Does this portfolio plan seem like a good idea

General
1

I have 70% of my portfolio in VOO and 30% in SGOV right now. A week ago, I was 100% in VOO. Like many others, I’m worried that there could be a big market drop (over 20%) in the next year, though I don’t think it’s a sure thing. My guess is around a 30% chance of a 15%+ drop in 2025.

Another thing to consider is that I’m a few years away from retirement.

Here’s the strategy I’m thinking of following. Based on the current market, I’ll keep my portfolio at 70/30 stock. Most of my portfolio is in IRA/Roth accounts, so no taxes will be triggered by buying or selling.

If stocks go up, I’ll sell some VOO and buy SGOV to keep my ratio at 70/30.

If stocks drop 10%, I’ll sell some SGOV and buy VOO to change my allocation to 80/20.

If stocks drop 20%, I’ll sell some SGOV and buy VOO to go 90/10.

If stocks drop 30%, I’ll sell some SGOV and buy VOO to go 100/0.

I might adjust this to be more cautious (wait for a 20% drop to buy), but I’m not trying to perfectly time the bottom. I just want to buy VOO at a lower price if there’s a 10-30% drop. If it drops further, like 40-50%, that’s fine too. But based on probability, I think a 10-30% drop is more likely.

Does this strategy make sense? I’m not trying to maximize growth (100% stock) or catch the bottom (wait for a 30-50% drop to buy VOO).

Am I overthinking this and trying to time the market too much? If I retire in 5 years and I’m 100% in stocks, I’d be in trouble if the market drops 40% that year. So, I’m trying to protect myself while still growing my portfolio.

2

Trying to time the market isn’t usually a great idea, but it can help to have a portfolio spread across different types of assets. Stocks like VOO are important, but a well-rounded portfolio usually has other things in it too.

3

@Darby
Do you mean international stocks?

4

Zen said:
@Darby
Do you mean international stocks?

Yes. And also mid-caps, small-caps, emerging markets, and a mix of value vs. growth stocks.

Just sticking to only 500 large-cap U.S. stocks isn’t really a diversified portfolio.

5

@Kim
That makes sense.

6

Zen said:
@Kim
That makes sense.

Since you’re a few years from retirement, it might be smart to have some cash or cash-like assets (like SGOV). Maybe enough for 1-2 years of living expenses. 30% cash is probably too much, but it’s not a bad idea to have some.

7

Zen said:
@Darby
Do you mean international stocks?

International stocks are still part of public equities. Some people argue about how much value they add, but what I’m really talking about is having other types of investments beyond just stocks. Bonds are common, but real estate, private equity, and other options can help diversify.

8

@Darby
I own the house I live in, so I didn’t buy real estate as an investment. Being a landlord is a lot of work. I thought about REITs, but I heard they’re not very efficient. Bonds seem like a bad deal with current rates and how the Fed operates. Private equity is too risky and hard to access.

9

@Zen
By the way, ‘Fed’ stands for ‘Federal Reserve.’ It doesn’t need to be in all-caps unless you’re writing about the specific committees. Just a heads-up!

10

@Zen
I hold a few positions that would do well if yields drop, like IEF, TLT, and NLY. If yields go down, bond prices go up, and it can also lower mortgage rates, which would boost real estate activity and help mortgage REITs like NLY.

11

Most people on this forum seem to follow a passive investing strategy, but what you’re describing sounds more like active investing. This may not be the best place to ask. Active investors usually use technical analysis to make decisions. Here’s a video on that if you’re interested.

12

@Avery
The person who posted this is more focused on avoiding Sequence of Returns Risk (SoRR) than actually timing the market. They should also think about broader passive diversification, not just VOO for their equity investments.

13

@Van
The person mentioned selling some VOO and holding cash to reinvest when valuations are better. That’s definitely active management.

14

Avery said:
@Van
The person mentioned selling some VOO and holding cash to reinvest when valuations are better. That’s definitely active management.

Yes, but what they’re really trying to avoid is Sequence of Returns Risk (SoRR).

15

It’s risky to try to time the market. But diversifying with different assets that don’t move in the same way can help protect you. If you’re only doing this because you think the market will go down soon, though, you’re still trying to time things. That strategy will probably underperform in the long run.

16

Taking profits from VOO to diversify isn’t a bad move. How much you put into safer investments depends on your age and how much risk you’re willing to take.

17

There are no strict rules. Timing the market is generally not recommended, but I’ve seen people keep a small amount of cash for swing trades or value buys. The risk is that you might miss out on gains from things you didn’t invest in. But honestly, it’s not much different from holding bonds, which is common in many portfolios.

When you’re younger, though, bonds usually make up a much smaller part of the portfolio. Long-term investing is all about staying calm and not getting emotional. When the market swings, smart investors often buy more because they know things will be undervalued.

If you’re retiring in 5 years, though, you should definitely not be 100% in stocks. I’d move a big portion into safer investments.

18

Consider mid-cap or small-cap indexes. They’ve had strong returns recently. Smaller companies benefit more when borrowing is cheaper, which leads to higher profits. International stocks haven’t been performing well recently, so I’m cutting back on them.

19

Your plan seems reasonable for your risk tolerance. A lot of people balance portfolios with 80% stocks and 20% bonds, which has been a standard for years. 70/30 in today’s uncertain market sounds good to me.

20

The problem with increasing your stock allocation when the market drops is that it always seems like there’s a good reason for the drop at the time. The last 30% drop was during the 2008 financial crisis, and no one was increasing their exposure then.

If you just stick with a 70/30 portfolio, you’ll still get to buy VOO at a discount when the market falls to maintain your ratio.