This is a special update for those who are looking for guidance as to when to add to investment accounts. Details to follow.
Calling All Cars!
We send this notice to our clients and interested parties when we see an opportunity to add to investment accounts when the markets are trading at a discount or have reached a notable oversold extreme. The strategy in play here is most appropriately applied to accounts where investments are held passively (aka Constant Exposure) with a long-term time horizon. These accounts might be taxable accounts held by high-income households where trading might generate unwanted short term capital gains. Other accounts might not allow much trading, like 401k plans, active retirement accounts, 529 education saving accounts, or Health Saving Accounts. As we mentioned in our last update, the best strategy for any and all passive accounts is to stay diversified and simply to look for lower risk entry points or discounts in the markets and use these opportunities to add to your investment portfolio. This is not a buy the dip strategy, it is a buy the deep discount, oversold condition strategy. Now on to the specifics.
How and when to add to your passive portfolio
Let me be clear that BOTH stock and bond markets are in deep corrections and selling pressure remains present in both asset classes. We are faced with a rare environment, due to very high inflation, when stocks and bonds have both sold off substantially in unison. Therefore, investors have the opportunity to add to stock or bond allocations, preferrably at once.
This is a time to identify cash or available funds, put them into your investment accounts and begin adding to your passive investments. There is not a single day or a time to do so but rather a zone and we are in that zone! It is our expectation that the stock market will remain under pressure and choppy until midterm elections in November. All things considered, there is certainly an above average risk that the entire global equity markets will be lower in the months to come. If you are more on the conservative side, there should be other opportunities to add to passive accounts throughout the summer and into the fall of this year. However, today we know two things. 1. There is growing evidence that stock and bond prices are trying to find a solid level of support at this level. And 2. A discount is a discount. This is our first zone in the year 2022 when we can logically add to our accounts based on a market that is now trading at a discount (12-20% off the highs for both bonds and stocks).
I will also offer my personal strategy for adding to my own investment accounts now. I plan to add approximately 1/3 of my intended annual investment additions within the next week. I will be adding to my kids 529 plans in the next week, and I will be adding to my constant exposure taxable accounts in the next 72 hours with SOME available cash. Finally, I plan to allocate any new money across all assets held in these investment accounts in order to maintain a desired diversified mix of securities. For our clients, you can simply add to any accounts, and we will be responsible for the timing of all investment additions. I also assume that there will be other opportunities to continue adding to accounts as we move closer to the end of the year so be on the lookout for future Calling All Cars!
As Will Brennan, our capable CFP, likes to say, “control the things you can control”. Adding money tactically to your investments when they are down and discounted is highly beneficial to your wealth accumulation and the compounding of your returns. Don’t let a good crisis go to waste!
Thanks for reading.
Sam Jones
