We are big fans of a couple of simple investing philosophies that have stood the test of time and multiple Bear markets. In general I have developed my own version or off shoot of the Ray Dalio “All Weather” portfolio. It is basically 30% stock index funds, Another 55% of combination of bond funds and then a small 10-15% stake in gold and commodities. I add an element of real estate to this instead of gold and I like to “play around” with 5% for fun investing “speculation” money. This is like fun bets on companies like Tesla.
Here is a Money Viking cartoon that captures this concept. The pyramid shows the bulk of assets in low cost S&P 500 index funds, bonds, REIT’s. An emergency foundation of cash and money market funds. And finally at the top a small percentage of speculation type stuff and experimentation. This could be messing around with alternative real estate platforms, options, puts, a speculative stock like Tesla or some crypto “gambling”. Having 5% to play around with for me gets that urge of moving out of the way and is a way to learn. Sometimes we make money and sometimes not, but there is a kind of joy and learning in the experimentation.
SIMPLE PLAN, STAY CALM DURING BEAR MARKETS
In general, I like to keep things simple and not make a bunch of moves during Bear markets. Most experts agree it is best to let things ride and keep adding to investments to dollar cost average the per share price downward by continually contributing during a downturn. The US stock market has recovered from every Bear market and recession in history, and we have had some whoppers. Many of us now remember the devastation during the 2007-9 financial crisis. Those who stayed the course, dollar cost averaged and invested regularly did very well over the last 10 years.
Here is a pie chart illustrating Dalio’s all weather portfolio. Hey, he is the Billionaire here!
NO BEAR MARKET BLUES
The main point to keep in mind, is that if your asset allocation is right for you, then there is no need to make major adjustments to your investment portfolio no matter the market or economic conditions. Bear markets eventually end, many stocks continue to pump out dividends, bonds continue to pay back you the “lender”, etc. Some folks do not mind the wild swings in the market and may choose to stay all in stocks. They may argue that since they do not plan on ever withdrawing the whole account, it doesn’t really matter what the account value is at one time or another, as long as they can continue to draw income and interest from the account, all is good.
For me, I like to be balanced among different asset classes. I believe different asset classes have different functions to serve, so I want a balance between them. I am never trying to “beat” the market. I just continue to invest and dollar cost average every two weeks. It actually makes me excited when the market goes down, I am picking up more shares on sale that week.