WORRIED ABOUT A BUBBLE?
Coping With Crazy
Adam M. Grossman | March 7, 2021 has some ideas to consider about protecting yourself if the stock market decides it has had enough…temporarily of course.
🤑Given these challenges, what action can or should you take? Here’s the prescription I recommend:
🤑If you’ve been experimenting with some of the market’s highflyers, including bitcoin, consider yourself fortunate, take your gains and move to higher ground. What if the gains are short term and would trigger a big tax? I can’t predict where any stock will end up, but I encourage investors not to lose sight of this reality: A short-term gain is always preferable to any loss.
🤑If you’re in your working years and have a long runway before retirement, you shouldn’t fret at all. In fact, you should hope and pray that Grantham is right. A market downturn will enable you to add to your investments at lower prices. Counterintuitive as it sounds, young people should welcome a downturn.
🤑If you’re losing sleep about the market, that’s usually a sign you should revisit your portfolio’s asset allocation. Ideally, your allocation should be structured so you’re insulated at all times from a potential multi-year market downturn. The operating framework I recommend is to assume that the market could drop 50% at any time, and that it might take five or seven years after that to recover.
🤑Be sure to rebalance your portfolio diligently, if not religiously. This, of course, includes rebalancing between stocks and bonds. But don’t forget to rebalance within asset classes. Jeremy Grantham’s view is that you should move substantially all of your stocks out of the U.S. and into emerging markets. That’s too extreme for me, but the general premise is useful: If an asset class has run up in value, you should happily take some of those gains and move them into an asset class that’s been lagging.
Source: Coping With Crazy – HumbleDollar