401K - rebalance?

[spacejamz]

I haven't really been looking at my 401k balances the past few months but was pleasantly surprised that all of my losses (March was definitely the low point) have been regained. I am pretty much at my balance as of Jan 1, 2020. My current mix is 80% stock/ 20% bond in both current balances and future contributions (I am 50)...

Just wondering if I should try shifting more into bonds until everything settles down (COVID wise)...returns will definitely be lower but will be more stable if it takes a down turn. I pretty much have a half empty glass view of the market for the next 3-5 years but that is just me (and I didn't stay at a Holiday Inn last night)...

Anyone else doing anything different with their 401's or are you just letting it ride?

 

[s0me0nesmind1]

It's up to you and what risks you want to take.



Personally I've kept most of my funds the same to ride the market - but my latest contributions I've been putting into a money market (cash equivalence) because I feel stocks will go drastically lower once people come to grips with reality (evictions, unemployment, no end in sight until 2021, etc.). But I'm also no god - so I can't tell you the accuracy of my moves, could be the dumbest thing ever and I'm completely wrong.

Regardless though, I kept my already-invested funds the same to just ride the market for the most part.




Also "Rebalance" is a different term IMO: https://www.investopedia.com/terms/r/rebalancing.asp#:~:text=Rebalancing is the process of,% stocks and 50% bonds.

 

[deadlyapp]

I've been thinking about this the last few days. Especially as it ties to my HSA which seems more like short term gains vs long term prospects with 401k. It's near impossible to time it right for a peak, or near peak, but could be done if you really paid attention to the COVID stimulus package timing. There's just too many variables though for speculative trading like this.

 

[nakedfrog]

I adjusted mine last fall, seems like I did okay since I've now actually exceeded my January balance... not quite by as much as my contributions + match, but very near. Not planning to make any changes this year.

 

[spacejamz]

Also "Rebalance" is a different term IMO: https://www.investopedia.com/terms/r/rebalancing.asp#:~:text=Rebalancing is the process of,% stocks and 50% bonds.

This is what I was thinking about doing, but instead of directing funds into a new stock, I would direct them towards bonds instead....

Rebalancing for Diversification
Depending on market performance, investors may find a large number of current assets held within one area. For example, should the value of stock X increase by 25% while stock Y only gained 5%, a large amount of the value in the portfolio is tied to stock X. Should stock X experience a sudden downturn, the portfolio will suffer higher losses by association. Rebalancing lets the investor redirect some of the funds currently held in stock X to another investment, be that more of stock Y or purchasing a new stock entirely. By having funds spread out across multiple stocks, a downturn in one will be partially offset by the activities of the others, which can provide a level of portfolio stability.

 

[s0me0nesmind1]

This is what I was thinking about doing, but instead of directing funds into a new stock, I would direct them towards bonds instead....

Rebalancing for Diversification
Depending on market performance, investors may find a large number of current assets held within one area. For example, should the value of stock X increase by 25% while stock Y only gained 5%, a large amount of the value in the portfolio is tied to stock X. Should stock X experience a sudden downturn, the portfolio will suffer higher losses by association. Rebalancing lets the investor redirect some of the funds currently held in stock X to another investment, be that more of stock Y or purchasing a new stock entirely. By having funds spread out across multiple stocks, a downturn in one will be partially offset by the activities of the others, which can provide a level of portfolio stability.

Right, but then you aren't rebalancing - you are simply re-allocating how you invest your assets.


So originally, you allocate 80/20 (Stocks/bonds). Over time, it turns out to be more like 92/8 because your stocks are gaining in value + dividend amounts.
REbalancing is having the same plan of action (80/20) and thus you allocate out of stocks to make your bonds back up to the original 20% that you desire. Thus, you rebalanced back to your intended assets of 80/20.


Whatever, this is all technical speal I'm getting into.

 

[dullard]

I haven't really been looking at my 401k balances the past few months but was pleasantly surprised that all of my losses (March was definitely the low point) have been regained. I am pretty much at my balance as of Jan 1, 2020. My current mix is 80% stock/ 20% bond in both current balances and future contributions (I am 50)...

Just wondering if I should try shifting more into bonds until everything settles down (COVID wise)...returns will definitely be lower but will be more stable if it takes a down turn.

20% bonds at age 50 is fairly aggressive. A conservative approach uses (100 minus your age) as the bond percent that you should have. That is 50% bonds--I personally think that is too conservative. Vanguard's retirement year funds are at 25% bonds for people your age: https://investor.vanguard.com/mutual-funds/profile/VTTHX I personally think you should go to something like 75% stock / 25% bonds or even 70% stock / 30% bonds.

To go from your current allocation to the new allocation, you use the rebalance feature of your retirement plan. You should rebalance occasionally. A good time to rebalance is when you are also changing your level of aggressiveness. Some0nesmind1 is correct that they are different things, but they often are done together.

Forget about Covid-19. If you had the skills to time the market, you wouldn't be asking simple questions on ATOT about stocks and bonds. Let the rebalancing do the skilled work for you. If in a year you aren't still at your new stock/bond percentage, rebalance then. Rebalancing will automatically sell high and buy low for you without needing the skills to time the market.

 

[Scarpozzi]

I'm still working and still contributing. The dip in the market will cost me dividend earnings this year, but since I'm buying and buying and buying (not selling)....I want the market to nosedive. Don't think of a 401k portfolio as a dollar amount until you're close to retirement....think of it as numbers of shares....


That said, if you have 15 years to go, you can relax because the market will rebound from this in the next 2 years. I assume a lot is riding on a vaccine, the election, and how many businesses close their doors in the next year or 2.

 

[s0me0nesmind1]

I'm still working and still contributing. The dip in the market will cost me dividend earnings this year, but since I'm buying and buying and buying (not selling)....I want the market to nosedive. Don't think of a 401k portfolio as a dollar amount until you're close to retirement....think of it as numbers of shares....


That said, if you have 15 years to go, you can relax because the market will rebound from this in the next 2 years. I assume a lot is riding on a vaccine, the election, and how many businesses close their doors in the next year or 2.

The way I always phrase it for nutjobs that shit a brick about their retirement account dropping (when they aren't near retirement) is

"If the stock market doesn't recover you have waaaaaaay bigger things to worry about than your money"

 

[spacejamz]

The way I always phrase it for nutjobs that shit a brick about their retirement account dropping (when they aren't near retirement) is

"If the stock market doesn't recover you have waaaaaaay bigger things to worry about than your money"

I just have a really bad feeling about the market long term (5-10 years from now...is it due for a correction??)...we haven't experienced anything like this ever and who knows if we will ever get back to 'normal'??

Like you said earlier, I could be way off base with my guess....that is why I am trying to figure out if I should do something or nothing....

 

[s0me0nesmind1]

I just have a really bad feeling about the market long term (5-10 years from now...is it due for a correction??)...we haven't experienced anything like this ever and who knows if we will ever get back to 'normal'??

Like you said earlier, I could be way off base with my guess....that is why I am trying to figure out if I should do something or nothing....

Sure we're probably due for another depression/recession... But we will recover just like any other.

As seen with the housing crash, other countries are far too dependent upon us buying and using their shit.

Don't try to time it.

Talk to someone that is smart in investments - for instance, if you retire and a depression occurs, you will want to use/sell the assets that were least hit by the depression. For that, I presume bonds would be the go to. Leave your stocks for after it recovers.

 

[Scarpozzi]

I just have a really bad feeling about the market long term (5-10 years from now...is it due for a correction??)...we haven't experienced anything like this ever and who knows if we will ever get back to 'normal'??

Like you said earlier, I could be way off base with my guess....that is why I am trying to figure out if I should do something or nothing....

Look at the last 100 years and ignore the great depression. Your money's pretty safe in index/mutual funds. We still will have a drop or two that may be significant after earnings reports this year and election stuff if Joe replaces Trump. In any case, it will come back in 2-3 years. Get more risk averse when your 5-7 years out. You got lots of time.

 

[PowerEngineer]

...we haven't experienced anything like this ever...

Words to this effect have been uttered so many times over the years.

Yes, COVID-19 has certainly been an unpleasant surprise and we will be feeling its aftereffects for several years. But perhaps we can put this into better perspective by comparing today's crisis to some of those in the past. The 1918 "Spanish" flu immediately jumps to mind as being at least as bad. I'd say that the aftermaths of many wars (especially WWII) were worse than this -- especially for the losers. So I suggest to you that humanity has experienced many calamities like this throughout history. I expect that once again we will muddle through.

That doesn't mean that the accompanying uncertainties aren't unsettling. It makes sense to reexamine your investments in light of COVID-19. I'm thinking that the effects of COVID-19 on world economies will fade over the next 2-3 years, and in 5-10 years we will citing other factors (perhaps global warming?) when trying to explain market behaviors.

FWIW, I have a hard time warming up to bonds when interest rates are so low. I'm also worried about the insanely high valuations on large cap tech stocks (e.g. Tesla, Amazon); too many people now seeing big tech as a "safe" trade. Never liked gold as an investment before, but I'm starting to take a shine to it.

My two cents. Good luck with whatever you decide to do.