The theme this week on the Retirement Quick Tips Podcast is: How To Use Stock Market Volatility In 2022 To Your Advantage

 

Today, I’m talking about the easiest way and the most profitable way for most investors to use stock market volatility to their advantage - buying low and selling high.

How do you do this in the real world? It’s actually much easier than you might think, but it does take discipline. Let me explain…

Let’s say your ideal portfolio allocation to stocks is 65%, but let’s say the stock market continues to drop and your portfolio is down 15-20%. There’s a good chance that your allocation is now hovering closer to 60% because the stock side of the equation has absorbed all of those losses. 

So you would need to figure out how much to add to stocks to get back to your 65% target, then determine what to sell from your bonds to make that happen, and just do it. 

Having a target stock and bond mix and then taking action when your portfolio deviates more than about 5% from that allocation gives you the discipline to buy low and sell high. Buying low and selling high evades most investors because they let their emotions or biases get in the way, and they don’t have a target allocation to stocks, which means they don’t take action to rebalance when they should. 

Volatile markets give you opportunities to re-balance and do what most investors can never seem to do - buy low and sell high. A Vanguard Advisor Alpha study found that rebalancing enhanced returns by as much as .26% annually. It sounds like a small amount, but over 20 year retirement on a $1 million portfolio earning 6%, that’s a difference of $161,000. 

Don’t know your target allocation? If you send me an email to [email protected], I’ll send you my age-based asset allocation cheat sheet that will help you figure out what % in stocks is ideal for your age, and help you establish a baseline for using this strategy to your advantage. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance