Surprise, Surprise!

Wasn't this week a nice surprise?  The DOW closed above 9,000 again!  Well, I'm not sure if "surprise" is the right word, but there were enough cynics to say that the collapse of the American dollar is forthcoming and a whole lot of other bunk that made this week almost like a moment of truth for them, in that their "sky is falling" heresy is a vast over-reaction.  In fact, my friend at work was spouting off those claims as early as Monday, and he had to shut up by Thursday's impressive close.

Cynicism definitely weighs more, which is how the markets fall faster than they rebound, but this road to recovery has gone amazingly smooth (albeit the real test will be that 11,000-14,000 range).  If you've taken notes & memorized everything I've said (or if you just read my May 8th entry), then my expectations might be a bit too conservative, which is fine by me!  I like being wrong when the end result is better than expected, especially when I have a large hedge against my expectations.

The real lesson to be learned is that the "all-in, all-out" approach is best saved for Vegas with the rest of the craps.  Proper investing is a (at times, delicate) balancing act with calculated exposure to all parts of the stock and bond markets.  While my expectations are that the DOW will be above 10,000 by the end of this year, I am not going to direct all of my new money into the Total Stock Market Index fund for a variety of reasons, including the fact that I believed bonds would experience above-average growth this year (highly unlikely given the market recovery, but not altogether impossible), the International Markets are recovering as strongly as (at times, stronger than) the domestic markets, and there is nothing moving this portion of our recovery along aside from the disproportionate freefall from the end of last year into this year.

My day to rebalance my 401(k) investments is August 11th, assuming I find it necessary next month to redistribute my assets, but I have not checked in a little while (geez, where have I been?  My rock-and-roll vampire lifestyle shouldn't disable me from staying up on these things) so I need to take a serious look at them this weekend or next weekend, and start honing in on what my options are.  Most likely, though, I will be making no (or limited) changes.  Most likely, I will rebalance my existing money and leave my incoming allocations alone.

Breaking News!

I couldn't help thinking of Mo Ansari when I got on CNN.Money.com right before the market closed to see the most unique "Breaking News!" that I've witnessed in my career: "The market will remain open until 4:15PM!"

The market had been facing downward since the opening, brought on of course by the jobs report, which was exactly what Mo Ansari said to expect, but keeping the market open the day before an observed holiday for 15 minutes was too bizarre.  We found out that it was due to "connectivity" issues, as in the freakin' New York Stock Exchange had computer problems!!  This is a first in my career, and I am going to start searching the financial websites to find out if it had happened before.

I had the presence of mind to set up an exchange into the Total Stock Market fund for the remainder of the money that I had planned a while ago (see 6/15 entry), thinking it might be the closest to 8,000 we're going to see again, but the market had already passed 4PM (its regular close) and the website did not provide me a guaranteed trade date.  Why?  Because Vanguard hates day-traders, which is what I was doing.  If you want to make an exchange, make the exchange.  If you want the lowest possible price, then go somewhere else because they're not going to help you!  While it served me no good, I had to respect it.  It protects long-term investors (including me) as a whole.

Then, it turned out that we stayed late to change the trade date on every transaction submitted between 4 and 4:15PM (with a nice little OT for the next payday) so I guess I should have gone ahead and dumped the money into it during that 15-minute grace.  If nothing else, it would have made for a good story!  But we'll see what happens Monday.  If the unemployment reports scared the market down 2.5% today, then I don't know what is going to give investors the confidence to buy on Monday (or at least throughout the whole week).

The Full Motley: Believe The Market

Mo Ansari had a real good show today!  I wish I could've heard more of it, but it was interesting to hear him talking about the markets in terms of politics, because he made the comment that they're not really as intertwined as most people think.  Not that the markets aren't intertwined to politics, but the part about people thinking.  Most people want the market to move in the way that their political thinking is going, but they don't.  You cannot will the markets into going down, or going up, because the markets are reacting to so many different factors all at once that attempting to predict the markets in advance is pointless.

My investment company Vanguard has nine "We Believe" statements, and I did a presentation on them this year.  I forget the exact statement, but my summary for one was "beating the market returns is not worth the effort or the risks involved," and it's true.  When the stock market as a whole averages 9%-11% over its lifetime, then you can just learn to expect that as a return, and do the simple things to keep pace with it.  Otherwise, beating the market becomes this full-time job where for every percent you outperform the market, there is an equal percent of under-performance, and which side you end up on is really just 50:50 chance.  That's where the phrase "let your money work for you" comes from.  If you're doing all the work, then you might as well just consider the gains a paycheck.  Then, good luck finding freetime to enjoy that bonus pay if you get any!  Chances are you'll lose those gains before that happens.

The Full Motley: Mid-quarter Check-up

It has only been just over one month since my last adjustment to my 401(k) allocations, so it is way too early for me to reconsider my choices (or second-guess them) but if this past month has been any indication on what to expect in the next two months, then I did some very, very poor guesses!  LOL, which is a good thing because I am not taking an "all-in, all-out" approach.

Regardless, I never would have expected the market recovery to be as stable as it has been.  It did not surprise me when it crossed the 8,000 threshold at the time it did, but I honestly expected it to pop up to as high as 8,300, then immediately retreat down past 8,000 again, and the market has done no such thing!  It feels as though there is an understanding that 8,000 is not going to be broken again, and even little retreats such as today (which was no "little" 2%) will not spurn a larger drop like the one that would take it below 8,000 again.  But, as always, I could be wrong!

Honestly, I was ready to put some money into the Total Stock Market Index fund several weeks ago when it was sitting in the low $20's, except I felt the market should dip below 8,000 (which would most likely knock it down past $20), but I had enough doubt in my judgment to put an amount in that day (not as large as I had initially considered, because I was thinking I'd just toss in the remaining amount when/if the market fell under 8,000) so at least I got that upswing; plus is lowered my Average Cost per Share!

But it reminded me of one of the clichés that I would tell callers when the younger people would inquire "when is the best time to start investing?"  My answer was always "Now," with the explanation that "once you start investing, you can change things around and learn what you don't know as you play, but if you're sitting on the sidelines the whole time and hoping to learn everything before you begin, then you can miss the whole game."

The Full Motley: 2Q 2009, Part 2

I just submitted my new allocation, and it was funny because I went against my instincts, but at the same time, I felt better for it because half of my contributions are already going to Fund 84, so it was only 5% going to this fund in question and I think my instincts might be wrong.  This fund is the Total Int'l Stock Index Fund (Fund 113) but I think the Nikkei is outpacing the Dow and I've heard China has epic growth opportunities, so 5% won't make too much of a difference either way, and it is worth the risk to have this exposure.

Below are my future allocations for the next three months, followed by what I have earmarked for my allocations three months from now:

Fund 29 - 0% / 5%
Fund 84 - 55% / 10%
Fund 24 - 15% / 25%
Fund 113 - 5% / 10%
Fund 85 - 25% / 50%

Additionally, I moved some money from Fund 84 to try out another bond fund: GNMA, aka Fund 36.  This won't affect my overall allocation because they're both bond funds, and I moved an even amount, so I can keep a lazy eye on it.  I am basically giving it a try-out potentially to replace my exposure in Fund 29 (Hi-Yield).

As mentioned above, no new money is going to Fund 29 and depending how Fund 36 performs in the next three months, I may redirect the expected 5% earmarked for Fund 29 into Fund 36.

One fund that I have not discussed yet is Vanguard Explorer fund (Fund 24) which is a high-risk fund.  I don't expect high-risk, aggressive stocks to perform better than the blue chips during the rebound, but once the market has topped 10,000, then I think that opportunity exists, so if the market recovery outpaces my expectations, I have 15% (or 25% for third quarter) going to the fund to hedge against my expectations.



DISCLAIMER: Please remember that I am neither licensed nor permitted to give specific advice, so if you want investment recommendations, then please consult with a financial advisor or reputable financial sources; my favorite website is CNNFN.com and my favorite radio station is KFNN 1510 AM "Radio That Makes You Money." The investment decisions presented above were tailored to my risk-tolerance and my financial goals. Many financial plans are at no cost to you (advisers are often paid by the investments where your money is placed).

The Full Motley: 2Q 2009, Part 1

This weekend is 5/10, which is when I make the changes in my portfolio allocations.  Unfortunately, I have learned that I made a mis-step in allocating money to the Vanguard Hi-Yield Corporate Fund because it has a 1% fee on shares sold in less than 1 year, and those bonds really reflect the nature of stocks more than bonds, so they don't capture the real diversification that I want when I establish my automatic rebalancing.  I still like the idea of bonds at 10% of the portfolio, but there are several subclasses for stock to mix up the remaining 90% (of course, like I indicated previously, I will direct 50% to Fund 84 and the other half will be a reflection of my overall target allocation mix in three more months).

Once I make the change, I will show my new allocations here, but I know I have notes at Amy's place on what I was planning to do, so I can review those to increase my comfort level with what I want to do over the next three months and what I think will happen until August.

Amazingly, the market closed above 8,500 today (up 2% today), which is a phenomenal rebound -- almost, too phenomenal since there was nothing to indicate that "everything" is on the right track for a quick recovery.  This rebound may be somewhat superficial (or artificial) but the market free-fall was very much unwarranted, so I don't expect it to take long to get back over 10,000, but I was thinking it would be around the turn of the year -- not a couple months from now.

The Full Motley: Mid-quarter Check-up

Ok, I am almost two weeks away from reorganizing my 401(k) investments!  If you recall, I added the Vanguard Total Bond Market Index fund (Fund 84) to my portfolio in February and I directed 75% of my incoming assets to that fund (I didn't go with 100% at the time, because I didn't want to miss a market rally, which we saw for six weeks in March and April) and my goal was to get it up to 10% of my overall balance*.  I am happy to report that it is currently at 5% of my overall balance!  Therefore, I will most likely keep 50% going to Fund 84 and decide on my proposed mix for after Fund 84 is 10%, then use the remaining 50% to reflect that breakdown.  If I want to continue to have 10% of my incoming money in Fund 84, then I will have the first 50% like I said, and 5% from the planned 10% mix, so in reality 55% will be going to Fund 84.  But that's what I have to consider over the next couple weeks.

I have been listening to Market Wrap with Moe Ansari most evenings on the drive home, and while he is typically bearish, he has made a few bullish statements to make me think that I should be more bull-ready.  But as noted above, only 65% of Money.CNN.com readers thought the markets would be above 8,000 at the end of June, and they are hovering at that mark now, so a sharp retraction could be expected.

Additionally, I will look at my recent returns in the bond markets and if they are greatly above 8%, then I would consider scaling back on money going into those funds.  I think the stock markets are pretty much shot right now, so their recent returns will not be reliable indicators at this point.  Common sense would be more useful.

Again, I like to examine my 401(k) money quarterly and my portfolio annually.  I have found it best to use your birthday as the starting date because you're typically thinking about your future then anyway, so if you were born in February, then May, August, and November are your other "quarter" months.  As such, I will wait until May to make my actual move, but it's good to keep in on your mind in the meantime.


* - overall balance in my 401k plan, not including retail investments outside of my 401k.