How I’m Investing the Crisis: Part II

It’s now been two months since I posted about how I’m investing during the pandemic. If you didn’t read it, I would check that out first.

How I’m Investing the Crisis: Part I

If you’re too lazy to click that link, I’ll briefly summarize here:

I made a few ‘non-predictions’ about what I think is happening, economically-speaking, in the world, and my thoughts on how it may play out.

I first said that I expected economic conditions to deteriorate in the coming weeks and months. That has certainly happened, as more than 40 million Americans have lost their jobs, and more than 100,000 have died.

Based on a worsening economic landscape, I predicted that we would test new lows in the stock market.

Well, I’ve been completely wrong there. I can blame it on the Fed, the prospect of a vaccine, or the fact that the stock market is horrendously disjointed from the real world right now. It doesn’t really matter what the reasons are, only how we react.

Can I say for sure that we won’t still go lower? No. And honestly, no one knows what’s next. So I’ll just leave it there.

Investing Plan

As mentioned in Part I, I went into the crisis with an 85%/15% allocation of stocks and bonds, mostly distributed between SCHB and SCHZ (Schwab total stock market and aggregate bond index). Here is how I outlined my plan in that post:

  1. Methodically re-allocate bond fund ETF (SCHZ) into total stock market ETF (SCHB).
  2. Rebalance at specified points in the market decline, layering into equities in equal tranches.
  3. Supplement with additional cash investments as declines increase.

Here is where we were in April:

S&P Target (drop)Investment
2,709 (-20%)20% rebalance
Executed – March 11th
2,370 (-30%)20% rebalanceExecuted – March 18th
2,201 (-35%)20% rebalanceExecuted – March 23rd
2,032 (-40%)20% rebalance + cashPending
1,693 (-50%)20% rebalance + cashPending
Table: my rebalancing and cash deployment plan

Funny enough, that rebalance on March 23rd was at the exact market bottom. Nailed it! Unfortunately, I still planned to convert more bonds to stocks, and invest more cash that was on the sidelines, which didn’t happen.

In fact, the market has mostly recovered, and at the time of this writing we’re within spitting distance of the February highs.

Recent Trades

The following S&P 500 chart shows where I sold SCHZ (bonds) to buy SCHB (stocks) on the way down, and where I rebalanced back into bonds on the way up.

Strategic rebalancing chart, courtesy of Yahoo Finance

At the March 23rd bottom, I had converted roughly 2/3 of my bond allocation into equities. As of June 9th, I’m back to my full 15% bond position.

Looking at the current economic (and political) landscape, I still don’t think we’re in the clear. A staggering amount of Americans have lost their jobs, and job losses may continue to increase, depending on which economic data you believe. As we reopen the country, numerous spikes in coronavirus cases indicate the possibility of a second wave. There is mass political unrest sparked by George Floyd’s murder, which has no doubt been exacerbated by the economic backdrop.

So what is my next move? Sit and wait. If the market somehow continues to climb, I would consider increasing my bond allocation from 15% to 20%. I’ll take the relative safety of fixed income during these tumultuous times.

Updates from the Personal Finance Realm

The idea of having a rebalancing plan, and executing it during volatile times is not novel. In fact, a number of prominent Personal Finance bloggers have echoed the same approach.

JL Collins mentioned that he rebalanced from VBLTX to VTSAX as the market began to drop in March.

Fritz from the Retirement Manifesto advocates a 5% rebalancing strategy, which is quite similar to what I have been trying to do.

Brandon, aka the Mad Fientist, recently published a post where he explained his system of making buying and/or rebalancing decisions without letting his emotions get involved.

Fritz and Brandon have both advocated automating the purchase decision in one way or another. This can be achieved by putting in buy and sell limits through your brokerage, or by targeting certain levels on the S+P (my approach). I’ve always been a fan of automating investments, because our irrational brains tend to do the opposite of what’s best in almost every situation.

If anything significant happens, I will update with a Part III of my pandemic investing strategy. I think the combination of civil unrest, continued spread of the virus, and an upcoming election cycle will ensure some more volatility as the year progresses. Stay tuned.

What have you been doing with your portfolio? Did you panic sell in March? Did you buy any depressed stocks on the panic? Let me know in the comments.

4 thoughts on “How I’m Investing the Crisis: Part II”

  1. i did about the same as you with some index funds in my 401k. i had a lot of cash equivalent in there as a stable value fund and bought 10k worth of small caps on march 16. that buy has risen 40% from where i bought it and i just put in the rebalancing sell order today. so thanks for the reminder. i’ve been selling small amounts of individual stocks into all this strength and it’s been hard to keep up to my targeted 15% cash allocation with stocks going up every day. that’s a good problem to have. well done on staying calm and making the right moves you have trained for.

    • I’ve been reflecting on my ~15 year investing career. I still make ‘mistakes’ all the time, but I’m definitely a lot better than I was years ago. I think you really need to live through these crises and screw up a few times before you get your shit together.

  2. We’re focusing on our business income and not on spending or investing. I think the market is completely devoid of fundamentals b/c of all the Fed activity, so I don’t want to apply reasonable thinking to what is an unreasonable market. We’re staying invested with what we want our paper asset allocation to be, but any excess income is going into cash reserves. We’re majority real estate, and while our tenants are paying on time, the economy has a long way to recover and we can’t assume there won’t be hiccups down the road. So we’re prioritizing cash and generating even more cash flow!

    • Sounds like a great strategy for someone with diversified assets. I’ve felt pretty relieved to no longer have an investment property (besides renting out our basement apartment). I know for sure that my previous tenants would have stopped paying me in March, because they had trouble paying me during good times. Good luck with your places!


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