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18 comments:
Well I appreciated the post and will take the comments to heart
Roger thanks for the thoughts. I lost 40% over the past 6-9 months. My Pride was in overdrive. I told myself a 30% turn was max and was not a big deal, ride it out. Deer-in-hearlights got me.
I have found your blog one day and have found it to be infomative and enlightning. At 55 I have little time to recover but can, and will not allow myself to get cought next time. 200 day/50 day moving average will be watched and heeded.
Tough lesson but I can recover in five years and move along.
An interesting side point from your bolg yesterday, on Oct 1 last year I went into a "Large Brokerage House" with the intension of turning my money management to them. I had lost about 15% at that time, didn't like it but was not concerned.
An asset review occured and I was told I had a lock and with minor tweeks my portfolio was solid. I specifically asked the Manager of the office and the advisor I was given, should I sell and wait it out. NO NO I was told... Sigh...
Thanks for the comments thoughts and information, it is good stuff!
The thing is: To judge whether or not that's bad advice, we'd have to know exactly what he asked you and what your answers were regarding appetite for risk, losses, your goals, etc.
I had the same conversations with my mother in law last year. She was throwing fits about her financial advisor. I was getting 2 different stories, 1 from her, 1 from the advisor. I got 'em on a conference call and well, maybe she hadn't worded her goals to him exactly as she told me.
Live and learn, that's for sure.
Roger,
If you have the time I would love for you to participate in this ongoing debate over at the boglehead forum of inverted yield curve versus strict buy hold investing. EF Moody articulates using a form of the inverted yield curve quite well.
http://www.bogleheads.org/forum/viewtopic.php?t=36618&postdays=0&postorder=asc&start=0
Anon 7:25 is 55 (my age) and is looking for a market recovery so that he may exit out if I understand him right.
Gee, what if all baby boomers are thinking the same thing about the stock market? Maybe it can't recover or maybe we're facing a third crash in 13 years?
I think the advice of keeping a larger percentage of your portfolio in bonds as you get older is good advice; something along the lines of the percentage of your portfolio in bonds should equal your age. If the 55 year old had 55% bonds at the beginning of 2008, he would not have lost 40% of his portfolio. If we baby-boomers reduce our stock percentages of our portfolios at approximately 1% a year, the market should do OK because of younger people entering the market and taking up our stock sales by buying stock.
9:01,
I would challenge you on a couple of points. 55 years old with 55% in bonds; at 3% inflation (which might be overly optimistic now) your expenses will go up by 50% in 15 years. 55% bonds gives very little shot of keeping up. The stock market may or may not do what it is supposed to in the next 15 years but what shot do you give yourself by not having enough exposure.
Many people are saying we are losing a generation of investors, if that turns out to be true then relying on more ponzi buyers becomes treacherous.
If those points seem contradictory to you, they are. We need to reassess the way we do things, be willing to do things differently which I do try to write about.
IMO, it appears that the bailout money is being used by the banks to trade the market up in attempts to improve everyone's view on our financial outlook. Then, they can raise more cash from the rubes. Now we know where all that funds from Ben & Company are channeling - from the goverment to the banks and into the stock market. It hasn’t made its way to the economy….yet. Does it even make any sense to fight it at this point? I’m beginning to question the wisdom of that. Of course, it will all end someday and end very badly. For now why fight the upside forces and is time to be long. It may be too late when it finally hits the 200DMA.
This is Anon 9:01. Thank you for the response, Roger. I do not understand your comment about relying on ponzi buyers, but do concur with the comment about bonds not keeping up with inflation. My comment about holding approximately 1% in bonds per year of age is advice that I do not strictly follow, but believe it has merit along the lines of moving toward income and protecting principal as one ages. My strategy over the last few years (I am now age 61) has been to move to more stable stocks (a loser strategy in 2008, for sure) that offer dividends as well as possible growth.
901 you said because of younger people entering the market and taking up our stock sales by buying stock.fresh buyers taking up the slack?
9:01 again. Thank you for the clarification, but I would not charterize younger people buying the stock that baby-boomers sell as ponzi buyers. I would say that they are smart and doing what is age appropriate for them, buying stock, just as moving toward bonds or dividend paying stock is age appropriate for us aging baby boomers. Love your blog and read it daily. Again, thanks.
Roger- I have a family member that is contemplating going to a DFA oriented advisor. The advisor has suggested that a global multi factor portfolio based on pure buy hold rebalance has outperformed all others and to avoid those utilizing other metrics such as inverted yield curve, moving averages, etc. The following are the portfolio results and would appreciate your opinion on this strategy?
"While much is discussed about the lost decade of stock market investing, a simple plan (which included stocks) did just fine."
Assumptions:
Retiree in January 1999
Age in bonds - 40/60 stock/bond mix
50/50 Treasuries/TIPS on the bond side
Global multi-factor equal mix of TSM/SV/Intl Value/EM Value on the stock side
Result for the ten years ending 12/2008:
40/60 mix: 7.24% annual, 101.09% total
TSM (CRSP 1-10): -0.61% annual, -5.92% total
Inflation (CPI): 2.52% annual, 28.28% total
Treasuries: 6.27% annual, 83.62% total
"For this hypothetical investor who followed a basic buy/hold/rebalance, they did reasonably well. Their financial plan based on a real return of 4 or 5 percent wasn't damaged much. In hindsight, Treasuries did just fine also, but choosing 100% Treasuries in advance (especially in Jan 1999) and sticking with them for 10 years would have been a tougher call than going with a "reasonable" asset allocation plan."
What about 30/70, 50/50, 60/40, 70/30, 80/20?
30/70: 7.13% annual, 99.10% total
50/50: 7.30% annual, 102.30% total
60/40: 7.32% annual, 102.71% total
70/30: 7.30% annual, 102.30% total
80/20: 7.23% annual, 101.08% total
"Standard deviations varied of course, but the point remains the same - buy/hold/rebalance worked well for the globally diversified, multi-factor investor."
Pride is not factor. It is just a matter of buying into the pyramid schemes or not.
What has "investing" go to do with playing pyramid schemes?
Your entire theory seems to be about how to take part in pyramid schemes, nothing you talk about says anything about actuall investing?
Seem your basic belief is that the pyramid scheme will continue so you stick it out?
you're saying ego has nothing to do with buying and selling stocks? you really think that?
based on the rest of your comment, why even read visit site?
Buy stocks means buying a company by definition, you talk as if it means by pocker chips?
To buy into a company, in general you calculate it's value and if the price is less then it's value you might purchase it.
All you talk about is "betting" and "speculation" and then trying to reduce the "risk" that you lose the bets.
It has nothing to do with investing and you do a huge diservice to people by confusing them as to what investing is.
Every financial advisor is a salesman, they are selling a pyramid scheme and then take a comission.
The difference would be if you ran an true "investment" firm say call it Rodger Inc. with your entire personal wealth invested in it and then floated it on the stock exchange.
if you think that then why do you read the site and comment? it is as if you value your time at zero to waste it here. not sure who you're really mad at but leaving comments that cast aspersions won't solve your problem.
As an individual investor, my lessons from recent contributions to this blog:
- Save early and often – so in retirement you don’t have to be 100% equity to try to make up for lost time and have to rely on market timing to reduce large losses.
- Diversify – so you don’t have to rely on one risk factor (US TSM) to outperform all the time.
- Market moving averages, inverted yield curve, market timing is anyone's guess and that is all it is.
So I just checked my "buy-and-hold" portfolio benchmark performance over 1973/74, 2001/2, and 2008 with increasing bond allocations (plan to be closer to the 50:50, 25:75 stock:bond end of the spectrum at retirement).
Portfolio benchmark returns
Stock:Bond 75:25 50:50 25:75
1973/74 -24% -13% -2%
2001/02 -8% +2% +12%
2008-? [so far] -27% -13% 0%
Doesn't seem to have been too devastating for higher bond allocations?
I'm wondering, if we didn't have all these major corporations that essentially lied and manipulated their earnings over the years (or ran their companies into the ground): AIG, Wachovia, Enron, Home Depot, Citibank, .... the list goes on and on and on.
If we didn't have these corporate shenanigans, maybe we wouldn't have had such a huge drop in the market...maybe just a more normal cyclical bear of down 15-20%.
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