In and Out

William Ehart

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:

  • I had long planned to buy opportunistically on a significant market pullback. But it proved more taxing than I expected. Because there were such big market moves in March and April, I found myself glued to my cell phone, my office chair and my computer screen, often from early in the morning, as I read news and commentary, followed market moves and pondered my portfolio options. My game face was always on and my finger on the trigger. I never relaxed.
  • I came to believe a couple of scary narratives: that the impact of the pandemic would be much worse than investors expect and that the big bounce off the lows was too good to be true.
  • I decided I couldn’t take as much risk with my retirement savings, for two reasons. First, my employer eliminated the 401(k) match for the rest of the year, which means I have less wiggle room in hitting my target nest egg. Second, my job has become less secure, because my company is heavily dependent on a resumption of face-to-face meetings.

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 FoolDifferent 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.

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R Quinn
R Quinn
3 years ago

You clearly point out the difficulties those trying to invest for retirement face every year and not just during this crisis. I can only imagine the stress this year has caused and the decisions that have been made that may haunt people for years. This is bad working toward retirement. The stress level increases greatly after retirement with limited time to recover.

Ginger Williams
Ginger Williams
3 years ago

Good article on how challenging it is to stick with the plan recently. After years of annually reviewing my investment plan, rebalancing, and making modest adjustments to asset allocation, I’ve drafted four revisions to my investment plan this spring. I haven’t actually made any changes to investments. Maybe your article will help me continue resisting.

Last week, I changed my screen saver. It now shows a collage of statements for my cash accounts. Seeing that I have cash reserves helps my stress level immensely.

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