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LAST FRIDAY AT 7:16 A.M., I sent an email to HumbleDollar’s editor. We were discussing what this blog post should be about. This was before I got the news alert that S&P 500 futures were up bigtime, following the historic selloff the day before.
I concluded my email to Jonathan this way: “The market never gives you the big fat target you want. I’ve got great plans if the market behaves today like it did yesterday, or even if it’s flat. But since I’m drawing a bead on that, the market is likely to snap back hard and make me regret not moving yesterday!!”
Boy, was I right. Two exclamation points right. But later on Friday, I was totally wrong about how the market would react to President Trump’s press conference, which my company’s chief financial officer will never let me forget.
I’ve been around long enough to know I’ll never catch the bottom—if, in fact, Thursday was the bottom, which is a big “if.” Still, it stings to have put in a buy order Friday when the market was roughly flat but have it executed at a price 10% higher, since mutual fund trades don’t settle until the close.
Such is life.
Mr. Market is like a fish on a dock: When you try to get a hold of him—sploosh!—he’s up and away. What worries me now is that, after shooting higher with a quick flick of his tail, he’ll plunge back into the briny deep.
But that’s emotion talking. That’s ego. I should feel grateful that my experience has brought me to a point where I was not overexposed to stocks at the high—they were about 72% of my portfolio—and I had a predetermined trigger point to rebalance back to that level or higher. That trigger—down 20%—is right where my Friday buy order executed.
If the market is down again today, I won’t cry for potentially having bought a dead-cat bounce at Friday’s close (at least not much). Instead, I’ll consider step No. 2 of my plan: swapping some money within my 401(k) to a more aggressive target-date retirement fund. If things continue to deteriorate in the weeks ahead, I have other steps planned. If the market continues recovering, I can stand pat.
One of the things I’ve learned from Jonathan is that, when choosing a target stock allocation, we should take into account our future retirement savings. Here’s how that works: Let’s say you want 60% of your retirement money allocated to stocks. You have a $100,000 portfolio, including $60,000 in stocks. You still have 10 years until retirement.
In that time, you expect to contribute another $50,000 to your IRA or 401(k). If you define your nest egg as your current portfolio plus future savings, it’s actually worth $150,000. Calculated that way, your $60,000 in stocks really is just 40% of your retirement money. Result: You could put $90,000 into stocks today and still have an effective 60% stock weighting in your retirement portfolio.
Upon reading that last year, I made a plan to boost stocks to 76% of my current portfolio. Even though I’m age 58, that’s still pretty conservative, given the money I’ve yet to save. The shift was to be gradual. I wasn’t going to jump in with Mr. Market flying high.
But the opportunity has now presented itself. Which brings me back to Friday. What did I do? The market drop had taken my 72% stock weighting down to 70%. I sold my inflation-indexed bond fund in my IRA, which had been about 4% of my overall portfolio, and placed an order to add to my Fidelity Freedom Index 2035 Fund at Friday’s close. The move, along with the market’s bounce, brought my stock exposure to more than 73%.
Having survived the market pandemic, at least for now, I can worry about other things, like how to celebrate St. Patrick’s Day while social distancing. “Kiss me, I’m Irish”? These days, that seems more frightening than flirty.
William Ehart is a journalist in the Washington, D.C., area. Bill’s previous articles for HumbleDollar include No Sweat, Resolve to Rebalance and Durn Furriners. In his spare time, he enjoys writing for beginning and intermediate investors on why they should invest and how simple it can be, despite all the financial noise. Follow Bill on Twitter @BillEhart.
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William, Happy St. Patrick’s Day eve.