I really appreciate this forum and all of your wisdom! I've been a reader for a while but this is my first post.
I recently sold my company and now have $1MM+ in cash to try to FIRE. My strategy had been to just invest everything in VTWAX (Overall World Market Cap) and leave it forever. After looking at the 10/2 treasury term spread, corporate debt cycle, net worth to income, Shiller PE, etc, it seems like the market will have a recession in the next 1-2 years. I know no one knows if that's correct, but I just can't emotionally handle a big drop right away if I was to invest and a recession hit. I'm comfortable with volatility long term so long as my balance doesn't drop below my initial investment.
I've been researching strategies to try to avoid sitting on cash but also avoid the emotional risk of an immediate market downturn. Right now my money is parked in Monkey Market (VMFXX). These are a few strategies I've been looking at:
- Balance. Ray Dalio got a lot of press last year for his Pure Alpha fund win and he commented that: ‘If you are worried when the stock market goes down and happy when it goes up, it probably indicates that your portfolio is unbalanced. If your income is also tied to how the economy does, you are doubly at risk because your portfolio can go down when your income is worst, which is scary.’ I don't really understand how to achieve the "balance" that he speaks of when bonds are on the verge of Bear too and interest rates are set to rise in the foreseeable future. What asset classes are actually expected to rise through the next recession?
- Tactical Asset Allocation (TAA). Enhance returns and minimize losses by increasing allocation to assets expected to outperform, and reducing allocation to assets expected to underperform. I could use this strategy until I'm more comfortable with entering the market fully. I found this website allocatesmartly.com which tracks popular TAA but I'm not clear how do you go about the actual buying process? Does anyone here use TAA and readjust monthly?
- Defensive Portfolio. The theory is to move toward high-quality bonds and defensive sectors such as consumer staples, health care and utilities, which outperform during recessions. Does anyone know of a good example portfolio for this with specific buys? Are high quality bonds really a good idea with bond yields so low and interest rates rising? Bond funds seem to drop during recessions too, as do large cap stocks, so is this strategy really better than just Money Market?
- Dividend Stocks. These historically perform better in a Bear. With bond performance so low, the income from the dividends is in line with bonds but you also get to own the stock potential. While it's argued dividends are less relevant than total growth, this option emotionally would be better in a downtown because I'd still have income without needing to sell shares. Does anyone do a dividend strategy?
- Other options?