High growth mutual funds that Dave Ramsey recommends (401k plan, wholesale, investments)
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The last time my 100% stock portfolio dropped a whole lot, not only did I NOT sell, I rushed in and bought more.
You're young bro. You can "afford" to take the hit on a high risk. Or you might have a high risk tolerance on your portfolio. As you get older you will probably start playing it more safe as you become less risk tolerant.
IMO the amount of money being lost doesn't matter as much as how much time you have before you need it. A 30 year old with a 2 million dollar portfolio (which I'm sure there are many of) shouldn't be worried about a 7% drop, whether it would take him 9 years of contributions to make back or not. Now a 55-60 year old should.
It's not the overall amount of the drop that should bother you, it's the # of years you have to recover it.
there can be a huge difference between not needing the money and the emotional toll being down hundred of thousands of dollars and the toll it can take on you mentally not financially.
I had nerves of steel as an investor and did deals few would have done. but I can tell you now being down 200-300k which is not even 10% takes its toll emotionally.
not that I would ever bail or panic or change a thing in my allocations but like being in combat it is a feeling that is just there.
there can be a huge difference between not needing the money and the emotional toll being down hundred of thousands of dollars and the toll it can take on you mentally not financially.
I had nerves of steel as an investor and did deals few would have done. but I can tell you now being down 200-300k which is not even 10% takes its toll emotionally.
not that I would ever bail or panic or change a thing in my allocations but like being in combat it is a feeling that is just there.
You do realize that recently the correlation between stocks and bonds has been between .5-.6. So while you will lighten the blow you aren't hedging against it like bonds were in the past when they had a negative correlation. All you are doing is capitalizing on the smaller standard deviation of bonds.
Also, it may take a toll mentally, but would it not take a toll mentally if you were 30 with 2 million and 50 with 4 million instead of 6-7 million?
A 10% swing to the downside might cost you 200k, but a 10% swing to the upside that you aren't in would also cost you 200k. My point is time horizon is an important factor. A 200k swing to the upside might not be worth the risk for someone about to retire or in retirement because they have determined they can live on the capital they have. Continuously missing 10% runs in your 30s because you are too afraid to lose anything will take a huge toll on your account in the grand scheme of things.
You're young bro. You can "afford" to take the hit on a high risk. Or you might have a high risk tolerance on your portfolio. As you get older you will probably start playing it more safe as you become less risk tolerant.
Quote:
Originally Posted by mathjak107
as the dollars involved get larger and larger there is a tendency to cringe more in the drops no matter how hard core you are .
it is all fun and games in the early years but towards the peak years adding new money is like peeing in the ocean compared to what you are down .
while markets always come back they may not come back in your lifetime later in life.
Why? If I pay cash for a house, then I will be virtually 100% guaranteed to do better in the long run than borrowing at 4% and holding a bunch of bonds earning 2%.
Are you seriously suggesting that fear will get the better of me and make me flush $1,000 - $2,000 down the toilet each year on negative arbitrage?
You do realize that recently the correlation between stocks and bonds has been between .5-.6. So while you will lighten the blow you aren't hedging against it like bonds were in the past when they had a negative correlation. All you are doing is capitalizing on the smaller standard deviation of bonds.
Also, it may take a toll mentally, but would it not take a toll mentally if you were 30 with 2 million and 50 with 4 million instead of 6-7 million?
A 10% swing to the downside might cost you 200k, but a 10% swing to the upside that you aren't in would also cost you 200k. My point is time horizon is an important factor. A 200k swing to the upside might not be worth the risk for someone about to retire or in retirement because they have determined they can live on the capital they have. Continuously missing 10% runs in your 30s because you are too afraid to lose anything will take a huge toll on your account in the grand scheme of things.
I would certainly be 80-100% invested in equities in my 30's.
bonds serve a purpose in my portfolio now that I am retiring , not only controlling volatility but they are next in line to be sold so I can eat.
even if they don't rise against stocks they don't fall as much as stocks and can provide money for rebalancing buying equities on sale.
bonds are good for controlling volatility if you need that to keep you invested when everyone is running for the exits.
I'm simply saying that I should be able to substitute being debt free for having bonds, and come out ahead. Put another way, I'll lend money to myself and get a better rate on both ends...
I think another factor to consider is if down turn occurs, how much money you have to live on outside of your retirement investment accounts. Another factor is how much time you have left to wait for the market recovery, which would be the earlier part of your retirement years, where the money could do some good, rather than simply feeding a nursing home in your later retirement years.
In our situation my wife and I both have pensions. We would live off only the pensions. Plus we will have social security in addition to the pensions. So, for us, we wouldn't have to withdraw money from the retirement accounts and lock in a huge loss, as long as we had enough of our early retirement years to enjoy the money we saved.
If you are dependent on the retirement accounts to live and to eat, then you should put enough funds in bonds to ride out the downturn. Having some money in bonds might also be a good idea even if you have plenty of years left to ride out a downturn. If the DOW drops below 10,000 again you could then dump a lot of money into stocks and mutual funds, well diversified, then make huge returns. My brother in law had the courage to dump a lot of money into stocks when the DOW dropped to 6,500. I couldn't get the nerve to jump on the 'sinking ship'! He tripled his money when the market recovered about 7 years later.
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