What I’m Doing With My Portfolio During the COVID-19 Pandemic

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What better to write about than this? Here is what I’m doing during the COVID-19 pandemic and its associated market volatility.

Sticking to My Investment Plan

Whether you are a do-it-yourself investor or use a financial advisor, everyone needs an investment plan. Otherwise you are just playing G&G, guessing and gambling.

The simple version of my investment plan was to invest aggressively, which meant 100% stocks, until I hit “my number.” That happened about 4 years ago, at which point I downshifted from an aggressive allocation to a more moderate one. Currently that is a 75/25 stock/bond asset allocation. I don’t invest in real estate (other than owning my house outright) and I don’t include the value of my pension or the equity in my house in my overall asset allocation.

At its most basic, this means that what I’m doing during the COVID-19 pandemic is sticking to my desired asset allocation of 75/25 stocks/bonds.

Rebalancing When My Asset Allocation is Off By > 5%

With all of this market volatility, similar to what happened in 2008-9, I see stock market declines as an opportunity to purchase more stocks when they are on sale. The market will eventually recover. It always has. And if it doesn’t, we have bigger problems and my portfolio probably won’t be the biggest thing I’m worried about.

When do I buy? I’m not a market timer. I just follow my plan, which says that I rebalance whenever my current asset allocation has deviated from my desired asset allocation by more than 5%. For example, a few days ago the declines in the stock market had moved me from 75/25 stock/bond to 68/32 stock/bond. I was > 5% off, so it was time to rebalance INTO the decline. This 5 minute video from Vanguard talks about rebalancing into a stock market decline, if you are interested in watching it. Was my timing perfect? Probably not, but that probably doesn’t matter very much in the long run.

How did I buy? I exchanged 7% of my bonds for 7% of stocks on the TSP and Vanguard websites. I did this all within my TSP and Vanguard IRAs so that none of the transactions would have any tax costs associated with them. You should always try to rebalance within retirement accounts unless you have taxable losses you can harvest. That said, I don’t tax loss harvest because now that I’ve hit my retirement number I just don’t care that much. I choose life over tax loss harvesting.

That’s It!

It is as simple as that. I stick to my plan and rebalance when I’m off by 5%. That’s what you should do. Stick to your plan.

If you don’t have a plan, you better get one. Here’s my stuff that might help or go to the White Coat Investor. He also offers a course to help you do it and recommended advisors if you want help. He also re-posted this article entitled, “How To Survive the Coming Bear Market.” Read it if you think my advice to rebalance into the decline is crazy.

 

2 thoughts on “What I’m Doing With My Portfolio During the COVID-19 Pandemic

    murse1988 said:
    March 22, 2020 at 07:38

    Doc,

    Can you discuss rebalancing, I’ve heard this before from other people. If I set my allocation in TSP to 75% C and 25% I, why wouldn’t it always remain at 75/25? I don’t understand how the numbers shift. Would it be possible to explain how the numbers shift?

    Sent from my iPhone

    >

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      Joel Schofer, MD, MBA, CPE responded:
      March 22, 2020 at 08:12

      On the TSP site you set a contribution allocation. In other words, every month when you contribute it will buy 75% C fund and 25% I fund. For example, let’s say you just started and your first contribution to the TSP was $1K. You’d get $750 of C fund and $250 of I fund.

      Now, let’s pretend that 1 week later the C fund is down 50% but the I fund stayed the same. You’d have $375 of the C fund and $250 of the I fund. The only way to get back to your contribution allocation is to request an “interfund transfer” on the TSP website where you can rebalance the money in your TSP fund. You’d be selling some of the I fund to buy some of the C fund. In other words, rebalancing forces you to sell high (I fund) and buy low (C fund), which is what you want to do. Human nature and fear wants you to do the opposite, sell low (C fund) because it is dropping.

      Make sense?

      There is no way to automatically rebalance in the TSP except to use a Lifecycle fund, which does this automatically for you. Otherwise, like me, you have to monitor it yourself or with a tool like Personal Capital or Mint. Personally, I use an Excel spreadsheet and update it monthly at a minimum so I know where I stand. During times like this where the stock market is dropping, I’ll update it more frequently.

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