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2017 Midyear Investment Rebalancing

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2017 Midyear Investment Rebalancing2017 is half over. How have your investments done so far? The stock market performed splendidly over the last 6 months and made everyone a genius investor. Our investment increased 16% in value! That’s an over $200,000 increase in just 6 months, which is more than I ever made as an engineer, that’s insane. The increase is not all from investment gains, though. We added $60,000 to our investment package so far this year, so the increase is not only gains also plus new investment. It’s been awesome, but how long can this ride last? The stock US market is overvalued in comparison to historical metrics. I’ve adjusted my expectation for lower returns and I’m rebalancing our investment to reflect that view.

Some of my favorite personal finance bloggers are also having a hard finding a good investment on the stock market.

Mr. Tako’s cash hoard has grown to over $400,000 because he can’t find a good investment. Read more in – Are The Investing Storm Clouds Gathering?

Financial Samurai is going conservative and aims to rebalance his investment asset allocation to 50% stocks, 50% bonds. That’s really conservative, but we should listen to Sam. He’s one of the savviest DIY investors out there.

2017 Rebalancing

The stock market is overvalued, but we still need to stay invested. I’m only 43 and we’re not drawing down our retirement portfolio yet. Our early retirement withdrawal strategy is to work a bit and minimize withdrawal until we’re 55. With 12 more years until full retirement and 30+ years after that, we need to keep investing in the stock market. Besides, nobody knows when the party on Wall Street is going to end. The US stock market may be overvalued, but the good times could continue for a few more years. The best thing to do is to stay the course and stick with our investment strategy. That’s a lot easier said than done, though. I couldn’t stick with my own investment strategy and I’ve rejiggered our asset allocation…

Our asset allocation

2017 midyear asset allocation

We still have about 70% stocks, but the US/international mix changed quite a bit. Now, our international stock investment is about the same weight as our US stock. I’ve been very nervous about the US stock investment, but now I’m feeling a bit better. International stocks have been great this year and I hope it continues to deliver over the next decade. They have been lagging the US market for many years so it’s time for international and emerging markets to shine.The first column is my asset allocation for 2016 and where we were at the end of 2016. I could have stuck with this allocation, but I couldn’t resist messing around with it a bit. I’ve been reading too much about how the US stock market isn’t going to return less over the next decade. It made sense to shift some investment to international stocks which is a bit undervalued. So over the last few months, I’ve been slowly shifting some of my US stock investment to International and emerging markets.

More bonds

I’m also thinking about increasing our bond allocation. If the US stock market continues to reach new heights, I’ll probably get nervous again and increase our bond allocation at some point. It’s getting harder to move investments around, though. Our US stocks investments are somewhat locked up.

Here is how those 38% divvy up.

  • 23% Large cap. That’s 8% in Mrs. RB40’s retirement fund and 15% in our dividend portfolio.
  • 5% Mid cap index fund
  • 10% small cap index fund

Most of the stocks in our dividend portfolio are large cap US stocks and I don’t want to mess with them much. Dividend income will help pay for our living expenses when Mrs. RB40 retires. Another large allocation of US stocks is in Mrs. RB40’s retirement fund which is a target date fund. It has been doing really well so I don’t want to mess with that one, either. I’m sure Mrs. RB40 wouldn’t like it if I tried. The only US stocks left after that are some US small cap and mid cap funds which are good diversifications. At this point, I’m not really sure how to cut down our US equity holdings further.

Right now, the easiest way to increase our bond allocation is to add new money. I’ll do that, but new money isn’t going to make dent in the allocation. It’s such a small amount compared to our total investment.

In conclusion, I’m hesitant to add any new money to the US stock market today. We’ll mostly add to bonds and cash for the rest of 2017. That way we’ll have some funds in the war chest in case the stock market crashes. I also like investing in real estate crowdfunding. I’m looking to invest in more deals at Realty Shares when we accumulate some extra cash.

Pictures are worth a thousand words

Here is the graph of our investment in 2017. The performance has been incredible. Sign up with Personal Capital to see your investments all in one page. They made it easy for me to easily review our accounts.

Are you getting nervous?

How about you? Are you getting nervous about this US stock market? Will you stay the course or have you made some changes to your asset allocation? If you’re a blogger and wrote about this, then leave a link and I’ll add it here.

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{ 67 comments… add one }
  • Mr. FWP July 27, 2017, 1:21 am

    I agree that the US stock market appears overheated, but I don’t try to time the market and am sticking with my allocation. With that said, I agree with you that it looks surer than ever that US stocks are headed for a correction. I may hold off on increasing our net investments (beyond the auto-deductions) for a while, but that’s influenced more by other reasons. It wouldn’t be a bad time to have spare cash on hand, though.

    Personally, I stay away from international stocks – you get quite a bit of international exposure anyway via US equities. US stocks contain multinationals with significant international markets and exposure. And, consider 2007-08: the markets are increasingly linked anyway. I limit bonds, as well: they’re debt instruments, subject to a lot of interest rate and default risk. I’m happy with a more aggressive portfolio, so I stay heavy on equities…even when times appear tough.

    With what you have there, it’s going to work out for you either way…the beauty of having such a nice nest egg is that you can be a little wrong, have a less-than-optimal return, and still be retired for life. 🙂 Or you could be way right, and have even more! Either way, you’re going to be ahead over the long term.

    • retirebyforty July 27, 2017, 8:00 am

      I respect that. I think it’s great that you can stick with your allocation. That’s tough when the market is overvalued. I don’t know if we’ll have a correction, but long term return will be less than average over the next 10 years for sure. It might just level off for 4-5 years, who knows.

      Our bond allocation is so we’d have some fund in case of a big correction. I’d trade it in for stock at that point. Thanks for your comment.

  • Ernie Zelinski July 27, 2017, 1:51 am

    You ask, “Are you getting nervous about this US stock market? Will you stay the course or have you made some changes to your asset allocation?”

    Yeah, nervous to a certain point, but not all that much. I am Canadian and have most of investments in Canadian stocks and a portion in US stocks.” Nevertheless, the problem of over evaluation exists for Canadian stocks as it does for US stocks. Regardless of the fact that I have an MBA, I never did understand bonds. I am too lazy to find out how bonds work. So I will just stay the course in whatever my financial advisor (and good friend) at ScotiaMcLeod in Toronto keeps my retirement funds in. I also have an extra $400,000 in my prosperity accounts that I will keep in the best daily interest accounts I can find (presently 2.1 percent).

    Here is another little bit of intrigue for me: Most of my income (around 94.5 percent) is earned in the US and is paid to me in US funds. Due to the lower Canadian dollar, in 2015 I earned around $85,000 more in Canadian dollars than I would have earned if the Canadian dollar was at par with the American dollar. Yeah, for a low Canadian dollar caused by Canadians being less innovative and productive than Americans! Lately, however, the Canadian dollar has rebounded to its highest point in around two years. So do I hang unto my American dollars in my US account and wait for the Canadian dollar to sink lower again or do I cash in my American dollars? Truth be known, as a well-known university business professor specializing in currencies once said, no one even the so-called “currency experts” knows what is going to happen to currency fluctuations.

    • retirebyforty July 27, 2017, 9:52 am

      I don’t know much about Canadian stocks. Are they overvalued too? It’s great that you have a good financial advisor. You don’t have to worry about it with a trusted advisor. $400k in cash is a great cushion.

      Maybe you can come to the US and spend US dollars more often. 🙂

  • Max Your Freedom July 27, 2017, 2:00 am

    I’ve been nervous about the US Stock market for a few years now, and as a result I’ve been pretty defensive. It’s true I’ve missed out on some of the recent returns but I’ve learned to become comfortable with those feelings.

    I think it’s good you’re taking the chance to rebalance. I read a quote recently on this subject that made me smile: “either you prefer looking like a fool before the crash or after”. It’s impossible to time the market of course, but I prefer sleeping more peacefully.

    Here’s a related post I wrote a few months ago:

    http://maxyourfreedom.com/crystal-ball-optimistic/

    • retirebyforty July 27, 2017, 9:57 am

      Thanks for sharing. I’ve been nervous since 2015, but I stuck to my allocation of 20% bonds. This year, I’m moving some investment to international, but the stock/bond mix is still the same.

  • Retiring On My Terms July 27, 2017, 4:01 am

    I am also cautious about stocks right now. We are over eight years into a bull run, several valuation metrics look historically rich, and there is a lot of geopolitical uncertainty.

    But you make the great point that despite current valuations, the good times could continue for a few more years. I am only a little older than you, so we need to remain heavily invested in stocks to meet our long term goals.

    I have not changed my 401(k) allocations. I have been trying to build up some extra cash to potentially take advantage of the stock market when things do correct. In the meantime, I am slowly deploying that cash into more short and medium term bonds. They will earn more than the cash, and as those bonds mature over the next 3-5 years, hopefully I will be able to deploy some of my principal back into purchasing discounted stocks.

  • Justin @ An Intentional Lifestyle July 27, 2017, 4:18 am

    Am I getting nervous about the stock market? No not really. I’ve tried to time the market, pick winners, and most every other strategy under the sun. Now I just add to my index funds and let it ride.

    My strategy is to let the market do it’s thing and when we start withdrawing we will adjust our withdrawals based on how the market is doing. We also plan to have a rental house and some online income that will not be very affected by the market that will give us a baseline of income.

    Congrats on the big gains this year!

    • retirebyforty July 27, 2017, 10:01 am

      That’s the easiest way to invest. Stick to your asset allocation and you’ll turn out fine.
      Having a rental would give you some income diversification. Great plan.

  • Erik @ Hippies de Land Rover July 27, 2017, 4:45 am

    Wow!! cool! I feel better now that read these comments on being cautious about today’s market levels.

    Joe congrats for your 16% so far this year.

    This early morning I was just reading Howard’s latest memo “They Go Again…Again”: https://www.oaktreecapital.com/insights/howard-marks-memos

    I have been getting out of my riskiest allocations and going all cash (for now) Extrem conservative in Switzerland 🙂

    Anyways, I’ll provide an update on this matter.

    Cheers!
    Erik

    • retirebyforty July 27, 2017, 10:15 am

      Thanks for the link. That’s an interesting read. Going with low risk options is the right call in this environment. If the US stock market keeps rising, we’ll probably move more money to bond next year.
      Going all cash is too extreme for me. Good luck!

  • Ms. Frugal Asian Finance July 27, 2017, 4:51 am

    Congrats on the nice increase in net worth, Joe! It’s always nice to see our passive income go up. Mr. FAF and I haven’t invested in any stocks or bonds yet, but it’s great to learn from your portfolio and investment strategy. 🙂

    • retirebyforty July 27, 2017, 10:17 am

      Thanks! For me, the net worth gain isn’t really passive income. That’s paper gain, not income. 🙂
      You guys should start investing in stock ASAP. At least a little to get your feet wet.

  • Apathy Ends July 27, 2017, 5:03 am

    Not nervous at the AE household, but we are both still working full time, I have slowly started ramping up our small cap exposure and dropping bonds – if we do see a serious correction I will get a little more aggressive.

    • retirebyforty July 27, 2017, 10:18 am

      I thought small cap are a bit worse off during the bear market. That’s why I’m thinking about cutting back a bit on small cap and moving it to bonds. That’s the opposite of what you’re doing. Need to read more about this before I make that change.

  • Matt @ Optimize Your Life July 27, 2017, 5:05 am

    “The US stock market may be overvalued, but the good times could continue for a few more years. The best thing to do is to stay the course and stick with our investment strategy. That’s a lot easier said than done, though.”

    This is pretty much what I have been struggling with. I recognize that I should just keep plowing forward, but I’m so tempted to try to outsmart the market.

    I’m 100% in stock (still early in the accumulation phase) so my temptation has been to slow down my investing and horde cash so that I can dump it all after the crash. Like you said, though, the party could keep going for a couple years and then I would have missed out on a lot of gains.

    • retirebyforty July 27, 2017, 10:20 am

      We used to be 100% in stock when I was working full time. It worked out well enough for us so I can see where you come from. The problem is we didn’t have much to invest when the market crashed. We kept saving and investing from our income, but wished we had more in reserves. That’s why we have some bond now. We can exchange bond for stock when the market crashes next…

  • Lazy Man and Money July 27, 2017, 5:09 am

    I have a similar allocation, but with fewer bonds.

    Have you looked into international stocks that pay dividends? Something like VIGI perhaps?

    • retirebyforty July 27, 2017, 10:21 am

      I’ll check VIGI. Thanks!

  • Darren July 27, 2017, 5:15 am

    Joe,
    What a great run we’ve had in US stocks and real estate! I’d love to go 100% in bonds and cash right now but I’ll continue to stay the course.

    • retirebyforty July 27, 2017, 10:21 am

      I’d be really stressed out if we go 100% bonds and cash. I have no idea when to get back in.

  • Grant @ Life Prep Couple July 27, 2017, 5:30 am

    Dang 200K in 6 months. That is my kind of retirement.

    I am a perma bull. Probably because I got my first real job in 2011 and have never seen my net worth drop dramatically overnight. Either way I am at least 10 years from retirement so a big crash would probably help me in the long run. The thing is we might not see a crash or correction for several more years. Or ever. We just don’t know. If a crash does come I will probably use that as an opportunity to get a rental property.

    • retirebyforty July 27, 2017, 10:22 am

      You need to go through a few crashes to know yourself. 🙂
      At this point in your life, you’re doing exactly the right thing.

  • saveinvestbecomefree July 27, 2017, 6:32 am

    I’ve also shifted my investment allocations. I’m a big believer in stocks and in the US but based on current prices (and the price matters a lot in investing), I have shifted a lot of my investments to emerging markets (my stock investments are now 20% US and 50% non-US) as well as building up over $500,000 in cash and short term bonds.

    I hate having so much in cash and bonds. I’ve been 90+% invested in stocks my entire working career and it’s been great but we are certainly closer to the top than the bottom at this point. I’m also considering early retirement so I’m also managing sequence of return risk. To be honest, I’ll be thrilled when stocks drop and I can put more money to work. But I’m at peace with (and fully expect) missing out on some nice gains while I wait……no one can time things perfectly. On the other hand, I would have more regret if I don’t protect some of the big gains I’ve already made. The trick is to have a clear plan for getting back in.

    Just remember that the low long-term projections for US stocks (around 4-6% depending on who you read) never happens linearly. There will be a few years in the next 10 where big drops happen, countered with years of nice returns as well. Sometime in the next few years a big drop is likely to happen (but no guarantee). One of the reasons I shifted to emerging markets so aggressively is the 20% drop in 2015 and overall poor 5 year performance leading to attractive valuations (plus below average profits and currency values that are likely to improve vs above average values in the US).

    Only time will tell but it seems prudent to be more conservative with investing at this point. Especially if you’ve already made nice gains.

    • retirebyforty July 27, 2017, 10:26 am

      Thanks for sharing. 50% is a big allocation for non-US. I like $500k cash and bonds, though. You’re ready to take advantage of a crash.
      Earlier this year, we had $50k in cash and I couldn’t handle it. I hate having that much cash around so I invested it. I guress I’ll have to learn to get used to having cash in the bank. We’ll need it when we’re older. Also, I have no idea when to get back in. For me, it’s impossible to buy when everything is going down. I can’t time it right. What’s your plan?
      Good luck!

  • Dylan | Trail to FI July 27, 2017, 6:36 am

    I agree with Grant (above). I’m still early in my career and ~10 years away from retirement, so I’m not worried about losing investment value. I would be more worried about my job being in jeopardy due to another recession. It’s interesting to hear the thoughts about international/emerging markets. I might investigate that.

    • retirebyforty July 27, 2017, 10:27 am

      Yeap! You’re doing the right thing at this point in your life. You really should read up on international and emerging markets. They will probably outperform US stock market over the next decade.

  • Passivecanadianincome July 27, 2017, 7:14 am

    Good post and nice rebalancing. Im 34 so I got time if there indeed a correction and i feel he printing presses will fire up again and the market will hit new highs. There are still alot of good buys available out there. This morning i added 100 Riocan shares. At 10 cents over their 52 week low i feel its a great value. The amazon factor is getting overdone. After i shower i need to go to a riocan plaza and do my groceries get a haircut and go to the lcbo. Amazon cant do any of that stuff. (I know the bought whole foods but they wont be able to sell perishable foods imo)
    I have some cash but am slowly putting it into the market.

    • retirebyforty July 27, 2017, 10:31 am

      Thanks for sharing your strategy. I’ve never heard of Riocan. I think the Amazon factor is real. Malls are dying all across the US. Our local malls are quieter than they’ve ever been. You’re right about haircut, but they can probably groceries. Never underestimate how lazy consumers can be. Blue Apron…

  • Mr. Freaky Frugal July 27, 2017, 7:33 am

    Yeah I’m nervous about the US stock market. But then again, I’m always nervous about my investments. 🙂 That’s why I have a written investment plan that I follow. No. Matter. What.

    • [email protected] July 27, 2017, 8:09 am

      Same as you, I have a plan and I stick to it. Everything is automatic.

    • retirebyforty July 27, 2017, 10:32 am

      What’s your plan? Do you have a post about it?

      • Mr. Freaky Frugal July 28, 2017, 5:29 am

        I will eventually have a post, but it’s almost all a mix of various Vanguard index funds. For more details, you’ll have to subscribe to my blog. 😀

  • [email protected] July 27, 2017, 8:09 am

    About a year ago, I switched our allocations and moved more into bonds. We’re currently running about 10% cash (my wife loves cash), 30% bonds, 15% REITs and 45% stocks. I will probably keep it close to that until I retire early (36 months away) at which time I will relook.

    I always try and rebalance every 6 months to maintain my allocation.

    Good article

    • retirebyforty July 27, 2017, 10:33 am

      That’s a lot of bonds. We might move into bonds more next year if the US market keeps increasing. It’s pretty crazy.
      10% cash is huge. I can’t handle that. Mrs. RB40 would love it, though. 🙂

  • Duncan's Dividends July 27, 2017, 8:10 am

    Definitely a little nervous about the stock market, but honestly I’m not sure if/when the correction will come in the near future. We all know that there will be a crash and I’m actually looking forward to it. Until then I’m taking the prospective of high quality stocks with DRIP and riding them for ten years plus which will negate any market fluctuations. I actually bought ATT on Tuesday before earnings were reported and am up a few hundred bucks on it now, so there are some opportunities, but I agree few and far between. I’ve monitored the greedometer, but it’s predictions haven’t been super accurate lately so who knows when it will crash again.

    https://www.greedometer.com/

    • retirebyforty July 27, 2017, 10:36 am

      Is there a fearometer? 🙂
      The greedometer is pretty spot on for me. It seems investors aren’t fearful enough, though. We’re probably at 2 or 3 on the fearometer because the good times has gone on for so long. Good move with AT&T. We have a few shares too.

  • mike July 27, 2017, 8:35 am

    Hi RB40:

    Congrats on the networth gain. Its impressive in just 6 months. I’m curious , but the graph you showed, does the networth also include your real estate holdings? Ie. your equity in your personal residence as well as the investment duplex?

    Reason I ask is, how do you value what the real estate values are?

    thanks!

    M.

    • retirebyforty July 27, 2017, 10:37 am

      No, the graph is just stock and bonds. Real estate is in the “other” tab. That has gone up tremendously as well according to Zillow. I haven’t increased the price in my spreadsheet, though. In my spreadsheet, I just make a best guess and rarely change it. Maybe once per year.

  • Angela @ Tread Lightly, Retire Early July 27, 2017, 9:23 am

    I’m not looking to hit FI for another 15 years or so, and I agree that in the next decade the stock market will go up, so I’m not at all worried about what happens over the next few years. The same goes for our real estate investments – since I’m concerned about long term cash flow, a dip now won’t impact us.

    • retirebyforty July 27, 2017, 10:38 am

      A dip now would be a great buying opportunity for you. Good luck!

  • Brad - MaximizeYourMoney.com July 27, 2017, 9:46 am

    Nah, I’m not nervous about the market. We have corrections (10% or more drop) every few years on average, so it will happen. Just need to ride it out. I just checked Personal Capital and it shows our investments are up 12.9% so far this year (without adding to them). So when we drop 10% I’ll remind myself that we’re still nicely ahead of just a couple years ago.

  • Fromusa July 27, 2017, 10:02 am

    Well, an index like VEU is up 30+% over the last 18 months. Maybe the international market is due for a correction, too. So who knows. Excuse me while I just put all my cash in (and only in) Facebook, Amazon, and Netflix. 🙂

    • retirebyforty July 27, 2017, 11:18 am

      VEU already went down quite a bit in 2015 and 2016. They’re just back to 2014 level today. I’m not a believer in FANG. Reminds me of the dot com era. Good luck!

  • Project2035 July 27, 2017, 10:09 am

    You should increase the cash percentage from 2% and should increase it with market going further up. At least thats what im going to do myself. I predict that boom should last till 2020. When fed will increase the interest to 3-4% then this is a signal that economy is overheated.

    • retirebyforty July 27, 2017, 11:19 am

      Increasing cash is a good strategy, but I couldn’t do it for long. The fear of missing out is too strong for me. We’ll increase our cash percentage before Mrs. RB40 retires, but that’s just to prepare for her retirement.

  • Mr. Tako July 27, 2017, 10:30 am

    I’m definitely taking it easy on new stock investments these days too. Our cash has been piling up as I search for investments with reasonable future returns, but it’s getting harder.

    It definitely seems like the storm clouds are gathering.

    • retirebyforty July 27, 2017, 11:16 am

      Yeap! I linked to your post right on top of the article. 🙂

  • The Money Commando July 27, 2017, 10:31 am

    The market is clearly overvalued right now. The question is what to do about it.

    There’s a huge difference between selling out of existing investments and not using cash to buy new investments. I don’t see a reason to sell existing investment and go into cash, but I also don’t see any reason to use cash to make new investments at today’s valuation. It just doesn’t make any sense. At some point the market will reach a more normal (or average) valuation, and at that point it will make sense to deploy cash. Until them I’m content to sit on the sidelines and build my cash horde.

  • No Nonsense Landlord July 27, 2017, 10:47 am

    My investments are up over $400K since I retired a year ago. I have a 17.49% 1 year rate of return according to Fidelity on my investments there, and my 401K is nearly the same. My real estate is going gangbusters too. Rents are up $8K on an annual basis.

    Things are great!

    • retirebyforty July 27, 2017, 11:20 am

      Congrats! Your timing is great for early retirement. Hopefully the good time will keep going for a few more years.

  • SMM July 27, 2017, 1:13 pm

    Since the market is so high, I’ve been diversifying into ETFs more. They still too may be relatively high, but I’m a long-term investor and I’m comfortable deploying funds for 10+ years or more. Here’s an article I wrote last month:

    http://www.simplemoneyman.com/how-do-i-protect-my-investments/

    • retirebyforty July 28, 2017, 6:56 am

      Stick to the plan. That’s always good. I’ll add your link later today. Thanks!

  • mary w July 27, 2017, 1:30 pm

    My asset allocation looks very similar to your 2016 target except that I have a larger portion of “alternative investments” which in my case is the equity in rental real estate. That’s pretty much been my asset allocation since the 1990s. Yep, same target through 2000 and 2008 crashes. I don’t try to time the market at all.

    Be careful with bond funds. When interest rates rise, the value of bonds will fall. Interest rates have been dropping for so many decades that people forget that financial fact of life. If you hold individual bonds to maturity as I do, that’s not a huge deal. But with a fund you can get hammered.
    I know you hold lots of individual stocks. I forget whether you also hold mutual funds. If so, re-set it so you get all capital gains and dividends realized by the funds to be paid out rather than re-invested. That’ll give you a bit more flexibility in changing you asset allocation.

    • retirebyforty July 28, 2017, 7:01 am

      The alternative in my allocation is REITs. We have rentals and our condo that aren’t here.
      Great job sticking to your plan.
      My question is – your target hasn’t changed since 2000? Are you sure you have the same risk tolerance as almost 20 years ago? I’m more conservative now.
      From my experience, bond funds don’t go down that much. A little down is okay with me.

      Most of our mutual funds are in our retirement accounts at Vanguard. It’s easy to rebalance there because no capital gain tax and no fees.

      • mary w July 28, 2017, 11:42 am

        While you would think that since I’m more than 20 years older than you and fully retired I’d be more conservative than you, I’m not. I have a pension that covers all my required expenses and then some, plus rental income from long held real estate. If all mutual funds went to zero, my basic life style wouldn’t change. Just the extras.

        You’re right bond funds haven’t gone down much in the past 30 years. But if interest rates doubled…

  • Jason July 27, 2017, 8:33 pm

    I totally agree it is overvalued and it probably will be for another year or so then I think we will have a bear market (we are due for one). I am still almost 100% in stocks and haven’t moved my positions to international ones. I don’t mind international, but I don’t like the international choices in my 401k so I am just sticking with S&P index, small cap, and midcap. I don’t mind the downturn as we still have at least a decade before we are FI and I don’t think I will RE.

    • retirebyforty July 28, 2017, 7:02 am

      Since you have 10+ years to invest, that’s a good plan. You can ride it out. Good luck!

  • Joe July 27, 2017, 9:16 pm

    I’d love to reallocate out of US stocks into bonds or cash. Unfortunately or fortunately the majority of my investments are in taxable accounts, with very low cost basis. Selling to reallocate would mean paying long term capital gains tax of nearly 40% (23.5% to federal, 13% to CA state). That’s losing more capital than a major market crash…

    Are taxes a consideration for you?

    • retirebyforty July 28, 2017, 7:05 am

      Taxes aren’t a big deal for us because I mostly rebalance in our retirement accounts. My taxable account has mostly dividend stocks and I rarely sell those. Yes, taxes is a consideration for me.
      I’m not sure what to do in your case. Most advisors probably would say don’t let the tail wag the dog, but I hate paying taxes as well. Maybe sell a bit to rebalance?

  • Al July 27, 2017, 11:04 pm

    Not really. More cautious than nervous. Been keeping our eyes in fundamentals such as the S&P 500 earnings and revenues as an indicator of the market.

    Our approach, since we are in retirement similar to financial Samurai, is to be at a 50%/50% portfolio. Our gains this year has brought us closer to an allocation 60%/40% which we are comfortable since we had the right allocation for us. If and when the market corrects, we would end up in a 50/50 position at worse. We too increased our exposure to International Markets.

    This reminds us that “In time of change, experience is our worse asset”. We are in a transitional time. Economic productivity founded in automation, AI, and technological advances such as quantum computers, etc. will continue to be disruptors and change agents.

    Our year to year Net Worth has increased over 7% with a conservative allocation of 50%/50%. We view a continue bull market with pockets of corrections. Computer investing has taken an impact as corrections up and down now take less than a day or two.

    • retirebyforty July 28, 2017, 7:08 am

      Thank you for your input. Great net worth increase with 50/50 allocation.

  • Rich @ pennyandrich.com July 27, 2017, 11:07 pm

    Hey Joe — my plan is quite simply to invest in assets that are fairly priced. Certain individual stocks may fit that description, but as you said, stocks in general are not fairly priced. I wrote about this, very briefly, here: http://www.pennyandrich.com/stocks-bubble-engineers-retire-early-richs-ramblings/

    My goal is to have a financial plan that is not dependent on stock market returns or the returns of any particular asset class. Assets can and will go down, and I’d be nervous if I *needed* something to perform. It’s personal preference and not advice. If I were giving advice I’d mostly say try to be diversified and give yourself a safety net.

    Nice post! –Rich

    • retirebyforty July 28, 2017, 7:18 am

      It sounds like you went to cash. I can’t do that because I’d be stressed out all the time figuring out when to get back in. Strangely, it’s easier for me to ride stock down and back up later. We can do that because we’re not dependent on withdrawal yet. We could let it ride without selling.

  • Rich @ pennyandrich.com July 28, 2017, 11:00 am

    Thanks for commenting over on my blog. I didn’t go to cash so much as alternative investments. I won’t make you hunt down my response, so pasting it here:

    Re: investing, I agree that it can be difficult to hold large amounts of cash. But I also find it interesting that there’s a perception among investors that one *needs* to participate in stocks. This was not the case a few decades ago, and we don’t say the same about other assets, for example. “I just don’t know when to get back into Coffee futures” is not a common refrain.

    That said, I have a few individual stock picks right now, but I’m not investing in the broad index which I find overpriced by any measure.

    Appreciate your thoughts Joe, and we’ll see how this plays out!

  • Dividend Diplomats July 29, 2017, 6:29 am

    RB40 –

    Very nice article and appreciate sharing your strategy. It’s always nice seeing a different perspective on things and it’s true, one can never predict the stock market direction and the party has gone on for quite some time. Sticking to your strategy is always sound and experiencing the ride with consistency. No prediction here can be made, that’s for sure.

    -Lanny

  • Adam and Jane July 29, 2017, 7:46 pm

    Joe,
    You are doing great!

    We dont have to rebalance since we are 0% stock and 100% municipal bonds.

    Our after tax savings increased over 200K to bal > 500K. Jane received her 234K severance.
    Our 401Ks increased 64.5K so far.

    Adam

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