I just bought a few shares in an etf that I think is overpriced in a market full of overpriced stocks. I have my reasons. 1. It is a monthly purchase consistent with monthly purchases that I have been making with the proceeds from my monthly Social Security receipts. In other words, I decided two years ago to start taking my SS at FRA (66 years, 2 months)and to invest the after tax balance in the etf even if the price seemed steep to me. I did this because we could live without this money even if the market suffered a severe and sustained crash. Second , historically, even when I correctly guessed that a market was severely overvalued (12/22), I failed to figure out how and when to profitably re-enter the market. Over the previous 40 years our best performing accounts were the ones we dollar cost averaged money into. But I donāt like dollar cost averaging in a frothy market because I continue to believe that I can properly value stocks despite overwhelming evidence to the contrary. Every time I played golf I expected to break par even though I never managed it even once over the course of 40 years.
I split the process up two and a half ways.
On one hand, I auto-invest every month into an index fund inside my 401k.
On the other hand, my IRA is largely invested in hand-selected divided-growth oriented stocks where I let the dividends and new contributions pile up as cash until I find a compelling potential investment.
On the half-hand, I have an account that started as a āhigh risk/test and learnā account that focused on options. That account far exceeded expectations during good markets and became an unmanageable volatile mess during rough markets. Because of the successes during good markets, I didnāt want to abandon the strategy, but I needed a way to tamp down the volatility to keep it sustainable.
As a result, I built my bond ladder in that account, using the above-and-beyond gains from strong markets to fund and extend the bond ladder, and letting the bond ladder naturally generate cash from interest and maturing bonds in weaker stock markets.
Because of that pairing and that management principle, I tend to buy more bonds during periods of strong stock market performance and look for more opportunities to invest via options when stocks are struggling. I donāt look to time the market, but that process does tend to drive a bit of natural rebalancing.
More importantly, the pairing of the bond ladder and the options investing has significantly tamped down on volatility within the account. That makes it much more feasible to make reasonable decisions when the market moves against me. Iāve been more able to do things like wait out volatility or roll down and out instead of being forced to close positions due to temporary market moves. Yeah, the potential upside is more limited, but with the downside more manageable, I am more likely to be able to stay invested long enough to see that upsideā¦
Regards,
-Chuck
Your plan may be a good one. I am 68 years old and proved over the course of 40 years that investing automatically into index funds and low cost ETFs produced better long term results than all of my stock picking strategies. I just never got that good at it. Somehow a lifetime of working, saving and investing with returns that were at best average, and perhaps below average, we still wound up with āenoughā. I think.
There is a lesson in there somewhere.
Remember the Kurt Vonnegut/ Joseph Heller story?
And that, my friend, is what matters most.
Iām pretty sure my plan is not optimal, but:
- It has worked well enough so far
- It helps keep me from panic selling when the market moves against me
- It has helped me deal with both inflation and job insecurity
So in my mind, it seems to check the key box of āgood enoughā. There are still things I need to adjust, largely from a āstage of lifeā perspective, but absent a calamity, those are generally things I can do as time and taxes allow.
Regards,
-Chuck