Watching the DJIA

[Borderland]

Take a yuge dump today. Well, it is Friday I guess.

I'm wondering what is causing that? Impeachment trial? Coronavirus? Oversold market?

No, I'm not terribly concerned because I never sell anything anyway.

Any of you market watchers have any explanations? I don't have a clue.

[cheby]

Virus is a major concern. American, United and Delta suspended all flights. Some companies evacuate their personal from China. Starbucks closes more than 2,000 Stores in China. It is a big deal and will impact the earnings. How much? hard to say but the markets are reacting obviously.
So called impeachment has zero impact.

[blues]

I think a correction has been due for a while and these are the types of things to get the ball rolling.

Not too concerned. I've been through these for decades now. Best to ignore the "it's different this time" signals.

[blues]

Buying opportunity. :)

Can be. I have our Roth and tIRAs in a fund that keeps the equity to fixed income levels at a designated ratio. So when the market goes down or up, it is apportioned accordingly automatically. This keeps me from having to make manual adjustments via our taxable portfolio very often.

Pay a few extra basis points for it but it keeps it simple for the missus when I shuffle off this mortal coil. She is not eager to learn the ins and outs of portfolio management and I'm loathe to force it upon her unnecessarily.

[JTQ]

... it keeps it simple for the missus when I shuffle off this mortal coil. She is not eager to learn the ins and outs of portfolio management and I'm loathe to force it upon her unnecessarily.
I'm the same.

[Crow Hunter]

Can be. I have our Roth and tIRAs in a fund that keeps the equity to fixed income levels at a designated ratio. So when the market goes down or up, it is apportioned accordingly automatically. This keeps me from having to make manual adjustments via our taxable portfolio very often.

Pay a few extra basis points for it but it keeps it simple for the missus when I shuffle off this mortal coil. She is not eager to learn the ins and outs of portfolio management and I'm loathe to force it upon her unnecessarily.

I have a spread sheet that has comments in it on how to manage it and a glide path/etc on it. Luckily my wife is very spread sheet savvy so it shouldn't be a problem for her if something happens to me.

As to the OP.

My belief? Lots of people have been predicting a drop for the last several years so it can become a self-fulfilling prophecy where people panic and go to cash/bonds which causes stop loss orders to trigger which causes more drops which cause more people to sell and algorithms go haywire until it stabilizes.

I keep a weather eye on it and if I see an opportunity to do Tax Loss Harvesting, I jump on it. I keep a Post-it note under my monitor with my tax lot prices and if I am fairly confident the market will end up down below my buy price, I sell and lock in some losses. That keeps me a nice healthy amount of accumulated losses I can use to offset income or sell appreciated assets without tax impacts.

We still have a long way to go down just to get back to where we were at the first of the year.:rolleyes:

[WobblyPossum]

Ow, my TSP.

[JDD]

Take a yuge dump today. Well, it is Friday I guess.

I'm wondering what is causing that? Impeachment trial? Coronavirus? Oversold market?

No, I'm not terribly concerned because I never sell anything anyway.

Any of you market watchers have any explanations? I don't have a clue.

I am assuming that we are due for a correction, but I am not nearly smart enough to try to time the market, and my retirement is not for a good while yet. If I had converted to bonds in early 2019, I would be kicking myself right now...

What used to be the majority of my account was in low load S&P500 tracking index funds, but I have a few individual stock picks that I dabble in based on the news and my heavily amateur understanding of the issues. If I was not in market indexes, my absolute unwillingness to sell would be causing me some serious portfolio balancing issues:
- I bought a bunch of BA in the dip after the 737Max grounding because I was overly optimistic that Boeing would not screw it up as comprehensively as they have managed to do. So I am still down on that
- I bought a bunch of TSLA in October before the scheduled opening of the factory in Shanghai. It is on track to pay for a Tesla when I end up living in a place where one is viable.
- I still have long positions in GE and AMZN. GE is less than 50% of where I bought it. AMZN is doing better.

[Borderland]

I am assuming that we are due for a correction, but I am not nearly smart enough to try to time the market, and my retirement is not for a good while yet. If I had converted to bonds in early 2019, I would be kicking myself right now...

What used to be the majority of my account was in low load S&P500 tracking index funds, but I have a few individual stock picks that I dabble in based on the news and my heavily amateur understanding of the issues. If I was not in market indexes, my absolute unwillingness to sell would be causing me some serious portfolio balancing issues:
- I bought a bunch of BA in the dip after the 737Max grounding because I was overly optimistic that Boeing would not screw it up as comprehensively as they have managed to do. So I am still down on that
- I bought a bunch of TSLA in October before the scheduled opening of the factory in Shanghai. It is on track to pay for a Tesla when I end up living in a place where one is viable.
- I still have long positions in GE and AMZN. GE is less than 50% of where I bought it. AMZN is doing better.

I'm not a huge fan of Boeing or their stock but I don't know what my fund managers are buying. They may be buying Boing now.:D It's a well managed fund, up 11% in the last year and preserving my capital along the way.

[fatdog]

profit taking plus overdue correction

[SecondsCount]

Buying opportunity. :)

Yessir, and I have at least 10 more years of buying before I start getting out :cool:

[blues]

Yessir, and I have at least 10 more years of buying before I start getting out :cool:

You mean reducing your exposure to equities...right? (Never get out completely...just take some chips off the table.)

[Borderland]

Thru two crashes I just kept investing in well managed funds. I did that for about 25 years. The stock market has been very good to me. :D

[pangloss]

A few months ago my portfolio was 85% stocks and 15% bonds. It had been at that proportion since 2005. Last fall, I eased back to 80% stocks and 20% bonds. I'll still be in the work force 20 years from now, and we'll certainly have some more ferocious bear markets between now and then. Better for me for them to happen sooner than later.

If anyone is looking for a good investing book, The Intelligent Asset Allocator by William Bernstein is absolutely fantastic. Through blind luck, it happened to be the first investing book I ever read. I highly highly recommend it. It's not an easy read but well worth the effort.

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[Wondering Beard]

China Then And Now: Why Coronavirus Is A Bigger Threat To Global Economy Than Previous Outbreaks (https://www.forbes.com/sites/halahtouryalai/2020/02/01/china-then-and-now-why-coronavirus-is-a-bigger-threat-to-global-economy-than-previous-outbreaks/#b756e8974e60)

[blues]

Thru two crashes I just kept investing in well managed funds. I did that for about 25 years. The stock market has been very good to me. :D

I only reduced my exposure once I retired and decided that between my pension, dividends and interest that I didn't need to take as much risk on the equity side. I have little need of trying to run up the number for some arbitrary reason as we do not live a jet-set lifestyle. Being debt free, owning our home and vehicles outright and having a nice cushion between the portfolio and cash equivalents...life is good.

During our accumulation phase, I always contributed to our portfolio rain or shine. Even now I contribute monthly to a U.S. Treasury money market fund from which I can decide to up the equity percentage, (or lower it), to keep within the desired asset allocation.

I've learned a lot from the likes of Larry Swedroe and Bill Bernstein regarding the managing of (financial) risk.

As the "Oracle of Omaha" says:

http://itsamoneything.com/money/wp-content/uploads/Warren-Buffett-Make-Money-Risked-Need.jpg


...Never take more risk than you have the ability, willingness or need to take," said Larry Swedroe...


Stop When You Win The Game

Bernstein was asked “How much exposure should people have to stocks?” He answered:

A lot of people had won the game before the [2008] crisis happened: They had pretty much saved enough for retirement, and they were continuing to take risk by investing in equities.

Afterward, many of them sold either at or near the bottom and never bought back into it. And those people have irretrievably damaged themselves.

I began to understand this point 10 or 15 years ago, but now I’m convinced: When you’ve won the game, why keep playing it?

How risky stocks are to a given investor depends upon which part of the life cycle he or she is in. For a younger investor, stocks aren’t as risky as they seem. For the middle-aged, they’re pretty risky. And for a retired person, they can be nuclear-level toxic.

The reason why stocks aren’t very risky for a young person is that you have a lot of “human capital” (ability to make money working) left. On the eve of retirement, you don’t have any of that.

How Much Is Enough?
Bernstein recommends a rule of thumb, based on annuity payouts and spending patterns late in life, that you should have 20-25 times your residual living expenses (after pensions/Social Security) invested solely in safe assets. No stocks at all. This should be in TIPS, SPIAs, and short-term bonds. If you have more than that, that’s your “risk portfolio,” which he describes this way:

Anything above that, you can invest in risky assets. That’s your risk portfolio. If you dream about taking an around-the-world trip, and the risk portfolio does well, you can use it for that. If the risk portfolio doesn’t do well, at least you’re not pushing a shopping cart under an overpass.

[Borderland]

A few months ago my portfolio was 85% stocks and 15% bonds. It had been at that proportion since 2005. Last fall, I eased back to 80% stocks and 20% bonds. I'll still be in the work force 20 years from now, and we'll certainly have some more ferocious bear markets between now and then. Better for me for them to happen sooner than later.

If anyone is looking for a good investing book, The Intelligent Asset Allocator by William Bernstein is absolutely fantastic. Through blind luck, it happened to be the first investing book I ever read. I highly highly recommend it. It's not an easy read but well worth the effort.

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I just looked. I'm 70% stocks and 30% bonds/cash. I'm retired. BT (Before Trump) it was 60/40. If a dem is elected it will probably go back to 60/40. ;)

[pangloss]

I just looked. I'm 70% stocks and 30% bonds/cash. I'm retired. BT (Before Trump) it was 60/40. If a dem is elected it will probably go back to 60/40. ;)

If I were you, I'd give some careful thought to Blues' post above. Another relevant book is Value Averaging by Michael Edleson. It's one that Bernstein recommends, and I confess to having not read it completely yet. My understanding (possibly incorrect) is that if your portfolio value significantly exceeds your projected growth line, then start keeping money in cash or short bonds. When the market drops significantly, you use that cash to by your way back up to your projected portfolio growth rate. I think this works better earlier in the life cycle than later, because now what money I can afford to put in every month is a very tiny fraction of my portfolio. Now that I think about it, I'm not sure it'd be applicable to the retirement phase. Anyway, I'm rambling and should eat lunch before I leave for work!

I was not a Trump fan in 2016 (though of course I didn't vote for Clinton!), but the idea of judging him through his actions rather than impulsive speech/twitter posts has won out in my mind (particularly in regards to federal judges and his dealings with China). I'll be donating to his campaign this year.

[Borderland]

If I were you, I'd give some careful thought to Blues' post above. Another relevant book is Value Averaging by Michael Edleson. It's one that Bernstein recommends, and I confess to having not read it completely yet. My understanding (possibly incorrect) is that if your portfolio value significantly exceeds your projected growth line, then start keeping money in cash or short bonds. When the market drops significantly, you use that cash to by your way back up to your projected portfolio growth rate. I think this works better earlier in the life cycle than later, because now what money I can afford to put in every month is a very tiny fraction of my portfolio. Now that I think about it, I'm not sure it'd be applicable to the retirement phase. Anyway, I'm rambling and should eat lunch before I leave for work!

I was not a Trump fan in 2016 (though of course I didn't vote for Clinton!), but the idea of judging him through his actions rather than impulsive speech/twitter posts has won out in my mind (particularly in regards to federal judges and his dealings with China). I'll be donating to his campaign this year.

Investing is pretty easy when you're working. Not so easy when you retire, especially when you hit 71. But if you played the game right you don't need to invest anymore money after 71, just find a way to spend what you did invest. Spending money only on what you need and investing the rest is a hard habit to break. My wife and I did that for 25 years. The money keeps piling up in our checking accounts. She decided to take a vacation to Italy. Me, I don't fly anymore. Too many sick people on airplanes.

[Doc_Glock]

This is timely and I appreciate the posts above. I don’t check the portfolio often. I just do a four fund strategy at Vanguard that mimics the asset distribution of their 2035 retirement fund. I rebalance it about once a year then ignore it.

Needless to say I was blown away at the gains from last year! But I also remember losing half the value in 2007.

I have wondered when to start massively increasing Bond holdings, but have at least ten years of work in my future. Not yet. I see my retired sister and brother in law sweating the market constantly.

[0ddl0t]

Just be aware that bonds are not zero risk, yet they are very near zero reward. Companies and governments do go bankrupt and even superpowers go bust on average once every 200 years or so. Governments also play wall street games with the best of them. For example, those "inflation protected" bonds are easily gamed by substituting products (e.g. if beef rises in price faster than pork, the US government will substitute pork as the consumer's cost of protein). See: https://www.forbes.com/sites/perianneboring/2014/02/03/if-you-want-to-know-the-real-rate-of-inflation-dont-bother-with-the-cpi/

Mindlessly rebalancing portfolios also seems problematic to me. If you already invested 50% into two equities and one of them habitually underperforms, why would you reward it by selling off some of the winner to subsidize it? It is perfectly understandable to sell something if you objectively value it as overpriced or if you are entering a new stage in life (e.g. retirement), but to mindlessly do it on periodic basis seems foolish - especially after transaction & tax costs...

[blues]

You guys bring a smile to my face. Too many folks are unnecessarily daunted by "investing" and just want someone to give them the answer. It drove me crazy at work when someone would ask for advice or opinion, and when I'd steer them to resources to show them why the decision would be a sound one for their situation, just wanted me to cut to the chase and tell them what to do. Beyond frustrating.

I'm far from what I would consider wealthy, (but I realize that that view depends upon who's making the evaluation...one man's ceiling is another man's floor), but investing doesn't have to be complicated, precisely as Doc_Glock states above.

I remember during the early years I was so invested in the idea of finding the best fund(s) that I had way too many of them and much more overlap than necessary. If only I knew then what I learned over the following decades.

Loathe to take a big tax hit on capital gains, the 2008-09 "crash" gave me an opportunity to sell out, even garner some carryover capital losses and simplify greatly by investing in just a few Vanguard funds which covered what I needed.

Been a relatively simple (and smooth) ride ever since. As I've done since I began in the mid 80's when I bought my first fund, I just ride out the bumps, but now have the additional comfort of a much smaller equity position so that I have no angst regardless of what the market does.

[pangloss]

Mindlessly rebalancing portfolios also seems problematic to me. If you already invested 50% into two equities and one of them habitually underperforms, why would you reward it by selling off some of the winner to subsidize it? It is perfectly understandable to sell something if you objectively value it as overpriced or if you are entering a new stage in life (e.g. retirement), but to mindlessly do it on periodic basis seems foolish - especially after transaction & tax costs...

There is a difference between picking single stocks and choosing an asset allocation. With stocks, it's anyone's guess as to what will perform well. I wish I'd bought Apple way back when and just held on to it, or bought GE when it got down to $6-$7 last fall. For the asset allocation strategy, the idea is to maximize return for a given level of risk, which is accomplished by choosing classes of assets that aren't particularly well correlated with each other. This has been harder to do over the past couple of decades as performance among the major asset classes has seem to correlate more strongly, but historically sometimes large company stocks perform better than small company stocks. Sometimes foreign stocks under perform domestic stocks; growth vs value; etc. Over a long time period everything reverts to their average return (except if there's a shift to a new average). Lately, US stocks have outperformed foreign stocks. That probably won't go on forever, so it's good not to let your foreign stock holdings become too underrepresented in your portfolio. To your point, the difficulty is in knowing when something is going to revert to the mean, and that's basically impossible. If you time it right, you get a rebalancing bonus from selling high and buying low. I direct the money I put into my IRA every year into the laggards to help keep the portfolio at my target allocations, but if any allocation gets off by more than ~25%, I'll sell whatever is doing well and put that money into the losing asset class. That may limit my long term gains slightly, but it keeps the risk profile at a place that's comfortable for me.

I have four asset classes in the stock portion of my portfolio (Large US - 30%, Mid/Small US - 30%, Foreign - 30%, and REIT - 10%) and three asset classes in my bonds (Total US nominal - 40%, Inflation-protected US - 40%, & Foreign - 20%). Owning this number of funds is easy for me to manage but contains stocks from something like 10,000 different companies. Consequently, I've diversified away all of my single company risk and sector risk. (Companies in the same sector usually have correlated performance. For example, the cornoavirus thing hit airline stocks pretty hard this past week.) These broad market index funds leave me with just market risk. If I'd just bought Apple, I'd have single company risk, sector risk, and market risk and more money now. If I'd put everything in Radio Shack or Tandy, I'd have no money. Lastly, things like precious metals would be worth considering for a small percentage of an allocation. Precious metals can underperform the market for a very very long time, but when they outperform, they can have really big run-ups. Anyway, the end goal of the activity is to maximize return for a given level of risk, and selling the outperforming holdings helps limit the risk.

[Crow Hunter]

This is timely and I appreciate the posts above. I don’t check the portfolio often. I just do a four fund strategy at Vanguard that mimics the asset distribution of their 2035 retirement fund. I rebalance it about once a year then ignore it.

Needless to say I was blown away at the gains from last year! But I also remember losing half the value in 2007.

I have wondered when to start massively increasing Bond holdings, but have at least ten years of work in my future. Not yet. I see my retired sister and brother in law sweating the market constantly.

I do similar but I don't hold REITs because I have forest/farmland already.

I have an Excel spreadsheet where I plotted out my planned/expected costs after retirement versus current assets and calculate an estimated time to critical mass based on a 3.0% real return. Then I look at how much longer I have to work/save and adjust my asset allocation to mimic the Vanguard Target Retirement Fund's allocation right now.

For instance early this year returns had been so good that I jumped several years earlier from my previously planned retirement date which kicked my bond allocation target several % higher than it was. So I rebalanced to align with the new target.

Now I look smart for upping my bond allocation right before this latest Kung Flu churning.;)

I look once a month though because I always make sure I don't need to do a Tax Loss Harvest prior to making my monthly taxable account contribution.

If you know expect you are going to be retiring in 10 years, I would mimic the 2030 allocation. I think one of the most important parts is when you start to add in TIPS and I am getting close to that.

[Crow Hunter]

Just be aware that bonds are not zero risk, yet they are very near zero reward. Companies and governments do go bankrupt and even superpowers go bust on average once every 200 years or so. Governments also play wall street games with the best of them. For example, those "inflation protected" bonds are easily gamed by substituting products (e.g. if beef rises in price faster than pork, the US government will substitute pork as the consumer's cost of protein). See: https://www.forbes.com/sites/perianneboring/2014/02/03/if-you-want-to-know-the-real-rate-of-inflation-dont-bother-with-the-cpi/

Mindlessly rebalancing portfolios also seems problematic to me. If you already invested 50% into two equities and one of them habitually underperforms, why would you reward it by selling off some of the winner to subsidize it? It is perfectly understandable to sell something if you objectively value it as overpriced or if you are entering a new stage in life (e.g. retirement), but to mindlessly do it on periodic basis seems foolish - especially after transaction & tax costs...

That is true but for a US citizen US Treasury Bonds are as close to zero risk as you can get.

I don't invest in individual stocks, when I rebalance lately, I have been selling off S&P 500 index funds and buying Bond Index funds. But I do this in tax advantaged accounts so there aren't any tax/transaction costs.

In my taxable account, I only sell at a loss to tax loss harvest and rebalance my asset allocation by buying similar but not identical funds in my tax advantaged account to keep the same risk then swap back after 30 days.

[Doc_Glock]

I do similar but I don't hold REITs because I have forest/farmland already.

I have an Excel spreadsheet where I plotted out my planned/expected costs after retirement versus current assets and calculate an estimated time to critical mass based on a 3.0% real return. Then I look at how much longer I have to work/save and adjust my asset allocation to mimic the Vanguard Target Retirement Fund's allocation right now.

For instance early this year returns had been so good that I jumped several years earlier from my previously planned retirement date which kicked my bond allocation target several % higher than it was. So I rebalanced to align with the new target.

Now I look smart for upping my bond allocation right before this latest Kung Flu churning.;)

I look once a month though because I always make sure I don't need to do a Tax Loss Harvest prior to making my monthly taxable account contribution.

If you know expect you are going to be retiring in 10 years, I would mimic the 2030 allocation. I think one of the most important parts is when you start to add in TIPS and I am getting close to that.

All good tips.

I actually dumped some REIT stuff I had in favor of simplicity in this last rebalancing because I realized I have a significant local real estate investment and do not need more.

I should probably do the same monthly evaluation and learn about Tax Loss Harvesting because, while I have heard of it and know it's important, I can't say I understand it at all. 2035 works for me because I will probably work indefinitely until my health won't support it and by then I can pull in Soc Security. I will look into it though. It is hard to decide endpoints. This year, for the first time I feel like the momentum is all downhill, in that, even if I made no further contributions, the portfolio would grow enough to support me and the family in about ten years.

[blues]

I'm just not sold on TIPS yet. I used to have iBonds but they were a pain to manage on the TreasuryDirect site (imho) and you can only buy limited quantity.

[Crow Hunter]

All good tips.

I actually dumped some REIT stuff I had in favor of simplicity in this last rebalancing because I realized I have a significant local real estate investment and do not need more.

I should probably do the same monthly evaluation and learn about Tax Loss Harvesting because, while I have heard of it and know it's important, I can't say I understand it at all. 2035 works for me because I will probably work indefinitely until my health won't support it and by then I can pull in Soc Security. I will look into it though. It is hard to decide endpoints. This year, for the first time I feel like the momentum is all downhill, in that, even if I made no further contributions, the portfolio would grow enough to support me and the family in about ten years.

I will also likely keep working as long as it is entertaining but once I get to the point that I have more than I will actually need, I am going to stop playing the game. Especially since I don't have any spawn to be expecting an inheritance.

Tax loss harvesting is very simple but you have to have a taxable account for it.

Here is a quick example of what I do. I buy Vanguard Total Stock (VTSAX) and Prime MM Fund in my taxable account. In my 401k I have Vanguard SP500 fund (VFINX) and Vanguard Total Bond Market Fund (VBMFX). When I have a loss in my VTSAX account. I sell those shares and buy Prime MM fund at the same time I sell shares of Total Bond in my IRA and buy shares of the SP500 fund in my 401k. After 30 days, I swap back. That way I keep the same asset allocation and capture any gains while harvesting the losses to offset up to $3k of income taxes every year or short term capital gains. It is pretty simple. If the losses keep mounting, I just keep doing it until the losses stop. Total Stock Market and SP500 fund are very similar in their returns but because the index is different, they aren't identical in the eyes of the IRS so you swapping between them "counts".

The keys are the 30 days and similar but not identical funds. As long as you do that, you are in the clear.

Technically you are only resetting your cost basis and eventually the tax man will get his due when you sell but who knows what the tax laws will be in the future and if you are holding it for more than a year, you will get a lower capital gains rate while offsetting current marginal tax rates so you do get some tax arbitrage there, larger of course the higher your marginal is.

There is quite a bit of good information on how to do it over on Bogleheads.org. I was nervous the first time I did it but after you do it, the first time it is very simple. You just need to make sure you don't reverse it earlier than 30 days or you loose the loss benefit.

[Crow Hunter]

I'm just not sold on TIPS yet. I used to have iBonds but they were a pain to manage on the TreasuryDirect site (imho) and you can only buy limited quantity.

I don't like their returns and I am not sure about them either but if there is unexpected inflation (like the 70's) they theoretically should be a good cushion. I haven't gotten to that point yet on my glide path but Vanguard seems to think they are important so I will likely listen to them and have them on my glide path schedule.

But I don't listen to them about International Bonds so I might not listen to them about TIPS either.:cool:

[0ddl0t]

Over a long time period everything reverts to their average return (except if there's a shift to a new average). Lately, US stocks have outperformed foreign stocks. That probably won't go on forever, so it's good not to let your foreign stock holdings become too underrepresented in your portfolio. To your point, the difficulty is in knowing when something is going to revert to the mean, and that's basically impossible. If you time it right, you get a rebalancing bonus from selling high and buying low. I direct the money I put into my IRA every year into the laggards to help keep the portfolio at my target allocations, but if any allocation gets off by more than ~25%, I'll sell whatever is doing well and put that money into the losing asset class. That may limit my long term gains slightly, but it keeps the risk profile at a place that's comfortable for me.

I see this as a peculiar view of risk. I put 33% of my investments into stocks, 33% into my business, and 33% into real estate. My business has grown the most, followed by real estate, followed by stocks. Even though my net worth is now skewed away from equal 3rds, it would be more risky for me to sell off part of my business and real estate because their expected rates of return continue to exceed stocks.

With only a handful of short term exceptions, bonds have underperformed stocks throughout modern history. If you rebalance from profitable growing companies towards low fixed-return investments, you're not selling high and buying low - you're selling low and buying high! In other words, reverting to the mean won't help if the new allocation has a lower expected mean.

I mean if you truly don't need the extra money, why are you investing it at all?


That is true but for a US citizen US Treasury Bonds are as close to zero risk as you can get.

I view them as extraordinarily risky. If you assume the US government is just as likely as any other super power to dissolve, there is a 1/200 chance of it happening in any given year. Over a 5 year period, that risk is approximately 2.5%. For a ~2.5% risk of losing 100% of your money you are accepting a stated "real" return of 0.125%! To break even, you'd have to believe that "this time it is different" and that the American Republic/Democracy is 20 times less likely to fail than the average superpower.

Sure, you might be able to sell to some bigger fool if you see the end of the US coming before most, but TIPS also lose money during deflation (as they did during the aftermath of the great recession). And you still have the US Government's established history of fudging CPI in its favor...

On the other hand, barring a devolution into socialism a good company usually survives from one government to the next - particularly multinational conglomerates. Sure, they too don't last forever, but they usually are acquired, merge, or split up rather than vaporize altogether.

[Crow Hunter]

I view them as extraordinarily risky. If you assume the US government is just as likely as any other super power to dissolve, there is a 1/200 chance of it happening in any given year. Over a 5 year period, that risk is approximately 2.5%. For a ~2.5% risk of losing 100% of your money you are accepting a stated "real" return of 0.125%! To break even, you'd have to believe that "this time it is different" and that the American Republic/Democracy is 20 times less likely to fail than the average superpower.

Sure, you might be able to sell to some bigger fool if you see the end of the US coming before most, but TIPS also lose money during deflation (as they did during the aftermath of the great recession). And you still have the US Government's established history of fudging CPI in its favor...

On the other hand, barring a devolution into socialism a good company usually survives from one government to the next - particularly multinational conglomerates. Sure, they too don't last forever, but they usually are acquired, merge, or split up rather than vaporize altogether.

My assumption is if the $ collapses due to the government reneging on their bonds and the value of the bonds vaporizes, I will have more to worry about than the return on my bonds.;) That is why I diversify my holdings in to stocks/bonds/land/lead.

Although all of them are really not completely risk free. Just as the government could collapse and my bonds evaporate, companies can be nationalized, their products declared contraband, land/homes can be seized, guns/gold/silver made illegal. All of these have happened in the past (some in the US). In my relatively short lifetime I have seen stock funds lose value quickly while bond funds do lose money they do keep some value and as long as the US government is $ denominated and still expects taxes to be paid in $USD, I feel as comfortable as I can be keeping a portion (I think 32% right now) of my nest egg in them.

Starting, owning and investing in your own business is absolutely the most surefire way to wealth and prosperity and over time real estate has usually done better than the stock market. It is very likely that over the long term you will do much better than me. Unfortunately I don't have the knack for either so I am stuck muddling through stocks/bonds.:(

As my hero Taylor Larimore often quotes "There are many roads to Dublin".

[mmc45414]

Might be worth noting that the yuge dump took the DJIA all the way back down to over 28k.

But the virus thing might be an issue, I work for a small privately held company that isn't going to move the needle, but our factory is closed. So production will not resume after Chinese New Year and at some point stuff that people in this country are used to acquiring at a certain price point might become unavailable, diminishing commerce. It is probably hard to find anything that doesn't have Chinese products somewhere in the supply chain, like if you can't go into Lowes and buy nuts and bolts. Perhaps this might also help hasten the process of the trade deals.

But a few months ago I did move some more into cash funds. At this point that just means I have missed part of the runup.

[Borderland]

Might be worth noting that the yuge dump took the DJIA all the way back down to over 28k.

But the virus thing might be an issue, I work for a small privately held company that isn't going to move the needle, but our factory is closed. So production will not resume after Chinese New Year and at some point stuff that people in this country are used to acquiring at a certain price point might become unavailable, diminishing commerce. It is probably hard to find anything that doesn't have Chinese products somewhere in the supply chain, like if you can't go into Lowes and buy nuts and bolts. Perhaps this might also help hasten the process of the trade deals.

But a few months ago I did move some more into cash funds. At this point that just means I have missed part of the runup.

When Trump took office the DJIA was around 17K so that's an 11K spike since he's been in office. Unemployment numbers are also way down. So it would seem that everyone is better off but I don't think that's the case. The 11K spike in the market means that corporations and people in the market are doing well. That isn't your average middle aged wage earner however. I see a lot of people with minimum wage jobs without health care just going thru the motions. They aren't getting ahead, they're falling behind. Lots of young people still living at home or their parents are supplementing their income. About the only way out of that hole is learning a trade or going to college and getting a usable degree. One requires a lot of physical work and the other requires a lot of mental work and borrowing money, none of which they want to do. Our debt/GDP ratio is now 106% which basically means our debt is greater than the economic output of the entire country. So the big picture isn't looking very good. The country is on a course to default and neither congress nor the adm seems too concerned about it. Neither want to address the real problems of the national debt. Congress keeps raising the debt ceiling and the president is on track to raise the debt 9.1 trillion in 8 years. Trumps tax cuts won't stimulate the economy enough to make up for lost tax revenue. That's proving to be the case, the economy has not been stimulated. Trump promised a 6% growth rate while campaigning, revised it to 3.5-4% once in office, and now forecasts 2.4-2.9% in 2020. Tax cuts are not a magic wand that can grow the economy as many economists know.

I've got a very bad feeling about all of this. I have about 20% of my liquid assets in cash, 24% in certs/bonds and 56% in stocks. Probably be moving to a 25/25/50 allocation soon depending on how the election shapes up. I'm not seeing a way forward personally because a dem congress/president isn't the answer, but more and more people everyday think it is. Mostly because they don't have anything to lose.

[blues]

Presented simply because Rick Ferri has had a long standing reputation on certain boards, such as bogleheads.org

https://www.forbes.com/sites/rickferri/2015/02/06/the-center-of-gravity-for-retirees/



I propose the center of gravity for those who have accumulated enough for retirement to be 30% stocks and 70% bonds. This is a conservative mix that has enough equity to growth with inflation and enough fixed income to keep portfolio volatility at bay. Historically, a 30/70 allocation has earned the highest Sharpe ratio.

A 30/70 allocation is attractive for several reasons. Relative to all bonds, it has generated about a 2% higher annualized return while the portfolio risk isn’t uncomfortably high. In mathematical terms, the portfolio has achieved more rise (annualized return) than run (standard deviation). Contrast with the 60/40 portfolio that has more run than rise starting from the 30/70 allocation.

An interesting feature of a 30/70 portfolio is its resilience to losing money in down markets. Figure 3 illustrates the annualized rolling 5-year risk and returns of 30/70 portfolios (blue) compared to 60/40 portfolios (yellow). There was only one down period from 1928-1932.

[Borderland]

Presented simply because Rick Ferri has had a long standing reputation on certain boards, such as bogleheads.org

https://www.forbes.com/sites/rickferri/2015/02/06/the-center-of-gravity-for-retirees/

That would be for people still working. For people retired that would be a fairly risky position. JMO and nobody pays me anything for asset allocation advice. :D

I would have to add that a balanced fund manager would like that ratio. Mine does at this point in time.

[mmc45414]

When Trump took office the DJIA was around 17K so that's an 11K spike since he's been in office. Unemployment numbers are also way down. So it would seem that everyone is better off but I don't think that's the case. The 11K spike in the market means that corporations and people in the market are doing well. That isn't your average wage earner however.
I am a college drop out that started diverting pre tax money when I was probably making $6hr. Consequently I am in the market and have obviously benefited from the 60% spike. I also do not think it means all is well, and have moved more into cash than I probably should have.

ETA: What I am trying to express is that when people talk about the DJIA taking a big hit, that means it is down to being 60% up.

[blues]

That would be for people still working. For people retired that would be a fairly risky position. JMO and nobody pays me anything for asset allocation advice. :D

He did preface it by saying "for people who have accumulated enough for retirement" so I think that goes to the crux of the matter...once savings, pensions and other sources of income are accounted for.

[Duces Tecum]

If anyone is looking for a good investing book, The Intelligent Asset Allocator by William Bernstein is absolutely fantastic. Through blind luck, it happened to be the first investing book I ever read. I highly highly recommend it. It's not an easy read but well worth the effort.

Concur. I've read it two or three times since it came out (2001) and benefited from each re-read. I'm going through it once again right now.

[blues]

Concur. I've read it two or three times since it came out (2001) and benefited from each re-read. I'm going through it once again right now.

I've never met Dr. Bernstein but I have been fortunate enough over the past years to have some semi-regular correspondence with him via email (thanks to his participation on bogleheads.org)

As I mentioned earlier, he, Larry Swedroe and John Bogle are in large part the three pillars upon which most of my current investing philosophy is based.

[ralph]

When Trump took office the DJIA was around 17K so that's an 11K spike since he's been in office. Unemployment numbers are also way down. So it would seem that everyone is better off but I don't think that's the case. The 11K spike in the market means that corporations and people in the market are doing well. That isn't your average wage earner however. I see a lot of people with minimum wage jobs without health care just going thru the motions. They aren't getting ahead, they're falling behind. Lots of young people still living at home or their parents are supplementing their income. About the only way out of that hole is learning a trade or going to college and getting a usable degree. One requires a lot of physical work and the other requires a lot of mental work and borrowing money, none of which they want to do. Our debt/GDP ratio is now 106% which basically means our debt is greater than the economic output of the entire country. So the big picture isn't looking very good. The country is on a course to default and neither congress nor the adm seems too concerned about it. Neither want to address the real problems of the national debt. Congress keeps raising the debt ceiling and the president is on track to raise the debt 9.1 trillion in 8 years. Trumps tax cuts won't stimulate the economy enough to make up for lost tax revenue. That's proving to be the case, the economy has not been stimulated. Trump promised a 6% growth rate while campaigning, revised it to 3.5-4% once in office, and now forecasts 2.4-2.9% in 2020. Tax cuts are not a magic wand that can grow the economy as many economists know.

I've got a very bad feeling about all of this. I have about 20% of my liquid assets in cash, 24% in certs/bonds and 56% in stocks. Probably be moving to a 25/25/50 allocation soon depending on how the election shapes up. I'm not seeing a way forward personally because a dem congress/president isn't the answer, but more and more people everyday think it is. Mostly because they don't have anything to lose.

IMO, nothing is going to change politically, economically, until the money runs out... Democrat or Republican, both are fond of running up deficits... When we finally have our “Weimar Republic”moment, and the rioting starts, then and only then, will congress and the president get serious about the economy.

[Borderland]

He did preface it by saying "for people who have accumulated enough for retirement" so I think that goes to the crux of the matter...once savings, pensions and other sources of income are accounted for.

About 1.3 people are at risk of having their pension funds going broke. I guess it depends on how well your pension is being funded.:D

[Borderland]

IMO, nothing is going to change politically, economically, until the money runs out... Democrat or Republican, both are fond of running up deficits... When we finally have our “Weimar Republic”moment, and the rioting starts, then and only then, will congress and the president get serious about the economy.

Double like this post.:)

[Duces Tecum]

As I mentioned earlier, he, Larry Swedroe and John Bogle are in large part the three pillars upon which most of my current investing philosophy is based.
blues . . . particularly when facing unusual volatility. Given the average return (5.3%) and the standard deviation (7.5%), the range would be +/- 40 basis points. Comforting.

https://portfoliocharts.com/portfolio/larry-portfolio/

[0ddl0t]

Starting, owning and investing in your own business is absolutely the most surefire way to wealth and prosperity and over time real estate has usually done better than the stock market. It is very likely that over the long term you will do much better than me. Unfortunately I don't have the knack for either so I am stuck muddling through stocks/bonds.:(

Not everyone is cut out to run a business, but there truly is not a whole lot to real estate investing. The sums of money and apparent risk seem terrifying at first, but if you do it right your downside is capped. There are many approaches, but this is mine:

I like residential real estate because it generally does not actually depreciate - usually it just holds its value relative to inflation. The return on asset % is actually quite low, but no other class of investment gives you access to so much cheap leverage. For your first investment, you can literally put down as little as $35,000 on a $1,000,000 property and Uncle Sam's FHA program will guarantee the loan allowing you to pay <4% interest assuming excellent credit. And in many states, if the investment ultimately blows up, you can simply mail in your keys to the bank. Your credit will go to shit for a few years, but the bank can't go after the rest of your assets.

How can you get a $1M low interest loan if you have only modest income? The trick is to buy a multifamily property (FHA allows you to buy not just single family homes, but also a duplex, triplex, or fourplex). FHA assumes half of the rent you'll be collecting from the other 3 units of your fourplex will be income for the purposes of calculating your debt/income ratio. If you carry no credit card balances, drive old paid-off cars, and have paid off your student loans you'll probably be surprised how much loan you can qualify for. The "catch" is that you have to live at that property, which makes this strategy most appealing when you're young and starting out.

That's the broad outline, but to better ensure success you can't overpay. You'll need to run a spreadsheet of expenses vs income for any property you seriously consider, but a good rough screener is to ignore any property (the majority of them) that costs more than 100 times the anticipated monthly rents. Doing this just about ensures that the property will cash flow even after paying down your mortgage for you.

One last strategy: While residential real estate generally holds value, sometimes it does appreciate relative to inflation but in rare cases, it can deprecate. I don't try to speculate on appreciation - I consider it a bonus if it happens - but I certainly don't want to invest in the next Detroit. After considerable analysis of what causes some cities to die, I discovered that small college towns almost never decrease in population. Thus I've largely invested in state college towns in rural republican areas. These towns tend to have lower purchase prices relative to the rents, fewer tenant giveaways (i.e. "protections"), and lower maintenance costs. They also have a fairly steady supply of new customers, many of whom are price insensitive because Daddy or a psychologically far-off student loan is paying for things.

Another big benefit: taxes. Residential real estate does not actually depreciate, yet the IRS assumes that it'll be worth zero in 28.5 years. That means you get to claim depreciation, lowering your taxes. And you still get to expense the maintenance you are putting in to ensure your property does not depreciate. It is crazy to me, but that $1,000,000 fourplex will lower your taxable income by $35,000/year ($26k if you live onsite since you can't depreciate your own unit).

It gets better! When you die and pass on your little apartment building to your wife or kids, the tax basis resets. They can then sell it without paying back the depreciation recapture.

But wait, there's more! Your tenants will give you security deposits to hold. In my state, I can then invest those deposits and keep the interest for myself.

The tradeoff is that while your property will generally add cash to your bank account each month, you can't count on it for *every* month. You need to maintain a reserve for when you suddenly discover a tenant didn't know the shower curtain was supposed to go INSIDE the tub. These expenses would normally hit randomly, but if you rent to students you will very often have everyone moving out in early summer so May and June tend to be negative cashflow.

Anyway, that's about 99% of what you need to know to get started. If you want to see more examples, search "biggerpockets house hacking"

[pangloss]

I see this as a peculiar view of risk. I put 33% of my investments into stocks, 33% into my business, and 33% into real estate. My business has grown the most, followed by real estate, followed by stocks. Even though my net worth is now skewed away from equal 3rds, it would be more risky for me to sell off part of my business and real estate because their expected rates of return continue to exceed stocks.

With only a handful of short term exceptions, bonds have underperformed stocks throughout modern history. If you rebalance from profitable growing companies towards low fixed-return investments, you're not selling high and buying low - you're selling low and buying high! In other words, reverting to the mean won't help if the new allocation has a lower expected mean.

I mean if you truly don't need the extra money, why are you investing it at all?



Everyone's situation is different. I've lived in 5 states in the last 20 years. One place where I thought I'd be for several years ended up being just a 16 months gig. With that sort of uncertainty, buying property or starting a business didn't seem like the best use of my time/effort/money. (Also, I have no idea what sort of business I'd start.)

Regarding bonds, your comments lead me to think that you are focused on absolutely maximizing returns and not maximizing returns for a given level of risk. Holding bonds likely lowers the long term returns in a portfolio, but critically, bonds also lower risk. A lot of the effect depends on when you need to take the money out. If you had a 100% stock portfolio and cashed on on 10/11/2007, you'd have done great--no so much if you cashed out on 03/06/2009. At the bottom of a bear market in stocks, bonds are a really good thing to own! I don't own a business or rental properties, so I have fewer ways to diversify my stock risk than you do, i.e. I have access to fewer asset classes. Consequently, bonds make sense for me. I don't know how/if your business's performance correlates with the market or the specifics of your various income streams, but given what you've written, it sounds like you have a well thought out approach and that likely there isn't a compelling reason for you to own bonds.

My father-in-law passed away last year at the age of 90. A few years before that we were home for a visit, and at dinner one night he told us that he'd had a meeting with one of his financial advisers that afternoon. He was absolutely appalled that the woman suggested he buy some bonds. He couldn't see any sense at all in buying an asset that you know will have a lower return than another equally accessible asset class. Like you, he was a successful small business owner and owned a number of properties as well. On the other hand, my paternal grandmother's family lost a lot of money in the market in the Great Depression, though not their land. Neither my grandparents nor my dad had any desire to buy stocks again until the 1980s or 1990s. For decades, most of their savings was in the form of FDIC-insured bank CDs. My personal risk tolerance falls somewhere between those two extremes.

[0ddl0t]

Regarding bonds, your comments lead me to think that you are focused on absolutely maximizing returns and not maximizing returns for a given level of risk. Holding bonds likely lowers the long term returns in a portfolio, but critically, bonds also lower risk. A lot of the effect depends on when you need to take the money out. If you had a 100% stock portfolio and cashed on on 10/11/2007, you'd have done great--no so much if you cashed out on 03/06/2009.
Conventional wisdom agrees with you. It equates Risk* with price risk. Quants even derive a stat called beta which supposedly measures risk. That reasoning may suit those with high portfolio turnover, but the buy and hold investor is not affected by price risk. He still owns the same percentage of companies and they usually pay pretty close to the same dividends even in down markets.

But price risk misses out on some very real risk. Accepting a 1.5% maximum return on US bonds when inflation is likely to exceed 2% guarantees a loss in buying power. A basket of corporate bonds bonds is better, but there is still significant inflation risk (and inflation usually takes off when governments start spending too much money - arguably like now).


At the bottom of a bear market in stocks, bonds are a really good thing to own!
No no no! At the bottom of a bear market, stocks are great things to own - they're about to start going up! I mean if you had the foresight to see a bear market coming, switching to bonds right before the crash/correction would be ideal. But not only would you meed to know right when to switch to bonds, you'd also need to know when to switch out:


If you had perfect foresight and switched to bonds in October 2007, you'd still be pretty pleased after 5 years:
4815048151

But maybe not after 6:
4814648147

And certainly not after 10:
4814848149


So unless this is money that you'll need very soon, like the next 5 years, bonds are probably a more risky investment than stocks. Even then, if you reasonably believe we'll be heading into high inflation due to government overspending, bonds may be riskier than stocks:

4815248153

[mmc45414]

Anther real estate investment I like is buying something you can afford to pay off and not being afraid to swing a paintbrush. It blows me away to see people buy into a place that has to be letter perfect and obligate to a mortgage that will run into their seventies.

OTOH, I look at pictures of our place and think "WTH were we thinking?!?!?!" but now it is all good and mostly the way we want it.

[SecondsCount]

You mean reducing your exposure to equities...right? (Never get out completely...just take some chips off the table.)

To an extent. The stock market has been very good to me over the years but like you, I have money parked in a lot of different places, and keep my debt as low as possible. I will be completely debt free when I retire :cool: