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Omicron Variant Investing Adjustment

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Omicron Variant Investing Adjustment

Whoa, what happened to the stock market on Friday? RB40Jr had a couple of friends over for a sleepover so I was offline for a couple of days. Those kids were just too noisy for me to get anything done. I was taking Thanksgiving week off anyway so I didn’t check the news. Apparently, there is a new variant of COVID – Omicron. Investors got scared and sold off some stocks. By the way, isn’t Omicron one of the Decepticons? The name sounds familiar. I looked it up and Omicron is just one of the minor characters in the Decepticon gang. Hopefully, the Omicron variant will be a minor footnote as well.

At this time, we don’t know much about the Omicron variant. It’s a concern because the Omicron variant has a large number of mutations and may increase reinfection risk. Scientists around the world are trying to figure out if this variant is more transmittable or causes more severe illnesses. We just don’t know very much right now. However, many countries are imposing travel restrictions on southern Africa. That’s where Omicron was first detected. I guess that’s a good precaution. Unfortunately, Omicron has already been found in the U.K., Israel, Belgium, the Netherlands, Germany, Italy, Australia, and Hong Kong. It hasn’t been detected in the United States yet, but it probably will be here soon. This is why investors got spooked.

Investing with Omicron

On Friday, investors reacted to the news of the Omicron variant and the stock market had its worst day of 2021. The economy is just recovering and it’s in a vulnerable stage right now. If Omicron is more contagious, it might put a stumble in that recovery. However, I think investors overreacted because we still don’t know much about this new variant. Who knows, it might not be that bad.

Like me, most individual investors probably didn’t pay much attention to the stock market on Thanksgiving weekend. We’ll see what happens on Monday. As news develops, the stock market might drop some more and create a buying opportunity. Financial Samurai wrote a good post on this topic – The New COVID Variant Investment Thesis for Stocks and Real Estate. He’s way better than I am at following the market and predicting trends. I find he’s right pretty often. Basically, he expects the S&P 500 index to decline by 10% to 15% and he plans to aggressively buy the dip. I like this plan. You need to keep investing through thick and thin.

My Omicron adjustment plan

If you haven’t checked on your asset allocation in a while, now is the time to do it. The Vanguard S&P 500 index fund increased by almost 25% so far this year. That’s much higher than usual. Meanwhile, the Vanguard Total Bond Market Index Fund dropped by 1.5%. The difference in performance may have pushed your asset allocation off balance. Yes, it’s time to check your asset allocation.

Rebalance

I just checked and we have about 17% bonds in our portfolio right now. That’s a bit higher than I’d like. Earlier this year, I sold off some stocks and moved the money into bonds because I thought the stock market was overheated. However, the stock market kept hitting new highs. Now, I think it’s better to avoid active investing until we’re closer to full retirement. We don’t need to take the money out yet so it’s better to let it ride out the bumps. If Omicron causes the market to drop, I’ll decrease our bond allocation to about 10%. After that, I’ll stick with 10% bond for at least 6-7 years.

Keep investing

Another thing that we plan to do is to keep investing. Mrs. RB40 is still working so she’ll continue to max out her 401k. That’s an easy call. I don’t have a regular job anymore, but I still have some income from this blog and my side hustles. I’ll keep contributing to my 401k as long as I have earned income. This really is the easiest way to become a millionaire. You should invest a good portion of your earned income every pay period and never stop. The magic of compounding will do the rest.

Adjust cash position

One of my 2021 New Year goals was to accumulate $50,000 in cash. That’s about how much we spend in one year. Mrs. RB40 planned to take a year off in 2022 so we wanted to be prepared. However, it looks like she’ll only get 6 months off. Hence, we won’t need as much cash. Now, I think $30,000 in cash will be plenty of cushion. We’ll keep $30,000 in the bank and invest anything over that in the stock market.

The booster shot

Lastly, we plan to get the COVID booster shot soon. The CDC now recommends that everyone over 18 gets a booster shot if it’s been over 6 months since your COVID vaccination. I already scheduled my booster shot for December 3rd. I’m flying to Thailand in January so I need to get it done early. Mrs. RB40 plans to get the booster shot when it becomes widely available. RB40Jr just got his first shot a couple of weeks ago and he’ll get his second shot in December. I’m not too worried about the Omicron variant because we’ll all be vaccinated very soon. Of course, I’m assuming this new variant isn’t extra sneaky about getting through the vaccine or causing more serious symptoms. I’m sure we’ll find out very soon. Scientists are working hard on this.

What about you? Have you checked your asset allocation lately? Do you have a plan if the Omicron variant causes the market to drop?

Image credit: Xingyue Huang

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.

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