Another Recession? I Am Scared
I have been an individual investor for almost 10 years. The current economy indicators worry me a great deal.
CNN just ran a report on the surprising fall of the consumer spending, which is the biggest drop since Nov 2001. We all know that a large portion of our economy depends on consumer spending. With the pressure from rising energy price, large government spending on war, and dealing with disaster aftermath, I am getting a bit worried about the money in the stock market now. Here is the full report.
However, the money magazine (also owned by CNN) asked Vanguard to run an analysis on the possibility of the stock market crash and the result came back quite optimistic. According to the Vanguard’s Center for Investment Research, the real probability of the crash is about 2 percent.
Maybe I am paranoid about this whole situation and maybe CNN’s experts are right about the short term setback, however I am afraid of the chain reactions that few people can predict. Although I am not going to take drastic actions such as moving 80% of the stocks from my retirement portfolio into bonds or cash, I think it is time for me to do a health preliminary check to protect my long and short term investment goals.
I am not a financial advisor, so don’t take my words seriously. I am just doing what I need to do to protect my investments. So here is a list of actions I will be taking in the next a few days while I am on Blogger Holiday:
- Although I rebalance my retirement and long term portfolios once a year, I am going to do an emergency rebalance now, which is 4 months earlier than scheduled. So I am going to sell high and buy low now to shift the money among bonds, international, REIT real estate and US stocks
- I am leaving my 401K future contribution alone for now. If stock drops significantly, I am going to raise the contribution percentage of the stocks so I can buy low.
- Go through all of my short term stock mutual funds (short term meaning I need the money in the next 5 years), sell as much as possible and move them to my bond funds.
- Move a portion of my cash reserve into treasure bonds or other government short term bond funds. As long as I have enough to cover 3 month bare minimum living expenses, the rest shouldn’t be sitting in cash or money market right now.
In summary, I am trying to cash in what I have made in the stock market now and start looking into the bond funds. I am quite optimistic about bond returns since the rate has been hiking up like crazy. Worst case scenario, I may not make as much if the stock market does hike up in the next a few years, but I know I won’t be losing 30% or 40% if the market crashes.
Matt said,
October 2, 2005 @ 9:59 am
I think you have another career calling as a portfolio manager. Maybe Vanguard will hire you..just in case this IT thing doesn’t work out.
Yuna said,
October 2, 2005 @ 10:07 pm
I sure day dream about it… but without a Wharton degree… portfolio manager would be a stretch…but thanks for the kind words…
Maybe a full time blogger sounds like a pretty cool gig.. *grin*
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