CNNFN: Market Watch

Tomorrow will be a very interesting day in the market considering it is going to follow this round of headlines:

• Friday rally lands Dow industrials, S&P, Nasdaq at 2009 highs; oil also ends at '09 high (8/21/09) Hardly a news-worthy story at that time, but it kept the wheels in motion for more interesting headlines.
• Dow industrials' winning streak hits seven as U.S. equity indexes eke out gains (8/26/09) And that verb was on the money! The DOW closed up by a mere 4.23 points, i.e. .04%. "Eked out" indeed.
• U.S. stocks close higher; 8-session Dow winning streak is longest in 28 months (8/27/09) The past longest "winning streak" was in April 2007, and the markets peaked that October. Obviously, there is no way the markets will peak within the next year or two, but at the same time, these are promising signs.

Right now, the DOW is sitting above 9,500, and in my previous post, I said that "I don't think we are going to see a big gain until 4Q," but these little consecutive gains will definitely add up. If the market does retreat, it will be interesting to see if 9,000 is a resistance point for it or if it will dip below that benchmark.

The Full Motley: 3Q 2009

This week was when I was slated to re-evaluate my allocations, which I somewhat missed but that's not too upsetting because July 2009 was the best single month of the DOW since 2002, so I was probably best off to just let things sit as they were.

But aside from the market boom, Vanguard.com had some restructuring since my last personalized update, so now I can track the progress of my account much easier.  Keep in mind that the most important focus of an active portfolio is the asset allocation, so it matters less whether the current balance in the portfolio is $10,000, $100,000, or $1,000,000, than how the 100% is split.

Here are my current allocation:
Vanguard Total Stock Market Index Fund (fund 85) = 44.5%
Vanguard Explorer Fund Investor Shares (fund 24) = 23%
Vanguard Total International Stock Index Fund (fund 113) = 14%
Vanguard High-Yield Corporate Fund (fund 29) = 10.5%
Vanguard Total Bond Market Index Fund (fund 84) = 5.5%
Vanguard GNMA Fund Investor Shares (fund 36) = 2.5%

So, the first step is to compare these real numbers to my current and target allocations:

Fund # - Real / Current / Target
Fund 29 - 10% / 0% / 5%
Fund 84+36 - 5% / 55% / 10%
Fund 24 - 23% / 15% / 25%
Fund 113 - 14% / 5% / 10%
Fund 85 - 45% / 25% / 50%

At this point, I could simply flip 5% from Fund 29 to Fund 84 and another 5% from Fund 113 to Fund 85, and then set my current allocations to my target allocations.  This was the goal that I had prepared back in February, and it would make future re-evaluations very simple because any change will reflect the performance of the holdings (unless there is a change in my target allocation).

Alternatively, I could continue to direct a higher percent to Fund 84 and Fund 85 than I have going to Fund 29 and Fund 113, respectively, which is what I am doing now.

I don't think we are going to see a big gain until 4Q ("fourth quarter," i.e. Oct-Dec) in the stock market again, so I believe whatever money I add there may be nullified in the next few months, so I would just as soon keep new money going in than I would be to rearrange my existing amounts.  Plus, I have a curiosity to find out how long it will take for me to build up 10% in Fund 84 without dumping new money to it.

Record Highs

Here's the power of investing & timing, by the way: I happened to check my portfolio tonight and, knowing the market was up BIG, I was expecting BIG things!  But I was more than pleasantly surprised when I saw that my month-end balance for July 2009 was higher than my portfolio had ever been.

That means in September 2007 when the market was at its current peak, and when the DOW was sitting around 14,000, I had less money than my portfolio is worth right now, when the market is impressively within the 9,000's, but still another 2-3 years from full recovery.

Granted, we are not talking about a huge starting balance of $1,000,000, but we're not talking about a balance of ::shakes head:: $3, either.

As soon as the market tumbled, you might have heard how a lot of people were putting money into falling stocks at a discount, and this is the reason.  Once the market reached its low, which I believe it was when the DOW was at 6,500, I increased my paycheck deductions by another 2-3%, so not only was more money going in, but it was buying more at a lower price per share, and when the market recovered, the worth of each share increased.

The easy way to determine when I should buy and when I should hold off was -- well, luck played a big part, especially in not buying when the market was too high, and when the market went below my existing average cost basis (i.e. the average price of each share I have purchased), I knew that I would be getting a bigger discount than I had up until that point, so I made the most of the opportunity.

There are two schools of thought for the market recovery at this point: one, "easy & steady" and the other, "rough & rocky."  Personally, I am expecting the former but I have stated a couple times that I would not be surprised to see the market retreat this month or next month, maybe even back down to 8,500 or lower, but October through December should see another strong rally like we saw recently.

Probably not as strong as the month of July 2009, though.  That was the best single month in the market since 2002.


New for 2011 Note: the $3 joke was in reference to an old reader who had asked how much he could earn off $3 invested for 7 hours.  Not much, if you didn't know already.