I’m contrarian by nature. Guess that explains why I find FI so appealing. I also find risk attractive. Here’s the thing: I expect to be compensated for risk and I just don’t see that the US equity or bond markets are compensating well right now. Also, I’m close to pulling the plug on work so I would like to avoid as much of the really rotten Sequence of Return Risk as I can. Unfortunately that’s probably going to mean sitting (mostly) in cash for a spell.
We have a pretty similar outlook on these things, although I'm not willing to go to cash. I've learned that my ability to project both the upticks and downticks is entirely meaningless. Back when I was a more active investor, I even went to cash in 2012 thinking the market was out of control.
Things I've done to mitigate my current exposure:
1. Keep a conservative portfolio that will still give me some compensation for risk, but won't totally blow up in a downturn. Yes, it will still suffer losses, but nothing I'd consider disastrous.
2. Stay diversified. While the Global Financial Crisis was truly global, the next recession will (likely) be much more localized. I'm geographically diversified, as well as having some holdings in negative-correlated assets like long-term treasuries and a small amount of gold.
3. When the market hit an all time-high last month, I sold a chunk of investments and paid off my mortgage (but PLEASE don't turn this into a mortgage payoff discussion. We have enough of those elsewhere on the forum).
Other things I'm considering:
1. Purchasing Real Estate with okayish cash-flow, with at least 50% down. Sure, it still has risk of losing value. But it would still be moving the ball forward on FI plans as long as it cash-flows.
2. Putting more solar panels on my home. I need to get a quote, but I'd put some money into it as long as I can get 4%+ real (6%+ nominal) returns.
3. Other energy or water savings investments in my home (although these aren't huge dollar investments).
Any other thoughts on your end?