Today's Mentoring Decision-Making Meditation gives you access to your subconscious mind and emotions, which make better decisions in complex situations. So, today I did the third mentoring decision-making meditation about the question:
"What should I do with my investments in the stock market?"
This mentoring decision-making meditation goes like that:
I am overlooking the ocean at the white beach of Rawai on the island of Phuket in Thailand. A sailboat is coming my way. It is anchoring and a person gets off in a dinky and rows the last meters to the shore. I recognize my friend Mario, he is my medical doctor and health mentor, and we became good friends over the years. We give each other a welcome hug and take a seat at the waterfront. We enjoy the beautiful view during sunset across the turquoise waters at the sands of Rawai Beach.
I ask my mentor Mario:
"What should I do with my investments in the stock market?"
And Mario responds:
"In general you should apply the same strategy, you are following during calm market periods. Additionally, the crisis offers some chances, you can take advantage of. But it depends on, how you are currently invested.
Re-balancing: Keep selling the earnings of those stocks, which are above the average, and buy some more that are below the average market trend. That means, for example, if you are invested in a NASDAQ ETF and a Gold ETF with the same amount. ETFs are reproducing the market index. Let's say, now during the crisis NASDAQ is 30% down and gold is 20% below your initial investment. Just sell 5% of the gold stocks and by for the amount of cash you receive for it, you buy additional shares of the NASDAQ ETF. So the value of those two will be equal again.
This works even better if you are more diversified, for example with a China ETF and an SMI ETF, the swiss market index. Due to the diversification within those big market indexes, it is highly unlikely that one of them drops to zero. Other than individual stocks. Even Warren Buffet's company Berkshire Haddaway could go bankrupt, as Air Berlin did. And due to that, the Berkshire Haddaway stocks may fall to zero. It is pretty unlikely but possible. But an S&P 500 ETF, which is invested in 500 companies, even if some of them do not survive the crisis, will never drop to zero, but will always grow in the long run. So, you do not want to play that re-balancing game with individual stocks! Anyway, you should invest in individual stocks only a low percentage of your assets, 5% or less.
You can take advantage of a tax optimization strategy during the crisis, if you are invested in ETFs, for example, the NASDAQ ETF. There are many NASDAQ ETFs from different providers available on the market. If you have a huge loss with it, you just can switch from one provider to another one. So that you sell with a big loss, which you can write off against earnings in the future. That means if the value of your NASDAQ ETF is currently 10,000 € below the price you bought it, you can take out 10,000 € tax-free earnings in the future. As you know, here in Germany, we have a tax rate of 25% for earnings on the stock market. So that may save you 2,500 € in the next years.
You may check your portfolio for equal risk distribution. If this strategy makes sense, you should be invested in at least 5, better 10 different positions. That means that you check for the likelihood that a position can go bankrupt. You only need a rough measure of the risk. A risk index of 0 means impossible to drop to zero, 100 means already bankrupt.
For example, you are invested in 7 positions, which are:
- Gold 5
- Swiss Market Index 10
- S&P500 15
- China 20
- NASDAQ 30
- Berkshire Haddaway 40
- Air Berlin 100
If you got a risk index of 30 for NASDAQ, you should be invested at the most
100 - 30 risk index NASDAQ
---------------------------------------- = maximum 10 % of your assets
7 number of positions
You also might think about your cash-investment ratio.
- On one hand, in times of a crisis, when the market is down, you should continuously increase the percentage invested in stocks. Ideally, you are almost 100% invested when the market is at its bottom. Apart from your financial protection. As you know, you should never invest the financial protection. The problem is, that you never know if the market is at its lowest point ... until it is over.
- On the other hand, if it is going too well, while the markets are booming and overheating, you should continuously take out your profits and accumulate them in cash.
And if it is looking too bad, it is time to reinvest your cash. Even leveraging with foreign money is an option if the market is down. Yes, you even can go negative with your cash-investment relationship. If you are confident, that the market is near its bottom you may invest borrowed money. But you need to have high self-confidence and big risk tolerance, actually mental strength to do so. This is nothing for you if you are a thin-skinned, nervous investor! If it is going against you, your broker will close some long positions for you, which will cause a high loss!
You know your passion and meaning or your source of pleasure and adventure. And due to that, you might have your favorite stocks and fun stocks of some business, which make sense to you or excites you. For example, artificial intelligence serves your passion and rocket science satisfies your need for adventure. So you might want to have a small position of an artificial intelligence company or ETF and Virgin Galactic stocks in your depot. Just for the sake of having a meaning in life ... and in your investments."
Finally, it is time to say goodbye. I am expressing my gratitude to Mario for sharing his thoughts and I guide him to the waterfront to help him to move the dinky back into the water. While it slowly gets dark I can see him rowing back to the sailboat and sailing away, until his boat disappears in the darkness of the night.
So, go ahead and think for yourself and share your thought in the mastermind or the comments below. These are my thoughts. They are based on my best knowledge and investing experience. It just reflects what my subconscious mind came up with, during the mentoring decision-making meditation. So it is a way I feel comfortable. Your risk tolerance and investment situation are different and due to that, your strategy should and will be different. This means you need to find out what resonates with you. The decision-making meditations will help you to do so.
Vital and happy regards
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