How to best plan for stock market fall


#1

As has been discussed in the other thread with @Jil, the upcoming rate hikes may lead to pain in the stock market. I have really been inspired by so much of the discussion in this forum and I have learned so much from you all, which leads me to share something like this.

I have been working on this personal plan since I had my “panic moment” that the market was about to crash a week or so ago. It was a wake up call for me. I wanted to share my plan and learn what others are considering too.

The main theme is that I am moving cash to the sidelines and out of the stock market. I work for a company that gives me RSUs so I can’t help having a large chunk “invested” in stock already. I’ve decided that’s enough exposure to the stock market for me.

Note: I’m sure no one will follow this since there are far more knowledgable people to listen to in this forum, but wanted to be clear this is NOT financial advice! I operate mainly on intuition and reading lots of news, which has worked for me personally. I welcome feedback!

Stock Portfolio

  • I sold a bunch of stock last week and am selling almost all the remaining stock I own once I hit LT cap gains in early April. It’s time to say thank you very much and lock in gains. (I considered selling now and offsetting gains with crypto losses but it’s a bit complicated with alll the trades I did.)
  • I’m keeping 6K of match group stock, 2K or so of PCG since that’s a dividend based stock (and I’m curious to see what happens with the wildfire stuff), and 2K of stitchfix for sentimental reasons (female founder all the way to IPO and am excited to root for her in a downturn!)
  • I will sell my company stock when it vests each quarter and immediately after I do discount stock purchase.

Retirement

  • I will keep 10K of Amazon stock I have in my Roth IRA.
  • My 401K is currently 70 percent tracker funds and 30 percent bonds. I will move it out of stocks completely. Maybe to bonds? Am not sure. I took finance classes in college and studied this exact thing (bonds in a recession) but I remember embarrassingly little.

Leverage

  • I’m going to get a home equity line of credit for my primary residence. I plan to leave this untouched but I want to have it available. I’ve heard a heloc can be taken away but I’m not sure how likely that is.
  • My sf investment property has 3 years of fixed rate left on its ARM at a rate of 3.25%. I need to make a plan for this one. I will probably refinance into another ARM if that’s cheaper at end of the 3 years.

Crypto

  • I don’t enjoy thinking about this category because while I am still up it’s dropped a lot. I have decided not to think about it until May and then execute a tax optimized selling plan that will leave me with 5-10% net worth in crypto.

Currency

  • I will continue to keep some cash in pound sterling as well as dollars.

Future moves:

  • If the stock market overall falls a certain percentage, I plan to buy defense stocks to hedge against a potential war. I find this idea extremely depressing so I might not do it. I’d also buy back a bit of my match stock back if there’s a fall (people still date during a downturn!) I need to decide on an entry point. I also like Amazon stock and maybe some Tesla when it first goes down. I can imagine Tesla pivoting to doing some military work in a war situation. I need to read up on Elon’s philosophy more.
  • If ww3 doesn’t seem imminent but contractors become cheaper in a downturn, I will use some of my cash to improve my sf investment property and primary home. I would like to paint, improve the kitchen, maybe even add some windows.
  • plus TBD

Other:

  • My home is in a desirable sf neighborhood for Airbnb yet I’m often traveling for work. As an experiment I am going to rent it out for 10 nights this year to get about 5K tax free which I will add to my cash holdings. It will also help me become comfortable with this idea for the future if needed.

Feedback welcome!


#2

When you said 10k of xyz stock, you mean $, right? otherwise 10k amazon=>10m ? :slight_smile:


#3

Haha sadly yes only 10k in dollars!


#4

The amounts I’m keeping in stock are pretty negligible, either for fun or in case of amazon it’s very long term (I’m not going to use Roth IRA until I retire)


#5

bonds also crash during recesssion, their price depends on interest rate, but they do fluctuate less than stocks for sure. You can consider treasury bills for shorter term.

I know people go auto-sell for their company stocks for reasons of diversification & being exempt from blackout. This might be a good idea to consider in general. I tend to divest in other tech stocks that i believe are competitive(As in good potential).

Don’t bet on a war happening.


#6

I do agree there will not be any war. Mostly, I follow similar plans what you described. Since my cash is on higher side, I plan of buying some rental condos now or buy a new primary full cash basis.


#7

in bay or somewhere else?


#8

No remote control. Only in Bay Area, that too in San Jose or near by (Max 1 hour driving distance).


#9

As a mental exercise i was doing something like this before - in case of a downturn, which stocks are best to invest (or in other words, which ones crash the hardest and would come back later). Banks in 2008 crashed the hardest, for example.

I just searched this.


https://money.usnews.com/investing/slideshows/7-stocks-that-soar-in-a-recession

It was interesting perspective. Cannot say if they’ll hold true next time.


#10

No need to prepare for any fall. Dow all the way to 50000 before the next fall. :slight_smile:


#11

no way.


#12

This is a serious thread :slight_smile:


#13

Even if we hit a recession, I think we are still in the middle of a big secular bull market. Check out this thread about the last big bull market from 1982 to 2000:

If you don’t use margin, I actually think you don’t need to sell any stocks. Instead, any downturn is a good buying opportunity. Many did not know that DCA - Dollar Cost Average - works even in flat and down markets. Just keep buying, say, $5k worth of S&P every month no matter what and you will become filthy rich in 10 years.


#14

Nobody can time the market consistently. You may think a downfall is imminent but how can you be sure? What if it shoot up another 50% from this point on?


#15

I think a lot depends on age and number of working years left. Bonds are terrible during a cycle of interest rate increases. I’d dump them unless you’re within 5 years of retirement. If you’re pre or during your peak earning years, then I’d just keep adding money to the market at your normal rate. You’ll just DCA in if there’s a big drop, and you have plenty of time to wait for the recovery.

If I was really bearish, I’d go high yield. Then do a SPY put spread with the dividend earnings. If you buy it quarters, it’ll be cheap. That’ll protect you against any dramatic and sudden downside.


#16

Bonds are horrible even if you are near retirement. Even if you are 65 many still have 20+ years ahead of them. 3% yield is not going to do anything for you.


#17

It’s more about accumulation phase vs spending phase. That’s why diversity of income during retirement is important. you can mix & match depending on situation


#18

He got all stocks at low end, say FB at 37, TSLA at 17… ! All he needs to do is just hold until DOW 1000000 or when he needs cash !

Those who sells in between ( I am in this category) or work with Options (Max 2 years time), they must take care.

For him, no need to prepare for a fall.


#19

Thanks so much for the advice on bonds (and also @manch), I will dump those. I am relatively young, I am 9 years into my career.

I love the idea of the SPY put spread! Do you mean I should buy it quarterly with my dividend earnings? I’m not sure what you mean by it being cheaper if I do that.

I figured out some rough portfolio percentages in before/after state. This is if I dump stocks into cash as I laid out, plus dump bonds and some crypto. The stock portion includes unvested stock and retirement.

Before: 50% real estate equity / 25% stock / 15% crypto / 7% cash / 3% bonds

After: 50% real estate equity / 17% stock / 8% crypto / 25% cash


#20

First, if you have bought at low price, like hanera or wuqijun, you do not need to panic or sell, just hold those stocks as long as you need cash.