Author Topic: Nervous about the market?  (Read 4189 times)

reformingSucka

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Nervous about the market?
« on: January 09, 2018, 10:44:06 AM »
I know the golden rule is to stay put... but I am nervous. That said, 90% of my investments are in the stock market (index funds). My fear has me thinking of re-balancing that and reducing the overall market exposure to about 30% (a combination of domestic and foreign). What do you think? Anyone else make changes?

mxt0133

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Re: Nervous about the market?
« Reply #1 on: January 09, 2018, 10:48:01 AM »
What are you nervous bout exactly?  If you do reallocate when do you plan on putting back to the original allocation? How far are from you goal? Are you retiring next year or in 10 years?

PDXTabs

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Re: Nervous about the market?
« Reply #2 on: January 09, 2018, 10:53:00 AM »
I fully expect a major correction in the next two to four years. However, I'm not nervous because I can't feasibly retire in the next 12 years. So if stocks go on sale, I'll just keep on buying. EDITed to add, 100% of my 401k is in VTWSX.

reformingSucka

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Re: Nervous about the market?
« Reply #3 on: January 09, 2018, 11:00:10 AM »
What are you nervous bout exactly?  If you do reallocate when do you plan on putting back to the original allocation? How far are from you goal? Are you retiring next year or in 10 years?


My FIRE goal is 8-10 years. As odd as this may sound, I am nervous at the stocks going up to high... There's too many superlatives in the market of late and it has me thinking - really? how is all this possible... I guess my feeling (again, yes, feeling) - it all feel a tad too good to be true.

reformingSucka

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Re: Nervous about the market?
« Reply #4 on: January 09, 2018, 11:05:37 AM »
Practice being not nervous...

If you give into your emotions then they control you and will lead you to do irrational things.

Go look at a long term chart of the stock market.  Pay careful attention to 1987, 2001, and 2009. Now look where we are.  No matter when you invested you come out better just sticking in the market for the long term.  Once you convince yourself of that, you will be fine.

Thanks, I did and I will definitely review it again. I guess my underlining question is: is there ever a reason to re-balance? It seems that the vast majority would say "no" unless you're in retirement AND you wouldn't be able to survive (you'd have to sell) in the next downturn to meet your basic needs. Which all to me sounds awfully risky.

MDM

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Re: Nervous about the market?
« Reply #5 on: January 09, 2018, 11:10:13 AM »
The asset allocation that works best at any given stage in an investor's life will depend largely on the need, ability and willingness of the investor to take risk.

What you propose may or may not be a good idea in hindsight.  You have the ubiquitous 2x2 grid: on one axis is "reallocate: yes" and "reallocate: no".  On the other axis is "market goes up" and "market goes down".  Using coin flips as a predictor, there is a 50/50 chance of being happy with the outcome.

Maenad

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Re: Nervous about the market?
« Reply #6 on: January 09, 2018, 11:55:00 AM »
I'm not nervous, per se, but the last few days are moving me towards the "bubble is forming" mindset. However, things felt this way in 1995 too (see Alan Greenspan's comment on irrational exuberance), and that bubble kept going for like 5 years.

So, there's no way of knowing when this is going to pop. Could be this year, could be 2023. Who knows? I'm not doing anything, I'm comfortable with my asset allocation. If you're feeling nervous, then your AA is out of whack for your risk tolerance, and you may want to adjust.

Frankies Girl

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Re: Nervous about the market?
« Reply #7 on: January 09, 2018, 12:07:49 PM »
Practice being not nervous...

If you give into your emotions then they control you and will lead you to do irrational things.

Go look at a long term chart of the stock market.  Pay careful attention to 1987, 2001, and 2009. Now look where we are.  No matter when you invested you come out better just sticking in the market for the long term.  Once you convince yourself of that, you will be fine.

Thanks, I did and I will definitely review it again. I guess my underlining question is: is there ever a reason to re-balance? It seems that the vast majority would say "no" unless you're in retirement AND you wouldn't be able to survive (you'd have to sell) in the next downturn to meet your basic needs. Which all to me sounds awfully risky.

Well, sure there's a reason to rebalance. If your holdings are out of line by enough of a percentage to not match up with your asset allocation, then you rebalance. I check stuff once a year or so just to see, and if it's more than 5% out of wack (my personal % that triggers a rebalance), I'd fix it.

What does your investment policy statement say? What about your asset allocation? If you don't have those things locked down, it likely is a bit nerve-wracking since you're basically just winging it with no real sense of direction. If you're super worried, then you likely should reassess your asset allocation to be more conservative or start building up a stockpile of cash to act as a buffer for a 1-3 year period and leave the investments alone.

I don't give a rat's ass what the market is doing in terms of "there's a crash coming" or "stocks/bonds/purple elephants are overvalued right now! OMG!!!" It's all noise.

Crashes happen. Bull runs happen. Bear runs happen. Life goes on. Stop freaking out about the short term static. You're not investing for the next year or even decade. I'm in my 40s, and I figure I've got at least 30+ years left to be in the market... I'm sure the market is going to do some crazy things in that time. And I'm FIREd! OMG! Nope, no panic. Have my IPS and AA set up and understand how the market stuff works just enough to not freak out and panic sell everything when the next crash happens.

BTDretire

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Re: Nervous about the market?
« Reply #8 on: January 09, 2018, 01:00:55 PM »
I can't say I'm nervous, but I have the concern that at 62yrs old if 35% of my networth vaporizes. I will feel pretty
stupid. I have always heard, once you hit critical mass, you need to be more conservative. 
 But our stock market returns were 3-1/2 times our income for 2017. It's hard to get out with growth like that.

robartsd

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Re: Nervous about the market?
« Reply #9 on: January 09, 2018, 03:46:46 PM »
Thanks, I did and I will definitely review it again. I guess my underlining question is: is there ever a reason to re-balance? It seems that the vast majority would say "no" unless you're in retirement AND you wouldn't be able to survive (you'd have to sell) in the next downturn to meet your basic needs. Which all to me sounds awfully risky.
While the mechanics are the same, there is a difference between reallocating and rebalancing. Reallocating is changing your mind about what weight to put on various asset classes within your portfolion; rebalancing is reacting to changes in value to return your portfolio to your target allocation. If you chose a 70-80% equity allocation, but the equity portion grew to 90%, you should rebalance (just like you should rebalance if your equity portion dropped to 60%). Typical advice on reblanancing says you should rebalance when you are more than 5% out of your target allocation, or just rebalance annually.

MustacheAndaHalf

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Re: Nervous about the market?
« Reply #10 on: January 09, 2018, 07:54:26 PM »
If you unwrap the hype surrounding "new market high" or "all time high", it's not as exciting as it sounds.  Over time, stocks go up.  They should frequently hit new market highs, because over time the trend is upward.

With an emergency fund in a savings account, you'll experience the same thing.  Even at 1% interest, your savings account is always hitting an "all time high".  It's just earning 1%, but each month when interest is posted it's higher than the last.

A separate problem is that people can't predict corrections and problems in the stock market before the fact.  So if you think we are due for a correction, you are probably wrong.  You might be correct in saying we'll get a correction, but you can't pin down the timing, which isn't useful for investing.  So most of the emotional fears you have about the market swings aren't things your emotions can help you predict.  It's not a lion in the jungle about to strike - where the silence might make you nervous since every other animal has fled.  Instead, it's all the businesses in the world being traded on active markets in unimaginable volumes of currency, and can't be predicted.  So settle in and enjoy the long term.

It may be a good time to check that your percentages fit your time horizon, though.  Take a look at a target retirement fund (maybe 2030?) and check that your portfolio matches the bond and stock percentages - or is somewhere close.  If you have 5% bonds and the fund has 20% bonds, that's something to look into.

Retire-Canada

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Re: Nervous about the market?
« Reply #11 on: January 09, 2018, 08:10:23 PM »
What do you think? Anyone else make changes?

I think you need to pick an asset allocation you can stick with through thick and thin. Stop trying to guess what will happen next. You will not get it right. Decide on investments you can walk away from for 10yrs and they'd do fine on their own.

2Birds1Stone

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Re: Nervous about the market?
« Reply #12 on: January 09, 2018, 08:10:49 PM »
It sounds like your asset allocation is fundamentally wrong for you.

If the market makes you nervous, why the heck would you be 90% in stocks? You can get most of those gains with 25-50% less risk with a slightly more conservative AA.

The 10 year bull market has certainly created a lot of brave souls around the FI webisphere, but many forget that 99% of the bloggers and followers have not lived through a real correction or let alone a bear market.

It's been proven in many studies that investors do NOT tolerate losses nearly as well as they claim to before it happens.

Pigs get fat, hogs get slaughtered.

I would write out a personal investment policy statement, with your desired AA, including WHY that is your AA, your investment style, and keep it somewhere you can look at it during times like this.

Doesn't sound like 90/10 is right for you, or many people on these boards who claim to be "all in" on stocks.

Indexer

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Re: Nervous about the market?
« Reply #13 on: January 09, 2018, 08:12:54 PM »
What are you nervous bout exactly?  If you do reallocate when do you plan on putting back to the original allocation? How far are from you goal? Are you retiring next year or in 10 years?


My FIRE goal is 8-10 years. As odd as this may sound, I am nervous at the stocks going up to high... There's too many superlatives in the market of late and it has me thinking - really? how is all this possible... I guess my feeling (again, yes, feeling) - it all feel a tad too good to be true.


Here is the more important question. What is your target AA, and has that changed? It's okay if it has as you have gotten closer to retirement.


Being nervous and wanting to go from 90% stocks to 30% stocks is market timing. That's not helpful. Let's rephrase the question.  Instead, ask if being 8 years from retirement justifies a more moderate AA. The answer to this question will be different for everyone, but I think shifting to an 80/20, 70/30, or even 60/40 AA could be prudent if it will help you stick to the plan. Make sure it's an AA you are comfortable holding onto, and rebalancing, regardless of what the markets do over the next 12 months.
« Last Edit: January 09, 2018, 08:15:57 PM by Indexer »

Mighty-Dollar

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Re: Nervous about the market?
« Reply #14 on: January 09, 2018, 11:36:06 PM »
I know the golden rule is to stay put... but I am nervous. That said, 90% of my investments are in the stock market (index funds). My fear has me thinking of re-balancing that and reducing the overall market exposure to about 30% (a combination of domestic and foreign). What do you think? Anyone else make changes?
Age? 90/10 is typically a 30 year old's stock/bond allocation.
The Schiller PE ratio is outdated but I still think people are watching it. I think the Schiller PE will go up higher to the 38 to 45 range. This would give us about another 1 to 2 years of bull market upside. Some of the best gains come at the tail end of bull markets.
Also corporations are going to be buying back their stock because of this new tax bill. That's going to play out for a while.
Also where else would money go right now? Bonds? There's too much downside risk for bonds as the economy heats up and interest rates are gonna go up.
http://www.multpl.com/shiller-pe/

DarkandStormy

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Re: Nervous about the market?
« Reply #15 on: January 10, 2018, 07:56:24 AM »

SimpleSpartan

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Re: Nervous about the market?
« Reply #16 on: January 11, 2018, 04:20:42 PM »
 
Also where else would money go right now? Bonds? There's too much downside risk for bonds as the economy heats up and interest rates are gonna go up.
http://www.multpl.com/shiller-pe/
[/quote]

Crypto

Maenad

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Re: Nervous about the market?
« Reply #17 on: January 11, 2018, 05:03:20 PM »
There's also the question of how long you're going to live off of your investments. A higher stock allocation allows for enough growth over decades to ensure you can make it for 50 years. If it's 30, you can be more conservative.

Debts_of_Despair

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Re: Nervous about the market?
« Reply #18 on: January 11, 2018, 05:07:40 PM »
Iím nervous that I wonít be able to buy even more shares when prices go down.

harvestbook

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Re: Nervous about the market?
« Reply #19 on: January 11, 2018, 05:10:03 PM »
What if the bull market actually started in 2013 when it finally got back to pre-crash levels? What if there hadn't been two once-in-a-lifetime crashes crammed into one decade? What if historically low interest rates actually mean the CAPE isn't really that high?

The thing is, "normal" years are very rare. The S & P averages around 10 percent, but over the last 30 years, it's been around that annual average only three times ( 1993, 2004, 2016). It's usually significantly higher or lower. Getting to the average is a bumpy ride.
https://ycharts.com/indicators/sandp_500_total_return_annual

I'm no fan of Jim Cramer but there is truth when he says, "This is just what a bull market looks like." I have certain theses in predicting how the world will turn out but I don't dare invest according to those beliefs because I'm almost certainly wrong.

I'm 90/10 as well and I'm ready to ride it out for at least another decade, slowly adding bonds to finish at 80/20 by then when I will review things. I don't know or care whether the market is too high, because no one can know. I'd say get it to where you can sleep at night.


boarder42

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Re: Nervous about the market?
« Reply #20 on: January 11, 2018, 05:35:11 PM »
You're misusing the term rebalance. If my target AA is 90/10. And stocks have a good year and end up at 95/5 then I rebalance to 90/10. What you're talking about doing is changing your AA based on market conditions. This is bad. You'll lose in the long run. You have 8-10 years if you're nervous about this in accumulation phase you really are going to need to educate your self so you don't do irrational things like you're suggesting here.

The market could go up 1% this year and the shiller would be realigned

PizzaSteve

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Re: Nervous about the market?
« Reply #21 on: January 11, 2018, 06:24:06 PM »
Hope and fear keep one from being fully mindful and engaged in the present was a lesson summarized from Running with the Mind of Meditation.  The audiobook is a quick listen from the public library and very pragmatic.  Highly recommended and totally applicable to investing thoughtfully.

This is probably my last post in this forum for a while.  Retiring next week, fully (sadly, actually over) funded with paid off home and subsidized health care until SS age.

Good luck everyone.
« Last Edit: January 11, 2018, 06:26:43 PM by PizzaSteve »

Mr. Boh

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Re: Nervous about the market?
« Reply #22 on: January 12, 2018, 08:29:33 AM »
Hope and fear keep one from being fully mindful and engaged in the present was a lesson summarized from Running with the Mind of Meditation.  The audiobook is a quick listen from the public library and very pragmatic.  Highly recommended and totally applicable to investing thoughtfully.

This is probably my last post in this forum for a while.  Retiring next week, fully (sadly, actually over) funded with paid off home and subsidized health care until SS age.

Good luck everyone.

Congradulations! Come back soon PizzaSteve.

Mississippi Mudstache

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Re: Nervous about the market?
« Reply #23 on: January 12, 2018, 08:53:34 AM »
What do you think?

I think it's unwise to change your asset allocation on the basis of a general feeling about the market.

Anyone else make changes?

No. I'm 65% domestic equities, 25% foreign equities, and 10% bonds. Same as I've been for the last 5 years.

mskyle

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Re: Nervous about the market?
« Reply #24 on: January 12, 2018, 09:05:20 AM »
You're misusing the term rebalance. If my target AA is 90/10. And stocks have a good year and end up at 95/5 then I rebalance to 90/10. What you're talking about doing is changing your AA based on market conditions. This is bad. You'll lose in the long run. You have 8-10 years if you're nervous about this in accumulation phase you really are going to need to educate your self so you don't do irrational things like you're suggesting here.

The market could go up 1% this year and the shiller would be realigned

I don't think OP should reallocate based on market conditions, but if OP isn't mentally in a place where they can stick with this allocation during a drop, they should consider a more conservative portfolio (recognizing that they will lose out on some gains).

I was really fortunate (in some ways!) in that I made my first (non-workplace-retirement account) investment in the stock market in May of 2008... four months later I'd "lost" half my investment, but for whatever reason (stubbornness and knowing I didn't have a better plan, I guess) I left that money where it was, and of course now I'm glad I did. So basically, having been there, I know the next crash will hurt (especially since I have like 30x more money invested than I did back then), but I'm pretty sure I'll be able to do the same or better than I did back then.

If someone's not confident that they'll be able to not freak out and pull their money from the market at a low (or if there's a realistic chance they'll actually *need* the money during a market low), it's better to just be in an more-conservative allocation, IMO. If you can't fix your irrationality, own it!

boarder42

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Re: Nervous about the market?
« Reply #25 on: January 12, 2018, 09:24:22 AM »
You're misusing the term rebalance. If my target AA is 90/10. And stocks have a good year and end up at 95/5 then I rebalance to 90/10. What you're talking about doing is changing your AA based on market conditions. This is bad. You'll lose in the long run. You have 8-10 years if you're nervous about this in accumulation phase you really are going to need to educate your self so you don't do irrational things like you're suggesting here.

The market could go up 1% this year and the shiller would be realigned

I don't think OP should reallocate based on market conditions, but if OP isn't mentally in a place where they can stick with this allocation during a drop, they should consider a more conservative portfolio (recognizing that they will lose out on some gains).

I was really fortunate (in some ways!) in that I made my first (non-workplace-retirement account) investment in the stock market in May of 2008... four months later I'd "lost" half my investment, but for whatever reason (stubbornness and knowing I didn't have a better plan, I guess) I left that money where it was, and of course now I'm glad I did. So basically, having been there, I know the next crash will hurt (especially since I have like 30x more money invested than I did back then), but I'm pretty sure I'll be able to do the same or better than I did back then.

If someone's not confident that they'll be able to not freak out and pull their money from the market at a low (or if there's a realistic chance they'll actually *need* the money during a market low), it's better to just be in an more-conservative allocation, IMO. If you can't fix your irrationality, own it!

this is wrong if they arent in a place where they can stick with it in a drop they should further educate themselves to become comfortable.  b/c the fear is irrational in both cases of an increasing or decreasing market.

reformingSucka

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Re: Nervous about the market?
« Reply #26 on: January 12, 2018, 09:32:40 AM »
Thanks, I did and I will definitely review it again. I guess my underlining question is: is there ever a reason to re-balance? It seems that the vast majority would say "no" unless you're in retirement AND you wouldn't be able to survive (you'd have to sell) in the next downturn to meet your basic needs. Which all to me sounds awfully risky.
While the mechanics are the same, there is a difference between reallocating and rebalancing. Reallocating is changing your mind about what weight to put on various asset classes within your portfolion; rebalancing is reacting to changes in value to return your portfolio to your target allocation. If you chose a 70-80% equity allocation, but the equity portion grew to 90%, you should rebalance (just like you should rebalance if your equity portion dropped to 60%). Typical advice on reblanancing says you should rebalance when you are more than 5% out of your target allocation, or just rebalance annually.

Thanks, I am using the word rebalance incorrectly, what I mean to say is reallocating.

Retire-Canada

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Re: Nervous about the market?
« Reply #27 on: January 12, 2018, 09:39:35 AM »
Thanks, I am using the word rebalance incorrectly, what I mean to say is reallocating.

Whatever you do don't panic and make a rash decision. Read up on the topic, think about it and decide on an asset allocation you will have confidence in for the long haul.

reformingSucka

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Re: Nervous about the market?
« Reply #28 on: January 12, 2018, 09:43:13 AM »
It sounds like your asset allocation is fundamentally wrong for you.

If the market makes you nervous, why the heck would you be 90% in stocks? You can get most of those gains with 25-50% less risk with a slightly more conservative AA.

The 10 year bull market has certainly created a lot of brave souls around the FI webisphere, but many forget that 99% of the bloggers and followers have not lived through a real correction or let alone a bear market.

It's been proven in many studies that investors do NOT tolerate losses nearly as well as they claim to before it happens.

Pigs get fat, hogs get slaughtered.

I would write out a personal investment policy statement, with your desired AA, including WHY that is your AA, your investment style, and keep it somewhere you can look at it during times like this.

Doesn't sound like 90/10 is right for you, or many people on these boards who claim to be "all in" on stocks.

Thanks, yeah I don't think 90/10 is right for me. I didn't know much about stocks when I started investing about 6 years ago (I got to the party later). And really I don't really know much about it now. It was really easy to be 90/10 when there wasn't much on the line, but now that my portfolio has grown - so has my protective tendencies. I need to find an AA that is comfortable for me in the long run.

reformingSucka

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Re: Nervous about the market?
« Reply #29 on: January 12, 2018, 09:45:54 AM »
I know the golden rule is to stay put... but I am nervous. That said, 90% of my investments are in the stock market (index funds). My fear has me thinking of re-balancing that and reducing the overall market exposure to about 30% (a combination of domestic and foreign). What do you think? Anyone else make changes?
Age? 90/10 is typically a 30 year old's stock/bond allocation.
The Schiller PE ratio is outdated but I still think people are watching it. I think the Schiller PE will go up higher to the 38 to 45 range. This would give us about another 1 to 2 years of bull market upside. Some of the best gains come at the tail end of bull markets.
Also corporations are going to be buying back their stock because of this new tax bill. That's going to play out for a while.
Also where else would money go right now? Bonds? There's too much downside risk for bonds as the economy heats up and interest rates are gonna go up.
http://www.multpl.com/shiller-pe/

I'm 32, and I've had 90/10 for as long as I have been in the market - about 6 years. Thanks for the link!

mintleaf

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Re: Nervous about the market?
« Reply #30 on: January 12, 2018, 12:31:36 PM »
First off, congrats on accumulating enough money that you're starting to feel protective of it! As others have mentioned, you need a defined asset allocation. Do some research, meditate on your recent experiences, and pick something that fits your goals and personality. Write it down so you can't ignore it later.

As time goes by and your circumstances change, you might decide that you want to change your AA. That's ok, but be careful about short-term greed or fear clouding your judgement. Here's a trick: Decide up front that any changes need to be delayed by one year. That is, if you decide to make a change, you have to write it down, wait a year, and then execute it. Doing that takes a whole swath of bad behavior off the table, and it's a nice simple rule to fall back on when things are turbulent.

ChpBstrd

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Re: Nervous about the market?
« Reply #31 on: January 12, 2018, 03:29:34 PM »
A protected put strategy might cost you the same as upping your bond allocation. Bonds might get whalloped alongside stocks if inflation/interest rates rise unexpectedly.

SPY 3 year LEAPS are now trading, and with volatility so low they are cheap. If you hold them for a year and then swap them for another 3y put, you can insure your investment for around 3% per year. That way you keep most of the upside if stocks continue to rise, plus dividends. Even better if you can sell far-OTM short-duration calls to earn another 1% a year.

Add up the losses due to only down years in the S&P over the past 40 years and calculate an annual average. Note that the price of those puts exceeds their expected value in purely probabilistic terms. Decide if now is the time to pay someone that profit and buy the insurance. I think there's a valuation case for it. I also think a protected put portfolio of all equities is a better idea than a 70/30 or 60/40. Note that with this plan there is a possibility for the puts to profit even if stocks don't go down - an increase in market volatility would likely do it.