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like if i sold my house in july and went to vegas and no longer had 200k of that money , the way we benchmark is it would never appear like anything happened since my opening balance in january is the same as dec. but if i had that money still in my possession on jan 1 then it would reflect it the following year if i no longer had it .
MJ MJ.... No matter what you think your better half believes....if you sell the family home and then go and lose $200K in Vegas...you're a dead man. That's 100% loss guarantee right there.
It isn't imperative to remain aggressively invested, that's a fallacy. It's important to remain invested at an equity level no lower than 40% and optimally around 50% or higher, maybe up to 60% for a longer time horizon.
Let's suppose that you're 50/50 in equities and bonds. Equities decline 50%, and bonds decline only 10%. Yes, that's marginally better than being 100% in equities and suffering a cumulative 50% loss. But psychologically, does that constitute substantial improvement?
Let's not forget, that in dire situation, all paper-assets are correlated. They all fall together... small caps, large caps, US, foreign, long-term bonds, short-term bonds, intermediate bonds, corporate or municipal... everything falls - the only difference being the severity.
So, but that reckoning, I'd consider 50% stocks and 50% bonds to be an aggressive allocation.
Diversification protects us from single-company risk, from being fleeced by an other Worldcom or Enron. International diversification protects us from single-country risk. Indexing protects us from incompetent fund-management or high fees. Fine! But nothing protects us from coordinated, comprehensive market meltdown.
In 2008, at least there was a recession, and everyone suffered in unison.. landlords and renters, creditors and debtors, investors, employees and managers. The plutocrats quacked in their mansions, the homeless shivered in their refrigerator-cartons. But today we hear of record job creation, low inflation and a healthy economy. It feels like only investors are suffering, as if this were another rude reminder of the instability of aristocracy. 1794 Paris all over again, the tumbrels rolling on cobblestone to the guillotine, carrying their powdered-wig cargo, shaking in their silk stockings.
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Originally Posted by lottamoxie
An appropriate allocation is one in which the SWAN (sleep well at night) factor should be a consideration. ...
The "SWAN" factor is orthogonal to what makes adequate financial sense. Being horrendously neurotic, my SWAN level means 100% cash allocation in Swiss Francs, spread out over several Swiss bank accounts. But that's not exactly how one grows a portfolio, is it? The price of wealth is lost sleep. In a village where nearly every peasant has exactly one cow, the peasant with two cows can never sleep soundly.
I never trade, and that means that my panic hasn't resulted in any redemptions or reallocations in recent months. All to the good, long-term... fine. But psychology is a different story. Doubtless I'm grayer now, than in late-September... and that's not mere chronological age.
2008 saw long term treasuries rise 40% .. gold was up too ...
in fact the permanent portfolio was up a bit .... so all assets do not fall at the same time .. 98% of every stock down turn gold has had a positive real return .
here is an interesting comparison of some more conventional models .
Last edited by mathjak107; 01-06-2019 at 02:25 AM..
on the other hand the while the total; stock market was down 1/3 of the time since 1970 , the golden butterfly lost money 1/2 as many times , clocking in at just 17% . while a 60/40 conventional mix was still down 28% of the time .
so it is not just buying different assets that cut volatility , but buying the right assets so when one zigs the other zags but carries enough weight to actually support it's opposite .
you would need 70% in a total bond fund to carry enough weight to offset 30% in equities ... yet 20% in long term treasuries and 20% in gold does a far better job with less weight .
the last 90 days has seen my fidelity contra fund fall almost 14% ... fidelity long term treasury bond fund is up almost 8% and fidelity gold is up almost 12% ....
so for all those who claimed last year this time is different and long term treasuries will sink too with stocks once again " THIS TIME IS DIFFERENT " has not been different .
Let's suppose that you're 50/50 in equities and bonds. Equities decline 50%, and bonds decline only 10%. Yes, that's marginally better than being 100% in equities and suffering a cumulative 50% loss. But psychologically, does that constitute substantial improvement?
This is the core issue. Psychological. If a person is emotionally healthy, not in a clinical Depression, not living in fear, then there shouldn't be the kind of emotions/feelings you ascribe to setting up a financial plan and making it balanced and sustainable over many years including even the worst financial times that have ever hit the U.S. over its history.
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Let's not forget, that in dire situation, all paper-assets are correlated. They all fall together... small caps, large caps, US, foreign, long-term bonds, short-term bonds, intermediate bonds, corporate or municipal... everything falls - the only difference being the severity.
So, but that reckoning, I'd consider 50% stocks and 50% bonds to be an aggressive allocation.
Have you ever sat down with a certified financial expert (fee only, not selling anything) and worked through various options?
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But nothing protects us from coordinated, comprehensive market meltdown.
Cash protects. Yes, there is inflation, but a portfolio that has some cash in it is *perfectly acceptable.* How much cash or cash-equivalents? Enough to sustain over a few years, even up to 8 years if someone is that scared and anxious.
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In 2008, at least there was a recession, and everyone suffered in unison.
No, everyone didn't suffer. You're stuck on B&W, all or nothing, world-ending cataclysmic outcomes. People can profit even in the worst of times. People who *panic* tend to behave in ways that are not helpful to themselves, and this is why a *robust financial plan* is so important, along with living within one's means, having enough of an emergency cushion, not carrying consumer debt and all the other good behavioral practices.
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The "SWAN" factor is orthogonal to what makes adequate financial sense. Being horrendously neurotic, my SWAN level means 100% cash allocation in Swiss Francs, spread out over several Swiss bank accounts. But that's not exactly how one grows a portfolio, is it? The price of wealth is lost sleep. In a village where nearly every peasant has exactly one cow, the peasant with two cows can never sleep soundly.
I never trade, and that means that my panic hasn't resulted in any redemptions or reallocations in recent months. All to the good, long-term... fine. But psychology is a different story. Doubtless I'm grayer now, than in late-September... and that's not mere chronological age.
I'm going to go out on a limb here and suggest that what's going on isn't really about financial issues as much as it's something else that is presenting itself around money topics. There's a core issue and it's probably not solved by a financial plan or ruminating about financial topics, but with time spent with a qualified professional who can help get to the root of ongoing emotional distress.
Cash "protects", but it's inimical to long-term growth. If one invests not for personal consumption or for retirement, but for purposes of amassing a fortune, then cash is mostly detrimental to one's goals.
Financial advisors can protect a skittish or impulsive investor from blundering, but they do little for assuaging personal feeling. If one already has hundreds of years of personal-expenses already saved up (literally), then market-fluctuations don't affect one's livelihood, but they most assuredly can affect one's psyche. This is more a question of clinical psychiatry, or perhaps even religion, than of financial planning.
I once received a prescient fortune cookie message: "Your problems are so profound, that you're utterly incapable of realized, there there exist people who aren't mired in such problems". And this is true. I was flabbergasted in 2008-2009, why the streets of Lower Manhattan weren't literally running in blood, as thousands of brokers, traders, investors or bankers shot themselves [in my imagination], threw themselves out of windows, or otherwise went insane. A few perhaps did. Most did not. I don't recall any financier publicly exclaiming: "I am not a person in the physiological sense; Nay, I am a machine, whose point and programming is to generate money. I work and play, I sleep and eat and go about ostensibly human affairs, for purposes of increasing a fortune. That is my function and purpose. If the fortune declines, I've failed in my purpose. The machine must be repaired. And if it's irreparably broken, it must be destroyed".
Bernie Madoff's sons killed themselves, but this was more from shame at imputed fraud, than from regret over losses. And we heard loud chorus decrying how the "banksters" were bailed out, while the "common man" was left with the bill. But this was more from the ignorant millions who don't invest at all, or dabble in investment at the periphery. Serious investors were annoyed at the opposite, that the bailouts weren't sufficient. Regardless, people frothed and foamed and contorted their faces in irascible grimace, but eventually went on with picking up their kids from soccer-practice, with eating ice-cream on a hot July afternoon, with mowing their lawns and grooming their dogs and picking new curtains at the big-box store.
This nonchalance eludes me, this capacity to shake-shoulders and grieve a bit but otherwise to persevere. Perhaps natural-selection assured that our primitive ancestors dwelt more on celebrating their successful hunts, than to bemoaning their failures and near-misses. Their descendants are the stalwart investors, wise and longsuffering... unless the neurons misfire, the genes mis-express, and the fortune-generating machine self-diagnoses trouble codes.
Location: Was Midvalley Oregon; Now Eastside Seattle area
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Originally Posted by Mcdman88
I completely get if you are retired or fixing to retire and a 2008 hits. I'm not talking about you folks.
I'm talking about people that have 7-40 years left until retirement. The 2000 drop. 2008 drop. End of 2018 drop. These are good things. You get to buy stocks and load up on undervalued stocks. People in their 30s freak out.
Feed that roth and when it dips, buy. When it crashes, buy. Don't ever sell. But buy great companies on dips.
Your 401k, max that thing out. Every 2 weeks you're buying more stock. Hopefully at a discounted rate.
Celebrate !!!!
OP:
Celebrate, if you believe in the long statistics and your ability to live those long statistics.
In the Great Recession, It was a time of celebration, if you had a job, able to invest, ignored the fact that many of your neighbors and friends did lose and will never recover.
I then took the CYA position. We came through the GR, barely. We are OK now, and expect to be OK in the next few years. Beyond 5-10 years is pure guessing. 68/71 yo.
Your 401k, max that thing out. Every 2 weeks you're buying more stock. Hopefully at a discounted rate.
Celebrate !!!!
odds are the reality is you buy higher and higher over time as markets are really down only 1/3 of the time and up 2/3's .
while dollar cost averaging in is the only way most can move money in , counting on buying lower is going against the odds .
if it wasn't we would all reach our desired allocation , sell everything off and start from zero again . you can see that would not have worked well over most if not all typical accumulation time frames .
but it is the only way most get money in to be invested . so just take advantage of dips when they happen but over time they really don't add as much to the party as you think because all the higher buys kind of wipe the effects away over time .
2008 saw long term treasuries rise 40% .. gold was up too ...
in fact the permanent portfolio was up a bit .... so all assets do not fall at the same time .. 98% of every stock down turn gold has had a positive real return .
here is an interesting comparison of some more conventional models .
This is why, after I had paid off my mortgage and was able to start investing, that I went with 100% stock index funds.
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