And I saw it coming.
I’m going out on a limb here with the following and this is purely my own personal actions. I’m posting this now as a journal and to compare with in the near future.
My ignorance of “the market” prevented me from doing three main things. I was able to address one of them in time, by doubling my contributions to my 401(k).
Prognosis for Ignorance 1: Cured
“Buying IN? During a down market?”
Yes. Let’s begin with some mindset.
If you’re only in the market day in and day out then these crashes drive you completely bananas.
If you’re in the market long term though then these crashes are awesome buying opportunities.
Why?
Because the market has always recovered to new highs and beyond, it recovered from a Civil War, a global war, a Great Depression, another global war, multiple regional wars, intense speculative bubbles, a housing crash that had never before happened in all of history, recessions ……
Therefore these crashes are sales periods, discounted entry points to buy and buy and buy … and HOLD.
Related reading: https://amzn.to/3s8li1F The Intelligent Investor by Benjamin Graham
(These are affiliate links to books I’ve read to help with my personal market training. There will be a list at the end.)
“But DAMMIT which stock do you pick!?!?!?” Answering this question was my second correction of ignorance. So, yeah, which stock?
None.
Related reading: https://amzn.to/3HptIIf, The Simple Path to Wealth by J L Collins.
A group of stocks is far better. These are called index funds and they take many forms. I’ve chosen to work with mutual funds and Exchange Traded Funds (ETFs). The main difference I’ve found between the two is that mutual funds pay dividends and capital gains while ETFs seem to only pay dividends. If one is working with a tax deferred account (think non-Roth 401k/IRA) then either type is fine. But for a taxable account the ETF is better as you won’t get tagged by capital gains distributions when the mutual funds rebalance. I’ve chosen “all three”.
All three? Yes :D. I have my work 401k (I use the available Roth option), a personal self-directed Roth account and the typical brokerage account, also self-directed.
While Apple (AAPL) makes a good case for being a single stock investment I’ve chosen instead to go with Vanguard’s mutual fund VTSAX in my 401k and sometimes VFIAX, along with their equivalent ETFs, VTI and VOO in my Roth and brokerage accounts. The 401k has no ETF options. I chose ETFs for my self directed accounts as they provide flexibility in when they can be traded.
VTSAX/VTI is a total market fund and VFIAX/VOO is a fund designed to mimic the S&P 500.
There is sometimes a third fund, VIGAX/VUG, that mimics the NASDAQ, but also mimics its high highs and low lows. That one makes me a little crazy ….
The fun part is that AAPL is a big part of any of those tickers, so, hey, you have some AAPL anyway 😀
In my 401k I was originally contributing to one of Vanguard’s retirement date funds, the furthest one out since those are considered the most aggressive, which means they consist mostly of stocks (vs bonds, etc). As they age they rebalance toward the less active stuff, like bonds.
As I cured my ignorance I came to recognize that the target funds didn’t meet my personal investing goals. Fortunately VTSAX and VFIAX are available in my 401k plan options.
Prognosis for Ignorance 2: Cured
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Ignorance 3. Not knowing that 401k plans have a money-market ‘fund’. The one in my Vanguard plan is: Vanguard Federal Money Market Fund VMFXX.
Yep, just a plain old savings account, and one to which you can contribute directly.
“What good is that? I have that in my bank account.” Yeah, same here, but that money doesn’t go into the 401k.
In another place on the website the fund is labeled by it’s true meaning:
CAPITAL PRESERVATION
In Feb 2020, when I saw the Fed was about to mess up the market, doubling my 401k contribution was a wise decision. Even better though would have been to quickly reallocate my 401k balance to the money market fund and buy back in during the crash. I would have improved my position by about 30% with no additional principal needed. In my opinion, this tactic is only plausibly effective when the Fed forecasts it will be meddling with the market.
And now the Fed is meddling again, ostensibly to fix the problem it had itself created, but whatev …..
I had reallocated my balance to the money market fund in mid January and spared myself some of the downturn.
(My gut (aka the Holy Spirit) told me to get out in mid December. But I got greedy, ‘let it go up a little more’ and got hit with some of the loss.)
Since then I’ve been contributing directly to the money market fund, to build my cash position for the mid March timeframe when the Fed announces the actual rate change BUT MORE IMPORTANTLY that it will be cutting it’s quantitative easing. The addict withdrawal of the market will present an excellent opportunity to buy back in. My gut is telling me to live thru the downs AND the ups on the way to that meeting, to hold steady in the cash account.
“But you don’t KNOW the Fed will taper.”
Well, they did announce that intent and the Fed created an impossible position for itself (and us, but whatev …). I’m highly confident the Fed will make a change that will affect the market bigly.
At that point I’ll buy back in with the full balance.
Prognosis for Ignorance 3: Cured
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References:
https://amzn.to/3s8li1F The Intelligent Investor by Benjamin Graham. I even bought a hardcover copy for my den library
https://amzn.to/3HptIIf The Simple Path to Wealth by J L Collins.
https://amzn.to/3IXCRZ2 Common Stocks and Uncommon Profits and Other Writings by Kenneth L Fisher
https://amzn.to/3s8T5rw Why Stocks Go Up and Down by WIlliam Pike
https://amzn.to/3gfcEsn The New Buffettology: The Proven Techniques for Investing Successfully in Changing Markets That Have Made Warren Buffett the World’s Most Famous Investor by Mary Buffett
https://amzn.to/3ricsz8 Security Analysis: The Classic 1940 Edition 2nd Edition, by Benjamin Graham
https://amzn.to/3oiuWgX The Triumph of Value Investing: Smart Money Tactics for the Postrecession Era by Janet Lowe
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Dan Passaro 