It's great seeing rallies etc and I love seeing my portfolio balance go up, but this is exactly the opposite of what we should be hoping.
The market falling 20% from here IS A GOOD THING in every possible way for wealth building.
First, it helps to eliminate downside risk. Would you rather buy at 3800 and then fall to 3000 or 2500?
Ot would you rather buy at 3000 and then fall to 2500 or even eventually rise to 4000?
Would you rather be buying MSFT at 27 pe or at 18 pe?
The lower the market goes, the MORE stocks you can buy with the same amount of money weekly!
It was John Bogle that said something like “Young investors should be praying for a huge market crash..”
As bad as market crashes and downturns may be for the economy, they are actually GOOD things. They get rid of excess, speculation, overspending, etc.
It's like a great reset and a healthy economy needs resets every once in a while. That's what's happening now.
The FED was greedy and over the last 12 years has fed the greedy multi millionaires and billionaires and we are now paying the price of this excess unfortunately.
I'm not wishing retired or older people to lose money. They should already have their risk tolerance set to their age etc.
I'm saying that 20 to 40 year olds should be hoping the market goes way down.
It will eventually recover.
So if the sp500 falls to 2000 let's say and then you buy in with $50k.
Let's say the market eventually gets back to 4000 from 2000?
You 2x your money!
So if you have $500k at sp500 2000 and in 5 years the market is back to 4000 you cash out an you're a millionaire.
That's how we have to think.
The money is not for today. It's for when you retire some day!
I'm not retiring for at least 20 years so I have plenty of time left to accumulate. I want the market to stay flat to down for the next 10 years and then gradually go up.
So imo everyone should be holding a lot of cash right now anticipating that the market will likely get to 3200 or so.
Don't buy in now imo. It's a mistake.
Being 40% cash I'm not concerned with the market going up or down short term.
And that means up to a year.
For example if the market somehow magically goes to 4500 this summer or next fall I'll trim and add more to my cash section.
If we go down to 3200 I siphon some of my 40% cash into either the index or my favorite stocks.
From 3200 to 4000 again? Then I trim back to 30% or so etc.
You have to be strategic in volatile markets.
I picture a cup overflowing. One side is equity and the outside of the cup is cash.
As my portfolio swells it dumps into the cash part.
As it falls it sucks cash back into equity again!
As it rises again it creates more and more cash and consequently we slowly get richer!
Yes dcaing into vti etc will also work but I think at certain levels you can time the market for an edge.
For we example if the market fell to 2000 tomorrow I'd go ALL in! 100% in and simply hold.
If we eventually rose again to 4000 in 2 years I'd take a 2x profit and start the process over again.
To survive the upcoming volatility you have to stay on your toes and be vigilant.
So we need to have a proper risk allocation!
Mine is 60/40.
60% equity and 40% cash. No bonds, no treasuries, just cold hard cash in mm that I can access quickly on dips.
Dips to me aren't 5%. They're at very least 10%. I am anxiously awaiting 20% or more dips. That's where you start getting rich!
So I wish everyone the best in 2023. It's going to be a great year I predict.
But please keep a conservative asset allocation adjusted to your OWN tolerance for risk. Only YOU can decide this.
Most importantly stay healthy, get sleep and exercise and don't smoke, eat junk food etc.
Health is wealth they say.
Good luck all!
Leave a Reply