Buying in this downturn

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
viralmehta28
Posts: 9
Joined: Sat Jul 30, 2016 10:21 pm

Buying in this downturn

Post by viralmehta28 »

Hey guys,

I am a frequent reader of this board and have gained a tremendous amount of insight from all of you - thank you very much for so generously sharing your knowledge. I am 36 years old, work in high tech, married with no kids (but plan to have a child). I have been pretty conservative with my investments so far (combination of lack of knowledge, fear of all time high valuations and conservative upbringing).

My total asset allocation has 22% stocks and my 401k has 44% stocks. I will not be requiring my 401k funds for the next 30 years and so have been meaning to increase my 401k allocation to 80%+ in stocks (with an intent to possibly reduce it as I come close to retirement). I have been waiting for a market downturn to increase my stock allocation in my 401k.

I plan to slowly increase my stock allocation as the market keeps tanking (if it does). I was thinking something like: 10% drop: 44%, -20% : 48%, -30% : 54%, -40%: 60%, -50%: 70% stock allocation and so on. Is this a reasonable way of increasing my stock allocation (I understand that this is market timing). Are there other approaches that you guys would recommend instead.

Thank you for your help.
User avatar
FelixTheCat
Posts: 2003
Joined: Sat Sep 24, 2011 12:39 am

Re: Buying in this downturn

Post by FelixTheCat »

Buy according to your IPS. https://www.bogleheads.org/wiki/Investm ... _statement

For example, you have a 50 stock/50 bond asset allocation. Let's say current market conditions has changed your AA to 45/55. Buy stocks until your AA gets back to 50/50.
Felix is a wonderful, wonderful cat.
User avatar
climber2020
Posts: 1949
Joined: Sun Mar 25, 2012 8:06 pm

Re: Buying in this downturn

Post by climber2020 »

Most here would recommend picking an asset allocation first and sticking with it regardless of what happens. You can dollar cost average into your stock funds at set intervals until it hits the desired allocation, or just throw it all in now.

Let's say stocks only go up from here and this is the lowest low we'll ever see (if I had to take a random guess I'd say this is unlikely, but who knows: see September 2011). Are you going to stay at 48% stocks for the rest of your life? Or let's say it drops 40% from the recent high, goes up 20%, then promptly drops right back down again: given your risk averse history, how will you react?
civility
Posts: 102
Joined: Mon Jun 17, 2019 9:35 pm

Re: Buying in this downturn

Post by civility »

There’s no right and wrong when it comes to asset allocation. Many in this blog believe it is personal. Don’t forget inflation when you are planning for something three decades down the road.
User avatar
Kenkat
Posts: 7354
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Buying in this downturn

Post by Kenkat »

The market is down so you potentially have an opportunity - with the caveat that who knows where the market goes from here.

One way to get to your target allocation would be to just invest new money at 100% equities. This is a more systematic way of taking advantage of a down market that trying to do a timing scheme based on valuation percentages that may not occur.
BlueMoonXD
Posts: 27
Joined: Sat Sep 14, 2019 11:50 pm

Re: Buying in this downturn

Post by BlueMoonXD »

viralmehta28 wrote: Wed Mar 11, 2020 6:41 pm I plan to slowly increase my stock allocation as the market keeps tanking (if it does). I was thinking something like: 10% drop: 44%, -20% : 48%, -30% : 54%, -40%: 60%, -50%: 70% stock allocation and so on. Is this a reasonable way of increasing my stock allocation (I understand that this is market timing). Are there other approaches that you guys would recommend instead.
No, this is not a good approach. If getting to your intended asset allocation is dependent on particular market outcomes (literally a 50% dip and you still won't be at your desired AA??) , you may never get there and find that by age 70 you have left massive gains on the table by waiting for the market to tank enough.

You seem to have identified that an 80% stock allocation is appropriate for you, and you clearly have already been way too skittish in making this change. The market is down 20%, this is a great time to realize your own psychology will harm you in the long run and start correcting for it.

It's not crazy to think the market will continue to go down, but who knows how much and for how long. Come up with a reasonable schedule (i.e. 1-3 months) and adjust your allocation over that time period, no matter what happens with the market. If you're lucky, you'll get some great deals, and if not you're still likely to be buying at a relative low.
Post Reply