Hedging against a stock market crash

[Owly]

This is not meant to be scaremongering. It's just a question from an ignorant investor to some of the more level-headed, knowledgeable folks out there. I have no doubt this subject has come up before on this forum before but I can't seem to find much - apologies if you are all sick to death of the topic.

Anybody who reads financial media or watches Youtube has seen an uptick recently in terrifying predictions of an enormous stock market crash on the horizon as the "AI bubble" finally pops. Things like this: https://www.youtube.com/watch?v=DZ3bQq9XJEo
I understand that a lot of this stuff is "fear pron" and that nobody really knows what will happen. But it does seem like this sky-high market will have to take some kind of a hit sooner or later.

I, like many people on here, currently have almost all my money invested in global index funds and keep wondering whether I ought to be taking some sort of action to hedge against the possibility of a huge correction in the market. I'm in this for the long term and I expect it to be at least 10-15 years before I need to use any of the money I have invested but still... it's scary just sitting on my hands.

So what do folks think? Better to just keep everything in stock index funds, pay no attention to the media and let the market do its thing? Or should people be diversifying their portfolios and buying things like bond, commodities or gold indexes. Or other products? I saw recently the Vanguard investment outlook for 2024 is predicting bonds are going to make a comeback: https://corporate.vanguard.com/content/ ... o%202.8%25. Or selling off a portion and holding it in cash?

How are other people approaching this?

[Owly]

Sorry, wrong Vanguard outlook!

https://corporate.vanguard.com/content/ ... mmary.html

[RetireJapan]

There is always some scary thing that is about to happen that people will use to write headlines/video titles. It is rarely actionable.

If you are buying investments regularly you should be happy to see stock prices go down.

Trying to be clever and time things has never worked for me, just wasted a lot of time and lost me money.

[VG1]

This is not meant to be scaremongering. It's just a question from an ignorant investor to some of the more level-headed, knowledgeable folks out there. I have no doubt this subject has come up before on this forum before but I can't seem to find much - apologies if you are all sick to death of the topic.

Anybody who reads financial media or watches Youtube has seen an uptick recently in terrifying predictions of an enormous stock market crash on the horizon as the "AI bubble" finally pops. Things like this: https://www.youtube.com/watch?v=DZ3bQq9XJEo
I understand that a lot of this stuff is "fear pron" and that nobody really knows what will happen. But it does seem like this sky-high market will have to take some kind of a hit sooner or later.

I, like many people on here, currently have almost all my money invested in global index funds and keep wondering whether I ought to be taking some sort of action to hedge against the possibility of a huge correction in the market. I'm in this for the long term and I expect it to be at least 10-15 years before I need to use any of the money I have invested but still... it's scary just sitting on my hands.

So what do folks think? Better to just keep everything in stock index funds, pay no attention to the media and let the market do its thing? Or should people be diversifying their portfolios and buying things like bond, commodities or gold indexes. Or other products? I saw recently the Vanguard investment outlook for 2024 is predicting bonds are going to make a comeback: https://corporate.vanguard.com/content/ ... o%202.8%25. Or selling off a portion and holding it in cash?

How are other people approaching this?

The best thing is to do nothing and particularly not to look at your portfolio valuation if it makes you nervous!

[Owly]

Thanks for your responses. I agree with you both.

Just to be clear though, I'm not really talking about timing the market but rather adjusting the composition of one's portfolio to make it more conservative and crash proof.

In recent years the consensus advice on this forum seems to be that, for the not so risk averse with 10-20 years to retirement, an all stock index portfolio is generally recommended. I'm just wondering whether that still stands or whether people are moving towards more conservative portfolios in the current environment. And if so, what kind of products are they looking at including.

[RetireJapan]

Just to be clear though, I'm not really talking about timing the market but rather adjusting the composition of one's portfolio to make it more conservative and crash proof.

That... is timing the market. You are thinking of making changes not because your circumstances, or your goals, have changed but because you think you can get an edge by changing your portfolio. This is unlikely to be so.

A more conservative portfolio may be less volatile, which is good if you are living off the money, but is also likely to grow less in the long run. If you are investing for the long run do you want less volatility (irrelevant over decades) or less growth?

[adamu]

JLCollinsnh stock series.

[ChapInTokyo]

I'm already retired so my current portfolio is quite conservative. But looking at the new research about the historical returns of stocks versus bonds, I can't help thinking I made the right decision way back when to go with a balanced portfolio with both stocks and bonds. At the end of the day, I guess everyone needs to listen to their inner voice and make their own portfolio allocations!

Do Stocks Really Make Sense for the Long Run? - New research threatens the conventional wisdom.
John Rekenthaler Jan 9, 2024
https://www.morningstar.com/columns/rek ... e-long-run

[captainspoke]

Wow, such a crash...

Using VOO as the proxy, it's now all the way back down to where it was on about June 14th.

But, you know, still up 14% YTD. (in dollar terms)

I don't want to jinx things, and yes it could go down more, but if the next seven months is as nice as the past seven, bring it on.

[Tsumitate Wrestler]

Wow, such a crash...

Using VOO as the proxy, it's now all the way back down to where it was on about June 14th.

But, you know, still up 14% YTD. (in dollar terms)

I don't want to jinx things, and yes it could go down more, but if the next seven months is as nice as the past seven, bring it on.

I mean the Topix has had its worst day in 8 years, it was a pretty big adjustment.

The entire publically traded banking sector is Japan is down -10%, just today alone.

That does qualify as notable.