The best protection from this volatility is to have a long-term financial plan and stick with it, advisers say

Chances are your portfolio is taking a beating right now as stock and bond prices fall together for the first time in decades. Yet the best strategy in moments of volatility like this one, financial advisers say, is also one of the least satisfying: Do nothing.

Doing nothing right now is easier said than done, with anxiety rising along with inflation and interest rates, and the global economic uncertainties caused by the war in Ukraine and the third year of the pandemic only growing.

When losses mount, it is human nature to want to do something, behavioral economics has shown. Like King Lear, we tend to assume that “nothing will come of nothing,” even if decades of long-term market returns may show otherwise. But when does it pay to act? When should traditional portfolios be scrapped? Advisers say that whether you should do nothing or something may depend primarily on if you are closer in age to the aging Lear or his daughter Cordelia.

For younger investors, the advice is simple: “Don’t sweat it,” said William Bernstein, an independent financial adviser based in Eastford, Conn. “If stocks tank, that’s good for you since you will be able to buy them more cheaply,” he said. ”If you are young you want the market to tank.”

“Doing nothing is pretty good advice if your time horizon is 10 years or more,” said Elliot Pepper, a financial planner in Baltimore. “Since markets can and will be volatile, always make sure the money you might need in the next six to 12 months isn’t in the stock market—it should be in cash such as a high-yield savings account or in U.S. Treasury bonds, he said.

The best protection from this volatility is to have a long-term financial plan and stick with it, advisers say. Yet even those with a plan may find they can’t tolerate as much volatility as they initially thought. Others may realize they hold a more aggressive portfolio, with a higher allocation to stocks, than they intended, simply because stock prices have risen significantly in recent years.

Paul Auslander, an adviser in Clearwater, Fla., says he has met with prospective clients “who come in thinking they have a 60/40 portfolio only to discover it has drifted to 80% in stocks.”

For older investors, things can be more complicated, and in times like now, “some modifications may be needed,” said Mr. Auslander.

Mr. Bernstein recommends assessing how much stock-market risk you can afford to take.

For example, a 65-year-old with a 25-year life expectancy who spends 2% of his or her $1 million portfolio annually, or $20,000, can afford to invest, and lose, significantly more in stocks than someone who needs a 5% withdrawal, or $50,000 a year.

Anyone needing those larger withdrawals should hold no more than 50% in stocks, advises Mr. Bernstein.

As bonds fall in tandem with stocks, some advisers say the traditional 60/40 stock-and-bond portfolio may need a rethink.

“It sort of dispels the idea that you can effectively hedge with your standard stock-and-bond mix of a portfolio,” said Kevin Gordon, a senior investment research manager at Charles Schwab. “If inflation keeps rising and if economic growth keeps slowing, that means we’re in a countercyclical type of environment for growth and inflation.”

Mr. Gordon suggests rebalancing your retirement portfolio more than just once a year.

“If you’re more of the passive type and you’re not taking a day-to-day approach to investing, the advice there is to not take as much as a calendar-based approach to rebalancing but take more of a volatility-based approach,” he says.

Elliot Dole, an adviser in St. Louis, is shifting some of his clients’ money into alternative investments such as lending funds to “diversify away from reliance upon only stocks and bonds.”

Ann Minnium, a financial planner in Margate City, N.J., likes to see at least 15% to 20% of a retiree’s bond portfolio in inflation-protected bonds and an 8%-to-10% allocation in real-estate investment trusts.
Consider dividend-yielding stocks such as public utilities, Mr. Pepper said. While they are stocks and are subject to price volatility, they also tend to have stable and continuing dividends that can act similarly to the stable and continuing interest payments of bonds in a portfolio, he said.

There are other actions to take that remain in the spirit of doing nothing.

Ann Gugle, a financial planner in Charlotte, N.C., says she is doing more tax planning with clients recently. Like she did in March 2020, she is recommending more Roth conversions and switching more clients’ 401(k) contributions to Roth.

She is also doing more tax-loss harvesting, which helps offset portfolio gains and helps clients who recently sold real estate at high prices. Tax-loss harvesting involves selling some stocks or assets that have fallen in value and using the losses to help offset capital-gains tax liability, reducing one’s overall tax bill.

For instance, Mark Keating, a financial planner in Sebastopol, Calif., says he recently sold a client’s shares of the Vanguard Total Bond Market Index Fund ETF, which is down roughly 10% year to date. In its place he purchased Vanguard California Intermediate-Term Tax-Exempt Fund Admiral Shares.

By doing this he was able to harvest a 10% loss for the client, which will reduce their 2022 taxes. Finding such an upside to losses may also have psychological as well as financial benefits, Nobel laureate and behavioral economics pioneer Richard Thaler said. “Harvesting is such a nice term. Much better than ‘formally accepting the fact that this investment was a mistake,’” he said.

LINK: https://www.wsj.com/articles/h...-falling-11651589716

I'm currently down ~10% portfolio-wide this year.

Luckily, nearly all of my investments are geared towards retirement, and my earliest retirement opportunity will be in 12 years, with a more likely scenario being 22 years.

So I have plenty of time to wait it out, and am not going to touch anything. Eyes on the long term prize, not the short term volatility.

I agree with much in the article. I adjusted our portfolio about three years ago thinking where we are headed was likely. And we are not there yet either. Meaning more financial heartache is in the offing. I am not totally comfortable about where we are, but there is no place to hide. A declining stock market is just one worrisome component to a continuing decline in our quality of life.
The globalist policy makers are hell bent on taking what you have. Making life for Americans more difficult all the while enriching themselves. With money comes power. It is an obvious effort.

I'm just sitting it out and changing nothing.

And converting a 401K to Roth doesn't seem to make much sense to me since the article implies it's being done because the market's down. Normally that's done if you anticipate having higher income in the future and in return, you pay a pretty big tax penalty for the conversion. Every cent you convert will be taxable for the current tax year.

quote:

I am not totally comfortable about where we are, but there is no place to hide.

True. With inflation at ~10% you're no better off simply stuffing cash in your mattress or in a sub-1% savings account anyway.

Might as well invest it while all the stocks are on sale.

In many (not all) circumstances converting traditional Ira $ to a Roth Ira makes sense. Doing some every year can be of benefit unless a particular circumstance would make it a bad move. There is no right or wrong answer. Circumstances will dictate that.

Everything is on sale. Dollar cost averaging.

Just invested in quail hatching eggs along with incubators, cages, and feed.

At least I can eat them.

(moved all investments to fixed income 2 months ago. I sleep better.)

I'm still making money, I've doubled my overall account value on my three 401k's since September 2020. I've made some changes but will ride this out.

Ammo is always a safe bet.

quote:

Originally posted by Wingsfan:
Ammo is always a safe bet.

80% lowers are sure to go up in value

I moved my 401k funds into more secure positions, up until I saw BRCC go on sale a few days ago...now I've got some of that. I don't plan to stick with them long, but I do expect them to settle up above $20 eventually.

I've been moving non retirement savings into physical precious metals, but I'm not looking to trade it back until I'm forced out of the dollar.

Real Property seems to be what most people are doing, I keep seeing a LOT of cash purchases sight unseen from out of state buyers.

quote:

Originally posted by AKSuperDually:

quote:

Originally posted by Wingsfan:
Ammo is always a safe bet.

80% lowers are sure to go up in value

I moved my 401k funds into more secure positions, up until I saw BRCC go on sale a few days ago...now I've got some of that. I don't plan to stick with them long, but I do expect them to settle up above $20 eventually.

I've been moving non retirement savings into physical precious metals, but I'm not looking to trade it back until I'm forced out of the dollar.

Real Property seems to be what most people are doing, I keep seeing a LOT of cash purchases sight unseen from out of state buyers.

And a lot of people are going to lose their butts short term but be okay long term...possibly extremely long term.

Dogs of the Dow works through thick and thin

I'm 50/50 balanced/equities with about 10 years left. Nothing in bonds at the moment. Today, I picked up 2 1kg bars from Scottsdale Silver for additional "insurance" during this slight dip.

With interest rates where they've been for the better part of a decade, why would anyone have 40 percent of their portfolio invested in bonds?

Options work in all markets.

Learn them, practice, paper trade…then form a strict strategy.

Low risk with nice leverage of capital.

Don’t get greedy…

Stick to the plan and asset allocation you were doing before the volatility, assuming you had a reasonable amount of diversification.

Enjoy the fact that you're getting a better deal on more shares of stuff you already liked before the volatility.

Not giving advice, but I’m sticking to my plan and buying deals when I see them.

Amazon has dropped, I will probably pick up another share before the 1-20 split later this year.

Exxon is weathering as well as Imperial Refineries.

quote:

Originally posted by Aeteocles:
Everything is on sale. Dollar cost averaging.

Years ago I used a variation called value cost averaging. Are you doing DCA with individual stocks or more?

I fired my money management firm a week ago and liquidated everything in cash expect for a few that are in taxable accounts.

I told the company that 50% growth over 5 years was acceptable which was where I was in October but below 30% over 5 years was not acceptable for the fees I paid them.

I figure I might as well have invested in an index etf and be better off.

I've formulated a strategy of investing in broad market index ETFs with different risk profiles based on when I need the money: 1-2 years, 3 -5, 6 - 10, 11 - 15, and 15 - 20 years. And adjusting the mix for each time horizon based on the current business cycle phase.