How do you invest in a down market?
 

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.

Stocks
 

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.

---Do nothing

I stck to my plan.

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.

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.

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.

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

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.

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:

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

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.

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.

The same way as in an up market.

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.

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