Our love affair with the American Stock Market took a break on Valentine’s Day this year. In mid-November, Hope and I started our rotation out of all American stocks and primarily into bonds with a sliver of international index funds. And because of my strong hatred toward Elon Musk, I shorted Tesla with beer money.
Doing so doesn't make sense for most people but makes sense for us.
Why We Could Be Right
Our Risk Tolerance
For one, we’re in our mid-40s and have invested aggressively up until now. We didn’t own any bonds until late last year. Some financial experts would suggest we were too aggressive, but it paid off.
I could stomach the risk because I believed that the marriage of American markets and the miracle of compounding returns would continue to pay off. And they did.
Even during Trump’s first term, I felt confident in American markets, particularly when the TCJA led to record-setting corporate buybacks.
I rode the wave, even during Covid. I sold a bit early on, but only so I could free up money to buy back at a lower price. Covid was a temporary financial market catastrophe that was a once-in-a-decade buying opportunity. My only frustration at that time was that I couldn’t buy more.
But for us, this time is different. I can’t stomach watching what I believe is the dismantling of the guardrails that have allowed our financial markets to speed ahead, whether it’s the dismantling of the agency built to prevent another financial collapse, the economic warfare of tariffs, or the geopolitical certainty that we are divorcing the strong economies of our allies to marry the sewage of the Russian economy.
And that’s what we know. What lies ahead is the potential dismantling of Social Security.
I don’t see how the upside is greater than the downside for our family in the coming months, and I’m not willing to risk what we have when I know I can earn safe returns in fixed investments.
Our Time Horizon
One of our children is in college, and the other two will soon be there. It doesn't matter who is in office, the time to protect their 529k's is now.
Our retirement and our kid's college savings accounts are in good shape. We plan to retire in less than 15 years. Even if I believed in our current political leadership, experts would suggest a more cautious approach to investing.
A common rule of thumb is to subtract your age from 100 to determine the percentage of your portfolio that should be invested in stocks. That would put us at nearly 50% bonds anyway.
For the record, I think that's stupid. Over a 20-year period, the stock market has always outperformed the bond market. My children are invested in the stock market, and because they won't need the money for over 40 years, they are 100% stocks (index funds).
Now, back to how my wife and I are investing right now. Ten percent of our portfolio remains in international index funds, and we purchase 100 percent stocks with each paycheck, so our choice isn't drastic.
Why We Could Be Wrong (and probably are)
As the great JL Collins would say, trying to be a stock picker or time the market is a disease.
JL Collins is widely regarded as the Godfather of the Financial Independence movement. His book, the Simple Path to Wealth, is one of the most widely read personal finance books of all time.
From his perspective, owning a piece of the global stock market will make you wealthier in the long run.
And he's right.
Just look at the historical returns of the American stock market.
It's not lost on me that my political bias is influencing my rush to safety. Research has found that when the political party opposite to your own is in the White House, you reallocate your portfolio to more conservative investments.
To be clear, I was a registered Republican for years. The party left me for Trump, and I haven't turned back. But that's neither here nor there.
What I do know is that if I trusted our current political leadership, I would see what is occurring right now as a buy-and-hold opportunity, not just a buying opportunity.
But remember, my time horizon has played a primary role in structuring our portfolio since Valentine's Day.
There's also the question of when to get back into American markets. My wife and I plan to discuss that with our financial advisor, but for now, we've decided we need space from the American stock market until early summer.
What You and Your Spouse Should Do
With only three exceptions, please do not put any weight on our investment strategy. Zero. None.
Here are the three exceptions.
First, have a conversation with your spouse to ensure that you are capitalizing on the full employer match, at a minimum, collectively.
Second, your investment strategy should be determined through a conversation with your spouse, a fee-only financial advisor who does not sell commission-based products, or someone bound by the fiduciary standard.
Finally, time in the market is more important than timing the market.
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