RetireJapan

We have technically been in a bear market for global stocks for over 10 months now and, in USD terms, are down over 23% YTD. Moreover, long duration global bonds are also down heavily this year as interest rates rise along with inflation. FInally, for those of us who earn in Japanese Yen, we have seen its relative strength decline rapidly against all major currencies especially the USD so cash has been no safe haven either. Any way I look at it, it has been a bad year for my investments and, most frustratingly, with every major asset class going down in tandem, there is no rebalancing premium to be had between most asset classes. So some questions for discussion:

1) How is your portfolio doing?
2) Have you considered making any changes to your portfolio?
3) Are you buying the dip, keeping dry powder, or simply staying the course?
4) Do you think this will be a short term bear market or are you expecting more pain for longer?

Curious to hear y'all's thoughts and strategies on investing during this bear market.

My answers:

1) How is your portfolio doing?
Bad - I am down about 20%+ in dollar terms (about even in JPY terms) this year.
2) Have you considered making any changes to your portfolio?
No but I am embittered by how bonds and gold have let me down and may re-think my allocations.
3) Are you buying the dip, keeping dry powder, or simply staying the course?
I am DCA-ing into the dip and will continue to do so whilst I have cash.
4) Do you think this will be a short term bear market or are you expecting more pain for longer?
I think we are in for a long and painful ride. I worry that rising interest rates will continue to harm the Yen and we will begin to see corporate bankruptcies, foreclosures and currency crises as interest rates increase the cost of debt.

1. Our portfolio is about the same in yen terms, down in USD terms (we basically just have global stock funds, global bond funds, and yen).
2. and 3. No changes to portfolio, and we are continuing our normal monthly payments into NISA, iDeCo, and taxable.
4. I have no idea what is going to happen with exchange rates, the economy, or the stock market. The only thing we control is how much we save and invest, and I believe as long as we continue doing that we will be okay.

The only thing I have changed recently is boosting my allocation to commodities. Commodities did nothing for a decade but last year did great (up like 100%).

Since commodities and equities historically moved in different ways (so I read from Jim Rogers) I thought it better to increase my exposure to them and reduce allocations to other stuff - bonds mostly. Bonds have sucked this year so I guess it worked ok. But this is just a fidget, commodities are still less than 10% of what I have.

Commodities have been selling off like everything in recent weeks though.

There is an eMAXIS Toshin if others want to consider it.

(I also play with commodity futures but this is more speculative in nature…)

No one can predict short-term market movements accurately, so the best strategy is to just keep buying broadly-diversified low-cost equity index funds. Long term, I'm confident things will be up.

Bonds provide return-free risk, not risk-free return. I avoid them completely.

As a yen earner living in Japan, I regard my portfolio in yen terms. I'm not really feeling this bear market. Only my holdings of individual US stocks (primarily tech-oriented, 5% of overall portfolio) is significantly down. The rest is fine.

mighty58 wrote: ↑Wed Sep 28, 2022 8:53 am Bonds provide return-free risk, not risk-free return. I avoid them completely.

What do you use in lieu of bonds in your portfolio or are you 100% stocks? Nothing is risk free but bonds are less risky than stocks and, if you are calculating in Yen terms, USD bonds are up on the year due to the currency exchange.

RetireJapan wrote: ↑Wed Sep 28, 2022 8:33 am 1. Our portfolio is about the same in yen terms, down in USD terms (we basically just have global stock funds, global bond funds, and yen).
2. and 3. No changes to portfolio, and we are continuing our normal monthly payments into NISA, iDeCo, and taxable.
4. I have no idea what is going to happen with exchange rates, the economy, or the stock market. The only thing we control is how much we save and invest, and I believe as long as we continue doing that we will be okay.

Sage advice - out of curiosity do you keep any dry powder or do you try to stay fully invested?

eyeswideshut wrote: ↑Wed Sep 28, 2022 9:35 am

RetireJapan wrote: ↑Wed Sep 28, 2022 8:33 am 1. Our portfolio is about the same in yen terms, down in USD terms (we basically just have global stock funds, global bond funds, and yen).
2. and 3. No changes to portfolio, and we are continuing our normal monthly payments into NISA, iDeCo, and taxable.
4. I have no idea what is going to happen with exchange rates, the economy, or the stock market. The only thing we control is how much we save and invest, and I believe as long as we continue doing that we will be okay.

Sage advice - out of curiosity do you keep any dry powder or do you try to stay fully invested?

We have three emergency funds: mine, my wife's, and the one for her business. Together they make up around 20% of our net worth.

If we had the mother of all stock market crashes I would likely put most of that in

sutebayashi wrote: ↑Wed Sep 28, 2022 8:48 am (I also play with commodity futures but this is more speculative in nature…)

Are commodity options available on Japanese exchanges? I have never gotten in to options (too complicated for my brain) but I am curious about funds or etfs that offer a managed futures strategy - something like: https://imgpfunds.com/im-dbi-managed-fu ... ategy-etf/ as it strikes me as potentially a better hedge than the bond and gold funds I own (which have offered poor protection in this market). THe fees are high and there are probably hidden risks that I am unaware of so I am hesitant.

eyeswideshut wrote: ↑Wed Sep 28, 2022 9:32 am

mighty58 wrote: ↑Wed Sep 28, 2022 8:53 am Bonds provide return-free risk, not risk-free return. I avoid them completely.

What do you use in lieu of bonds in your portfolio or are you 100% stocks? Nothing is risk free but bonds are less risky than stocks and, if you are calculating in Yen terms, USD bonds are up on the year due to the currency exchange.

Bonds are only "safe" if two conditions are present: 1. you have a short-term investment horizon (<5yrs), and 2. you need to preserve capital at all costs during that time (i.e. you will need to cash out).

However, if you have a long-term investment horizon (>20yrs), like most of us who are saving for retirement, stock returns are incredibly consistent and stable. If fact, they actually have less volatility (lower standard deviation) than bonds over 20yr+ terms. That means they are more predictable (i.e. safer) in delivering returns than bonds are, counterintuitive as that may seem. Now obviously, over <5yr periods, equity is more volatile. At 10yrs, it gets pretty close however, and at 20yrs+, equity is superior.

Another point, the average bull market is 54 months long. The average bear market is 9 months long. Being in the market guarantees you capture all these gains, and doing nothing during (the 10% of the time) a bear market is upon us is what guarantees you don't suffer the losses. If, however, you convince yourself you need to do something, whether it's keeping more dry powder out of the market, selling and re-allocating, etc. it just increases the probability you will lose. Individuals are statistically proven to lose out when they jump in and out, and selling during a bear market is arguably the worst time to "take action".

So yeah, I'm all-in on equity for the long term. Because bonds do not make my portfolio safer. They don't have predictable returns (bond valuations are based on the secondary market), they are not "safe" over the long-term, they do not provide a decent return (in fact, most bonds today guarantee a loss to inflation), you are subject to market risk (any interest rate rise, and your bond valuation immediately drops) and they are not immune to crashes. So I don't delude myself that bonds have any of these traits, and because I want to maximize my performance while investing towards retirement, I avoid them. In other words, my long-term horizon is my safety net.