Not Staying the Course
THE MOST FAMOUS expression at Vanguard is to ‘stay the course.’ It’s meant to suggest that investors should remain steadfast and not sell stocks in a downturn.
This has proven great advice over the decades, but I’ve not been staying the course lately. I’ve been selling stock funds and buying bond funds this summer. Yet I think my actions would have the blessings of Vanguard founder Jack Bogle, who made the phrase ‘stay the course’ famous.
Mr. Bogle used to have lunch with the crew in the cafeteria, called the Galley in keeping with Vanguard’s nautical naming style. There, he would dispense wisdom to all comers. Bogle advised keeping investing as simple as possible (though not too simple), and this included his ideas about asset allocation.
During one lunch conversation, he said that the adage that you should own your age in bonds was generally correct, but he might make one adjustment. I’m 69 years old, so if I followed the traditional rule, I would invest 69% of my portfolio in bond funds and 31% in stocks.
Bogle suggested tweaking the formula by subtracting your age from 110 and owning that percentage of bonds. By this adjustment to the rule, I would invest 59% bonds and 41% stocks.
At summer’s start, 70% of my retirement assets were in stocks. I’ve profited from being overweight in stocks. So, why not let it ride? Well, I don’t need to make more money in the market. I do need to protect what I’ve got.
When the market briefly corrected earlier this year, I admit I had regrets. After it recovered, I felt I was offered a do-over. I didn't stay the course. After a season of selling, I’ve whittled my stock holdings down to roughly 45%. The remainder is in bonds and money market funds.
I will earn less with this more conservative allocation. I’ll admit I will probably regret it if the stock market continues its historic climb. But taking less risk also appeals to me now that I’ve begun to depend on my retirement savings.
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