5 investment steps I’m taking in a bear market. 4 more I would take if I could.

Finance is the name of the game, and we need to know the right moves.

A lot of people are asking what to do in the midst of a bear market. Here are some decisions I’m making as a ~30 year old pursuing FI with an aggressive risk tolerance. I think of all of the items below as more productive financial planning moves than agonizing over falling account balances. Obviously your situation is your own, but I’m posting them here for feedback and anyone looking for a sanity check.

1 – Increasing 401(k) contributions: I am tightening other areas of the budget to direct more money into my 401(k) due to the recent dip. I expect that 30 years from now when I can use this money I won’t regret it.

2 – Continuing scheduled investments: My wife has a Roth IRA invested in 80% stocks and 20% bonds. we have a home purchase goal for next year invested in 100% bonds. Continuing to fund these regularly as we have.

3 – Rebalancing accounts: This is happening automatically, so I’m not actually lifting a finger. But my accounts are being rebalanced which is effectively selling bonds and buying stocks because most of my accounts have drifted from their 80% stock, 20% bond allocation.

4 – Trying (and mostly failing) to stop watching daily market swings: It doesn’t serve me at all to watch this stuff so I’m trying to pay less attention to sensationalist headlines on things I can’t control.

5 – Keeping my home purchase and emergency fund goals conservatively invested: In tempted to dump these in stocks but recognizing the power of goals based investing. These portfolios have held up well in the volatility, so I’m going to let them keep doing their boring thing.

What I’m not doing. As you filter your decisions, think about what I’ve decided not to do as the opposite of the decisions above. Those choices would be:

  • Stop contributing a 401(k) or withdraw money. Not happening.
  • Cancel scheduled investments. Don’t get spooked, hamburgers are on sale.
  • Let accounts drift. Not rebalancing means you end up with style drift.
  • Staying glued to the ticker tape. It’s a cruel rollercoaster.
  • Putting my emergency fund or home purchase money into stocks to “buy the dip.” That’s short term money and I don’t want to put it at risk.

4 steps I would take if I could: These are things I would consider doing but they don’t apply because I’ve already done them (option 1), I don’t have the ability to (option 2/3) or don’t need to (option 4).

  1. Convert traditional IRAs to Roth. It could be a solid time for a Roth conversion, paying taxes on money held in a traditional IRA now to never pay taxes on it again. If you have one this could be a good reason because 1) you won’t pay taxes on this transaction for 13 months, 2) it’s likely your account value dropped, 3) there may be additional tax relief next year depending on stimulus measures.
  2. Tax-loss harvest. I don’t have many opportunities to do this with my portfolio primarily in retirement accounts. But this can be a powerful choice if you suddenly find yourself with losses.
  3. Dollar cost average in a large cash position. I don’t have much dry powder, but if I did now is a time I would be aggressively averaging into stock indexes over the next few months as this plays out.
  4. Switch investment managers. Not happy with your investment manager? It may be less expensive to switch to new management if you now have less in taxes to worry about. It’s important to leave for the right reasons, “I lost money” is probably not a good one because that’s the same story every long-term investor is dealing with right now. But if you’re paying high fees, don’t trust your investment manager, or want to move from self management to a fee only financial advisor, this could be a good time.

This are my current moves.What do you consider that is the right way to act during this extraordinary period of time?

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    One thought on “5 investment steps I’m taking in a bear market. 4 more I would take if I could.

    1. Excellent advise! I completely agree and am going to do as much as I can to invest more now! If this proposed American stimulus payment goes through I know exactly where it will go!

      Like

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