I initially wrote this post in mid-February 2022 and the stock market was not looking so good. Currently, stock market sentiment is still not great. This is why I adjusted my investment Strategy during uncertain Times
With this market correction and fears of world war III, I figured that I would share my investment strategy for uncertain times and how it is differs from when there is more optimism in the markets.
Early 2022 Market Sentiment and Signs
As of Mid-February 2022, the S&P 500 has lost almost 8% since the beginning of the year. Bitcoin plunged more than 40%, the inverted yield curve is flattening, inflation is going through the roof, to make matters worse, our wages aren’t keeping up with any of it, and Russia trying to start World War III doesn’t help.
Also, If you’re able to donate to Ukraine, here are some places you can start: https://www.forbes.com/advisor/personal-finance/donate-relief-to-ukraine/
With all the fear, uncertainty, and doubt, it is wise to re-evaluate your financial plans and revisit your investment policy strategy. I linked my investment policy strategy here which has prepared us retire before 40 years old.
My Investment Allocation In Uncertain Times
My investment allocation stays relatively the same as far as taking the majority of my discretionary income and invested heavily in low cost broad based index funds that track either the total stock market or the S&P 500. I will maintain my cryptocurrency target allocation at 10%, which I increased from 5% last year. Of the 10% allocated to cryptocurrency, 20% will go toward earning 8-10% APY by holding stable coins which are digital currencies pegged to the U.S. Dollar, such as USDc.
A change I will be making to my allocation is to rebalance my individual stock holdings as it has grown beyond my initial 15% allocation.
I will also be diversifying into Bonds.
Reallocating to Bonds
I do not yet hold any bonds, but I plan on purchasing $10,000 of I-Bonds this year to protect the cash against the high inflationary environment.
We also want to diversify into series I-bonds which are government treasury bonds currently guaranteeing 7.12% return on an annual max contribution of $10,000 per person. That guarantee is for 6 months and the rates may change every 6 months, but will likely be high as long as inflation remains high since an I-bond’s purpose is to protect your cash from inflation.
With inflation being so high, I feel like it’s a great way to diversity income that you won’t be spending within the next year as are some rules surrounding withdrawals that I will link below. I plan on making a video on this when we open the treasury direct account as it is not as straightforward and intuitive as opening a robinhood account.
By the way, If you are looking to begin investing, here are links to those I use most often:
- M1Finance: – Get $50
- Robinhood: – Get free stocks
- Webull: – Get free stocks
- Celsius: – Get $50
- Coinbase: – Get $10
My Contribution Strategy In Uncertain Times
I usually frontload all of my tax advantaged accounts starting with my 401k from my full-time job. Meaning in the beginning of the year, I take home as little money as possible. Any given week, I have paychecks coming in between $0 and $200 while living off my emergency fund.
I used to allocate 100%, but my employer probably didn’t like that I didn’t have enough money left in my paycheck to pay for my other benefits like healthcare and disability insurance, so they limited it to 80%.
The reason I front load my 401k is because statistically, markets have more good days than they have bad days. By investing your money is sooner will often leave you with more money later. And what better place to put it than retirement accounts which have tax advantages?
We can talk about the sequence 401k, IRAs, and HSA contribution, but it doesn’t matter if they are all fully funded by year’s end.
With signals pointing towards slow economic growth, I will be switching to a dollar cost averaging strategy for all my accounts. This means that I will split up my contributions to invest gradually throughout the year. Whether the markets go up or down, She will be consistently contributing throughout the year catching all the lows and the highs.
Other Reasons For Strategical Investment Changes
There are a few other reasons why I switched from front loading to dollar cost averaging.
I want to beef up my cash holdings from 1-3 months to 6-12 months. My wife and I spend about $30-$40K per year ($30k in 2020). I used to think holding excess cash was a waste, but it can help you save more in other areas. For example, we raised our home insurance deductible and saved 20% annually.
A bigger emergency fund will also allow us to reinvest in recent business ventures or take advantage of other investments. Ultimately, it will allow us to take more time off as we now have a newborn to take care of.
Even if you don’t have life changing events coming up, saving more cash during uncertain times will only add to your financial security and flexibility.
If you have any questions, leave them in the comment section below.