DID I GET SPOOKED? Or did I respond rationally? Possibly a little of both. After buying as the stock market plunged from its Feb. 19 peak, I sold shares into the rally from the March 23 low, though my portfolio remains strongly tilted toward stocks.
Waving the caution flag may even turn out to be the right call over the short term. Still, most of us—me included—shouldn’t be in the business of making market calls, especially not short-term ones. We have no benchmark to beat, no cable TV time slot to fill. Besides, my batting average with predictions is about .000. Where’s that designated hitter when you need him?
I had a perfectly laid plan, formed late last year, to use market weakness to increase my target weight for stocks. And without much ado, I executed it by early April. I decided that a 76% stock allocation—up from the 72% target I’d been working with for a couple of years—was appropriate for my risk tolerance, especially because I had 10 more years of retirement savings ahead of me, plus my future Social Security benefit.
But at 76% and with stocks roaring back, I quickly began to feel overexposed. Subsequent trades—including turning a quick profit, realizing a long-term loss, and switching more into bonds and conservative target-date funds—have lowered my portfolio’s stock position. The net result is that I made a little money from all the mayhem, but not really enough to justify the effort. What drove my selling? There were three stress factors:
After my selling and repositioning, I now have more in high-quality bond exchange-traded funds—including intermediate Treasurys and Treasury inflation-protected bonds—and less in emerging stock markets. But I haven’t tied a neat bow on my recent moves.
One lingering question: What’s my new target allocation to stocks? I thought of establishing a target range, but that’s fraught with problems. Say I have a range of 70% to 80%, within which I pick a point periodically, depending on my sense of the risks and opportunities in the market. The good part is, the lower bound keeps me mostly in the stock market. The bad part is, the decision-making can be never ending if you’re inclined to portfolio meddling, which I’ve proved to be.
The other lingering question: Should I decouple my taxable account from my retirement accounts? Up until now, I’ve managed them as a single portfolio. But I’ve been reducing the stock market exposure in my taxable account, down from about half stocks to one third. Why? Given that I might need the money for a prolonged period of unemployment, I don’t feel I can take as much risk with my taxable money as I did prior to the pandemic.
William Ehart is a journalist in the Washington, D.C., area. Bill’s previous articles include April Fool, Different This Time and Luck of the Irish. 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.