I was recently thinking about the early months of 2009. This was a time of tremendous fear in the stock market and a lot of panic selling. It was also a time of being constantly barraged with gloom and doom in the news. I was holding a balanced portfolio of index stock and bond funds. My asset allocation significantly shifted because of the rapid decline of stocks.
I normally checked the balance of my accounts several times a week. However, I was very nervous about going online to see the carnage during this time frame. I kept telling myself … ”This is a perfect time buy stocks, don’t look at your account balance now”. My neighbor told me that he could not take the pressure anymore. He sold all of his stock investments and went to cash. He wanted to wait to get back into the market when it stabilized. I really questioned his decision. Especially since he was 100% in stocks before the crash and only about 10 years away from retirement.
I needed to return my asset allocation back to the desired state. So, I held my breath and completed the required rebalancing. I sold bonds and purchased stocks to make this happen. I initiated multiple purchases. I will highlight a few … I was able to buy the Vanguard Total Stock Market index ETF (VTI) in the high 30′s. I also purchased the Vanguard REIT Index ETF (VNQ) in the 20′s. Looking back, the purchases in 2009 look like home runs today. VTI is trending in the mid-70′s this week. The latest quote for VNQ shows it in the mid 60′s. So, both ETF’s have more than doubled over this time frame.
I focused all of my additional contributions during the “fear in the street” time period to stocks. I started to realize this was a “once in an investing career lifetime” opportunity to purchase stocks at fire sale prices. So, my stock allocation during this time frame was more aggressive than normal. After the recovery, I settled back into my normal asset allocation.
The rebalancing and aggressive purchasing during the stock market lows allowed my account balance to recover faster than expected. I feel very fortunate to have been able to stomach the purchasing of additional stock shares during the turmoil. Looking back, it has paid tremendous dividends and has helped in the journey to achieve financial independence.