Really stupid 401k/IRA COVID question

[Hristo Botev]

All our tax-advantaged retirement accounts are invested in S&P 500, total US stock market, and target retirement date funds. Assuming our stock market, generally at the index fund level, is TOTALLY overvalued at this point--such that even if we get a vaccine and a quick post-vaccine jobs recovery it won't result in much if any uptick in the markets--what makes sense for where to move the money in those accounts?

[Hristo Botev]

Another, related, question: does it make sense to quit putting money into retirement funds right now, beyond whatever employer match you get, and instead send that money to a savings account?

[Lemur]

I don't think there is a straight answer for this because this highly depends on your own risk tolerance and your overall strategy to investing.

1.) I would at minimum get the employer match but there is also the question of reducing your tax liability so there is incentives to max this out.
2.) Maybe go BONDS/CASH if you do not think the return on the market will outpace inflation in the near-term.

Personal opinion - This is the downside of going 'index' because one doesn't understand why they're investing anything...COVID recession destruction is already price-in. If anything, the best time to invest is during a recession while equities are taking a 'beating'. Also, these days, you're playing against the FED whom is bumping money and buying up assets.

Consider a whole radical different approach that the FIRE sphere generally tells you not to do - Go active and choose individual stocks that can withstand coronovirus impact. In short, avoid retailers. For growth, I like tech, dependable consumer companies (like Pepsi), and semi-conductors. Disclaimer - you may or may not beat the market and your results may vary as such.

I do both actually...my 401(k) is maxed for index funds and after-tax savings goes to my brokerage / individual stocks.

Mentally try to think like Buffett a little bit - have a very long-term outlook on your investments. Historically, there will always be sharp recessions followed by long bull markets. The great thing about an ERE style savings rate, is the higher your savings rate, the less your ROI matters for retiring at 3%/4% purposes.

[classical_Liberal]

This is a "How should I invest?" question. This is something you need to decide for yourself. Because you will never have confidence in it if you didn't decide for yourself. Confidence in your investing is what prevents psychological errors in investing, and those are far more costly than simplly choosing a less than perfectly efficient path.

My general advice:

I think determining an investment strategy should:
#1 Fit with your personality, way of thinking, and risk tolerance
#2 Take into account any personal weak points in your lifestyle/system
#3 Everything else

It seems to me most people tend to focus on the everything else first. Which creates problems as they are looking for the most technically correct way to invest, or most efficient, or getting the most value, etc.

So with #1 I mean you need to determine what you are psychologically comfortably with. Some people like to focus on income and mostly ignore net worth/current market value of capital. Some people like to take risks and focus on growth potential of capital. Some people focus on net worth and want to stabilize current market value of capital as much as possible (this is me). Here it's important to understand, not investing cash equivalents is actually an investment choice. It can put your capital at risk.

#2 Is taking a good hard look at your situation. Where are the weak points? How can your financial capital work to best plug any holes in your system. What are your largest risk factors? How could you modify your portfolio to help address these weak points? This will change over time as your Life changes.

#3 Now that the first two points are covered. Refine your strategy to maximize its potential as knowledge/experience increases and macro economy changes.

Try reading Tyler9000's commentary on the portfolio charts site. It helps with some higher than basic level understanding of noncorrelation. There is also an investment series of suggest reads here. They are really a primer in econ/business 101 though (Edit: it helps you understand the underlying economic/business mechanics, but you can understand these without knowing how to invest, I did). If you already have that knowledge, reading more on specific investing types may be more helpful.

[Hristo Botev]

Thank you both, very helpful as always. I'll move my continued thinking on this over to my journal, where it probably should have been in the first place.