A very large percentage of my annual income comes, as it does for so many tech workers, from annual stock grants given by my company (a large tech firm). I do the responsible thing, and immediately sell all the stock grants and invest them per my planned asset allocation.
But the unfortunate fact is that this implies, by definition, that I will be investing more in the market when valuations are high, and less when valuations are low. (To the extent that my particular firm's valuations are correlated with the market.) Whenever the next market crash comes, and I make no claim to know when that happens, rather than buying more at the lows - or even buying a similar amount - I'll be cutting back my savings rate, quite possibly by 50%.
This feels... very wrong. It's not dollar-cost averaging, and it's the very opposite of value averaging.
Effectively, I'm wondering if there's any theory around how to smooth one's savings rate in the face of this reality, especially when one has a rough duration in mind to retirement. I suspect the answer is "nothing, you lucky sod - enjoy your higher savings rate while it lasts"... but perhaps this has been analyzed?
Everything I've considered seems to end up in one of (A) attempts at market timing or (B) progressively setting up an LMP when times are good ("when you've won the game, stop playing") or (C) deciding on a more conservative asset allocation, but in a convoluted way. (And basically (B) is just a version of (C).)
But the unfortunate fact is that this implies, by definition, that I will be investing more in the market when valuations are high, and less when valuations are low. (To the extent that my particular firm's valuations are correlated with the market.) Whenever the next market crash comes, and I make no claim to know when that happens, rather than buying more at the lows - or even buying a similar amount - I'll be cutting back my savings rate, quite possibly by 50%.
This feels... very wrong. It's not dollar-cost averaging, and it's the very opposite of value averaging.
Effectively, I'm wondering if there's any theory around how to smooth one's savings rate in the face of this reality, especially when one has a rough duration in mind to retirement. I suspect the answer is "nothing, you lucky sod - enjoy your higher savings rate while it lasts"... but perhaps this has been analyzed?
Everything I've considered seems to end up in one of (A) attempts at market timing or (B) progressively setting up an LMP when times are good ("when you've won the game, stop playing") or (C) deciding on a more conservative asset allocation, but in a convoluted way. (And basically (B) is just a version of (C).)
Statistics: Posted by brightlightstonight — Mon Jul 15, 2024 8:30 pm — Replies 10 — Views 581