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I've spoken to family about investing and they said it's too risky. I counter that with wages not keeping up with inflation or tuition cost, it's risky not to be investing. My retirement and brokerage accounts are making equivalent to a second full time job at this point. I was dumbfounded a few years ago when I realized the gains were more than my annual income, and I'm only 43.
You have to adjust for risk, and you also have to take into account the indifference curves of the investor.
Forget him, he has no consideration for "life events". He may be accurate in a theoretical sense, but for him it's all calculations, not permutations, making his advice pretty much useless in the real world.
You have to adjust for risk, and you also have to take into account the indifference curves of the investor.
now you are making my point .
over decades of time there is no combo of equities and bonds that will produce the results 100% equities will in even a simple index fund.
so there is zero financial logic that introducing less capable assets will improve your returns .
so getting back to what i said ,long term money has no financial reason to use bonds and permanently hurt long term returns. the fact one chooses to use them is a different story .
so everything an investor does, like introducing less capable assets like bonds or timing ins and outs , is on them when it permanently reduces their potential savings for no financial reason .
that is not the best behavior for money that is going to sit for decades and really should all be in a diversified stock funds for best results .
so while investor behavior plays a role , that doesn’t mean it’s good or best behavior exhibited .
i even say if one has control of their long term money and lacks pucker factor , let someone else handle it who can .
so investor behavior determining your allocation does not mean it’s good behavior or that you aren’t hurting the effort.
so each one of us does what we are comfortable with , but that doesn’t mean we aren’t doing things in the process that subtract from our efforts.
plus there is no data that shows that those with less pucker factor are any more inclined to stay invested when the crap hits the fan either.
just the opposite according to morngstar small investor returns on the more conservative funds .
so arguing against being 100% equities thru the accumulation stage has no financial basis at all. .. zero bonds are needed .
whether you choose to hurt your long term returns using them for mental reasons is up to you.
but if anyone is thinking that somehow adding less capable assets in to the portfolio ear marked for decades of time down the road will produce better returns would be false
sometimes it can be best to separate long term and short term money just because they have different jobs to do .
i actually use 3 different portfolios being retired .
one optimized for shorter term money , a growth and income model for intermediate term money and a 100% equity long term model , as even a 65 year old has money they won’t eat with for 2 to 3 decades
Last edited by mathjak107; 02-03-2024 at 10:58 AM..
Forget him, he has no consideration for "life events". He may be accurate in a theoretical sense, but for him it's all calculations, not permutations, making his advice pretty much useless in the real world.
just the opposite, i go by results not calculations or formulas.
show me real life results.
Last edited by mathjak107; 02-03-2024 at 10:53 AM..
Actually, I am not. You continue to drive the car by looking in the rear view mirror (historical data).
I drive the car by looking at mathematics through the front windshield. The mathematics are incontrovertible: introduction of non-perfectly-correlated asset classes reduces portfolio variance and enabling a high variance-adjusted expected return.
If all we do is look at historical data, I beat the historical performance of 100% equities every time I sit down at a poker table in Las Vegas. But my expected return going forward and my variance-adjusted expected return going forward? That's a different matter.
well until such time as 100% equities isn’t the clear winner over more than 2 to 4 decades of accumulation period ,you can bet on , THIS TIME WILL BE DIFFERENT if you like using any formulas you like
but the words THIS TIME IS DIFFERENT have been the most costliest words in investing…. AS BETTING AGAINST WHAT WAS , WHAT IS AND WHAT STANDS A REASONABLE CHANCE OF CONTINUING has not played out well.
Last edited by mathjak107; 02-03-2024 at 11:13 AM..
I personally would not pay anyone to manage my money in the kind of situation you’re describing.
But, if you didn't know anything about investing, were very uncertain, tended to second guess your investment(s) right after making them, inclined to get anxious and sell, and were in general overwhelmed, with no idea how to manage a portfolio, wouldn't you think a professional who could keep you from your own bad investor behaviors might be a good idea?
You're working with a different set of traits than the OP. It's important to take OP's particular and unique situation (knowledge, aptitude, experience, personality, etc) into account.
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Not correlated, but my elderly mother has had her portfolio managed by an advisor with fiduciary responsibility to her since my father passed away a decade ago. I could have done it for her and offered, but she wanted an independent professional, and she was willing to pay the management % to do it. In her case, it made sense, as there was no way she could manage anything like that, and she didn't trust me to do it for her.
Last edited by lottamoxie; 02-03-2024 at 12:06 PM..
...ONLY once there is a good determination of your personal tolerance for risk can someone then help design a combination of risk-bearing investments and risk-free investments for your level of risk.
The problem with such psychological interrogatives, is divergence between what’s best for us emotionally, and what’s best for us quantitatively. Generally, I would choose the option with the highest expectation, subject to some kind of utility function or constraints… where “expectation” is just the integral of the first moment of the probability density function. This is the “best” choice from a wealth-maximization point of view, but hardly the best choice from the viewpoint of personal comfort, felicity or peace.
Quote:
Originally Posted by mathjak107
over decades of time there is no combo of equities and bonds that will produce the results 100% equities will in even a simple index fund.
so there is zero financial logic that introducing less capable assets will improve your returns ...
He's talking about a risk-parity portfolio, like your Carolina Reaper, but adjusted to mimic the standard deviation of 100% equities, instead of 60/40. I broached this in an earlier thread, but you were not interested, because that particular risk-setting didn't appeal to you. The broader point is that leverage can be used to improve the risk-adjusted level of return, for whatever risk-level one deigns to assume... well, if we get the covariances right. If we don't, we can end up like LTCM in 1998... not an exact analogy, but you see the gist.
Quote:
Originally Posted by lottamoxie
But, if you didn't know anything about investing, were very uncertain, tended to second guess your investment(s) right after making them, inclined to get anxious and sell, and were in general overwhelmed, with no idea how to manage a portfolio, wouldn't you think a professional who could keep you from your own bad investor behaviors might be a good idea?
This again is a tension between psychology and behavior. If the investor gets skittish and behaves badly, then yes, the advisor could be invaluable. If the investor gets just as skittish but makes no changes, then the advisor is pointless. What is needed instead is a psychologist, or even better, a gathering of like-minded peers... which in ideal would would be something like this Forum; sadly, it's not an ideal world.
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