Road To Retirement: Four Rules For Handling Bear Markets

Ted

FYI: For many younger investors, 2018 marked the first time they experienced meaningful declines in their investment portfolios. And for others who have been around the markets longer, it brought back unpleasant memories from 2008.

Whenever the stock market comes unhinged, it causes investors to wonder whether they should be invested in stocks. The short answer for most people is yes. You’ll need the potential of stock market returns to reach your retirement goals. But, to be successful in the stock market, you have to learn how to handle bear markets. Because we haven’t had a bear market in over 10 years, let’s review four fundamental investment rules for handling big declines.
Regards,
Ted
https://www.denverpost.com/2019/01/06/road-to-retirement-four-rules-for-handling-bear-markets/

Old_Skeet

Nicely written article. One of the things that he did not mention that I usually have done in past market declines since I hold more cash than most folks do is to buy more of my best investment ideas. Most of the time stock market rebounds come fast with some good fury associated with them. So, to play the rebound I use special investment positions (spiffs) which I will then trim as the market recovers. A mutual fund that I own that does this actomatically is CTFAX. Most of the time it is about 90% fixed income and reduces its bond allocation and increase its equity allocation during stock market declines. As the markets recover it then reduces its equity positions (booking profit) and increases it fixed income allocation. Below is a link that explains how CTFAX works in more detail.

https://www.columbiathreadneedleus.com/investment-products/mutual-funds/Columbia-Thermostat-Fund/Class-A/details/?cusip=197199755

To see how the funds has changed its positioning during the recent market decline click on the asset allocation update box.

Since, I was in the process of changing my asset allocation by reducing my equity allocation by about 10% and rasing my fixed income and cash allocations by 5% each during the last stock market decline I did not engage any spiff (special investment) positions.

Currently, my (all weather) asset allocation is 20% to 30% cash, 35% to 40% fixed income and 35% to 40% equity. A safe harbor asset allocation, for me, would be 30% to 40% cash, 30% to 35% fixed income and 30% to 35% equity.