I’m trying to see where I shall realign my portfolio’s asset allocation for 2022, both pension-wise as well as the active investments.
I’m invested into Swiss properties, Quality indexes, Fundsmith and a heavy tech/innovation stock allocation. I’m not an the VT type of guy - maybe it’s time to become one?
However:
property prices are in the sky
raw material prices are in the sky
SP500 is in the sky / global equity allocation is in the sky
Nasdaq is closing in on the stratosphere
US federal government spending is not going to be reduced → dollar about to lose even more value (albeit: stocks will go further up by inflation )
inflation is here to stay for 1-2 years → rates will be hiked / tapering might speed up → bad for stocks
crypto… well, needs nerves.
I’ve been looking at a lot of analysis and the majority of it hints now into a final bull run before an already overdue crash/risk-off phase in the equity markets. That run might or might not happen or might be much longer than expected, we don’t know of course.
Sitting tight and waiting does seem to be quite a risk for 2022.
What I thought so far:
activating stop loss orders on all my stock and ETF picks into a “safe” lower margin (which is TBD)
trying to look for a “death cross alert” system (does anyone of you have such handy?)
Opening a “safer” strategy with finpension and pulling my other 3a into it (FP allows for weekly reshuffling if needed). I’m thinking a 40/60 stocks/bonds allocation, not sure yet.
looking at value instead of tech for the future (I’m not convinced)?
keeping cash on the side for a potential larger correction run (that’s the easy bit)
opening a crypto wallet finally, just to have one (where?)
Anything else? What are your thoughts for 2022?
Will you realign your portfolios?
Will you move away from 99% equity in your pension plans? If not, will you change allocation style?
Will the more tech oriented among you move slightly back towards a VT style?
Will you rebalance allocations between equity, bonds, property or commodities?
Will you tighten your trailing stop loss on your stock picks?
I probably won’t touch anything significantly in mine.
This part (or more precise small cap value) would mostly make sense “after the crash”, i.e. in the recovery period; not now as you are anticipating the fall.
premise is that tech stocks will be burned much deeper than their value, so my natural instincts are to get back into tech soon after the knife is done falling as good companies will rebound much quicker (like they did during covid last year).
why would you want to go value instead after the crash?
My strategy is to not look at the stock market and keep dca’ing every month into 70% MSCI World and 30% MSCI Emerging Markets like the last years and all the years to come
I’m following a fixed AA strategy, and I’m in accumulation phase.
Currently at 60/20/20 stocks/pensions/cash roughly, my monthly rules tell me to:
buy ETFs if below 58%, filling up to 58%, or
sell ETFs if above 65%, drawing down to 62%.
Twice a year check if cash grows too large (above 20%, but I’ll probably trim it further as absolute value of my portfolio grows). Then buy some 2nd pillar (did that recently, hence nice 60/20/20 at the moment).
My ETF portfolio is global and small/value tilted, and I have no plans to change that.
Edit: This 58-65 do nothing range feels narrow, but it is in fact quite robust to stock fluctuations. For my AA to move from 60% stocks to 65%, stocks would have to rally 24%:
60 * 1.24 / (60 * 1.24 + 20 + 20) ~= 65% And then there is additional monthly pressure from savings and 2nd pillar contributions that’s driving stocks percentage down. So I’m still mostly buying all the time.
Sure thing that tech stocks will grow strong from the “bottom”.
But I guess what matters here is what could grow stronger.
I overheard it in some podcasts, can’t recall the source right now.
I guess the premise there is that smaller companies are more nimble/agile/flexible than the giants, and can pivot and adapt quicker, and even grow larger through the adversity and change.
Likewise they are more volatile in general so might drop more extremely (which could vouch additionally for not getting them “before the fall” )
Larger companies are on the other hand likely more resilient, and less likely to disappear.
Now to the data “evidence” point (turned out to support it this time):
Of course it depends what you pick and choose to compare against.
But taking a few relevant ETFs/indices from March 2020 to today:
VGT (IT): ~120%
VUG (Growth): 108%
QQQ: 112%
AVUV (SCV): ~157%
And the gap between the value and growth slices is nevertheless still nearly largest ever (so potentially even more opportunity going forward).
But that takes things further off topic now.
My “normal” plan is to invest into VT as much as possible on a monthly basis but since 2 months I have diverted to this plan mainly due to saving for a down payment. Since then instead of VT I invest in BND as I can sleep better due to the lower volatility of bonds.
For 2022 I will continue to invest into BND monthly until the down payment happens. Then I’ll revert back to VT I suppose and maybe try to simplify my portfolio. Note that I also have Fundsmith and some active ETFs from Avantis (AVDV,AVUV,AVEM). I will get rid of AVEM as soon as I am not in the red numbers anymore… And finally I mine some crypto for fun and will continue to do so with ETH as long as it is profitable.
On the 3a side I will probably open a second portfolio with Finpension and invest into the quality fund people have mentioned in this thread. I like quality as I had good experience with Fundsmith T fund which can also been seen as a “quality” ETF, although quite expensive for a mustachian.
I.e. USD without hedging? Assuming your down payment is in CHF, the effective volatility / short-term risk may not be that low, especially if you consider both exchange rate fluctuations and expected interest rate increases.
I am aware unfortunately yes, so I am taking this FX risk because it is for short-term and I don’t expect USD/CHF to move much. Down-payment would be for soon and yes as you mention in CHF. On the positive side BND has the bonus of having a monthly dividend payout. If you have any better suggestions I am always open to hear another opinion but I really did not want to keep this money in cash.
This is the key, we might be in 1998, with 2022 still an awesome year ahead of us, or 1999, with a crash just around the corner. Or no crash could happen at all. That being said, a crash could occur at any time for any reason, and bull runs could keep going up against all odds longer than we can stay solvent/sane.
A winning strategy, for those who have the time to wait it out, is to ride the wave down, keep buying at lower prices (or rebalancing for those already retired) and all the way back up. Crashes are the best times to buy stocks.
As for me, I’ll be following my IPS in 2022, which, at the early stages of accumulating, for me, means agressively investing in stocks with a momentum strategy to protect my downside (at the potential sacrifice of my upside), this should lead me from a 20% overall allocation to stocks to closer to 40% (target is around 70%). I may buy a home for non-financial reasons if an opportunity arises but am not set on it and can wait if my funds shrink.
Assets in my pension plans are part of my global allocation, the 97% stocks there are part of the 20% stocks overall (so a pretty conservative allocation at this point). I can keep it that way (though they are too on a momentum strategy at this point in time).
Keep my actual 3A allocation (approx. 100% stocks) and make my annual payment early next year.
Invest quarterly into VT.
Some secured cash put on stocks (between quarterly investment) I’m interested in buying following a dip.
Fun money with crypto and one or 2 structured products. Same with the structured products, I’m only investing if I like the underlyings (if exercised).
Properties and stocks were overpriced already back 5 years ago when I started. Back then I was strongly convinced that we will hit crash “soon”. Fortunately, I took a long-term view and convinced myself to invest nevertheless. The result - VT is 76% up since then. I won’t change my strategy, even if we’re living in the mother of all bubbles, because my investment horizon is at least until my retirement or even my lifetime.
Stocks, physical property, 2 Pillar and short fiat currency (mortgage plus some margin loan at IB).
Regards stocks I am heavily Fundsmith and similar Quality funds (defined as high Return on Capital). As I am investing for the long term they should produce good returns even if I pay high P/E now.
Charlie Munger:
“Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns six percent on capital over forty years and you hold it for that forty years, you’re not going to make much different than a six percent return – even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you’ll end up with one hell of a result.”
Have you been trading through the last crisis when Google, an otherwise brilliant growth stock, fell from $360 to $130? Even VT has fallen 50%. MSFT has fallen 66% in 2000, only to recover to zero only 16 years later. The SP500 took a 6-years dip in 2007.
It’s reassuring to read that everyone is having diamond hands.
But have you been going through such a bear market before? Can you stomach a -50% hit to your lifetime savings, not returning to zero levels for 4-10 years afterwards)?
Sure they were. But also don’t forget your recency bias (or better put: study what you haven’t lived through yet) - trees don’t grow forever (except TSLA ).
Crashes are coming nevertheless. They might not come in 2022 (although some signs point to about mid-to-late-next-year) and I’m a happy camper on the train with a lot of equity stake as well.
What I’m trying to get to is that it WILL crash and it will(?) crash hard. And whoever is left on the train will be bagholding and DCA’ing for quite a while to reach back to previous levels.
I’d like to be prepared if it does start falling with a plan and not watch half of my life savings go down the drain.
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