I think a sensible strategy is to diversify. I have my assets and retirement split between the market(mix of VTI/VXUS/VOO for no apparent reason), cash, and commodities(VCMDX). I may buy back into gold if it dips down to around $1,500 (where I think it should be for no good reason). I have half of my potential wealth tied up in unvested RSUs of a large S&P500 corp so I feel fairly exposed to the market as it is. I plan to periodically rebalance as things grow and shrink over time.
If you want to get rich, I'd explore ways to start a business using the cheap credit available now. If I wasn't a software dev, I'd be looking into doing that for real estate and service businesses(small, specialized restaurants) in underserved areas where CA folks have decamped to during the pandemic. I still think(for no real reason) that the most profitable use of money(and even better, debt) is to run businesses.
If the market implodes well you still have a house and (hopefully) a job to pay the mortgage.
Problem with this strategy is that while there's been incredible asset inflation in equities, there's also been incredible asset inflation in real estate too (especially in Canada).
- Keep most of IRA in super-broad funds like VTI.
- For personal brokerage accounts, understand that the risk profile now is more like a portfolio of in the money call options than it is equities. With much higher volatility, you can keep a portion of your account in cash, and that is the dry powder you can use when the market takes a dive.
I used this strategy before Covid, had money to buy stocks last march, and it's worked beautifully. I moved some positions back into cash over the summer. Portfolio up over 100% in 2020, even with the cash.
"Everyone has a plan until they get punched in the mouth."
It's great your strategy has worked for you, but we've been in a market that has done nothing but climb for over 10 years, and the last couple of years have been absolutely insane. "Buy buy buy" won't work forever.
I'm sorry I don't want to sound rude but those 100% don't sound that impressive to me right now.
Of course we don’t know anything. We could be at the beginning of a record breaking bull market brought on my technological advances. Or we could be in a bubble that doesn’t burst but just goes sideways for a decade.
But if you thought there was a good chance of a pop, but not 100%, you could diversify some of your holdings. Put some % into puts, some into cash, etc.
Realistically there’s trillions of dollars tied up by the 1% in the market and I’m sure they’ll do everything in their power to keep it from crashing down.
I would say hold the course, if you have enough extra money and you don’t know what to do with it, ask a financial advisor what they think you should do.
https://www.theguardian.com/commentisfree/2014/sep/02/limits...
Our technologies have made extraction of resources more efficient but hasn't really fixed the limit of resources.
The peak oil discussion is especially anti-prescient, because innovations since this article was written have made both oil and renewable energy much more available. It's generally acknowledged nowadays that demand for oil will peak long before the supply starts to run out.
I'd say get into active investing, not passive index funds. Active investing could mean angel investing, or it could be public equity investing, but what it means is put your money into things you want to learn and help grow. That way, you greatly protect your downside. If your investment goes to zero, at least you learned stuff you are interested in along the way, made friends in the industries you like (could lead to job opps down the road), and helped nudge the world in a direction you want it to go. You'll probably make plenty of mistakes in the first 10 years, but by the second decade you'll be better at it and then if your second decade performance is good you can beat the passive markets and get all those benefits at the same time.
It's a real shame the USA has made it hard for individuals to invest in stuff they know.
Lose everything but make a friend and some knowledge is a win for you but not your average developer.
Staying with index funds. They give the safest upside with the safest downside.
Fall. Get back up. Fall. Get back up. That is life.
So, with that caveat, I don’t think it’s different this time. I think there’s a deflationary bust near term. Probably inflation hits hard afterwards. When the market gives off the kinds of signals it’s currently giving off, I think it’s reasonable to cash up.
One fundamental truth is that tangible, material assets will always outlast virtual assets. In an extreme financial crisis, owning a house is better than owning cash, for example. If you follow this reasoning to its logical conclusion, buying is better than investing (in the financial sense of the word). Or, if you prefer: invest in material assets that are of real use. Optimize these purchases to reduce your tax burden. Put yourself in a position to "hold out".
How far along this reasoning you go depends on your threat model.
On the other end of the risk scale I buy a couple Powerball tickets each time it goes over 500M$
Buying cheap OTM calls every once in a while would probably have a higher chance of profit.
Over long time scales, it really doesn't matter if the market is just about to crash. Time in the market will always beat timing the market, given that no one can know market tops and bottoms.
That being said, if you have a short term savings goal, are just about to retire, or simply dont sleep well worrying about losses - cash isnt the worst way to allocate some of your assets. Its not for me, but to each their own.
you can always diversify with real estate, gov bonds, IAU/GLD, the last one probably mot reasonable and liquid to compensate for stock crash
Does that mean stay away from tech?
1. Tesla (~9%) 2. Roku (~7%) 3. Teladoc Health Inc (~5%) 4. Square (~5%) 5. Zillow (~3%) 6. etc