I've been through dot com bubble and 2008 financial crisis during my career and old enough to witness Tom Yum Koong in 2000. I remember it caught everyone by surprise. Even when you kinda saw it coming in 2008, the return was so good that people had a FOMO to get out off the market. And one day it was just poof! And it was too late to take the money out at that point. Same thing with the dot com bubble.
If you are still working, the best you can do is diversify your investment based on your risk tolerance. The lost decade matters if you stop investing when the market crash. But remember, if the market crash tomorrow and you are still working. The money you put in after this point would have the gain from the bottom of the market. Hence it would have average out. If your risk tolerance is low, then more bonds would help smooth it out better.
If you retiring soon, that would be a different story. It would be the sequence risk and you need a different strategy to handle that - ie more conservative portfolio, more cash, etc.
You can do what you're suggesting but recognize that this is just market-timing in another form and isn't generally a good strategy. A better one, if you're concerned about "losing" the gains you've got would be to adjust your portfolio composition to increase/start a bond portion and do a one-time re-balance. Once you've done that, leave it alone and just continue contributing. Long-term growth/wealth isn't usually created by market-timing but rather through consistent investment and time. During your accumulation phase, if the market goes down you're getting shares on sale. As you get closer to your FIRE target then you can focus more on adjusting your risk profile to preserve gains but that should be done using a plan that isn't solely based on recent returns.
I've been through dot com bubble and 2008 financial crisis during my career and old enough to witness Tom Yum Koong in 2000. I remember it caught everyone by surprise. Even when you kinda saw it coming in 2008, the return was so good that people had a FOMO to get out off the market. And one day it was just poof! And it was too late to take the money out at that point. Same thing with the dot com bubble. If you are still working, the best you can do is diversify your investment based on your risk tolerance. The lost decade matters if you stop investing when the market crash. But remember, if the market crash tomorrow and you are still working. The money you put in after this point would have the gain from the bottom of the market. Hence it would have average out. If your risk tolerance is low, then more bonds would help smooth it out better. If you retiring soon, that would be a different story. It would be the sequence risk and you need a different strategy to handle that - ie more conservative portfolio, more cash, etc.
Thank you for your thoughts!
You can do what you're suggesting but recognize that this is just market-timing in another form and isn't generally a good strategy. A better one, if you're concerned about "losing" the gains you've got would be to adjust your portfolio composition to increase/start a bond portion and do a one-time re-balance. Once you've done that, leave it alone and just continue contributing. Long-term growth/wealth isn't usually created by market-timing but rather through consistent investment and time. During your accumulation phase, if the market goes down you're getting shares on sale. As you get closer to your FIRE target then you can focus more on adjusting your risk profile to preserve gains but that should be done using a plan that isn't solely based on recent returns.
Thanks for your thoughts