Time to rebalance? Buy low, sell high.

 

When the market is dropping, cash is king. It is our best protection against market drops. In our core portfolio, we maintain our 50/50 personal  personal asset allocation  with 50% being invested in SPY  and 50% being held in a TD US Money Market Fund (TDB166).  TDB166 is the equivalent of cash, but it pays interest, currently at 1.9%.

Here is how things look now. (All charts are from TD WebBroker.) The purple line with the large dots represents our core portfolio, the red dots, the S&P 500 and the blue dashes, the Toronto Stock Exchange index (TSX). Concerning the TSX, well, read it and weep. It has been below the S&P 500 for most of the last decade, at this point.

Last month:

Last three months:

Last twelve months:

Year-to-date. Because 11 months of the year-to-date have passed, the chart looks like the one above showing the last 12 months.

Let us review the habits of highly effective investors.

  1. Having an early, disciplined savings program
  2. Self-directed (do-it-yourself) investing
  3. Buying the entire U.S. market
  4. Buying and holding
  5. Buying low, selling high
  6. Avoiding complexity 

The S&P 500 has entered correction territory. (A drop of 10% percent.) Many investors consider this a good time to re-balance their portfolios to their preferred asset allocation and go to habit 5. and buy low.

Younger and more risk-tolerant investors could consider going to the variable asset allocation method by moving a third of their cash into the broad-based index ETF of their choice. When the market begins to recover, they can rebalance to bring their portfolio into their personally selected asset allocation.

Loss-taking amateurs are exiting the market, as usual during market drops. Successful investors love the bargain which the current market represents.

Dr. Milan Somborac

The Monday Morning Millionaire Program supports do-it-yourself (DIY) investors which I have been for over 50 years. About my team and me

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