward to the market occasionally tanking. Because when it tanks, it means stocks are at a discount. So it allows me to buy more stock for the same amount of dollars.
But… it’s not something that’s desirable as you approach retirement age, obviously. As you approach retirement age, you should put your money into more conservative investments.
This.
It’s a sensible middle ground between doing nothing and trying to time the market.
I worked at UBS and Lehman Brothers back in the 90’s.
From a macro level, I don’t think there is any reason to rush into the market in the next 6 months. All of these shocks have to filter through the market and/or economy: rising wages, energy prices, grain prices, Putin or Xi doing something even more stupid, mid-terms, corporate earnings taking a hit, housing price adjustments, ad naseum.
Of course, do take my views with a grain of salt as I still work for a living instead of sitting on my own beach somewhere warm.
What you need to do, is get in touch with me. Watch what I do exactly – every investment, every decision to buy or sell or hold, or to stay out of the market altogether. Take careful notes. Then do the exact opposite thing that I did, at every single point. You’ll be fine.
What’s your timeframe? Eventually the stock market always recovers.
With inflation what it is, it might be a good idea to put cash into an S&P fund or something or if you see a company you think will continue to grow over the next 5-10 years.
I agree that you shouldn’t ordinarily time the market. However… there’s market timing then there’s avoiding obvious upcoming issues.
I’m not a stock broker. Don’t take my advice. But I sold half of my growth stocks several months ago, and am very glad I did. I’m now at about 40% cash in my portfolio. My thinking:
In economics, the ‘Taylor Rule’ says that to beat inflation, interest rates need to be raised to about 2% above inflation, less if GDP is shrinking. We are nowhere near that yet. And each time we raise rates, the market throws up. The Bank of Canada is going to raise rates tomorrow, and the Fed is expected to do the same next time.
What the Taylor rule really says is that inflation will remain until we hit some combination of significantly higher interest rates and a recession. Or slightly higher rates and a deeper recession. Either way… not good.
We are probably already in a mild recession, but it’s likely to get worse. The war in Ukraine and the energy crisis in Europe have not played out yet. Energy costs could double in North America this winter, eating discretionary income and killing demand for everything else. The EU is headed for a deep recession, a decline in manufacturing and the rest of the world for a somewhat less deep but still serious recession Even China is looking shaky.
Real estate is about to rear its ugly head. It’s going to collapse, and a lot of institutional investors, including central banks and the huge funds have foolishly decided to buy up lots of real estate at crazy high prices. We could br heading for another serious fiscal problem, demands for bailouts again, and pension funds are at risk as well.
In addition, governments, corporations and individuals are carrying record levels of debt and interest rate hikes are going to be extremely expensive.
I could go on. Looking around the world it’s hard to see any good news on the horizon. We’ve flown our economies into a coffin corner with record amounts of spending, debt and money printing. We’ve barely started in our attempt to fly out of it to a soft landing.
All that said, markets are crazy. Good news now makes them tank on worries of rate hikes, and bad news makes them go up because they think the government will ease off on rate hikes. No one is looking at fundamentals of companies any more. So I could be completely wrong.
But my strategy is that if markets keep going up for a while I’m going to sell more on the ‘dead cat bounce’ theory. I’ll be re-investing probably some time in 2023 when and if it looks like inflation may finally be tamed and there’s hope for rates to come back down, and hopefully the war will be behind us and Europe starting to come to its senses over energy. I’ll probably buy some bonds when rates look to be close to peak, and select stocks after that.
I’m also thinking anout risks like a nuke going off in Europe, or China invading Taiwan. Both are unlikely but more possible than they’ve ever been, and either one would likely tank global markets.
Your first sentence above acknowledges the uncertainty of the market, but your second sentence asserts some certainty about the state of the market. What makes you think the market is done tanking?
In 1929, the market “tanked,” losing about half of its value in a short period of time. Over the next six months or so it recovered, somewhat, reaching about 3/4 of its pre-crash value. Someone who thought the market had tanked might believe that the summer of 1930 was a good time to get back in, or even that they had missed the rising tide. That is, until the market began a two-year freefall that saw it bottom out at 10% of its 1929 peak.
The safe long-term bet is that the market will probably go up from wherever it is today, and ideally the powers that be are better at managing our economy than they were 100 years ago to damp out shorter term fluctuations. But there are myriad factors that are beyond their control that can derail the best plans. There could be a new COVID variant that’s far worse than what we’ve seen so far, Russia could start a hot/nuclear/dirty-bomb war with NATO, China could do who-knows-what. 14 years ago, Lehman Brothers thought they knew what the market was going to do next and left themselves with nowhere to go when the market decided to do something different.
So…has the market tanked, or is it “who knows”?
The “25 year recovery” doesn’t tell a complete story. Your chart is for the DJIA, not the broader market and doesn’t include the effects of dividends or deflationary effects. By some modern analysts, recovery took as little as 5 - 6 years,
As for Lehman, they failed because the thought they knew what the sub-prime mortgage market was going to next, not the stock market.
I don’t let day to day or year to year news/events influence a plan that has a multi-decade long time horizon. Except once when everyone was panic selling during the pandemic.