Is it Time to Buy?Stocks are on sale. Let’s review how we decide when it’s time to buy.
The first thing you need to do is consult your investment plan. It should spell out when you will rebalance your accounts. For my clients, we look to rebalance when stocks are 5% below their target. If your target is 75% stocks, we will look to buy when stocks go below 70%.
There’s nothing magical about 5%. For most portfolios it takes about a 20% drop in stocks to hit this threshold. This saves you a bunch of busy work from smaller drops and highlights the best buying opportunities. More importantly, having a target range holds you accountable to following the strategy when things get scary. Stock market drops are a normal part of investing. That doesn’t mean they are fun.
How do we know that stocks won’t go down further when your stocks are 5% below your target? We don’t. That’s an important thing to keep in mind. Things could always get worse, but if you stick with the plan, you will likely do well.
Don’t get caught waiting for the perfect buying opportunity once your plan tells you to rebalance. We use a plan with objective numbers because we know people can’t reliably time the market. If your plan says to rebalance and you’re still nervous, rebalance part way. Doing something is better than nothing.
If you don’t have a plan, talk to me. Now is as good a time as any to create one.