If you realized that you had too much in equities, sell now

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ge1
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If you realized that you had too much in equities, sell now

Post by ge1 » Thu Mar 26, 2020 3:12 pm

This is a post for those who were terrified a few days ago and realized that they had too much in equities: The market has just given you a 20% present (S&P increase from the low). Sell now down to the level where you are comfortable with your allocation to stocks. Don't get greedy and tell yourself that you will sell when the S&P reaches the old high. It may reach the old high in a month (or less) or in 5 years, but the recent crash taught you a valuable lesson what your true risk tolerance is.

typical.investor
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Re: If you realized that you had too much in equities, sell now

Post by typical.investor » Thu Mar 26, 2020 9:22 pm

ge1 wrote:
Thu Mar 26, 2020 3:12 pm
This is a post for those who were terrified a few days ago and realized that they had too much in equities: The market has just given you a 20% present (S&P increase from the low). Sell now down to the level where you are comfortable with your allocation to stocks. Don't get greedy and tell yourself that you will sell when the S&P reaches the old high. It may reach the old high in a month (or less) or in 5 years, but the recent crash taught you a valuable lesson what your true risk tolerance is.
Selling after a drop out of fear strikes me as poor advice. If you are scared, perhaps you might hold off on rebalancing into equities in order to keep your safe assets.

The only reason to sell now would be if one's employment situation changed such that cash flow/emergency funds/safe assets are not expected to be enough to meet expenses.

Still, even then I would look into reducing expenses and finding some income before selling out.

I don't believe in selling in a panic because that's not when people typically make the best decision. You made your decision, so trust in yourself. Have some confidence. You wouldn't have signed up for it if you didn't think you could make it through. Now make it through!

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willthrill81
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Re: If you realized that you had too much in equities, sell now

Post by willthrill81 » Thu Mar 26, 2020 9:24 pm

If you are permanently reducing your stock allocation because your risk tolerance does not permit you to maintain your current allocation, then many here would say that that is not market timing. It's hard for them to say otherwise since Bogle did almost exactly that just before the dot-com bubble burst (although some of the contributing factors to his decision were valuation driven and clearly market timing).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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nedsaid
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Re: If you realized that you had too much in equities, sell now

Post by nedsaid » Thu Mar 26, 2020 9:27 pm

typical.investor wrote:
Thu Mar 26, 2020 9:22 pm
ge1 wrote:
Thu Mar 26, 2020 3:12 pm
This is a post for those who were terrified a few days ago and realized that they had too much in equities: The market has just given you a 20% present (S&P increase from the low). Sell now down to the level where you are comfortable with your allocation to stocks. Don't get greedy and tell yourself that you will sell when the S&P reaches the old high. It may reach the old high in a month (or less) or in 5 years, but the recent crash taught you a valuable lesson what your true risk tolerance is.
Selling after a drop out of fear strikes me as poor advice. If you are scared, perhaps you might hold off on rebalancing into equities in order to keep your safe assets.

The only reason to sell now would be if one's employment situation changed such that cash flow/emergency funds/safe assets are not expected to be enough to meet expenses.

Still, even then I would look into reducing expenses and finding some income before selling out.

I don't believe in selling in a panic because that's not when people typically make the best decision. You made your decision, so trust in yourself. Have some confidence. You wouldn't have signed up for it if you didn't think you could make it through. Now make it through!
Yep, far better to "panic" at market highs. This is NOT the time to sell stocks.
A fool and his money are good for business.

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papito23
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Re: If you realized that you had too much in equities, sell now

Post by papito23 » Thu Mar 26, 2020 9:30 pm

nedsaid wrote:
Thu Mar 26, 2020 9:27 pm
Yep, far better to "panic" at market highs. This is NOT the time to sell stocks.
But... that's not when people panic.

Paradox.
A thing is right when it tends to preserve the integrity, stability, and beauty of the biotic community. It is wrong when it tends otherwise. -Aldo Leopold's Golden Rule of Ecology

typical.investor
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Re: If you realized that you had too much in equities, sell now

Post by typical.investor » Thu Mar 26, 2020 9:31 pm

willthrill81 wrote:
Thu Mar 26, 2020 9:24 pm
If you are permanently reducing your stock allocation because your risk tolerance does not permit you to maintain your current allocation, then many here would say that that is not market timing. It's hard for them to say otherwise since Bogle did almost exactly that just before the dot-com bubble burst (although some of the contributing factors to his decision were valuation driven and clearly market timing).
Let's see, Bogle changed his AA as he was getting older, he'd won, and valuations were getting extremely high.

And you are saying that justifies changing your AA in a panic. OK.

I would suggest doing what Bogle did and readjust your AA when things are calm with the benefit of having experienced a drop, but when equity prices aren't at a sharp discount.

I don't know, changing AA at extremely high valuations and changing after they've been sharply discounted doesn't seem the same to me. Only one of them seems to be panic induced.

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willthrill81
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Re: If you realized that you had too much in equities, sell now

Post by willthrill81 » Thu Mar 26, 2020 9:36 pm

typical.investor wrote:
Thu Mar 26, 2020 9:31 pm
willthrill81 wrote:
Thu Mar 26, 2020 9:24 pm
If you are permanently reducing your stock allocation because your risk tolerance does not permit you to maintain your current allocation, then many here would say that that is not market timing. It's hard for them to say otherwise since Bogle did almost exactly that just before the dot-com bubble burst (although some of the contributing factors to his decision were valuation driven and clearly market timing).
Let's see, Bogle changed his AA as he was getting older, he'd won, and valuations were getting extremely high.

And you are saying that justifies changing your AA in a panic. OK.

I would suggest doing what Bogle did and readjust your AA when things are calm with the benefit of having experienced a drop, but when equity prices aren't at a sharp discount.

I don't know, changing AA at extremely high valuations and changing after they've been sharply discounted doesn't seem the same to me. Only one of them seems to be panic induced.
Investors have to be extremely frank with themselves. If they are truly panicking, then that means that they're not likely to be clearly and rationally thinking about what they are doing.

But if investors are still panicking despite the 20% run-up over the last several days, I'd say that it's pretty clear that they overestimated their risk tolerance. Since it's market timing to make AA decisions on the basis of market conditions, it would sound more than a bit like market timing for an investor who knew with confidence that he wanted to permanently reduce his stock allocation to wait until stocks returned to an arbitrary historical point before changing his AA. Otherwise, such an investor is at risk of truly panic selling if the market goes the other way significantly, which is very possible.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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nedsaid
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Re: If you realized that you had too much in equities, sell now

Post by nedsaid » Thu Mar 26, 2020 9:39 pm

papito23 wrote:
Thu Mar 26, 2020 9:30 pm
nedsaid wrote:
Thu Mar 26, 2020 9:27 pm
Yep, far better to "panic" at market highs. This is NOT the time to sell stocks.
But... that's not when people panic.

Paradox.
The best time to think ahead about your ability to take risk and asset allocation is when markets are near record highs. Good to remember how big losses in your portfolio felt during the last bear market. We tend to be brave during bull markets and timid during bear markets.
A fool and his money are good for business.

FRT15
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Re: If you realized that you had too much in equities, sell now

Post by FRT15 » Thu Mar 26, 2020 9:42 pm

I would say it's ok to lower your allocation if you are not comfortable. Yes you lock in losses but take the possibility of bigger losses off the table if things really get bad. I always think of my equity as having a chance to go to zero.

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willthrill81
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Re: If you realized that you had too much in equities, sell now

Post by willthrill81 » Thu Mar 26, 2020 9:59 pm

FRT15 wrote:
Thu Mar 26, 2020 9:42 pm
I would say it's ok to lower your allocation if you are not comfortable. Yes you lock in losses but take the possibility of bigger losses off the table if things really get bad.
My thoughts precisely.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: If you realized that you had too much in equities, sell now

Post by mathguy3021 » Thu Mar 26, 2020 10:06 pm

FRT15 wrote:
Thu Mar 26, 2020 9:42 pm
I would say it's ok to lower your allocation if you are not comfortable. Yes you lock in losses but take the possibility of bigger losses off the table if things really get bad. I always think of my equity as having a chance to go to zero.
Actually, at these levels, if I sell, I would lock in nearly all gains. Most of my purchases were much lower than the stock market is today. So I have a large unrealized gain. The only losses I have are the purchases I made in mid 2018, mid 2019, and early this year. This is a small percentage of my total cost basis since I've been investing for many years. I may reduce my risk if this irrational bounce continues, but I doubt it will.

Luckywon
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Re: If you realized that you had too much in equities, sell now

Post by Luckywon » Thu Mar 26, 2020 10:13 pm

ge1 wrote:
Thu Mar 26, 2020 3:12 pm
This is a post for those who were terrified a few days ago and realized that they had too much in equities: The market has just given you a 20% present (S&P increase from the low). Sell now down to the level where you are comfortable with your allocation to stocks. Don't get greedy and tell yourself that you will sell when the S&P reaches the old high. It may reach the old high in a month (or less) or in 5 years, but the recent crash taught you a valuable lesson what your true risk tolerance is.
I think this describes my thoughts exactly. I changed my AA from 55/45 to 50/50 today. Not a huge shift but prior to this my target AA was 60/40.

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ge1
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Re: If you realized that you had too much in equities, sell now

Post by ge1 » Sat Mar 28, 2020 12:09 pm

willthrill81 wrote:
Thu Mar 26, 2020 9:59 pm
FRT15 wrote:
Thu Mar 26, 2020 9:42 pm
I would say it's ok to lower your allocation if you are not comfortable. Yes you lock in losses but take the possibility of bigger losses off the table if things really get bad.
My thoughts precisely.
That‘s exactly my point. Reading some posts I hear people say „I realized I have too much in equities, I‘ll sell when the markets recovered“. What if the market doesn‘t recover for a long time? What if market drop another 30% and then you will truly panic as you have more in equities than you can tolerate? The only logical advice (and in my view very much Boglehead-like advice) is - if you realized your asset allocation is not appropriate, adjust that asset allocation as quickly as possible. And if the market just gave you a 20% rally, be grateful for that and adjust.

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Re: If you realized that you had too much in equities, sell now

Post by guitarman555 » Sat Mar 28, 2020 1:24 pm

What's odd for me, is I just don't care right now (about the price drop). When this all blows over, and if it takes 5 years to recover, for me that would be ideal. Keep buying at lower prices. Then again, I'm a fairly new (but older in age) investor. So who knows?

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Scott S
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Re: If you realized that you had too much in equities, sell now

Post by Scott S » Sat Mar 28, 2020 1:26 pm

The value of a "boring" asset allocation proves itself in times like these...
My Plan: (Age-10)% in bonds until I reach age 60, 50/50 thereafter. Equity split: 50/50 US/Int'l, Bond split: 50/50 TBM/TIPS.

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Re: If you realized that you had too much in equities, sell now

Post by Dottie57 » Sat Mar 28, 2020 1:28 pm

I would not sell equities now.

mouth
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Re: If you realized that you had too much in equities, sell now

Post by mouth » Sat Mar 28, 2020 1:33 pm

guitarman555 wrote:
Sat Mar 28, 2020 1:24 pm
What's odd for me, is I just don't care right now (about the price drop). When this all blows over, and if it takes 5 years to recover, for me that would be ideal. Keep buying at lower prices. Then again, I'm a fairly new (but older in age) investor. So who knows?
Nothing odd about that. It means your AA and your risk tolerance are aligned.

I'm in the same boat and considering re-balancing to a higher equity AA

:sharebeer

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JonnyDVM
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Re: If you realized that you had too much in equities, sell now

Post by JonnyDVM » Sat Mar 28, 2020 1:47 pm

Selling now is not good advice imo. Don’t do that. The time to decrease equity risk is not in the middle of a pandemic. It’s before. So if you missed that opportunity, best to ride out the storm with the rest of us.
It’s not “just the flu”. Stop saying that. It’s really annoying. -me

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Re: If you realized that you had too much in equities, sell now

Post by Sandtrap » Sat Mar 28, 2020 2:03 pm

Set a time frame that works for you.
1
Wait 1 month.
Do nothing. Count down the days.
2
At the end of week 4, re-evaluate the market and what you want to do.
If unsure, repeat #1

The cycle is: Plan > Act > Evaluate, etc.

j :happy
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willthrill81
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Re: If you realized that you had too much in equities, sell now

Post by willthrill81 » Sat Mar 28, 2020 2:19 pm

JonnyDVM wrote:
Sat Mar 28, 2020 1:47 pm
Selling now is not good advice imo. Don’t do that. The time to decrease equity risk is not in the middle of a pandemic. It’s before. So if you missed that opportunity, best to ride out the storm with the rest of us.
I thought that making AA decisions on the basis of market conditions was market timing. If you know that you need to adjust your AA, isn't now the time to do so, whenever now happens to be?

If you can "ride out the storm," then your AA is probably okay.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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