2017 Midyear Investment Rebalancing - Retire by 40 (2024)

2017 is half over. How have your investments done so far? The stock market performed splendidly over the last 6 months and made everyone a genius investor. Our investment increased 16% in value! That’s an over $200,000 increase in just 6 months, which is more than I ever made as an engineer, that’s insane. The increase is not all from investment gains, though. We added $60,000 to our investment package so far this year, so the increase is not only gains also plus new investment. It’s been awesome, but how long can this ride last? The stock US market is overvalued in comparison to historical metrics. I’ve adjusted my expectation for lower returns and I’m rebalancing our investment to reflect that view.

Some of my favorite personal finance bloggers are also having a hard finding a good investment on the stock market.

Mr. Tako’s cash hoard has grown to over $400,000 because he can’t find a good investment. Read more in – Are The Investing Storm Clouds Gathering?

Financial Samurai is going conservative and aims to rebalance his investment asset allocation to 50% stocks, 50% bonds. That’s really conservative, but we should listen to Sam. He’s one of the savviest DIY investors out there.

2017 Rebalancing

The stock market is overvalued, but we still need to stay invested. I’m only 43 and we’re not drawing down our retirement portfolio yet. Our early retirement withdrawal strategy is to work a bit and minimize withdrawal until we’re 55. With 12 more years until full retirement and 30+ years after that, we need to keep investing in the stock market. Besides, nobody knows when the party on Wall Street is going to end. The US stock market may be overvalued, but the good times could continue for a few more years. The best thing to do is to stay the course and stick with our investment strategy. That’s a lot easier said than done, though. I couldn’t stick with my own investment strategy and I’ve rejiggered our asset allocation…

Our asset allocation

We still have about 70% stocks, but the US/international mix changed quite a bit. Now, our international stock investment is about the same weight as our US stock. I’ve been very nervous about the US stock investment, but now I’m feeling a bit better. International stocks have been great this year and I hope it continues to deliver over the next decade. They have been lagging the US market for many years so it’s time for international and emerging markets to shine.The first column is my asset allocation for 2016 and where we were at the end of 2016. I could have stuck with this allocation, but I couldn’t resist messing around with it a bit. I’ve been reading too much about how the US stock market isn’t going to return less over the next decade. It made sense to shift some investment to international stocks which is a bit undervalued. So over the last few months, I’ve been slowly shifting some of my US stock investment to International and emerging markets.

More bonds

I’m also thinking about increasing our bond allocation. If the US stock market continues to reach new heights, I’ll probably get nervous again and increase our bond allocation at some point. It’s getting harder to move investments around, though. Our US stocks investments are somewhat locked up.

Here is how those 38% divvy up.

• 23% Large cap. That’s 8% in Mrs. RB40’s retirement fund and 15% in our dividend portfolio.
• 5% Mid cap index fund
• 10% small cap index fund

Most of the stocks in our dividend portfolio are large cap US stocks and I don’t want to mess with them much. Dividend income will help pay for our living expenses when Mrs. RB40 retires. Another large allocation of US stocks is in Mrs. RB40’s retirement fund which is a target date fund. It has been doing really well so I don’t want to mess with that one, either. I’m sure Mrs. RB40 wouldn’t like it if I tried. The only US stocks left after that are some US small cap and mid cap funds which are good diversifications. At this point, I’m not really sure how to cut down our US equity holdings further.

Right now, the easiest way to increase our bond allocation is to add new money. I’ll do that, but new money isn’t going to make dent in the allocation. It’s such a small amount compared to our total investment.

In conclusion, I’m hesitant to add any new money to the US stock market today. We’ll mostly add to bonds and cash for the rest of 2017. That way we’ll have some funds in the war chest in case the stock market crashes. I also like investing in real estate crowdfunding. I’m looking to invest in more deals at Realty Shares when we accumulate some extra cash.

Pictures are worth a thousand words

Here is the graph of our investment in 2017. The performance has been incredible. Sign up with Personal Capital to see your investments all in one page. They made it easy for me to easily review our accounts.

Are you getting nervous?

How about you? Are you getting nervous about this US stock market? Will you stay the course or have you made some changes to your asset allocation? If you’re a blogger and wrote about this, then leave a link and I’ll add it here.