TL/DR: Look at your asset allocation and rebalance if needed. Otherwise go for a nice run.
Yesterday was pretty ugly. My retirement holdings, dominated by AOA and XGRO took a huge hit this week. And today will likely bring more of the same. Before Friday’s open, AOA is down 3.31% for the week, and XGRO is down 3.64% for the week. No doubt about it, I’m quite a bit poorer than I was on Monday1. What actions am I taking?
As always, I keep an eye on my asset allocations
In market downturns, some asset classes (e.g. Canadian equity, Bonds, International Equity) will suffer more than others, typically. This allows for effective asset rebalancing, possibly. (If you want to better understand how I think about asset allocation, this article might shed a bit of light on that.)
If the asset class allocation drifts too far from my targets, then that’s an indication to make a move out of one class and into another. A 1% drift off my target is usually enough for me to make a move. That hasn’t happened in my portfolio as of this morning, but I notice that the percentage of US equity is quite a bit down from the last time I looked.
As an aside, I track my asset allocations using my own Google Sheets tool, which you can find here.
If you do place trades in markets like this, do it wisely
If prices are swinging wildly, it might make sense to wait for a quieter day. But if not, then do use limit orders so you’re getting a price for the asset you can live with, either on the buy side or the sell side2.
Oh, and if you trade in ETFs (as I do), the start and end of the day are not good times to do that. Read more about why here.
In retirement, use a withdrawal scheme that helps you weather storms
I use “Variable Percentage Withdrawal” (VPW), a scheme that is designed to make sure you only spend what you can afford based on your age, your net worth, and your current (or future) pensions. And it comes with a built-in shock absorber so that even though the market looks like a roller coaster, the payout of VPW is considerably less wild. You can read about VPW over here.
Don’t do anything silly
I read all the time about people “moving to cash” at times like this. This will lock in your losses, and cause you to miss the inevitable gains that will return. Gains have a habit of showing up very quickly, and trying to “time the bottom” is not a winning strategy.
Case in point: per https://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_S%26P_500_Index two of the worst days on the S&P 500 in recent history (March 12, 2020 and March 16, 2020) were followed by two of the best days (March 13, 2020 and March 24, 2020).
If all else fails
Step away from the news feed. Go for a nice long walk/run/bike.
- I was also going to write something about the USD/CAD exchange rate, which yesterday was really NOT in my favour, but it already appears to be recovering. A lot of my retirement holdings are in USD, so if the CAD gets stronger, those holdings are negatively impacted. ↩︎
- During the COVID meltdown of the markets (remember March, 2020?), my online broker started posting warnings on their trade screens to use limit orders. Guess they had too many angry traders. ↩︎
The Money Engineer 