About a year ago, I stopped my monthly contributions to my ETF portfolio. Officially, due to the increased risk at the job: I wanted more cash. With hindsight it might have been a valuation issue. My last buy was in June 2016 – rebalancing my emerging markets exposure.
The intention to stop investing was to increase our cash stash. Objective achieved!
Some might argue that such a stash of cash is a waste of “time in the market” returns.
Yes, you are right!
Good news: As from January, that cash was put back to work as margin for my option trading. So, they could not profit that much from a dolce-far-niente.
Timeline – Focus on the world index
The last buy of my world tracker took place on March 24 2016 at a price of 35,93€. Today, it is at 41.82€. That hurts, that is a lot of missed “time in the market”. It could have been the opposite as well. It is what it is, we are where we are. What matters is where we go now!
What changed my mind
Over the course of the summer, I have been listening a lot to podcast that talk about investing surplus cash and index investing. There are only a few things that are sure:
- Nobody knows what is next. Literally, nobody!
- Market crashes happen.
- The markets (S&P 500 index) has in the past always recovered.
So, the question to me comes down to point 3: Will the market in the future recover again?
There are sample of economies that did not recover. Japan anyone?
The Belgian total return index has only slightly recovered.
The S&P 500 has always recovered. (There is a great post on this by BIG ERN)
As I do not have the answer, I decided to go with my beliefs: The world economy over the long run will always recover. When it does not recover, something more serious might be ongoing.
It is thus my personal conclusion that with our current level of risk tolerance, with the current level of our cash and semi-cash buffers, the best option for our monthly cash surplus is investing.
Investment plan
Previously, I did not write down our personal investment plan. I had no guideline in case of doubt. Here we go!
Each 5th of the month (or first working day after) Mr. ATL will invest the cash surplus from both salaries in one of our three ETFS in order to bring back our allocation as close as possible to the target allocation.
The current cash surplus will be used to top up the monthly investments and to create some fishing orders 10 and 20 pct below the current market.
With this written down plan, I expect to stay the course!
Any advice for me? any thoughts?
amber tree leaves 
Advice? Neah, just keep going 🙂
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Sounds good. Put the money to work, or ready in waiting. If there is a correction or bear market, seize the opportunity!
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Great plan, just keep it going! I had my doubts as well as I was paying off my debt but kept investing… Last year was a good year, this year so far not ;-)(thanks to the $)
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Haha, we are at exact opposites!
I am reducing my leverage and will be building up my cash. But the cash will be put to work via puts on UVXY. So I will be getting the best of both worlds: nice returns and a nice pile of cash if the market does crater.
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So, the volatility needs drop before maturity of your puts?
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Impossible to time the market.I missed a splendid opportunity in 2013. I moved to bonds (since S&P 500 was at all time high). I ended up with a 7% return as compared to ~30% from S&P 500. I keep DCA into mutual funds. I hope to use the dividends to supplement my income, however the gains are to be used long term only.
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Keep going is indeed the only advice I can give you. The most important thing is that you’re doing something 🙂
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Since you’re getting in, I’ll assume a crash is coming. Haha.
You’ve got to view the markets in the long term. I’ve struggled with the temptation to “market time”, but always fall back on “Dollar Cost Average”, month in, and month out. It’s the “easiest” way psychologically to deal with volatility. Automate it, and forget it.
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Hey ATL,
it’s good you’re starting investing again. The issue isn’t really about what the price of the market might be next year, but rather in thirty years. I think we’re not biologically designed for long term plans as our nature is more short term.
Even investing at market highs before a crash would have given a fairly good result and I plotted this out recently. The key factor was time.
As for Japan and its flat market, diversification is the main defense so keeping to your asset allocation per your plan should mitigate that. Congrats on writing down a plan – investing should be mechanical, not emotional.
Best wishes,
-DL
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Interesting plan. Paying yourself first and following your investment plan consistently plan is key but never forget about the risks of index investing. I love your options strategy as supplement to that. Investing should be mechanical but assuming that the markets will always go up is a mistake according to me.
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Interesting comment. My assumption is that in a long term view, the market will always go higher. I need to accept 2008 drops. I do not want to time these. I need on the other hand a change in asset allocation prior to me declaring myself FIRE
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