We consider four case studies in which individuals struggle to decide what to do with their investment portfolios.
Topics covered include:
- Why it’s so difficult to reenter the stock market after sitting on the sidelines and what to do instead
- What are the risks of having a too aggressive portfolio allocation in retirement and what to do instead
- What to do when an investment strategy has worked really well but you feel it is time to make a change
- How to decide on an appropriate portfolio mix after a significant financial change
Case studies were pulled from the following Plus episodes:
Become a Better Investor With Our Investing Checklist
Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today’s episode, 419. It’s titled “How to Make Better Portfolio and Asset Allocation Decisions.”
The Money for the Rest of Us podcast has tens of thousands of listeners per episode. But in addition, over the years, we’ve helped close to 3,000 Money for the Rest of Us Plus members, helped them invest with greater confidence, and manage their wealth. And we do that by providing market reports, tools, and other resources to make better portfolio decisions.
As part of Plus membership, we have a weekly premium podcast episode called Money for the Rest of Us Plus. There’s close to 400 of those episodes. In that weekly show we’re sharing information about current investment conditions, financial market updates, portfolio trades, and we answer listener questions. Many of those questions have to do with asset allocation and portfolio decisions.
In this episode, we wanted to revisit four case studies that featured Plus members that had questions. These were episodes that were released between February 2020 and April 2021. Instead of just playing the audio, I’m recording it fresh, so I can provide updates and more context with what happened because those episodes were released during the heart of the COVID-19 pandemic.
Investing Proceeds from a Home Sale
The first case study comes from Plus episode 287. It was released in February 2020, just when the Coronavirus was being spread around the world, but we weren’t really in severe lockdown mode at that point. This member at the time was 47. He and his family live in the Middle East, and they had a house in Seattle. It was a rental house, but they just got tired of renting it.
They got tired of the turnover in renters, and so they sold the house in July 19 and they booked a large capital gain. This member didn’t have much investment experience. He described himself as a beginning investor and became a Plus member just prior to selling that house in Seattle. He writes:
“For the first time, I find myself having to make a decision as to how to invest my money, and realize I don’t really know what to do. The house was our primary savings vehicle.”
As a Plus member, he focused on the moderate model portfolio examples on the Plus membership site. On there we have 12 model portfolios that range from ultra-conservative to more aggressive, we have some role-based portfolios, and they’re there to really give members some context, some examples, some inspiration to guide them in their investment decisions.
So this member was focusing on the moderate portfolio, but then the money just sat for six months, from the summer of 2019 to February 2020, when he wrote us about what to do. He said, “Despite having money to invest during a very hot market, I was afraid to do so. I now think in retrospect that it was probably a big mistake.
The reason for this—I was constantly looking for a good entry point, despite intellectually knowing that this is probably futile. I kept thinking that the market was overheated and kept waiting. And although the market did dip slightly a few times most recently, with the Coronavirus effect, I was not able to get in in time before it swung back up again.”
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