Calling All Cars - Recommendation to partially allocate new money (cash)
It feels like it’s been a long time since we’ve had any chance or reason to recommend adding new money to investments. But there is now sufficient evidence to do so with a portion (not all) of your planned annual investment savings.
Calling All Cars is a notice to our clients and regular readers with instructions regarding when to add new money to more passive oriented investment accounts. These are things like 401k plans, 529 education accounts or even an investment strategy that is committed to passive indexing. In these situations, when trading away market risk is either not possible or not part of your plan, we have one simple task. That task is to add money when the markets are down, selling at a reasonable discount and presenting technical evidence that a bottom is developing. This is such a time. The S&P 500 and most global equities are down a clean 10% from the highs set on January 26th and today we saw a full attempt to smash through the February lows by 2%, only to see buyers step up smartly (again). As I said in my update yesterday, we have “Entered the buy zone” and now we have even more evidence for price support at these levels.
With that said, let’s not go crazy. This is not a situation where anything is really attractively valued on a longer term basis and I fully expect to see lower prices for the market in the second half of 2018 and into 2019. But from this price level, the markets could easily move back to the top of the range and partially out to all time new highs. Therefore, we need to look at this as a place to put some money to work.
Our recommendation is to deploy approximately 1/3 of your planned investment savings for 2018 into the equity investments of your choice at this time. Our net exposure model is angling to go positive this week but we won’t really know until Friday’s close so it would make sense to get your buys done in the next couple days if conditions remain favorable.
529 Plan Recommendation (my personal accounts)
I can’t offer specific advice to anyone via this blog as everyone has individual circumstances but I will tell you what I did with my own 529 accounts today for my kids who are 16 and 14 years old if it helps.
Prior to today I was allocated as follows:
40% Aggressive Growth
60% Money Markets
After today I will be allocated as follows:
60% Aggressive Growth
20% Money Markets
So I’m not talking about a big change but I did deploy 1/3 (20%) of my available cash (60%) that has been sitting there since December of last year to stock.
I also bought an “Income” allocation for the first time in many years. Why? Because short term interest rates have been moving higher for most of the last 5 years and are now comparatively attractive. I also like international bonds and emerging market bonds here. The “income” allocation in the Colorado 529 College Investment program offers a nice blend of these bonds so I threw in a little portfolio ballast and income against my increased stock exposure.
Passive investors, or those looking to make timely contributions to 401k plans can follow the same approach and allocations making your own selections as per your available fund options. Again, I’m sorry I can’t be more specific on what to buy as much as telling you when to buy via Calling All Cars.
As always, please feel free to contact us directly if you would like to get into the weeds of your personal situation.
We’re here to help!
The Team at All Season Financial Advisors