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JRKLINY truer words were never spoken about investors wanting to follow the trend.. soooooo easy to say and near impossible to execute.
heres why : if you remember some earlier posts i talked about jason zweig and his research about how our brains deal with money.
jasons brain imaging showed not only do we react differently when our money is on the line as compared to just talking about what you would do if we drop but different parts of the brain are actually used depending if emotions are real about the loss of money.
in reality heres how things go: you know how the markets turned around from last year even though nothing looked any better to everyone of us?
you know how after each rally we said this isnt for real dont get in?
well here we are 5,000 points later and folks have been locked out because the markets took off without them as they waited and waited for the rollback that never came.
well we look at loosing money even worse then we like making it.
markets drop but nothing on the horizon looks so bad.. they drop again and you go ill just wait until i get whole and get out..
more bad news hits now your down more...
well i cant bail now your brain says you will take a loss so your brain has you wait..
another huge drop and now you are really panicking..usually by the low you panic so much you sell out right before the turn around..
then your scared to go back so you wait , and you wait and the easy money passes you right by...
thats why each one of us who thought they were going to out smart the markets never does... if we guess right and get out we rarly guess right and get in..
remember what you think you will do and what you actually do when its your money and crunch time is very different.
the truth is why bother, just keep a diversified portfolio with a risk level you can sleep with and keep your hands off except for rebalancing and knudging it slightly ....you will look again in 15 years and be real happy.. dont have 15 years? then maybe equities arent for you if you worry about loosing money shorter term.
after decades of 70-100% equities im now at only 35% equities but now that im 57 and looking to retire early i met my goals and am not looking to get richer.. im just interested now in not growing poorer when i retire and i find that 35% equities should carry me thru retirement.
Last edited by mathjak107; 04-14-2010 at 05:46 PM..
A lot depends on whether you have a pension and social security for both spouses etc. If you are living purely on draw down and SS that is one picture and your draw down is critical. If you each have a pension and SS your draw becomes less consequential and depending on the size of the pension and SS perhaps not even necessary.
"a 70 year old with a pension may choose 100% equities if he has the stomach."
As TuborgP pointed out, this might mean more than a strong stomach, you need a substantial amount as social security and/or pensions and/or annuities or a large extra amount in a safe bucket. To me it does not seem wise to have a large amount in equities as a permanent type of investing. If I had done this right I would be at safe maximum in equities now. For me that should be probably around 80%. If I were in that position now, I would be pulling back at about 10%/year. As has been pointed out, none of us can accurately predict the highs and lows. Best guess is the market will have at least another year or two of recovery. If that is the scenario, then I would be at 60-70% equities. If the run lasts a longer I might go down to 40-50% equities before the next "correction." The difficulty begins with the correction. At that point the value of equities is eroding, but it is wise to buy. I certainly understand the propensity to avoid financial risk. Few of us - myself included - are likely to buy as much as we should when the market drops. Last round I also made the mistake of have funds in safe holdings but not as readily accessible as I thought. I won't do that again. Even so there was no big disaster. Those of us who waited until the market rebounded to a DJI of about 9000 should still be very happy. Sure I wish I had bought more at or near the bottom and I had got myself to the 80% goal. Maybe next time. For now I am of course tempted to buy. Instead I am not buying or selling. In another year, assuming ongoing recovery, I should be about right and will start to sell again. None of this seems very complicated -- or risky.
its all based on what you need to draw...and your stomach for risk... a 70 year old with a pension may be able to risk 70% equities if he dosnt need to much of a draw in down years..its all relative more to risk you can tolerate anj how much your draw can tolerate dropping in the down turns then aqe.
I thought the conventional wisdom is that you had to have SOME bonds in your portfolio to balance the risk of stocks. If you are 8 years out from retirement, and 95% of your 403b is in either mutual funds or CD/money market, do you stop buying bonds for fear of a "bubble" ?
I'm not a big fan of bond funds - - especially in this environment. Fortunately, I am able to reduce risk and diversify my overall portfolio by using the government's 401(K) "G-Fund" as the fixed income part of my portfolio. The G Fund is invested in specially-issued government securities and is still currently returning over 3%.
I hope your get survive the gambling. I have known too many people who played for fun and then developed a serious addiction to gambling. At least it seems you are being very cautious with your investments.
"a 70 year old with a pension may choose 100% equities if he has the stomach."
As TuborgP pointed out, this might mean more than a strong stomach, you need a substantial amount as social security and/or pensions and/or annuities or a large extra amount in a safe bucket. To me it does not seem wise to have a large amount in equities as a permanent type of investing. If I had done this right I would be at safe maximum in equities now. For me that should be probably around 80%. If I were in that position now, I would be pulling back at about 10%/year. As has been pointed out, none of us can accurately predict the highs and lows. Best guess is the market will have at least another year or two of recovery. If that is the scenario, then I would be at 60-70% equities. If the run lasts a longer I might go down to 40-50% equities before the next "correction." The difficulty begins with the correction. At that point the value of equities is eroding, but it is wise to buy. I certainly understand the propensity to avoid financial risk. Few of us - myself included - are likely to buy as much as we should when the market drops. Last round I also made the mistake of have funds in safe holdings but not as readily accessible as I thought. I won't do that again. Even so there was no big disaster. Those of us who waited until the market rebounded to a DJI of about 9000 should still be very happy. Sure I wish I had bought more at or near the bottom and I had got myself to the 80% goal. Maybe next time. For now I am of course tempted to buy. Instead I am not buying or selling. In another year, assuming ongoing recovery, I should be about right and will start to sell again. None of this seems very complicated -- or risky.
Not really a strong stomach at all to be high in equities at age 70. For many that is their peak earning point. Married each with very solid pensions. One having taken SS at 62 the other at 70. Certainly debt free and only needing to draw down tax sheltered funds and the government may waive that. You really at that point have a 10-20 time horizon because your cash flow will take you to 80 even with inflation because you have such a high monthly cash flow. The only real demons are something happening to your pension, SS or means testing for SS.
A lot depends on whether you have a pension and social security for both spouses etc. If you are living purely on draw down and SS that is one picture and your draw down is critical. If you each have a pension and SS your draw becomes less consequential and depending on the size of the pension and SS perhaps not even necessary.
Your point is well taken and becomes even more complicated with two spouses of differing ages and retirement circumstances. For example, at 63 I have no pension and plan to work part-time and take SS at 66. My wife, 5 years younger has a decent pension and will get SS. Although she would like to retire early, we will both need to live off her pension which doesn't start until she's 65. Our challenge in planning is to figure out the earliest she can cut back without damaging the pension accumulation which is building at a higher rate with salary increases because it is the old "defined benefit" model.
The revenue side is further complicated by estimating future retirement expenses. My wife is allergic to the term "budget". I'm not talking the delayed hypersensitivity allergic reaction of red blotches and itching. When I broach the subject of "budget", she has an anaphylactic reaction with
laryngeal edema and difficulty breathing.
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