Gathering thoughts vs. Market Timing

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mikeny17
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Gathering thoughts vs. Market Timing

Post by mikeny17 »

Hello,

First off, thank you to everyone who posts and helps us new investors get settled in and up to speed without any biases or vested interests. Your tireless contribution of time and knowledge is nothing short of admirable. Last night as I was falling asleep I suddenly realized that maybe my long-standing 100% equities allocation isn't right for me (I'm still not too sure) so I came to the conclusion that maybe I need a bit of time to sit back and get a better feel for things. I made a couple of lucky (non-market timing) moves in the past like over doubling my 401k balance by buying company stock at a historic low a few years back, then I came on here and set an 80/20 allocation, but shortly thereafter I moved to 100% equities (I thought of the money as nothing more than fictitious play money). Now as my 401k balance hit 6 figures the money feels more "real" if that makes sense. So this morning I moved it 100% into stable value, and moved my ROTH IRA which was 100% REIT into short-term bond index Admiral. I just felt that maybe my "luck" won't sustain itself forever and maybe now, at these highs, is a good time to come to terms with a more realistic AA, from the sidelines. Did I make a hasty mistake or a responsible move to feel myself out?

27 Single, NYC, NY
Finance Job (Highly Ranked, so as "safe" as one can get here, I think)
Portfolio: Low 6 Figures
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retiredjg
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Re: Gathering thoughts vs. Market Timing

Post by retiredjg »

Well, it certainly was hasty. Too early to see if it was a mistake.

Why didn't you just exchange part of your portfolio into bonds? Give careful thought to that question.
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mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

retiredjg wrote:Well, it certainly was hasty. Too early to see if it was a mistake.

Why didn't you just exchange part of your portfolio into bonds? Give careful thought to that question.
Hi retiredjg! You're the one who helped me set my portfolio up in 2012!

I thought long and hard about that very question and this was my reasoning:

1) I don't think bonds will fare very well now that QE is ending, in the short term at least
2) Given the above assumption (I'm very aware there are no guarantees), I felt that having more dry powder to DCA back in once I get my plan setup, would possibly offset the time out of the markets
3) The stronger USD, plus global contraction may hamper exports more than expected
4) Things just don't feel great out there (solely my opinion) and I just had a strong desire to feel "safe" while I gather my thoughts
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retiredjg
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Re: Gathering thoughts vs. Market Timing

Post by retiredjg »

Yes, I remember. :happy

Long and hard? You came to this conclusion as you fell asleep last night and you changed your allocation this morning. You didn't think long and hard. Something spooked you and you pulled out of the market. Tell me that isn't true.

Since you can't seem to stay at an allocation for long, you either have not figured out just where you should be or you are too impulsive to responsively manage your own money. Or you believe that market timing works and that you are adept enough at it to make it work for you. What are your thoughts on those choices?

I'll be gone for a few hours - no rush.
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mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

retiredjg wrote:Yes, I remember. :happy

Long and hard? You came to this conclusion as you fell asleep last night and you changed your allocation this morning. You didn't think long and hard. Something spooked you and you pulled out of the market. Tell me that isn't true.

Since you can't seem to stay at an allocation for long, you either have not figured out just where you should be or you are too impulsive to responsively manage your own money. Or you believe that market timing works and that you are adept enough at it to make it work for you. What are your thoughts on those choices?

I'll be gone for a few hours - no rush.
If I told you that wasn't true, we both know that I would be lying. However, I think that as a person I've matured quite a bit in the last year or so (not an easily thing to explain), perhaps due to living on my own and having bills and responsibilities, etc.

Along with this maturity I feel like over the past several months my AA has been eating at me a bit in the back of my mind, for example when we had that last small downturn in September I found myself caring more and more about it and vowing to myself to "take action" if/when things go back up (I was never considering selling), but I did vow to adjust at some point once things came back. I think the 2 things that spooked me are the highs we are seeing (are they sustainable, etc.?) combined with the frustration of not having any dry powder for re-balancing. Of course human behavior and psychology is incredibly complex, bit I am extremely confident that I would not sell at extreme lows, I'm just not sure if I am comfortable being 100% equities and if the hypothetical higher-return is worth it.

I was considering DCAing back into the market to a more reasonable AA, perhaps using stable value in place of bonds, or maybe just calming down and moving it all back to a "normal" AA. I am still unsure what to do...
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Re: Gathering thoughts vs. Market Timing

Post by bluejello »

Sometimes the hardest and wisest thing to do is nothing.

If I were you, I would move the 401k and Roth IRA into an asset allocation that just manages to balance on the knife-edge between greed and fear, and I would do this as soon as possible. Something like a target date fund is a good choice because it basically takes you out of the process.

Take yourself back to September 2012 — the market is coming out of a recession and has just gone up 25% over the past 12 months. You really want to go 100% equities, but a small part of your rational mind knows this is a bad idea. What is the minimum stock allocation that you would be satisfied with, such that you can tell yourself "well, this is good enough"? Is it 90% 80%? 60%?

Now imagine that it's March 2009. You've just watched your portfolio get cut almost in half over the past year, and everywhere you look the financial news is predicting armageddon. Your gut is screaming to go 100% cash, but a small part of your rational mind knows that you should stay the course. What is the maximum allocation of stocks such that you don't panic and sell everything? Is is 50%? 60%? 80%?

I don't think I need to tell you that market timing is a bad idea — you're smart, you know this. It doesn't matter that going 100% stocks in September 2012 would actually have been a great idea; the point is, it could just as easily have gone the other way.

What you need to do is protect your portfolio from yourself, by finding an asset allocation such that neither your greed nor your fear will be able to wrest control away from your rational mind.
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BolderBoy
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Re: Gathering thoughts vs. Market Timing

Post by BolderBoy »

mikeny17 wrote:1) I don't think bonds will fare very well now that QE is ending, in the short term at least
What is the purpose of bonds in an investment portfolio? The implication of your statement #1 is that you want them to provide growth akin to stocks ("when stocks go down, bonds go up"). You want to take your risk on the equity side, not the bond side.

Bonds are to reduce volatility. If you don't mind maximum volatility, don't own any bonds.
Topic Author
mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

BolderBoy wrote:
mikeny17 wrote:1) I don't think bonds will fare very well now that QE is ending, in the short term at least
What is the purpose of bonds in an investment portfolio? The implication of your statement #1 is that you want them to provide growth akin to stocks ("when stocks go down, bonds go up"). You want to take your risk on the equity side, not the bond side.

Bonds are to reduce volatility. If you don't mind maximum volatility, don't own any bonds.
Understood, but, and it's of course a big and unknown "but", if the end of QE mutes bond returns, or perhaps even causes slightly negative returns (this is a real possibility), wouldn't it be better the draw from SV?
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mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

bluejello wrote:Sometimes the hardest and wisest thing to do is nothing.

If I were you, I would move the 401k and Roth IRA into an asset allocation that just manages to balance on the knife-edge between greed and fear, and I would do this as soon as possible. Something like a target date fund is a good choice because it basically takes you out of the process.

Take yourself back to September 2012 — the market is coming out of a recession and has just gone up 25% over the past 12 months. You really want to go 100% equities, but a small part of your rational mind knows this is a bad idea. What is the minimum stock allocation that you would be satisfied with, such that you can tell yourself "well, this is good enough"? Is it 90% 80%? 60%?

Now imagine that it's March 2009. You've just watched your portfolio get cut almost in half over the past year, and everywhere you look the financial news is predicting armageddon. Your gut is screaming to go 100% cash, but a small part of your rational mind knows that you should stay the course. What is the maximum allocation of stocks such that you don't panic and sell everything? Is is 50%? 60%? 80%?

I don't think I need to tell you that market timing is a bad idea — you're smart, you know this. It doesn't matter that going 100% stocks in September 2012 would actually have been a great idea; the point is, it could just as easily have gone the other way.

What you need to do is protect your portfolio from yourself, by finding an asset allocation such that neither your greed nor your fear will be able to wrest control away from your rational mind.
Great post, thank you!

I remember buying decent chunks 10k at a time during the downturn and I remember being excited about getting in at low prices, maybe my fear now is actually a hypothetical opportunity cost that may not even exist?

These are my 401k choices (and ERs):

JPM SmartRetirement
Target Date Income Fund 0.11
Target Date 2015 Fund 0.10
Target Date 2020 Fund 0.09
Target Date 2025 Fund 0.09
Target Date 2030 Fund 0.09
Target Date 2035 Fund 0.09
Target Date 2040 Fund 0.10
Target Date 2045 Fund 0.10
Target Date 2050 Fund 0.10
Short-Term Fixed Income Fund 0.00
Stable Value Fund 0.22
Government Inflation-Protected Bond Fund 0.23
Core Bond Fund 0.48
Intermediate Bond Fund 0.23
High Yield Bond Fund 0.36
Large Cap Value Index Fund 0.07
Large Cap Value Fund 0.35
S&P 500 Index Fund 0.04
Large Cap Growth Index Fund 0.07
Large Cap Growth Fund 0.41
Mid Cap Value Fund 0.42
Mid Cap Growth Fund 1.20
Small Cap Index Fund 0.10
Small Cap Core Fund 1.21
Small Cap Blend Fund 0.62
International Large Cap Value Fund 0.32
International Large Cap Index Fund 0.10
International Small Cap Index Fund 0.16
Emerging Market Equity Index Fund 0.18
staythecourse
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Re: Gathering thoughts vs. Market Timing

Post by staythecourse »

I would use the word caution as you go forward in your investing life.

Some red flags:
1. Flip flopping to extremes in asset allocation. one day 100% this then 100% that the next day. This either means you have not thought out an asset allocation in advance that is consistent with your willingness, ability, and need to take risk or your have not penned a IPS to remind yourself why or you have done the last two and decided to ignore it. Any of the reasons should throw caution flags.
2. Using any "data" or "thoughts" to determine asset allocation, for example, trying to guess the outcome of QE ending. I have noticed their are several market timers out there. One is a person who think they know and the other is the person who knows you can't market time, but has a "good" reason to make changes. In psychology, those reasons usually reek of intellectualization and rationalization. They are wrong as well to do as they are just market timing in hiding.
3. Being overconfident the security of one's job. MANY, MANY folks thought their jobs were secure in 2008 to find out that they were quite dispensible. I am a physician married to another physician and don't think our jobs are 100% secure. How could you think in finance you have a stable job? I would say that is the most volatile. Peter Lynch thought he was set at Fidelity and how did that work out for him? The only reason I harp on this point is it make a HUGE difference if you can even qualify to be high equities. Anybody can lose their job and worse is being in finance as you are most likely to lose it when the market hits the skids.


My opinion, unless you deal with some of the above issues your flip flopping will occur over and over and over and...

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
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mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

staythecourse wrote:I would use the word caution as you go forward in your investing life.

Some red flags:
1. Flip flopping to extremes in asset allocation. one day 100% this then 100% that the next day. This either means you have not thought out an asset allocation in advance that is consistent with your willingness, ability, and need to take risk or your have not penned a IPS to remind yourself why or you have done the last two and decided to ignore it. Any of the reasons should throw caution flags.
2. Using any "data" or "thoughts" to determine asset allocation, for example, trying to guess the outcome of QE ending. I have noticed their are several market timers out there. One is a person who think they know and the other is the person who knows you can't market time, but has a "good" reason to make changes. In psychology, those reasons usually reek of intellectualization and rationalization. They are wrong as well to do as they are just market timing in hiding.
3. Being overconfident the security of one's job. MANY, MANY folks thought their jobs were secure in 2008 to find out that they were quite dispensible. I am a physician married to another physician and don't think our jobs are 100% secure. How could you think in finance you have a stable job? I would say that is the most volatile. Peter Lynch thought he was set at Fidelity and how did that work out for him? The only reason I harp on this point is it make a HUGE difference if you can even qualify to be high equities. Anybody can lose their job and worse is being in finance as you are most likely to lose it when the market hits the skids.


My opinion, unless you deal with some of the above issues your flip flopping will occur over and over and over and...

Good luck.
Thank you staythecourse, your insight is vely helpful.

Perhaps, given my job in finance, I should shave 10% off of the equities side of my AA?

I have a 100% vested cash pension that covers my emergency fund in the event of job loss. It is 3% pay credit, and 4.5% interest.
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Re: Gathering thoughts vs. Market Timing

Post by nisiprius »

mikeny17 wrote:
BolderBoy wrote:
mikeny17 wrote:1) I don't think bonds will fare very well now that QE is ending, in the short term at least
What is the purpose of bonds in an investment portfolio? The implication of your statement #1 is that you want them to provide growth akin to stocks ("when stocks go down, bonds go up"). You want to take your risk on the equity side, not the bond side.

Bonds are to reduce volatility. If you don't mind maximum volatility, don't own any bonds.
Understood, but, and it's of course a big and unknown "but", if the end of QE mutes bond returns, or perhaps even causes slightly negative returns (this is a real possibility), wouldn't it be better the draw from SV?
If you could predict the future, then there almost always be something better to do than to stay the course. That's why it's so hard to stay the course and why so few people even come close to doing it--everyone thinks they can predict the future.

Let's take one example (thanks to forum member fredflinstone for posting about it). In April of this year, Bloomberg surveyed 67 economists and asked for their predictions about interest rates. Can you guess how many of them said it would go up? That's right, 67 of them. Not a consensus. Unanimity.

100% of economists think yields will rise within six months

Image

And what really happened?

Image

Image

The noise is often like a public address system with the gain turned up too high, as everybody listens to everyone else and the reverberations keep increasing in volume, wuh-wuh-wuh-wuh-wuh-wuh-wuh-wuh-wuh-wuh, until it seems like "everyone" is saying it so surely it must be right.

And of course the people selling products or strategies will make sure you know what "everyone" is saying if what "everyone" is saying would be a reason to buy their product.

Tune out the noise.
Last edited by nisiprius on Mon Nov 10, 2014 12:07 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Topic Author
mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

nisiprius wrote:
mikeny17 wrote:
BolderBoy wrote:
mikeny17 wrote:1) I don't think bonds will fare very well now that QE is ending, in the short term at least
What is the purpose of bonds in an investment portfolio? The implication of your statement #1 is that you want them to provide growth akin to stocks ("when stocks go down, bonds go up"). You want to take your risk on the equity side, not the bond side.

Bonds are to reduce volatility. If you don't mind maximum volatility, don't own any bonds.
Understood, but, and it's of course a big and unknown "but", if the end of QE mutes bond returns, or perhaps even causes slightly negative returns (this is a real possibility), wouldn't it be better the draw from SV?
If you could predict the future, then there almost always be something better to do than to stay the course. That's why it's so hard to stay the course and why so few people even come close to doing it--everyone thinks they can predict the future.

Let's take one example. In April of this year, Bloomberg surveyed 67 economists and asked for their predictions about interest rates. Can you guess how many of them said it would go up? That's right, 67 of them. Not a consensus. Unanimity.

100% of economists think yields will rise within six months

Image

And what really happened?

Image

Image

The noise is often like a public address system with the gain turned up too high, as everybody listens to everyone else and the reverberations keep increasing in volume, wuh-wuh-wuh-wuh-wuh-wuh-wuh-wuh-wuh-wuh, until it seems like "everyone" is saying it so surely it must be right.

And of course the people selling products or strategies will make sure you know what "everyone" is saying if what "everyone" is saying would be a reason to buy their product.

Tune out the noise.
Thank you nisiprius, I have been admiring your posts for several years now, and they are always on point and in a way a confidence booster to staying the course.

I think what I am experiencing is a re-calibration of my course, brought on my a recent maturing, for lack of a better word.

Do you see any appeal of going maybe 70/30 for a bit with the 70% 86/14 of SP/SC to mimic total stock, and the 30% stable value for peace of mind and dry powder?
fposte
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Re: Gathering thoughts vs. Market Timing

Post by fposte »

Mike, do you have an Investment Policy Statement? If not, I think you should create one--it's a really helpful way to identify your needs and plans and to allow your rational brain to keep running the show when the lizard brain starts to respond to the market.
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Re: Gathering thoughts vs. Market Timing

Post by TravelerMSY »

Your stable value fund may be be a better deal than the US 10Y. What are its returns?
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mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

fposte wrote:Mike, do you have an Investment Policy Statement? If not, I think you should create one--it's a really helpful way to identify your needs and plans and to allow your rational brain to keep running the show when the lizard brain starts to respond to the market.
Yes, I made one that stated 80/20, but I didn't stick to it. I stuck to it for a while, but when the opportunities arose to buy stocks cheaper, I kept taking it.
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mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

TravelerMSY wrote:Your stable value fund may be be a better deal than the US 10Y. What are its returns?

Calendar Year Total Returns

2004 5.3
2005 5.5
2006 5.5
2007 5.3
2008 4.6
2009 2.0
2010 2.0
2011 2.3
2012 2.4
2013 2.0
14-Sep 1.3
Last edited by mikeny17 on Mon Nov 10, 2014 12:18 pm, edited 1 time in total.
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nisiprius
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Re: Gathering thoughts vs. Market Timing

Post by nisiprius »

mikeny17 wrote:...I think what I am experiencing is a re-calibration of my course, brought on my a recent maturing, for lack of a better word.

Do you see any appeal of going maybe 70/30 for a bit with the 70% 86/14 of SP/SC to mimic total stock, and the 30% stable value for peace of mind and dry powder?
In my opinion, if one is jittery, "recalibration" is appropriate--and a good time to do it is when things are more or less sorta-kinda stable, as they are now, not during the emotional heat of a sharp stock market movement.

As to bonds versus other things... the big question is what percentage of your portfolio is stocks and what percentage is conservative, low-risk-low-return stuff. It doesn't matter whether the low-risk portion is an (investment-grade, intermediate-term-or-shorter) bond fund, a bank account, bank CDs, stable value fund, savings bonds. Or rather, you can't tell which will be best, and even twenty years from now you won't know how much of the outcome was luck. So do whatever gives you the most peace of mind.

The big thing is that the powerful lever for reducing risk is to invest in intrinsically-low-risk assets, and not to kid yourself that you can get comparable, robust risk reduction by fiddling around with stock selection or stock market timing.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

nisiprius wrote:
mikeny17 wrote:...I think what I am experiencing is a re-calibration of my course, brought on my a recent maturing, for lack of a better word.

Do you see any appeal of going maybe 70/30 for a bit with the 70% 86/14 of SP/SC to mimic total stock, and the 30% stable value for peace of mind and dry powder?
In my opinion, if one is jittery, "recalibration" is appropriate--and a good time to do it is when things are more or less sorta-kinda stable, as they are now, not during the emotional heat of a sharp stock market movement.

As to bonds versus other things... the big question is what percentage of your portfolio is stocks and what percentage is conservative, low-risk-low-return stuff. It doesn't matter whether the low-risk portion is an (investment-grade, intermediate-term-or-shorter) bond fund, a bank account, bank CDs, stable value fund, savings bonds. Or rather, you can't tell which will be best, and even twenty years from now you won't know how much of the outcome was luck. So do whatever gives you the most peace of mind.

The big thing is that the powerful lever for reducing risk is to invest in intrinsically-low-risk assets, and not to kid yourself that you can get comparable, robust risk reduction by fiddling around with stock selection or stock market timing.
Thank you nisipirus...I am starting to calm down and think maybe 80/20, 75/25, 70/30...with the safe part in SV, will be my next step (which will mean that I haven't really ever gone too far off my my initial IPS), and there is a bit of comfort in that in of itself.
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steve roy
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Re: Gathering thoughts vs. Market Timing

Post by steve roy »

I'll make it simple.

Go to 65% stocks, 35% bonds. Use the three-fund portfolio template. (See "Larimore, Taylor.")

STICK with that allocation until age 45. Then move to 50/50 stock/bond.

STICK with that allocation until age 62. Then move to 35/65 stock bond.

WHEN you retire, set it at that last allocation and don't touch it, but let the allocation drift where it drifts.

The point of the exercise? To set up a program and stick with same, and to avoid overthinking a problem that doesn't exist. Any reasonable allocation will do fine if you keep it in place. Pretend that you don't even have investment accounts. At the end of thirty-eight point two years, you'll have more money than 90% of the hot shots that keep shuffling money around, chasing performance and fearing the next downturn.

You're welcome.
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mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

steve roy wrote:I'll make it simple.

Go to 65% stocks, 35% bonds. Use the three-fund portfolio template. (See "Larimore, Taylor.")

STICK with that allocation until age 45. Then move to 50/50 stock/bond.

STICK with that allocation until age 62. Then move to 35/65 stock bond.

WHEN you retire, set it at that last allocation and don't touch it, but let the allocation drift where it drifts.

The point of the exercise? To set up a program and stick with same, and to avoid overthinking a problem that doesn't exist. Any reasonable allocation will do fine if you keep it in place. Pretend that you don't even have investment accounts. At the end of thirty-eight point two years, you'll have more money than 90% of the hot shots that keep shuffling money around, chasing performance and fearing the next downturn.

You're welcome.
Thank you for your input!

Will 70/30 leave me with more money than 91% of the hot shots?! :D
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Re: Gathering thoughts vs. Market Timing

Post by pkcrafter »

Mike, you need to be very aware that you violated your policy statement and then sold everything on impulse. Since you probably weren't invested in 2008 you have not really been tested in a emotionally charged situation, but consider that you probably won't make it through a hard downturn. Many Bogleheads will recommend a new, untested investor go pretty moderate in AA until they have experienced a big drawdown, so you should seriously consider that. Note too that anyone who is 100% stock and afraid of bond risk doesn't really have a good handle on risk.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

pkcrafter wrote:Mike, you need to be very aware that you violated your policy statement and then sold everything on impulse. Since you probably weren't invested in 2008 you have not really been tested in a emotionally charged situation, but consider that you probably won't make it through a hard downturn. Many Bogleheads will recommend a new, untested investor go pretty moderate in AA until they have experienced a big drawdown, so you should seriously consider that. Note too that anyone who is 100% stock and afraid of bond risk doesn't really have a good handle on risk.

Paul
Understood, I actually boosted my 401k balance with company stock, buying it at 19 and selling around 40...very risky for sure.

It's not that I don't understand bond risk, it's just choosing between SV and my 401ks core bond fund that has me hung up.
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greg24
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Re: Gathering thoughts vs. Market Timing

Post by greg24 »

Is this how all finance professionals manage their portfolios?
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

greg24 wrote:Is this how all finance professionals manage their portfolios?
Hey, dentists often have horrible teeth.
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backpacker
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Re: Gathering thoughts vs. Market Timing

Post by backpacker »

mikeny17 wrote:
greg24 wrote:Is this how all finance professionals manage their portfolios?
Hey, dentists often have horrible teeth.
To be fair to mikeny17, I would think that it was harder to manage a portfolio well as a financial professional. I can tune out the market noise in part because my job doesn't force me to listen to it. I don't have to talk market conditions, timing strategies, etc. with my colleagues every day.

My advice mikeny17 would be to stick with your original strategy. $100,000 is not much money in the grad scheme of things. It's more important that you stick with a good plan than that you find a plan that will save you a bit of money if there's a crash. Whatever your portfolio is presently worth, good habits (making changes slowly if at all) are more valuable.
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Re: Gathering thoughts vs. Market Timing

Post by pkcrafter »

mikeny17 wrote:
greg24 wrote:Is this how all finance professionals manage their portfolios?
Hey, dentists often have horrible teeth.
Not unusual. We've had many professionals in the finance field asking for help, and most were not very familiar with Bogleheads' style of investing because it isn't taught in school.

Paul



edited for clarity.
Last edited by pkcrafter on Mon Nov 10, 2014 7:55 pm, edited 2 times in total.
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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steve roy
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Re: Gathering thoughts vs. Market Timing

Post by steve roy »

mikeny17 wrote:
steve roy wrote:I'll make it simple.

Go to 65% stocks, 35% bonds. Use the three-fund portfolio template. (See "Larimore, Taylor.")

STICK with that allocation until age 45. Then move to 50/50 stock/bond.

STICK with that allocation until age 62. Then move to 35/65 stock bond.

WHEN you retire, set it at that last allocation and don't touch it, but let the allocation drift where it drifts.

The point of the exercise? To set up a program and stick with same, and to avoid overthinking a problem that doesn't exist. Any reasonable allocation will do fine if you keep it in place. Pretend that you don't even have investment accounts. At the end of thirty-eight point two years, you'll have more money than 90% of the hot shots that keep shuffling money around, chasing performance and fearing the next downturn.

You're welcome.
Thank you for your input!

Will 70/30 leave me with more money than 91% of the hot shots?! :D
90.8%. But feel free to round up.
Topic Author
mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

backpacker wrote:
mikeny17 wrote:
greg24 wrote:Is this how all finance professionals manage their portfolios?
Hey, dentists often have horrible teeth.
To be fair to mikeny17, I would think that it was harder to manage a portfolio well as a financial professional. I can tune out the market noise in part because my job doesn't force me to listen to it. I don't have to talk market conditions, timing strategies, etc. with my colleagues every day.

My advice mikeny17 would be to stick with your original strategy. $100,000 is not much money in the grad scheme of things. It's more important that you stick with a good plan than that you find a plan that will save you a bit of money if there's a crash. Whatever your portfolio is presently worth, good habits (making changes slowly if at all) are more valuable.
Thank you, I cancelled the hasty transactions I did this morning.

Instead I will keep 80/20, with quarterly re-balancing as my initial IPS stated.

65% S&P 500 Index Fund 0.04 ER
15% Small Cap Index Fund 0.10 ER
20% Stable Value Fund 0.22 ER

I did keep the move out of REITs in my ROTH, for that I will be 100% Vanguard short term bond index (I consider it part of my EF), and being 100% REITs was absolutely foolish and irresponsible.

I suppose the 80/20 becomes watered down to about 70/30, if I include the Roth & cash pension.
leonard
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Re: Gathering thoughts vs. Market Timing

Post by leonard »

mikeny17 wrote:
retiredjg wrote:Well, it certainly was hasty. Too early to see if it was a mistake.

Why didn't you just exchange part of your portfolio into bonds? Give careful thought to that question.
Hi retiredjg! You're the one who helped me set my portfolio up in 2012!

I thought long and hard about that very question and this was my reasoning:

1) I don't think bonds will fare very well now that QE is ending, in the short term at least
2) Given the above assumption (I'm very aware there are no guarantees), I felt that having more dry powder to DCA back in once I get my plan setup, would possibly offset the time out of the markets
3) The stronger USD, plus global contraction may hamper exports more than expected
4) Things just don't feel great out there (solely my opinion) and I just had a strong desire to feel "safe" while I gather my thoughts
You went 100% equity to 100% cash. You based your original decision on market timing (QE ending, "dry powder" DCA, stronger USD and global contraction). Not surprisingly - since you based your original decision on market timing - you based your current radical 100% conversion on market timing.

Start over - set a true AA based on your risk profile (not the market), rebalance, and stay the course. That last part is important.

If you think you will have another urge to 100% ANYTHING - you may be a candidate for putting 100% of your tax advantaged portfolio in TR or Lifestrategy and 100% of taxable in Tax managed balanced, TR, or lifestrategy - depending on your current and future tax rates. Yes. it would be less tax efficient and drag returns. But, nothing drags returns like behavioral problems.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
Topic Author
mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

leonard wrote:
mikeny17 wrote:
retiredjg wrote:Well, it certainly was hasty. Too early to see if it was a mistake.

Why didn't you just exchange part of your portfolio into bonds? Give careful thought to that question.
Hi retiredjg! You're the one who helped me set my portfolio up in 2012!

I thought long and hard about that very question and this was my reasoning:

1) I don't think bonds will fare very well now that QE is ending, in the short term at least
2) Given the above assumption (I'm very aware there are no guarantees), I felt that having more dry powder to DCA back in once I get my plan setup, would possibly offset the time out of the markets
3) The stronger USD, plus global contraction may hamper exports more than expected
4) Things just don't feel great out there (solely my opinion) and I just had a strong desire to feel "safe" while I gather my thoughts
You went 100% equity to 100% cash. You based your original decision on market timing (QE ending, "dry powder" DCA, stronger USD and global contraction). Not surprisingly - since you based your original decision on market timing - you based your current radical 100% conversion on market timing.

Start over - set a true AA based on your risk profile (not the market), rebalance, and stay the course. That last part is important.

If you think you will have another urge to 100% ANYTHING - you may be a candidate for putting 100% of your tax advantaged portfolio in TR or Lifestrategy and 100% of taxable in Tax managed balanced, TR, or lifestrategy - depending on your current and future tax rates. Yes. it would be less tax efficient and drag returns. But, nothing drags returns like behavioral problems.
Thank you leonard, I think I am ok with 80/20 401k, 70/30 overall. It feels "right".
Twins Fan
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Re: Gathering thoughts vs. Market Timing

Post by Twins Fan »

"Feels right"... for now??
mikeny17 wrote:Do you see any appeal of going maybe 70/30 for a bit with the 70% 86/14 of SP/SC to mimic total stock, and the 30% stable value for peace of mind and dry powder?
Maybe it's coming across wrong in your posts, but you seem to show NO signs of actually sticking to a plan. As mentioned early on in this one and something I would agree with, a target date fund is probably the best choice you could make for yourself. Being in the finance biz probably has you too close to the noise everyday at work, around the water cooler, and at lunch. You don't like the look of bond funds for the short term (which, you're in your 20's), but a 1.3% SV return this year looks appealing to you?? Sounds like you are your own worst enemy in all this.
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retiredjg
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Re: Gathering thoughts vs. Market Timing

Post by retiredjg »

mikeny17 wrote:Thank you nisipirus...I am starting to calm down and think maybe 80/20, 75/25, 70/30...with the safe part in SV, will be my next step (which will mean that I haven't really ever gone too far off my my initial IPS), and there is a bit of comfort in that in of itself.
Mikeny17, I'm sorry to sound harsh, but you are in denial. Yes, denial.

You completely busted your initial IPS not once, but twice. (At least.) Think about this now. You went round and round till you finally got settled on 80/20 in the first place and you said you felt very good about that allocation.

Then you busted it - and went to 100% stocks.

Then you got spooked and went to 0/100.

What's going on here? You've explained it well and it all boils down to two things. Greed, when you went to 100% stocks and....Fear, when you got spooked and went to 100% cash.


Greed and fear could easily send you down the path to complete and total financial ruin. If you don't find a balance between greed and fear, you really should not be managing your own money. IIRC, you are managing someone else's money as well - so this is doubly important.

A couple of things that I think I'm hearing from you are quite concerning.

1) You have not yet realized that you must find a stock to bond allocation that you can live with in both the good times and the bad times. Yes - the same number through thick and thin.

Whether you realize it or not, you are still clinging to the notion that you can invest one way during good times and a different way during the bad times. If we knew when the good times would be and when the bad times would be, you could do it that way. But we don't.

It's like picking out your canoe at the beginning of the trip. If you have no idea what type of water is ahead, you have to pick a canoe that will work at least passably in any kind of water. It's not like you get to pick one for white water and a different one for the calm water - you have to pick just one. Do your best to pick what works and don't jump out of your canoe - even if you find that the canoe is a poor choice, jumping into the water is a almost certainly a worse choice.

2) You've mentioned "dry powder" a couple of times. I can't put my finger on it, but there's is something way out of kilter about your concern with having some dry powder. Maybe someone else can pin it down better, but having "dry powder" is not really much of a concern in investing and certainly not something you should be basing any decisions on.

Here's my suggestion. You should probably start with a conservative but reasonable allocation - 60% stocks and 40% bonds or stable value. Work with this until you actually go through a crash. Not a little bump in the road like what happened in October. I mean a real crash where the market goes down 40% or more and it takes 5 or 6 years to get back to what you currently consider normal. This is the only way you are going to figure out where you need to be - by experiencing it. Until you experience a crash, you (everyone) is only guessing at what the right ratio is for you.

And I think you need to get your money back in the market right now. Taking your money out of a high market and trying to DCA back in is just incredibly an flawed plan. It also indicates that you are not comfortable with whatever target you want to DCA back into.

I feel like you are too impulsive to go any more aggressive than 60/40. You've mentioned "maturing" a few times, and maybe that will carry over into your financial life, but I don't think you are there yet.

You also need to be giving some consideration to taking yourself out of the picture. Moving to target funds could help, even if more expensive. And you may be one of those people who really need an advisor to keep them from doing stupid stuff. I'm not saying to do this, but you do need to start giving this some consideration if you can't get a handle on this greed and fear thing.

You've gotten some of the best and most insightful replies that I've ever seen in my several years on this forum. You need to read each one again, very carefully. And you need to be sure you are getting the messages that some very nice people have offered in such a polite manner.
Topic Author
mikeny17
Posts: 156
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

Twins Fan wrote:"Feels right"... for now??
mikeny17 wrote:Do you see any appeal of going maybe 70/30 for a bit with the 70% 86/14 of SP/SC to mimic total stock, and the 30% stable value for peace of mind and dry powder?
Maybe it's coming across wrong in your posts, but you seem to show NO signs of actually sticking to a plan. As mentioned early on in this one and something I would agree with, a target date fund is probably the best choice you could make for yourself. Being in the finance biz probably has you too close to the noise everyday at work, around the water cooler, and at lunch. You don't like the look of bond funds for the short term (which, you're in your 20's), but a 1.3% SV return this year looks appealing to you?? Sounds like you are your own worst enemy in all this.
I think (and hope) that it's coming across wrong in the forum, but I understand that maybe it isn't.

I don't think the noise is what gets me, but rather an obsession for finding the perfect portfolio, which of course is impossible.

I disagree about the SV fund, there may be appeal to it, and there may not, I don't think there is a definitive answer at this point in time, but for the sake of wanting a cheap, and conservative form of fixed income, it's either that, or the doubly priced core bond fund.
leonard
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Joined: Wed Feb 21, 2007 10:56 am

Re: Gathering thoughts vs. Market Timing

Post by leonard »

mikeny17 wrote:
Twins Fan wrote:"Feels right"... for now??
mikeny17 wrote:Do you see any appeal of going maybe 70/30 for a bit with the 70% 86/14 of SP/SC to mimic total stock, and the 30% stable value for peace of mind and dry powder?
Maybe it's coming across wrong in your posts, but you seem to show NO signs of actually sticking to a plan. As mentioned early on in this one and something I would agree with, a target date fund is probably the best choice you could make for yourself. Being in the finance biz probably has you too close to the noise everyday at work, around the water cooler, and at lunch. You don't like the look of bond funds for the short term (which, you're in your 20's), but a 1.3% SV return this year looks appealing to you?? Sounds like you are your own worst enemy in all this.
I think (and hope) that it's coming across wrong in the forum, but I understand that maybe it isn't.

I don't think the noise is what gets me, but rather an obsession for finding the perfect portfolio, which of course is impossible.

I disagree about the SV fund, there may be appeal to it, and there may not, I don't think there is a definitive answer at this point in time, but for the sake of wanting a cheap, and conservative form of fixed income, it's either that, or the doubly priced core bond fund.
Sorry Mike. But, your summary calls for 30% stable value in part as "dry powder". Dry powder is simply market timing under another name. So, your "new plan" has market timing built in to the summary. That's not a promising start.

I would highly suggest you start with the "Asking portfolio questions" post at the top of this forum - to assist in guiding you through the decisions and asking for the best possible feedback from the forum.

This post clearly implies future market timing by the use of "Dry Powder".
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
Topic Author
mikeny17
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Joined: Tue Dec 27, 2011 1:15 pm

Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

retiredjg wrote:
mikeny17 wrote:Thank you nisipirus...I am starting to calm down and think maybe 80/20, 75/25, 70/30...with the safe part in SV, will be my next step (which will mean that I haven't really ever gone too far off my my initial IPS), and there is a bit of comfort in that in of itself.
Mikeny17, I'm sorry to sound harsh, but you are in denial. Yes, denial.

You completely busted your initial IPS not once, but twice. (At least.) Think about this now. You went round and round till you finally got settled on 80/20 in the first place and you said you felt very good about that allocation.

Then you busted it - and went to 100% stocks.

Then you got spooked and went to 0/100.

What's going on here? You've explained it well and it all boils down to two things. Greed, when you went to 100% stocks and....Fear, when you got spooked and went to 100% cash.


Greed and fear could easily send you down the path to complete and total financial ruin. If you don't find a balance between greed and fear, you really should not be managing your own money. IIRC, you are managing someone else's money as well - so this is doubly important.

A couple of things that I think I'm hearing from you are quite concerning.

1) You have not yet realized that you must find a stock to bond allocation that you can live with in both the good times and the bad times. Yes - the same number through thick and thin.

Whether you realize it or not, you are still clinging to the notion that you can invest one way during good times and a different way during the bad times. If we knew when the good times would be and when the bad times would be, you could do it that way. But we don't.

It's like picking out your canoe at the beginning of the trip. If you have no idea what type of water is ahead, you have to pick a canoe that will work at least passably in any kind of water. It's not like you get to pick one for white water and a different one for the calm water - you have to pick just one. Do your best to pick what works and don't jump out of your canoe - even if you find that the canoe is a poor choice, jumping into the water is a almost certainly a worse choice.

2) You've mentioned "dry powder" a couple of times. I can't put my finger on it, but there's is something way out of kilter about your concern with having some dry powder. Maybe someone else can pin it down better, but having "dry powder" is not really much of a concern in investing and certainly not something you should be basing any decisions on.

Here's my suggestion. You should probably start with a conservative but reasonable allocation - 60% stocks and 40% bonds or stable value. Work with this until you actually go through a crash. Not a little bump in the road like what happened in October. I mean a real crash where the market goes down 40% or more and it takes 5 or 6 years to get back to what you currently consider normal. This is the only way you are going to figure out where you need to be - by experiencing it. Until you experience a crash, you (everyone) is only guessing at what the right ratio is for you.

And I think you need to get your money back in the market right now. Taking your money out of a high market and trying to DCA back in is just incredibly an flawed plan. It also indicates that you are not comfortable with whatever target you want to DCA back into.

I feel like you are too impulsive to go any more aggressive than 60/40. You've mentioned "maturing" a few times, and maybe that will carry over into your financial life, but I don't think you are there yet.

You also need to be giving some consideration to taking yourself out of the picture. Moving to target funds could help, even if more expensive. And you may be one of those people who really need an advisor to keep them from doing stupid stuff. I'm not saying to do this, but you do need to start giving this some consideration if you can't get a handle on this greed and fear thing.

You've gotten some of the best and most insightful replies that I've ever seen in my several years on this forum. You need to read each one again, very carefully. And you need to be sure you are getting the messages that some very nice people have offered in such a polite manner.
Thank you so much, as always. The second I did what I did this morning, I realized it was stupid and came right here to bogleheads to be talked out of it by some very smart, and I believe even more important, experienced investors.

I agree 100% with your advice to going to a more conservative AA and feeling it out, and I have pulled the trigger and done just that.

What surprises me, even after a bit of introspection, is that I was so spooked by a high, rather than a low, I don't get it to be honest.

Of course I just need to stay the course, easier said than done, but I do believe I won't do anything stupid going forth.
Topic Author
mikeny17
Posts: 156
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

leonard wrote:
mikeny17 wrote:
Twins Fan wrote:"Feels right"... for now??
mikeny17 wrote:Do you see any appeal of going maybe 70/30 for a bit with the 70% 86/14 of SP/SC to mimic total stock, and the 30% stable value for peace of mind and dry powder?
Maybe it's coming across wrong in your posts, but you seem to show NO signs of actually sticking to a plan. As mentioned early on in this one and something I would agree with, a target date fund is probably the best choice you could make for yourself. Being in the finance biz probably has you too close to the noise everyday at work, around the water cooler, and at lunch. You don't like the look of bond funds for the short term (which, you're in your 20's), but a 1.3% SV return this year looks appealing to you?? Sounds like you are your own worst enemy in all this.
I think (and hope) that it's coming across wrong in the forum, but I understand that maybe it isn't.

I don't think the noise is what gets me, but rather an obsession for finding the perfect portfolio, which of course is impossible.

I disagree about the SV fund, there may be appeal to it, and there may not, I don't think there is a definitive answer at this point in time, but for the sake of wanting a cheap, and conservative form of fixed income, it's either that, or the doubly priced core bond fund.
Sorry Mike. But, your summary calls for 30% stable value in part as "dry powder". Dry powder is simply market timing under another name. So, your "new plan" has market timing built in to the summary. That's not a promising start.

I would highly suggest you start with the "Asking portfolio questions" post at the top of this forum - to assist in guiding you through the decisions and asking for the best possible feedback from the forum.

This post clearly implies future market timing by the use of "Dry Powder".
I didn't mean for it to come across that way at all. I consider bonds dry powder, just as much as SV, just a slightly different form of dry powder. I suppose there is no need for "dry powder" with a responsible to plan, because re-balancing achieves it on it's own.
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BolderBoy
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Re: Gathering thoughts vs. Market Timing

Post by BolderBoy »

mikeny17 wrote:Thank you, I cancelled the hasty transactions I did this morning.
You aren't busy enough - too much time to look at your portfolio. Take a second job.

(PS - it worked for me)
Fallible
Posts: 8798
Joined: Fri Nov 27, 2009 3:44 pm

Re: Gathering thoughts vs. Market Timing

Post by Fallible »

mikeny17 wrote:Hello,

First off, thank you to everyone who posts and helps us new investors get settled in and up to speed without any biases or vested interests. Your tireless contribution of time and knowledge is nothing short of admirable. Last night as I was falling asleep I suddenly realized that maybe my long-standing 100% equities allocation isn't right for me (I'm still not too sure) so I came to the conclusion that maybe I need a bit of time to sit back and get a better feel for things....
Your losing sleep over your investments is a prime example of the "sleep test." And what stared you in the face when you woke, as expressed by your conclusion to "get a better feel for things," was your emotional tolerance for risk, or your having exceeded it.

You already have excellent investing advice here, but I would also suggest your continuing to get to know your risk tolerance, which is really getting to know yourself better, especially as an investor.

One of the best books on tolerance is by Jason Zweig, Your Money and Your Brain, in which you'll learn how risk tolerance changes often, why it's difficult to determine, how it works on you, and what you can do about it. I'd also recommend two more books, All About Asset Allocation (2nd edition updates on risk tolerance) by Rick Ferri, and Larry Swedroe's articles on "ability, willingness, and need" to take risk. Also, the Bogleheads' Guide to Investing, if you haven't read it, includes a chapter on behavioral economics, further explaining how our cognitive biases and emotions affect our investment decisions. Our wiki includes other books on behavioral finance such as Why Smart People Make Big Money Mistakes and How to Correct Them and there is a section on those behavioral pitfalls, http://www.bogleheads.org/wiki/Behavioral_pitfalls

Good luck and good sleeping.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
Topic Author
mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

Fallible wrote:
mikeny17 wrote:Hello,

First off, thank you to everyone who posts and helps us new investors get settled in and up to speed without any biases or vested interests. Your tireless contribution of time and knowledge is nothing short of admirable. Last night as I was falling asleep I suddenly realized that maybe my long-standing 100% equities allocation isn't right for me (I'm still not too sure) so I came to the conclusion that maybe I need a bit of time to sit back and get a better feel for things....
Your losing sleep over your investments is a prime example of the "sleep test." And what stared you in the face when you woke, as expressed by your conclusion to "get a better feel for things," was your emotional tolerance for risk, or your having exceeded it.

You already have excellent investing advice here, but I would also suggest your continuing to get to know your risk tolerance, which is really getting to know yourself better, especially as an investor.

One of the best books on tolerance is by Jason Zweig, Your Money and Your Brain, in which you'll learn how risk tolerance changes often, why it's difficult to determine, how it works on you, and what you can do about it. I'd also recommend two more books, All About Asset Allocation (2nd edition updates on risk tolerance) by Rick Ferri, and Larry Swedroe's articles on "ability, willingness, and need" to take risk. Also, the Bogleheads' Guide to Investing, if you haven't read it, includes a chapter on behavioral economics, further explaining how our cognitive biases and emotions affect our investment decisions. Our wiki includes other books on behavioral finance such as Why Smart People Make Big Money Mistakes and How to Correct Them and there is a section on those behavioral pitfalls, http://www.bogleheads.org/wiki/Behavioral_pitfalls

Good luck and good sleeping.
Thank you Fallible, I will re-visit those books again.

It is very interesting how risk tolerance is such a moving target.
Fallible
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Re: Gathering thoughts vs. Market Timing

Post by Fallible »

mikeny17 wrote:
Fallible wrote:
mikeny17 wrote:Hello,

First off, thank you to everyone who posts and helps us new investors get settled in and up to speed without any biases or vested interests. Your tireless contribution of time and knowledge is nothing short of admirable. Last night as I was falling asleep I suddenly realized that maybe my long-standing 100% equities allocation isn't right for me (I'm still not too sure) so I came to the conclusion that maybe I need a bit of time to sit back and get a better feel for things....
Your losing sleep over your investments is a prime example of the "sleep test." And what stared you in the face when you woke, as expressed by your conclusion to "get a better feel for things," was your emotional tolerance for risk, or your having exceeded it.

You already have excellent investing advice here, but I would also suggest your continuing to get to know your risk tolerance, which is really getting to know yourself better, especially as an investor.

One of the best books on tolerance is by Jason Zweig, Your Money and Your Brain, in which you'll learn how risk tolerance changes often, why it's difficult to determine, how it works on you, and what you can do about it. I'd also recommend two more books, All About Asset Allocation (2nd edition updates on risk tolerance) by Rick Ferri, and Larry Swedroe's articles on "ability, willingness, and need" to take risk. Also, the Bogleheads' Guide to Investing, if you haven't read it, includes a chapter on behavioral economics, further explaining how our cognitive biases and emotions affect our investment decisions. Our wiki includes other books on behavioral finance such as Why Smart People Make Big Money Mistakes and How to Correct Them and there is a section on those behavioral pitfalls, http://www.bogleheads.org/wiki/Behavioral_pitfalls

Good luck and good sleeping.
Thank you Fallible, I will re-visit those books again.

It is very interesting how risk tolerance is such a moving target.
A very good way to put it and why we all have trouble nailing it.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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retiredjg
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Re: Gathering thoughts vs. Market Timing

Post by retiredjg »

mikeny17 wrote:It is very interesting how risk tolerance is such a moving target.
It may be a moving target, but you have to decide on one asset allocation that will work. So it may be perfect for one week out of the year and just adequate for the rest of the year. That's good enough.
Topic Author
mikeny17
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Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

retiredjg wrote:
mikeny17 wrote:It is very interesting how risk tolerance is such a moving target.
It may be a moving target, but you have to decide on one asset allocation that will work. So it may be perfect for one week out of the year and just adequate for the rest of the year. That's good enough.
I'm almost there, just working out exactly how to put that 20%

I'm leaning towards the entire 20% being intermediate term, rather than 50/50 with SV.

Once I can hit the button tomorrow, I will absolutely not touch it until it moves 5% out of balance.
Twins Fan
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Re: Gathering thoughts vs. Market Timing

Post by Twins Fan »

I don't know what fund it is, but the intermediate term bond fund at .23 ER (I'm guessing an index fund) is what I would use there. Keep it simple, set an forget.

You have a nice looking 401k ER'wise there, by the way!
kraven
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Re: Gathering thoughts vs. Market Timing

Post by kraven »

mikeny17 wrote: What surprises me, even after a bit of introspection, is that I was so spooked by a high, rather than a low, I don't get it to be honest.
That happened to me in the Fall of 2012 causing me to move most of my 401K out of equities and into bonds, cash, etc. That turned out to be a mistake, as market timing almost always does. I went back to my stated AA in my 401K about a year later, but missed a fair amount of the 2013 uptick in my 401K. There's an old saying "It's time in the market, not timing the market". I thought BolderBoy's comment about getting a 2nd job, i.e. not looking at your portfolio so much since it causes emotion in you, was a very good comment.

You are lucky to have found this forum in your 20s. Heed the wisdom these nice, experienced investors are giving you and become more "passive" in your passive investing approach, leave your Type A personality to your day job. Best of luck!
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retiredjg
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Re: Gathering thoughts vs. Market Timing

Post by retiredjg »

mikeny17 wrote:What surprises me, even after a bit of introspection, is that I was so spooked by a high, rather than a low, I don't get it to be honest.
Add this to your list of behavioral pitfalls to watch for.

People expect investing to be predictable, logical, following some sort of pattern. They expect things to make sense. They think there are reasons that the market does this or that. With some exceptions, it simply is not so. This goes contrary to how our brains work. That's why you can't always depend on your brain.

Don't always expect to "get it". Especially while you are young and relatively inexperienced. That's why you make a plan when you are thoughtful and coolheaded and not under the influence of greed or fear. Then follow the plan. If you follow your instincts or your logical thinking while under the influence of emotions, you could easily be going astray.
Dandy
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Re: Gathering thoughts vs. Market Timing

Post by Dandy »

Mistake - usually when you make such a drastic move based on a feeling it is not wise. You made a few good calls and now with some size to your assets your realize your calls could have been lucky not smart. That is actually pretty wise. Many would think they are smart or get it and continue down that path.

It is interesting that your investment assets now seem real. There is an element of play money when it is just numbers on a screen or sheet of paper. These are real dollars and you are in charge of them - that can be a bit scary. I've never been a fan of 100% equities even for the very young. In theory it makes some sense but unless you have lost substantial assets in a market downturn that lasts for several years - you probably don't have a good idea of your risk tolerance. The result can be panic moves with a tendency of avoiding equities in the future.

There is often a bit of ego/macho undercurrent in investing. Taking risks, being aggressive, doubling down, leveraging, making lots of trades of individual stocks, etc. Buying the Total Stock Market Fund and rebalancing once a year? Kind of geekish to many. Certainly not cool or macho.

If you are not certain of what your allocation should be -- 100% stocks is an expensive way to learn. I always advise young people to be a bit less aggressive at the start. You have time to adjust your allocation as you gain experience/knowledge. Low cost broad based index funds usually do well even if they are not exciting.

There are times when you "know" the market has it wrong. Markets do over react at times. Act on those feelings rarely (say once or twice a decade) and with a moderate portion of your portfolio -- say 5% or less.
J295
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Re: Gathering thoughts vs. Market Timing

Post by J295 »

See this post for my input on how I have advised our adult children and other family members who have asked for financial guidance -- your financial situation is similar to some of their situations. http://www.bogleheads.org/forum/viewtop ... 1&t=149408

As for your difficulties staying the course, there is a word for that .... it's called "normal."

At age 55 we have an IPS and we stick to it. But we have first hand experience with some pretty volatile markets (equity, fixed, gold, even beanie babies!). And, we stubbed our toes more than once with both greed and fear. However, we learned valuable lessons, and the financial impact were just tuition costs.

Having said that, I respectfully suggest you read my suggestions in the prior post, and develop an IPS and make a 100% commitment to follow it. You would likely be well served to include in your IPS a provision that in order to modify the IPS you must (a) write down and date the proposed modification, (b) wait three months and take no action on the modification, and (c) then implement after 3 months if you still determine at that time you want to do it.

Good luck!
z3r0c00l
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Location: NYC

Re: Gathering thoughts vs. Market Timing

Post by z3r0c00l »

mikeny17 wrote: 1) I don't think bonds will fare very well now that QE is ending, in the short term at least
2) Given the above assumption (I'm very aware there are no guarantees), I felt that having more dry powder to DCA back in once I get my plan setup, would possibly offset the time out of the markets
3) The stronger USD, plus global contraction may hamper exports more than expected
4) Things just don't feel great out there (solely my opinion) and I just had a strong desire to feel "safe" while I gather my thoughts
The fact that you are trying to outsmart trillion dollar bond markets means that, if I may be devil's advocate for a moment, you could have had the right instinct after all. In other words, maybe you don't have the grit or discipline for investing and would do less harm by keeping all your money in safe places like CDs or stable value funds. If you try to time the market, think about what bonds will do in the future (which supercomputers and giant hedge funds are struggling to figure out at the same time), plan to DCA back into a strong bull market... Well your gut instinct could be right and maybe this isn't for you. It will require working a bit harder/longer and saving a bit more, but no one has to invest in stocks and bonds and this one move could potentially cost you 10% or more depending on how long you are out and how stocks do for the rest of the year. Last year these 1.5 months did something like 5% return in stocks. That is 1.5 years in a stable value fund. Losing out on that, even just the chance on that, would freak me out more. I think this speaks to the mental state needed for investing. For the past several hundred years, losses have been temporary. Missing out on gains, however, is usually irreversible.
70% Global Stocks / 30% Bonds
Topic Author
mikeny17
Posts: 156
Joined: Tue Dec 27, 2011 1:15 pm

Re: Gathering thoughts vs. Market Timing

Post by mikeny17 »

z3r0c00l wrote:
mikeny17 wrote: 1) I don't think bonds will fare very well now that QE is ending, in the short term at least
2) Given the above assumption (I'm very aware there are no guarantees), I felt that having more dry powder to DCA back in once I get my plan setup, would possibly offset the time out of the markets
3) The stronger USD, plus global contraction may hamper exports more than expected
4) Things just don't feel great out there (solely my opinion) and I just had a strong desire to feel "safe" while I gather my thoughts
The fact that you are trying to outsmart trillion dollar bond markets means that, if I may be devil's advocate for a moment, you could have had the right instinct after all. In other words, maybe you don't have the grit or discipline for investing and would do less harm by keeping all your money in safe places like CDs or stable value funds. If you try to time the market, think about what bonds will do in the future (which supercomputers and giant hedge funds are struggling to figure out at the same time), plan to DCA back into a strong bull market... Well your gut instinct could be right and maybe this isn't for you. It will require working a bit harder/longer and saving a bit more, but no one has to invest in stocks and bonds and this one move could potentially cost you 10% or more depending on how long you are out and how stocks do for the rest of the year. Last year these 1.5 months did something like 5% return in stocks. That is 1.5 years in a stable value fund. Losing out on that, even just the chance on that, would freak me out more. I think this speaks to the mental state needed for investing. For the past several hundred years, losses have been temporary. Missing out on gains, however, is usually irreversible.
Thank you!
I work on those super computers for my job (well the front end GUIs that connect to them to be more specific), and the daily traded notional is almost nonsensical.

I love your point about fearing the loss of being out of the market, we could theoretically never have a down day again, as silly as that may sound. In fact those super conputers get destroyed on days where the market only moves in one direction, I suppose the same could be said about us as individual investors, but on a longer term basis.
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