When Stock Markets Start Falling What’s the Best Investment Strategy?
Covered in the article (linked below) are some of the things you can do when volatility hits Wall Street.
1) Buy When Everyone Else is Selling
2) Sell and Limit Your Risks
3) Hold and Stick to Your Game Planhttps://investorjunkie.com/investing/best-investment-strategy/
For me, I'm invested in an all weather asset allocation of 20% cash, 40% bonds and 40% stocks that affords me the opportunity to buy during market pullbacks and to also use a seasonal investment strategy where I load equities come fall and then trim equities come spring. For me, option numer one is my plan A.
Looking at doing #2. Selling to keep most of the gain. 3 funds I bought last Nov. all had gains of 25 % or more. I decided if gain fell below 25 % I would sell. One of the funds has crossed the line a couple of times & will put in a sell if below 25% when I check later today.
An investor could create a portfolio with an appropriate asset allocation (accounting for risk tolerance and risk capacity) and then rebalance the portfolio periodically.
The second strategy, Sell and Limit Your Risks, sounds good in theory but may be very difficult to execute.
There can be huge opportunity costs when investors "stay on the sidelines" while stock markets are rising.
For example, some investors liquidated most or all of their equity positions in 2008/2009 and avoided stocks for years afterward.
Thanks to those that made comment on my post and the linked article.
I am providing a short blub on how I roll which will explain in some detail why I chose option 1. This was taken from a recent weekly briefing and market recap that I write.
Now being in the distribution phase of investing (age 74) I run an all weather asset allocation portfolio with asset weightings of 20/40/40 (cash/bonds/stocks) and I can move up, or down, five percent in the bond area, in the stock area, or in both areas while letting cash float. I am presently at a neutral weighting while I await the next stock market pullback. Most likely, I will engage the stock market and overweight stocks through a special investment (spiff) position to play the rebound; and, then exit through a step sell process during the updaraft until I reach, or maintain, my desired asset allocation weighting. Generally, I rebalance at plus (or minus) two percent from my desired asset weighting. However, I can move from a low asset allocation weighting of 33% to a high asset allocation weighting of 47% in both the stock and bond areas, or some point in between, without having to do a force rebalance. At the low asset weighting (33% each) I could be as high as 34% cash and at the high asset weighting (47% each) I could be as low a 6% in cash. At first brush, what appeared to be a mudane portfolio does indeed afford for some good range in asset movement for positioning, based upon market reads, plus the portfolio generates a sufficient income stream which is important to me being retired.
From what I wrote in a recent weekly briefing and recap.
Today, September 17th being tripple witching day, with the S&P 500 Index closing at 4433 I opened my first "spiff" buy step to start my seasonal special investment position. Generally, I will load equites coming into fall, hold them during the winter, and then exit the position as spring arrives moving sell proceeds into either bond funds, cash or some of both. This is a strategy that I learned from my late father back in the 1970's as I became a more achmpolished investor. Through the years most spiffs have been beneficial for me with positive returns, but not always. Click on the below link to learn more about the strategy. https://www.kiplinger.com/investing/602700/sell-in-may-and-go-away-here-we-go-again
Taken form my September 24th briefing and recap.
During the week I made my second spiff step buy. I have now made two equally weighted spiff buy steps at S&P 500 Index readings of 4433 & 4354 for a gain of 1.4% as of Friday's market close (4455). These spiff buys will open my fall seasonal investment strategy where I usually load equities coming into the fall, hold them through the winter months and then start ot lighten up coming out of winter and moving into spring. I have found that the strategy does not work every year but has worked more times than not. I generally limit the strategy to no more than five percent of my portfolio.
And, taken form my October 1st briefing and recap.
Since, I have bought equity step buy positons during the last couple weeks (during market dips opening my fall equity spiff position) this was watch the action week collecting my month and quarter end mutual fund distributions and building cash while I await bigger declines. If not, then I will continue with an average in process building my fall spiff position as we move into the winter months.
Thus, in review of the options listed in the linked article I felt option 1 was the best fit although option 3 somewhat fits because I am generally not a seller in a stock maket decline which option 2 covers although I do rebalance, from time-to-time as some have noted in their comments.
Take care and thanks for stopping by and reading.
I do allow up to 3% for speculative investments. Picked up some DFKG in late June & early July after a short seller blasted it. Bought at an average around $45. Closed around $50 Friday. I enjoy wagering on NCAA on the site in the winter months and figured if I enjoy using it, others may. Right now I’m debating whether to off-load a small speculative position in DOG. Bought August 30 (and reported that here). September was a nasty month for the Dow and the fund has gained around 4% since buying. I suspect there will be more Dow sell-off. However, I’m not very comfortable shorting any market. Sold a small piece several days back on a big down day and may hit the eject button one of these times. Really hard to say. At 1% of holdings, it’s of little consequence.
Point I’m making - It’s OK to play around the edges for fun or profit. But lean into the wind with your preplanned allocation. Rebalance as necessary. Ernie Harwell used to say: “Dance with the one that brung ya.”
Caveat - Having lived through a few market crashes in my lifetime, should a steep 15-30% selloff in the major indexes occur, I’d start dipping - regardless of any predetermined allocation model. Those types of opportunities don’t come along very often. Make hay while the sun shines.
I'm pretty much with you folks. At 73, much of my portfolio is fairly static and conservative with some casino money for play. As a speculator, I'm a momentum investor. For those that aren't familiar, I look for trends that develop out of divergences in the market. By this I mean, sectors or segments of the market that diverge from the overall market. I scale in slowly as long as the trend persists and scale out when the trend reverses. Normally, this only applies to speculative investing. However, at this point in time, I'm slowly scaling OUT of my overall investments. Taking profits if you will, but this market trend has stopped and is reversing as I type.
and so it goes,
peace and wear the damn mask,