Fed reporting of :
1.)End Bond Buying By March-2022
2.)4 rate hikes this year, and few more may come next year
3.)Reduce balance holdings, by selling off in open market
https://www.cnbc.com/2022/01/26/real-time-updates-of-the-big…
Thoughts on with all this said, how are you managing your portfolio to cover the downside risk?
foolprash wrote: Fed reporting of :
1.)End Bond Buying By March-2022
2.)4 rate hikes this year, and few more may come next year
3.)Reduce balance holdings, by selling off in open market
https://www.cnbc.com/2022/01/26/real-time-updates-of-the-big…
Neither Powell nor the Fed said anything so specific about number of rate hikes. Powell specifically stayed far away from saying anything specific about how many rate hikes there might be, and only indicated a likelihood that the first hike would be in March, if the conditions were still appropriate.
They did indicate that net bond buying will likely end by March, but said reductions in the balance sheet would mainly come from ceasing buying and not reinvesting as bonds paid out, not by selling in the open market as foolprash wrote.
Here’s the actual Fed release. Powell gave more color in his press conference, but didn’t give any more specifics: https://www.federalreserve.gov/newsevents/pressreleases/mone…
At the end of 2021 I was 3/4ths the way to my acceptable retirement balance, at only 55. I’m now down 15% YTD, or only 63% of the way to my acceptable retirement balance. Even that said, 5% a year CAGR gets me to my acceptable balance. Even my preferred balance only requires 9% CAGR over ten years.
This, coupled with market changes, has made me really re-assess my risk tolerance. I’m now no longer concerned with beating the market, but focused on my end-goal.
I’ve been selling off risk but still in stocks and no bonds. Its the stocks that have changed. Largest two holdings are VTV and VOO, plus about 15% cash right now. Riskiest stock holding is PYPL. I’ve started looking into TMFE as well but have not bought. Gone are ZS, OKTA, NVDA, CRWD, etc. etc. etc. And I’m about 10% in REITs (VNQ, PSR).
The past 6 years have been a ton of work on the portfolio and I was rewarded with a 33% CAGR over that time, close to double the VOO. And I needed that kind of performance to recover from earlier investing mistakes. Now that I’ve gone from “I won’t retire” to “I will absolutely retire” I’m changing how I invest. I think I was extremely lucky in the timing of all this.
<how are you managing your portfolio to cover the downside risk? >
The most immediate downside risk is the NAV (Net Asset Value) of bond funds. To avoid the downside risk, I do not buy bond funds in a rising interest rate environment. Instead, I buy I-Series Savings Bonds (whose principal never drops), bank certificates of deposit and bonds that I intend to hold to maturity.
It is likely that tech stocks, especially ones with no earnings or dividends, will drop since these are highly dependent on borrowing which will become more expensive. To avoid the downside risk, I do not buy such stocks. Instead, I buy stocks of companies with low P/E, high dividends and low beta. These will never grow quickly because they are investments, not speculation.
But if the stock market bubble bursts, it’s likely that all stocks will drop as speculators who have borrowed on margin will be forced to sell good stocks to pay for the margin calls on the bad stocks. This represents a buying opportunity for good companies.
Wendy
@BenSolar - Thanks for correcting me about the hike, and reduction part
@Wendy : You mentioned:
To avoid the downside risk, I do not buy such stocks. Instead, I buy stocks of companies with low P/E, high dividends and low beta.
Which stocks fall under these category, do you use any search criteria to filter on such stocks, to dig further if they are good candidates
Fidelity Investments has a search function in their research area.
Wendy