As of this morning my trading orders suddenly took me to 18% cash position. Goals are reached and its time to re-evaluate to see if rotation is warranted.
I have been doing an analysis of S&P 500 ROI versus various other investments ROI (ROI means Return On Investment which is the sum of all the dividends given off per share plus the increase in share price). Buffet recommends looking at ROI over 5 year periods. It is very difficult to beat index funds like SPY or VOO without taking excessive risk. It can be done but not by me. Dividend style investors are worried about having to sell stocks when the market is low in order to pay their bills. This would lead to a loss.
So, a dividend investor will try to hold dividend paying stocks that they intend to never sell no matter how low they go. As long as the stock pays the dividend the investor will get the cash flow.
You can protect against this by setting limit orders to sell an ETF if it starts crashing. That eliminates the concern that leads one to invest in “hold forever just to get that dividend” type stocks. Having figured that out I have begun rotating into S&P ETFs. That actually is the lowest risk situation with the best performance.
There are exceptions. Some investments amazingly have ROI that are 2X or 3X the S&P return over 20 years, 15 years, 10 years, and various 5 year periods. Will that continue? The last 5 year period, is sort of weird. I am not sure why. I am still evaluating how to rotate. Meanwhile, the market is reaching new highs. My higher risk investments “limited out” and sold.
$6 trillion in covid recovery money has to go *somewhere*. I think it will end up making the market hold its value. But the risk of crashes also increases quite a bit. Its time to shake the crystal ball and try to lower the risk.