How do you invest in a down market?

[LiverpoolWalrus]

If you were reasonably sure the market would be flat or down in a given year because of inflation, higher interest rates and tax increases, and you don't do options, would you:

---Sell all your stocks
---Reduce your investment in each of your positions
---Buy more stocks
---Do nothing
---Do something else (what?)

Please refrain from political commentary. We play the hand we're dealt.

[Boffin]

Trim some profits to build a cash position (“dry powder”) and wait for at least a 15% correction (“fire sale”) then buy to cost average down existing holdings/positions and/or establish new holdings/positions.

[Ecuadog]

---Do nothing

I stck to my plan.

[GrumpyOldMan]

In general, it is a bad idea to try to time the market.

The best time to plan for a downturn is before the downturn.

Have a long-term plan and don't panic - stick to it.

[l2ridehd]

For the past 35 years I have used a very simple investment plan. I use index funds, total stock market and total bond market, total international stock and total international bond funds. 60/40 asset allocation. 42% TSM, 18% TIS, 28% TBM, and 12% TIB. I rebalance to those percentages at least once a year or when the markets change a lot. So I am always selling high buying low in any market, up or down. I use Vanguard funds because of the low expense ratios. I have beat the S&P 500 for the 35 year average with significantly lower risk. It’s very close to how the Yale University’s endowment fund is managed. Works very well in up or down markets. Your losses are always less in a down market and you recover faster in an up market.

[Stu from NYC]

Anyone who says they can consistently time the market is full of it.

Best to have a plan and make sure your investments are in good quality vehicles making changes to that as necessary.

[charlieo1126@gmail.com]

I have been in vanguard index funds for 30 years , they may not be sexy and wow but they get the job done

[PugMom]

just sit tight-things ALWAYS change. (i agree with poster who mentioned vanguard.) what is 2day will probably change by tomorrow-no one can predict, just don't get scared & sell everything off quite yet.

[Topspinmo]

I sell off when high, and it’s high right now, buy back when it crashes, and it will crash. If you’re day trader the you have to time the little rises and falls. Now if you’re in the 1% that controls stocks you can manipulate the market for you’re satisfaction. :icon_wink:

[CoachKandSportsguy]

Great question, some good answers, rebalancing is the best answer. Now, the current "risk-parity" model is a split between bonds and stocks. Such that when stocks go down bonds go up in value/price, down in interest rate. The current problem with "risk Parity" at the moment is that stocks are extremely highly valuated, and bonds are as well but bonds don't have much room to go up prior to being bought at negative interest rates. So the bond portion needs to be extremely high to offset the size of the potential equity decline back to long term P/E ratios. So that's the equity / bond asset balancing act

So then between the equity and the bond portions, there is rebalancing possible. For bonds, with falling inflation, the better gains come from longer term bonds, and with rising inflation the better loss is with short term bonds. This concept is called duration of your bond portfolio.

Duration is measured in years. Generally, the higher the duration of a bond or a bond fund (meaning the longer you need to wait for the payment of coupons and return of principal), the more its price will drop as interest rates rise.

In the equity market, you can use different sector ETFs to change into and out of or change weightings. So the binary labels in equity tend to be growth versus value. Its a bit arbitrary, and not worth going down that rat hole. . . (rabbit holes are all furry, warm and full of cuddly nice pets) rat holes, not so much. . . Another arbitrary classification is large, mid and small capitalization stocks. There are ETFs for that. . Another segmentation may be hard versus financial assets, where hard assets are real estate and commodities versus banks and other corporate equity offerings. There are hard asset ETFs with agricultural and mining metals, as well as REITs. These will offset inflation if you want to offset bond losses with inflation sensitive assets.

Another equity segmentation is to look at dividend stocks. There are dividend aristocrat ETFs and S&P500 dividend ETFs, which will not fall as far and provide a small offset with dividends. . .

So with all these options, which would you "predict" or "forecast" will perform better in the future with your current outlook on the economy? no one knows the future definitively, but there are large persistent trends which increase and decrease over time which you should be following to get the equity portion correct.

And given a TV retirement or >55 population, the equity portion should be more weighted on the dividend aristocrat large and mid cap with small portion in hard assets, particularly realestate to offset inflation and a gradual return to a slow growth economy. . . the bond portion should be mid duration, 5-7 years, no more than 10 years, and 3-5 years with the older group. . .

I don't look at intl funds due to fx reasons, but that is for a much more sophisticated global outlook.

However, your personal portfolio needs to be customized to your goals, which are limited in time. ie Yale University does not have a time limit as its life is longer than a human life, so be careful of simple comparisons. . .

finance guy

[Carla B]

For the past 35 years I have used a very simple investment plan. I use index funds, total stock market and total bond market, total international stock and total international bond funds. 60/40 asset allocation. 42% TSM, 18% TIS, 28% TBM, and 12% TIB. I rebalance to those percentages at least once a year or when the markets change a lot. So I am always selling high buying low in any market, up or down. I use Vanguard funds because of the low expense ratios. I have beat the S&P 500 for the 35 year average with significantly lower risk. It’s very close to how the Yale University’s endowment fund is managed. Works very well in up or down markets. Your losses are always less in a down market and you recover faster in an up market.

You've posted your plan at various times. It sounds like a sound, simple plan, in a Boglehead sort of way. Wish we knew you 35 years ago.

[LiverpoolWalrus]

Great question, some good answers, rebalancing is the best answer.

Another equity segmentation is to look at dividend stocks. There are dividend aristocrat ETFs and S&P500 dividend ETFs, which will not fall as far and provide a small offset with dividends. . .



Yes, I used to have most of the “dividend aristocrats.” I should have kept them. ETFs for the major indexes I agree are a good idea and I do have them.

Then there are the “permanent portfolios” which withstand volatility. Maybe someone can weigh in on those.

[dewilson58]

The same way as in an up market.

[Boffin]

Trying to time the market is not the same as timing your actions. For instance, rebalancing allocations or, as I previously stated, intentionally trimming some profits to intentionally build a cash position to wait for (not predict) a market correction. Nobody should complain about selling at a profit. The bulls and bears make money and the hogs get slaughtered. Also, it is not about how much you make; it is about how much you keep.

[valuemkt]

Depends on your age and your working status. If you are a typical Villager, you are retired, and in the "distribution phase" of your life. That is, you are withdrawing money from your savings every month, and no longer saving a portion of your income for later. Given that assumption, and given your risk tolerance, you should have 2 to 3 years of cash or cash equivalents. That insulates you from the normal highs and lows of the stock market. Next, have a reliable income stream coming from bonds, bond equivalents, ultrashort bond funds, preferred and dividend stocks (or funds / ETFs / CEFs depending on your investment expertise). Again, depending on your risk tolerance, these might comprise 20-60% of your retirement portfolio, The remainder would be equities, anywhere from solid well-known companies to higher flyers. Once you are set on these holdings (or again representative mutual funds / ETfs) you stay the course and don;t touch them during corrections. If you've made solid selections history shows that they will revert to their growth histories. There is no need to continually rebalance. IMO you cut your winners short and invest more in losers that way. Best of luck

[LiverpoolWalrus]

Depends on your age and your working status. If you are a typical Villager, you are retired, and in the "distribution phase" of your life. The remainder would be equities, anywhere from solid well-known companies to higher flyers. Once you are set on these holdings (or again representative mutual funds / ETfs) you stay the course and don;t touch them during corrections. If you've made solid selections history shows that they will revert to their growth histories.

Still in "accumulation" phase. I'm not investing for monthly income right now, but may do so in the medium term. What would you say are some "solid selections" - the FAANGs, for instance? I'm thinking some of those have run their course.

[NoMo50]

Another vote for Vanguard index funds. For us, they simply work. Yes...Bogleheads here.

If you want to earn a small fortune by timing the market, start with a large fortune.

[J1ceasar]

In The last 5 years it's going from 17, 000 to about 34,000 so you can't say the market has hit a high as every day it's at a high. If you want to be thinking is going to go down and you should have your assets that's diversified. In other words you should have at least 20% in bonds and you should also consider real estate, gold, and still your own business even if you have that much money. There's an old rule that says take your age subtract it from 100 and the remaining amount should be what's invested in stocks the rest should be in the bank but it's really hard when the stock market has gone up 100% or more in 5 years to sit on the side

[Shansonmarx]

I like to keep my investments at 15 - 25% during the present time and only do vertical spread options to decrease risk. 2020 was a beautiful year for making money. We have seen 2 corrections and possibly a third to come. We all have to be smart with our funds in 2021. Vertical spreads when done on the right stocks can give me a 94% ROI.

[Boffin]

Might want to take a look at infrastructure via an ETF such as: I-Shares US Infrastructure (IFRA) at about $33.70.

[CoachKandSportsguy]

Here's an interesting strategy graphic under different macro inflationary scenarios.

[jedalton]

If you were reasonably sure the market would be flat or down in a given year because of inflation, higher interest rates and tax increases, and you don't do options, would you:

---Sell all your stocks
---Reduce your investment in each of your positions
---Buy more stocks
---Do nothing
---Do something else (what?)

Please refrain from political commentary. We play the hand we're dealt.
Buy more blue chip stocks. Not all at once. A little at a time over the 12 month period. Take your investment money and divide by 12. That's the amount you want to invest each month over the next 12 months. If there is a big downward move you may want to go all in. Most people do it wrong, they buy high and when market drops they panic and sell. Then they wonder why they can't make money in the market. You want to buy when stocks are on sale. Good luck.

[jedalton]

Another vote for Vanguard index funds. For us, they simply work. Yes...Bogleheads here.

If you want to earn a small fortune by timing the market, start with a large fortune.
Been in VTI fund for many years and had done very well.

[dewilson58]

60/40, 100 less age, balance & rebalance :cryin2:

We have recovered from every dip.

Get 90% to 95% in the market and let's ride.

Put your Big-Boy pants on and ride it out.

:a040:

:popcorn:

[CoachKandSportsguy]

if you want professional portfolio recommendations, please look up

Hedgeye (https://app.hedgeye.com/)

I have subscriptions to them, and they do very well.
If you want to trade, I have other professional services to get ideas or follow a hedge fund manager with his analysis, not all his trades, but you will get the idea. .

I would not recommend any brokerage house services for investments with no commissions attached, visible or otherwise.
And yes, Fidelity gets paid by you in other ways than posting a commission amount on your statement. If you look carefully, they have awful sell price fills in house, which means they are making their commissions on the in house spreads. . I have had trades where there are not trades anywhere at the price i received, but no commissions. . . don't be nieve.

finance guy

[DAVES]

If you were reasonably sure the market would be flat or down in a given year because of inflation, higher interest rates and tax increases, and you don't do options, would you:

---Sell all your stocks
---Reduce your investment in each of your positions
---Buy more stocks
---Do nothing
---Do something else (what?)

Please refrain from political commentary. We play the hand we're dealt.

HUH? You expect to find answers to this question on a website? There are literally piles of books on the subject. My wisdom-buy low and sell high. Only trouble is knowing when is low when is high and then acting not saying I SHOULDA, COULDA MIGHTA.

We tend to parrot what we are told. Investing vs gambling a too common thread. What is the difference? Horse facing, I am not into it. You if you are into horse racing can find analysts or course just like investment advice they have charts and graphs.

You can't do market timing. If, you buy high and sell low, is that not market timing?

Buffet like/ That has become a buzz word. Buffet loses 45 million on an investment and he states I shouldn't have done that trade. If, I lose 45 million there are gonna be a lot of people wondering how they could have been sooooo stupid as to lend me that much money. Buffet does not even live in the same world as I do. Buffet is almost 90 years old and he says he buys for long term. Does he live on a different actuarial table than we do?
Buffet does not even trade in the same market as I/we do.

Oh and as confirmed in this post, no one cares what I think.

[Chi-Town]

You don't have to look too far back to see what you did 2008-2009. If you made it through that fairly unscathed then you have a plan. If you didn't then a good financial advisor should be an option. Mine has gotten me through the dot com and great recession phases and into both recoveries successfully. A lot less angst and a lot more sleep.

[Two Bills]

Turn all your investments into cash, and hide it in grandmas old armchair.
Always good for a laugh at funerals and will readings!:icon_wink:

[Boffin]

Like everything else, on the subject of investing and the stock market: an opinion, a nose, and an a**hole, everyone has one.

[manaboutown]

David Swensen Dies at 67. How Yale’s Investing Chief Was Widely Imitated by Endowments and Pensions. (https://finance.yahoo.com/m/5fe5568a-2b47-3c65-847e-aee46bd42f41/david-swensen-dies-at-67-how.html)

Using alternatives, like real estate, farmland and other means.

[OhioBuckeye]

Great question, some good answers, rebalancing is the best answer. Now, the current "risk-parity" model is a split between bonds and stocks. Such that when stocks go down bonds go up in value/price, down in interest rate. The current problem with "risk Parity" at the moment is that stocks are extremely highly valuated, and bonds are as well but bonds don't have much room to go up prior to being bought at negative interest rates. So the bond portion needs to be extremely high to offset the size of the potential equity decline back to long term P/E ratios. So that's the equity / bond asset balancing act

So then between the equity and the bond portions, there is rebalancing possible. For bonds, with falling inflation, the better gains come from longer term bonds, and with rising inflation the better loss is with short term bonds. This concept is called duration of your bond portfolio.

Duration is measured in years. Generally, the higher the duration of a bond or a bond fund (meaning the longer you need to wait for the payment of coupons and return of principal), the more its price will drop as interest rates rise.

In the equity market, you can use different sector ETFs to change into and out of or change weightings. So the binary labels in equity tend to be growth versus value. Its a bit arbitrary, and not worth going down that rat hole. . . (rabbit holes are all furry, warm and full of cuddly nice pets) rat holes, not so much. . . Another arbitrary classification is large, mid and small capitalization stocks. There are ETFs for that. . Another segmentation may be hard versus financial assets, where hard assets are real estate and commodities versus banks and other corporate equity offerings. There are hard asset ETFs with agricultural and mining metals, as well as REITs. These will offset inflation if you want to offset bond losses with inflation sensitive assets.

Another equity segmentation is to look at dividend stocks. There are dividend aristocrat ETFs and S&P500 dividend ETFs, which will not fall as far and provide a small offset with dividends. . .

So with all these options, which would you "predict" or "forecast" will perform better in the future with your current outlook on the economy? no one knows the future definitively, but there are large persistent trends which increase and decrease over time which you should be following to get the equity portion correct.

And given a TV retirement or >55 population, the equity portion should be more weighted on the dividend aristocrat large and mid cap with small portion in hard assets, particularly realestate to offset inflation and a gradual return to a slow growth economy. . . the bond portion should be mid duration, 5-7 years, no more than 10 years, and 3-5 years with the older group. . .

I don't look at intl funds due to fx reasons, but that is for a much more sophisticated global outlook.

However, your personal portfolio needs to be customized to your goals, which are limited in time. ie Yale University does not have a time limit as its life is longer than a human life, so be careful of simple comparisons. . .

finance guy

As much as you wrote you must know something about the stock market. I didn’t read your article because I’m sure I wouldn’t have any idea what your talking about. To many so-called professionals have the fingers in the Stock Market. Our country is to big of a mess right now to try & figure it out.

[jimjamuser]

If you were reasonably sure the market would be flat or down in a given year because of inflation, higher interest rates and tax increases, and you don't do options, would you:

---Sell all your stocks
---Reduce your investment in each of your positions
---Buy more stocks
---Do nothing
---Do something else (what?)

Please refrain from political commentary. We play the hand we're dealt.
Under those conditions (stocks down or flat) I would SELL all my STOCKS that had a gain. I MIGHT (?) keep one or 2 that I was convinced WOULD go up in a down or flat market. I would take that money and BUY an ETF for BONDS, like BND or BNDX, which are for the US and Europe.

There are also, I believe, bond ETFs for other areas of the world, but I have never bought any of those. You could also SHORT the market, but I never do that. It is above my knowledge and risk profile!

[jimjamuser]

In general, it is a bad idea to try to time the market.

The best time to plan for a downturn is before the downturn.

Have a long-term plan and don't panic - stick to it.
True Grumpy O. Even the experts can NOT time the market. I just took that (down or flat mkt) as a given for the purposes of the thread. Like, suppose that someone was CONVINCED that Mr. Market was going to be flat or down. THEN, what would you do? I thought it was a good thread for a change. Incidentally, the world is on a knife's edge about many things and we are discussing mostly MUNDANE things. Like playing cards on the deck of the Titanic as it begins to sink.

[jimjamuser]

For the past 35 years I have used a very simple investment plan. I use index funds, total stock market and total bond market, total international stock and total international bond funds. 60/40 asset allocation. 42% TSM, 18% TIS, 28% TBM, and 12% TIB. I rebalance to those percentages at least once a year or when the markets change a lot. So I am always selling high buying low in any market, up or down. I use Vanguard funds because of the low expense ratios. I have beat the S&P 500 for the 35 year average with significantly lower risk. It’s very close to how the Yale University’s endowment fund is managed. Works very well in up or down markets. Your losses are always less in a down market and you recover faster in an up market.
Impressive system.

[lindaelane]

There are good annuities out there, though hard to find. I think 30% of your portfolio should be in annuities of the type that do not go down, i.e., cannot go down except for fees. My fixed index annuity from Allianz has a 1.05% fee per year. It has averaged just over 7 percent growth each year...i.e., some years it is up 12% or more, others, when the market is down, it stays the same except the fee is deducted. With fees, the annuity has averaged just over six percent each year and I have had it for eight years. Allianz has started raising the spread each year on my index, so my profit may not be quite this good in years to come but I sure do sleep well at night knowing it cannot go down.

My plan: 30% in annuity, 40% owning my own home (real estate), 40% in equities (stocks, ETFs, etc.). That means the market going down 50% hurts my net worth by 20%.

The best equity fund I have is Allianz Income and Growth - a great, great fund with nearly seven percent ***distribution*** (declared cap gains, dividends, etc.) each year. Its dividend is not seven percent. Sources like Morningstar don't include distributions in yield (Morningstar only includes dividends when it lists yield for some reason), thus most people do not know about this fund because the dividend portion of its yield is small. I never sell shares in this fund, I take out the seven percent distribution each year (I don't reinvest) and I am still up almost 20 percent from where I bought in. I do not think the share price will go higher but I feel confident the distribution will continue. (It only holds 6 percent of my net worth - I do not put too much money in any one fund).

[Pballer]

I wouldn't worry. If the market were to drop more than a few percent, Chairman Powell would **** in his pants, and find new Fed powers to buy unlimited quantities of the SPY ETF in order to maintain an "orderly market" - an "orderly market" being one that only goes in one direction.

[jimjamuser]

HUH? You expect to find answers to this question on a website? There are literally piles of books on the subject. My wisdom-buy low and sell high. Only trouble is knowing when is low when is high and then acting not saying I SHOULDA, COULDA MIGHTA.

We tend to parrot what we are told. Investing vs gambling a too common thread. What is the difference? Horse facing, I am not into it. You if you are into horse racing can find analysts or course just like investment advice they have charts and graphs.

You can't do market timing. If, you buy high and sell low, is that not market timing?

Buffet like/ That has become a buzz word. Buffet loses 45 million on an investment and he states I shouldn't have done that trade. If, I lose 45 million there are gonna be a lot of people wondering how they could have been sooooo stupid as to lend me that much money. Buffet does not even live in the same world as I do. Buffet is almost 90 years old and he says he buys for long term. Does he live on a different actuarial table than we do?
Buffet does not even trade in the same market as I/we do.

Oh and as confirmed in this post, no one cares what I think.
I would NEVER knock Warren Buffet!

[manaboutown]

Back in the early 1980s I bought a handful of Berkshire Hathaway shares at around $3,000 per share. It was before class B shares were offered. Just dumb luck probably, but I had read about Warren Buffett's track record and thought I would give it a go. I had little cash to invest back then but I put some of it into BRK. Glad I did is an understatement!

Those shares have grown to be about 1/3 my stock portfolio and all I do is nothing yet benefit from people far smarter and capable than I am in the stock market.

[Boffin]

There is a distinct difference between acting on what someone thinks the market will do and when (market timing) and acting on what the market has, in fact, done. For instance, holding a say 5% cash position for the purpose of buying in reaction to a 15% market correction or, on the other hand, selling after a 20% rise in the market to, as necessary, improve a cash position is not, I repeat, not market timing.

[stebooo]

What a ridiculous request. This is not the proper format.i wouldn't trust your advice not the reverse

[LiverpoolWalrus]

HUH? You expect to find answers to this question on a website?

Oh and as confirmed in this post, no one cares what I think.

I care what you think. In fact it speaks to your question above. No, I don't expect to find "answers" as in "facts," necessarily - only opinions and conversation.

I agree - I wouldn't consult a website for answers to important questions. Just can't trust 'em.

[Stu from NYC]

Back in the early 1980s I bought a handful of Berkshire Hathaway shares at around $3,000 per share. It was before class B shares were offered. Just dumb luck probably, but I had read about Warren Buffett's track record and thought I would give it a go. I had little cash to invest back then but I put some of it into BRK. Glad I did is an understatement!

Those shares have grown to be about 1/3 my stock portfolio and all I do is nothing yet benefit from people far smarter and capable than I am in the stock market.

Given his track record do not understand why anyone would criticize Warren Buffet.

Well maybe cousin Brucie would find fault with him not buying some reverse mortgages.

[manaboutown]

Given his track record do not understand why anyone would criticize Warren Buffet.

Well maybe cousin Brucie would find fault with him not buying some reverse mortgages.

To reverse or not reverse, that is NOT the question!

Over the years I have read anything I could find on Warren Buffett. Charlie Munger has been an often overlooked driving force beyond Buffett's ever evolving extremely successful investment strategies over the years IMHO.

The other guru from whom I greatly benefited is William Nickerson whose first book "How I turned $1,000 into a Million in Real Estate in my Spare Time" I picked up during my lunch hour at a Brentano's in D.C back in 1966. I immediately put his ideas into practice. That book literally changed my life!

[Stu from NYC]

To reverse or not reverse, that is NOT the question!

Over the years I have read anything I could find on Warren Buffett. Charlie Munger has been an often overlooked driving force beyond Buffett's ever evolving extremely successful investment strategies over the years IMHO.

The other guru from whom I greatly benefited is William Nickerson whose first book "How I turned $1,000 into a Million in Real Estate in my Spare Time" I picked up during my lunch hour at a Brentano's in D.C back in 1966. I immediately put his ideas into practice. That book literally changed my life!

Ever read Buffet's book. Fascinating.

Agreed that Charlie Munger does not get enough mention.

[Boomer]

For the past 35 years I have used a very simple investment plan. I use index funds, total stock market and total bond market, total international stock and total international bond funds. 60/40 asset allocation. 42% TSM, 18% TIS, 28% TBM, and 12% TIB. I rebalance to those percentages at least once a year or when the markets change a lot. So I am always selling high buying low in any market, up or down. I use Vanguard funds because of the low expense ratios. I have beat the S&P 500 for the 35 year average with significantly lower risk. It’s very close to how the Yale University’s endowment fund is managed. Works very well in up or down markets. Your losses are always less in a down market and you recover faster in an up market.



l2ridehd,

I wanted to let you know that there is an article running right now on npr.org about David Swensen
who managed Yale’s endowment. Swensen recently lost his battle with cancer. He was 67.

The NPR article (also a 4-Minute Listen) on the site is titled “David Swensen, the Greatest Investor You Maybe Never Heard Of, Leaves A Powerful Legacy.”

The article said, about Swensen’s philosophy, “Basically, he built a table with 10 legs: Very stable, even if a few legs get wobbly or fall off.” — That’s pretty much what you said, l2ride. :)

Even though Swensen had a PhD in econ, he sometimes hired people to work for him who did not have a background in finance. (I liked reading that. Kind of like what Buffett said in one of his many quips: “Beware of geeks bearing formulas.” Remember — Buffett said early in the derivatives game that those things were weapons of mass destruction.

The derivatives time in the market, which most of us here remember, sure was the classic example of the saying, “Unrestrained greed is not only bad morals, it’s bad economics.” (I don’t know who said that one first, but I understand it and believe it. “The Big Short” perfectly captured that insane fever.)

With Swensen and Buffett both, it sounds to me — (simplified version) — like they know that math + the human touch of good sense and an awareness of the effect of human behavior on the market— along with a solid philosophy and long term goal — works.

Anyway, thanks for mentioning the Yale endowment. Ironically, I then saw the article about Swensen.

Also, thanks for sharing your view on holding a combo of Vanguard funds, having done so for decades. Sounds like you built your own “ten-legged table.” People who have been solidly and sensibly investing for decades are pretty much vaccinated against market ups and downs.

Boomer