The markets are plunging. This is your time. Yes, I mean that. These sell-offs give individual investors a huge advantage over professional portfolio managers and hedge fund mavens.
This is not a panic. This is an asset reallocation, but you can do it more quickly than the big boys. You can go from risk-on to risk-off in a few mouse-clicks. The big guys cannot.
In this morning's trading we have breached the near-term support level of 2880 on the S&P 500 that I identified two weeks ago, so now it's, "Katie, bar the door." I now see support levels at the Dec. 24, 2018 lows. To refresh those were:
Dow Jones industrial average: 21,792
S&P 500: 2,351
So, even at today's open we have 10%-15% to go to get to those levels. Here are few suggestions to thrive, not just survive, in these volatile markets.
Sell your exchange-traded funds. Yes, that's No. 1. Before even selling stratospherically-valued bubble stocks like Tesla (TSLA) or Virgin Galactic (SPCE) , you should sell your broad-based exchange-traded funds. There are very few markets in which SPYders are worse than individual stocks. This is one of them. Rather than spreading risk among a bunch of stocks (500, say, for SPYders) these ETFs are by nature highly concentrated into a few giant tech names: Apple (AAPL) , Microsoft (MSFT) , Amazon (AMZN) and Alphabet (GOOGL) led us up, and they will surely lead us down. Active portfolio managers can lighten up on stocks. ETF managers can't.
Keep buying bonds. Why buy after such an amazing bond rally that has taken yields to never before seen levels? Because bond yields are just effects, not causes. The same folks who told you the stock market was fairly valued when we were approaching Dow 30,000 are the same folks who said the yield on the 10-year couldn't go below 1.25%. Or 1%. Or 0.75%. Or 0.5%. The bonds themselves are still paying coupons and that's a certainty you need now. Buying a bond above par means a capital loss in theory, but let's just go on the assumption that you will always be able to sell it later to someone else for a capital gain, since that strategy has worked almost without fail for the past 35 years.
Watch your taxes. Every person at every cocktail party I have ever attended bought AMZN at $300, AAPL at $95, MSFT at $35, and so on. I get it. So, be careful with sales in taxable accounts, if those would cause material tax liabilities. Remember the wash sale rule, which means you have a 30-day waiting period until you can buy back a stock after you sell it. In tax-advantaged accounts, on the other hand, you should be selling into this rout with both hands. In a 401(k), you should be switching your fund allocation to bond funds from equity funds. Also make sure new contributions go that way, too. In an IRA, you should be blowing out individual stocks. Almost all of them.
Let this thing cool off a bit and take money off the table. It's your privilege, and, for once, a huge advantage for the little guy. Use it.