The Congressional not-so-super committee that was tasked with deficit reduction was a spectacular failure. I expected this and prepared our retirement portfolio for it. Yesterday as the market experienced yet another precipitous decline, the stop market order I placed on our U.S. stock index ETF (VTI) reached its trigger price and our shares were automatically sold as the market went down. At least this way we locked in some gains. I expect more bad news ahead and more declines. It is time to sit these out with less equity exposure.
1. Knocked the stock market (and thus our retirement savings) on its butt in 2008-2009.
2. Pushed interest rates so low in response to the consequences of their own failed policies that savers are sacrificed in favor of spenders.
3. Failed to adopt any meaningful budget or tax reform, causing a reduction in credit ratings and lack of investor confidence. We pay for this through continued volatility (most of it negative) in the markets.
Volatility has again caused us to dial back our exposure to the equity markets. Some would argue that I should be buying, not selling. Generally that makes sense but not for us, not now.
First, with our kids grown and mostly off the family payroll, we are able to put a lot more cash into our retirement savings. Ignoring market fluctuations, our contributions generally increase our retirement savings balance by approximately 10% each year. What is the market offering us? It can’t even stay flat.
We are not being offered enough return for the risk that we are taking in the market. Worse, until the 2012 election, nothing substantive will get done to change a mostly negative outlook.
So what will we do with the new cash from this recent ETF sale? Accelerate the purchase of more TIPS and I-Bonds. Right now, I would rather increase the cash balance of our retirement savings by 10% each year, then inflation-protect it with bonds paying a 0-3% real return. We will still be buying some equities, mostly commodity-based.
When Congress decides to pay more attention to the plight of retirees and less attention to their own election campaigns, we can re-balance.
Are any of you making changes in response to recent events?