Change to Allocation

I continue to be stunned and surprised at the increase value of the market as the year continues. From its March 2020 low point of 2,237.4, the S&P500 has now hit $4,524.09, basically doubling in value in 17 months. It seems like the market will just keep going up & up!

We all know this isn’t possible, but folks have been betting against the market (including me) for months now, and we continue to get it wrong. That’s why its always important to stay in the market, no matter what. Don’t pull your money out, because by the time you figure out the market has turned back up, you’ve already missed a significant amount of gains.

That being said, I have had two major concerns at this moment:

  1. The presence of high inflation may continue and force the fed to raise interest rates. If so, that will do some damage to the returns of my bond funds (which haven’t performed very well comparatively for the last several years).
  2. The S&P 500 continues to be way overvalued, with P/E ratios more than 2X historical values.

So I made the decision to make some changes to my investment allocation.

  • Change Bond allocation from 20% to 10%, reducing my exposure to the Fed raising interest rates
  • Change S&P500 allocation from 20% to 15%, reducing my exposure to the “overvalued” S&P
  • Add 15% allocation to dividend stocks – typically those steady stocks that continue to throw off income, even when the market sinks somewhat

While you could say that this might reduce my returns by reducing my exposure to the S&P 500, I actually have increased my stock allocation from 60% to 70%. I’ve just changed some of the stock investments to dividend stocks, which may not grow as fast, but should grow and throw income off better than bonds in the current environment.

So, my new allocation for my IRAs is:

  • 10% bonds
  • 15% dividend Stocks
  • 15% S&P 500
  • 20% Small Cap stocks
  • 20% International stocks
  • 20% REITS

We will have to see how that goes in the near future.

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Mr. 39 Months

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