A couple of weeks back, I wrote the post below, after reading a research note from Credit Suisse Investment Strategist Zoltan Pozsar.
For discussion, I’d be interested in what you thought of the post. Do you agree? Disagree? Has it changed anything with respect to your personal investment strategy? Is there anything further you would like me to chase down as a follow-up?
I'll start the discussion. The following is all based off of a high of 4,818 on the S&P 500 index, achieved on January 4, 2022.
As a recent retiree, my chosen "base" allocation was 50% stocks, 50% everything else (Bonds/TIPS/Gold). On March 8, with the S&P at 4,170, or a decline of roughly 13.75%, I made the decision to raise my stock allocation to 52%, with the difference coming out of bonds. On May 9, with the S&P hovering right around 4,000, roughly a 17% decline, I increased it to 53%. On May 20, based on the S&P dipping below 3,854, into bear territory, during the market session, I upped it to 54%, fortunately adding a little right around that price, mid-session.
I don't remember the exact day, but it was right about that time I read the Pozsar note, leading to my article a few days later, on May 15.
My takeaway is that the next key area I am watching for is right around 3,500-3,600. At 3,600, you have a 25% decline in the S&P.
At about 3,400, we would be back to the levels immediately preceding the COVID-19 panic in late-February, 2020.
Far lower, at roughly 2,400-2,500, we would be at the December, 2018 mini-crash.
Bearing in mind that, as a retiree, I need to remain somewhat cautious with my allocation, I feel like I might be willing to move to 55% stocks at 3,600. Perhaps 56% at 3,400.
The question I am wrestling with now is: Would I be willing to go as high as 60% on my stock allocation? And, if so, at what level? I believe I would be happy to do so if by some crazy chance we got to 2,500. If I split the difference, that would imply a 58% weighting somewhere around the 2,900-3,000 range.
Clearly, if we do get down to that area, I will have experienced some fairly significant pain. My overall portfolio could easily be down 20%+. As I see it, though, the payoff, for me, could be a solid, strong, multi-year run from that point.
I'll start the discussion. The following is all based off of a high of 4,818 on the S&P 500 index, achieved on January 4, 2022.
As a recent retiree, my chosen "base" allocation was 50% stocks, 50% everything else (Bonds/TIPS/Gold). On March 8, with the S&P at 4,170, or a decline of roughly 13.75%, I made the decision to raise my stock allocation to 52%, with the difference coming out of bonds. On May 9, with the S&P hovering right around 4,000, roughly a 17% decline, I increased it to 53%. On May 20, based on the S&P dipping below 3,854, into bear territory, during the market session, I upped it to 54%, fortunately adding a little right around that price, mid-session.
I don't remember the exact day, but it was right about that time I read the Pozsar note, leading to my article a few days later, on May 15.
My takeaway is that the next key area I am watching for is right around 3,500-3,600. At 3,600, you have a 25% decline in the S&P.
At about 3,400, we would be back to the levels immediately preceding the COVID-19 panic in late-February, 2020.
Far lower, at roughly 2,400-2,500, we would be at the December, 2018 mini-crash.
Bearing in mind that, as a retiree, I need to remain somewhat cautious with my allocation, I feel like I might be willing to move to 55% stocks at 3,600. Perhaps 56% at 3,400.
The question I am wrestling with now is: Would I be willing to go as high as 60% on my stock allocation? And, if so, at what level? I believe I would be happy to do so if by some crazy chance we got to 2,500. If I split the difference, that would imply a 58% weighting somewhere around the 2,900-3,000 range.
Clearly, if we do get down to that area, I will have experienced some fairly significant pain. My overall portfolio could easily be down 20%+. As I see it, though, the payoff, for me, could be a solid, strong, multi-year run from that point.