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Hello guys! I've been pretty aggressively risky with my 401K, because I started rather late (age 43). 98% in stocks with a 13% average rate of return since starting (2009) saving 15% of my income with a 2% match.
At what point should I scale down my risk. I keep hearing a recession is coming and I ideally would like to retire by age 60/62. What percentage of bonds/mutual fund is appropriate if I don't want to take a huge risk anymore or should I even change the allocation.
A recession will always be coming. Problem is most of us do not know when to sell and when to buy so we should do nothing and just ride it out. Assume you will be doing the same.
At 5 years before retirement I would start to think of building up a "cash" fund to cover my living expenses for a couple of years so I do not have to sell equity in a down market. Probably at 5 years use some stop loss orders if the market looks like it will be going up.
Decide in advance how much of a loss you are comfortable with; 10%, 15%, 20%, or whatever matches your risk tolerance.
Identify in advance which of your 401(k) fund choices will be your Safe Haven until the recession peters out and growth returns; a Bond Fund, a Money Market Fund, Strictly Cash, etc.
When your fund balance drops to your pre-established limit, move your money to your pre-determined Safe Haven.
Remember; it takes a 100% Gain to eliminate a 50% Loss. I did the Ride It Out method last time and never again. An individual can never know precisely when a Recession or Growth Market will start, but baling out after a 15% or 20% drop is better than riding out a 40% drop, even if you miss the first few weeks of the subsequent recovery. At least in my opinion, others have different ideas.
For our Aggressive Investments, my wife and I discussed the possibility of the rumored recession with our Advisor last week. After 10 years of growth we are likely over-due for a recession, and the three of us determined a plan for our aggressive investments. Too soon to act (in my mind) but our Safe Haven choice has been identified.
Our less aggressive Investments are in managed Asset Allocation Funds whereby the Fund Managers shift away from Equities toward more Fixed Income investments during down markets. Maybe your 401(k) Plan offers such a choice.
Decide in advance how much of a loss you are comfortable with; 10%, 15%, 20%, or whatever matches your risk tolerance.
Identify in advance which of your 401(k) fund choices will be your Safe Haven until the recession peters out and growth returns; a Bond Fund, a Money Market Fund, Strictly Cash, etc.
When your fund balance drops to your pre-established limit, move your money to your pre-determined Safe Haven.
Remember; it takes a 100% Gain to eliminate a 50% Loss.
For our Aggressive Investments, my wife and I discussed the possibility of the rumored recession with our Advisor last week. After 10 years of growth we are likely over-due for a recession, and the three of us determined a plan for our aggressive investments. Too soon to act (in my mind) but our Safe Haven choice has been identified.
Our less aggressive Investments are in managed Asset Allocation Funds whereby the Fund Managers shift away from Equities toward more Fixed Income investments during down markets. Maybe your 401(k) Plan offers such a choice.
What is the rule for getting back into the market at the end of the recession?
The time to move money and reallocate is way before a recession...stocks usually reflect a recession coming way before its a recession....so after the fact stocks fall you are to late .....no one nervous enough to bail out is going to be buying back in when markets are plunging and look like there is no bottom ...
But just like the recession,the recovery starts in stocks way before there is a recovery .. so investors end up just shooting themselves in the foot moving money around selling after the fall and buying after the juiciest early gains ..it is a game that repeats and repeats with the same results and different people .....they always think they are the ones to win.
When equities are up set your allocation and leave it alone
What is the rule for getting back into the market at the end of the recession?
The rule is don't ever leave the market to begin with. People who try to time the beginning and bottom of a recession end up worse off than those who just ride the roller coaster all the way through.
It is not timing the market, it is reacting to obvious trends which are a foretelling of future events.
When is the optimum time to replace the roof on your home? The day before a major storm which results in leaks and potential ceiling/wall damage. How can a person know this date? They can't.
When is the smart time to replace your roof? When it begins to show obvious signs of aging. You may be spending your money a few months or a year too early, but you avoid the interior damage and clean-up costs associated with a leak.
My goal is not to be a market timer (because no one can be), but to proactively react to a trend of future signs that indicate things are not all that great, or that things are decidedly getting better as a sign to buy back in.
Do you issue Buy order for automotive stocks (non-Tesla) when the price of gas is on a clear upward march? Maybe a true Contrarian would, but most would wait till fuel prices start declining again to buy.
Oh Heck. Just buy Index Funds. They haven't gone down in 10 years and never will!
That sarcastic statement makes as much sense as ignoring obvious signs when things are not well - using your own personal criteria and risk tolerance limits as the sign markers.
No such thing as reacting to trends without timing unless you always use one of those defensive style portfolios regardless of what you are predicting is coming
...so far no one ever rang a bell to announce the arrival of anything bad .....but we have had thousands of false alarms where as obvious as something looked as far as playing out things not on the radar alter that course .
If you prepared for a world of higher rates which looked like a given last year and avoided bonds you missed a fabulous bond rally and are now stuck in cash instruments with falling rates.
This headline from 2007 serves as my reminder ,that if anyone thinks they can predict shifts from good market times to bad market times they are chasing a unicorn.
The fact some banks may be taking it on the chin looks like the worst is behind them ...it is blue skies a head ...little did anyone know what was to follow despite the storm clouds .
So we tend to suck at recognizing changes in trends accurately.....I don’t think a month goes by where it does not look like we are entering a new phase yet nothing changes going forward
Dow tops 14,000, hits record
Wall Street starts off fourth quarter with a bang, sending the blue-chip leader to all-time closing and intraday highs.
By Alexandra Twin, CNNMoney.com senior writer
October 1 2007: 5:56 PM EDT
NEW YORK (CNNMoney.com) -- Stocks rallied Monday, with the Dow closing at an all-time high on bets that the big banks are starting to put the worst behind them - and on hopes that the Federal Reserve will continue cutting interest rates.
The Dow Jones industrial average (Charts) added nearly 192 points to end at an all-time high of 14,087.55. Earlier in the session, the Dow had hit 14,115.51, a new record intraday high. The previous intraday high was 14,021.95 from July 19.
The tech-fueled Nasdaq composite (Charts) gained 1.5 percent and carved out a new 2007 record, closing at its highest point since Feb. 2001.
The broader S&P 500 (Charts) index climbed 1.3 percent. The Russell 2000 (Charts) small-cap index jumped 2.4 percent.
"You're seeing a continuation of the recent momentum," said Chris Johnson, CEO of Johnson Research Group.
"It becomes a psychological phenomenon," he said. "Investors know that there are inherent risks in the market, but at the same time, they're rationalizing any bad news."
Wall Street was also perhaps betting that any so-called "bad news," whether it be weak bank earnings or a dip in the ISM index, means the Fed is more likely to cut interest rates again at its next policy meeting at the end of the month.
Tuesday brings the August pending home sales report in the morning.
Last edited by mathjak107; 08-21-2019 at 05:05 AM..
We all have our thoughts about what we think are safer times than others for equities... but I can say in my 30 plus years there never was a time the all clear was blown ....there was never a good time ...if we were falling then things appear to have no bottom ....
If we are starting to recover then it appears to be suckers rally ...if we are going up then stocks are over valued .
So we all have ways we eventually deal with this as we get closer to retirement ......
I was 100% equities my entire life until pre retirement ....then I went growth and income and a more balanced portfolio.
Today being retired I have my own method of dealing with volatility but I do draw the line in the sand with the equity allocation and hold at a min of 40% no matter what I think .
But I will add defensive assets with part of the bond budget at times ,like gold and long term treasuries...
You can raise their levels up or down as you see fit ....they can fly fighter cover over the equities...
In our case I have sold off quite a bit of the defensive assets as they rose 25-30% this year and put the money in to our fidelity insight income model up 9.19% ytd
I also run the fidelity insight growth and income model , up 13% ytd ,where I maintain a specific 7 figure balance working for me ..
When markets fall and I get to far below what I want to hold I shift some money from the income to growth and income model ....
When the growth and income model gets to far a head I shift some to the income portfolio.
By rebalancing based on dollars I don’t predict but react to events after they actually play out and that has me buying more aggressive stuff in a dip and selling some off before the dip going the other way..
I would say we are at about 2/3 income model and 1/3 growth and income model ....when I include an s&p index fund that is not part of the models overall we are at about 40% equities .
So this has been pretty much the plan that works for us in retirement...
Last edited by mathjak107; 08-21-2019 at 05:30 AM..
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