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| Are you taking on more or less risk? |
| Taking on more risk |
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7% |
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| Taking on less risk |
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37% |
[ 31 ] |
| Keeping the same risk |
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54% |
[ 45 ] |
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| Total Votes : 82 |
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grayfox
Joined: 15 Sep 2007
Posts: 1454
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 Posted: Sat Nov 07, 2009 1:23 pm Post subject: Reducing Risk or Increasing Risk? |
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On Friday I took some steps to reduce the amount of money I have at risk.
I did some re-balancing and reduced my equity allocation from over 11% down to 9%
I got rid of a small position in a junk bond fund
I added to 20-year TIPS, LT Treasuries funds and cash
If I buy anything with cash it will probably be CDs which you can get 4%+ for longer term insured CDs.
Here is where I stand now:
Equity 9.1%
Gold 1.4%
LT Bonds 30.6%
ST Bonds/Cash 25.8%
TIPS 34.0%
Anyone else think that risk reduction is in order?
Or are you taking on more risk? |
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speedbump101
Joined: 18 Oct 2007
Posts: 605
Location: Alberta Canada
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| Posted: Sat Nov 07, 2009 1:43 pm Post subject: |
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Steady as she goes here... always worked in the past, and I see no reason to change my risk profile now... I do agree though that if one is uncomfortable with their risk this is a much better time to make adjustments than when the markets succumb to the laws of gravity... Don't know about others; however my rationalization module doesn't seem to function well in free fall... A solid IPS is the best parachute I'm aware of...
Adrian you still holding at 100% equities?
SB...
_________________
“To know the true reality of yourself, you must be aware not only of your conscious thoughts, but also of your unconscious prejudices, bias and habits.” - Unknown |
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livesoft
Joined: 01 Mar 2007
Posts: 8014
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| Posted: Sat Nov 07, 2009 2:02 pm Post subject: |
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| Somehow I increased equities from about 64% to 70%, so I guess I took on more risk. |
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neverknow
Joined: 05 Jun 2009
Posts: 719
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| Posted: Sat Nov 07, 2009 2:24 pm Post subject: |
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Reducing risk.
But grayfox, you and I have a very different view of what the risks are. You are overly exposed to inflation risk - in my opinion. And have a very heavy bet on deflation. It's in your LT Bonds - inflation will eat them alive.
| Quote: |
LT Bonds 30.6%
ST Bonds/Cash 25.8%
TIPS 34.0%
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All 3 will do fine in a deflation scenario, ST Bonds/Cash and Tips will do fine in an inflation scenario, but those LT Bonds will not do well.
I assume deflation must be your "world view"?
I would ask, why take that risk at all? For a piddling 4% in interest? Not worth the risk, to me.
I reduced risk end of September. I continue to look for ways to reduce risk --- but everything I own has a purpose, against a risk, so I am pretty much in hold mode, now.
neverknow |
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Rodc
Joined: 26 Jun 2007
Posts: 4463
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| Posted: Sat Nov 07, 2009 2:34 pm Post subject: |
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FWIW: I'm not sure going from 11% to 9% makes a material difference.
I do not know if I am keeping it the same or increasing or decreasing.
However I am keeping the plan I put together well before the crash.
I just don't know if equity risk as measured by reaching my goals in my time frame is higher or lower now. I could probably make an argument either way.
I just don't know if bond risk as measured by reaching my goals in my time frame is higher or lower now. I could probably make an argument either way.
I did move from TIPS fund to individual TIPS back when they spiked to 3+% real yields, so maybe a little less risk there.
I think it is entirely likely that moving from stocks to bonds at this time is jumping from the frying pan into the fire. It looks a lot like the basic Bad Investor 101 trick of selling low to buy high.
But I could very easily be wrong, so I am not going to move the other way either.
_________________
"all standard caveats apply" |
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bob90245
Joined: 19 Feb 2007
Posts: 3369
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| Posted: Sat Nov 07, 2009 3:28 pm Post subject: Re: Reducing Risk or Increasing Risk? |
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| grayfox wrote: | | Anyone else think that risk reduction is in order? |
Based on what? I know Bogle gets interviewed and sometimes mentions to make sure investors are fully considering macro risks. But that was a year or two ago. Has he made similar comments recently?
_________________
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands. |
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grayfox
Joined: 15 Sep 2007
Posts: 1454
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| Posted: Sat Nov 07, 2009 3:47 pm Post subject: |
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| neverknow wrote: | Reducing risk.
But grayfox, you and I have a very different view of what the risks are. You are overly exposed to inflation risk - in my opinion. And have a very heavy bet on deflation. It's in your LT Bonds - inflation will eat them alive.
| Quote: |
LT Bonds 30.6%
ST Bonds/Cash 25.8%
TIPS 34.0%
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All 3 will do fine in a deflation scenario, ST Bonds/Cash and Tips will do fine in an inflation scenario, but those LT Bonds will not do well.
I assume deflation must be your "world view"?
I would ask, why take that risk at all? For a piddling 4% in interest? Not worth the risk, to me.
I reduced risk end of September. I continue to look for ways to reduce risk --- but everything I own has a purpose, against a risk, so I am pretty much in hold mode, now.
neverknow |
Inflation doesn't look like a problem at this time. Wages are not going up.
For me the big risk is a collapse of assets prices like we saw in 2008. I feel like we are in the eye of the hurricane, poised for round 2 of the economic crisis. The next time I want to limit my drawdown to 5%.
As far as LT Bonds, I have a lot of longer term Muni bonds. Maybe I will consider selling that fund and moving to shorter term or cash. |
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grayfox
Joined: 15 Sep 2007
Posts: 1454
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| Posted: Sat Nov 07, 2009 3:58 pm Post subject: Re: Reducing Risk or Increasing Risk? |
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| bob90245 wrote: | | grayfox wrote: | | Anyone else think that risk reduction is in order? |
Based on what? I know Bogle gets interviewed and sometimes mentions to make sure investors are fully considering macro risks. But that was a year or two ago. Has he made similar comments recently? |
Based on the fact that asset prices have recovered a lot since March and I got a good chunk of my losses back and I don't feel like giving it back again.
I feel like we are in the eye of the hurricane, waiting for round #2. 10.2% official unemployment rate last week. U-6 is 17.5%. Jobs continue to be lost. The rustbelt is in a depression. Don't forget all the mortgage resets coming in 2011,12,13.
Get out while the gettin' is good.
Last edited by grayfox on Sat Nov 07, 2009 4:00 pm; edited 1 time in total |
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neverknow
Joined: 05 Jun 2009
Posts: 719
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| Posted: Sat Nov 07, 2009 3:58 pm Post subject: |
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| grayfox wrote: |
For me the big risk is a collapse of assets prices like we saw in 2008. I feel like we are in the eye of the hurricane, poised for round 2 of the economic crisis. |
Yes, I could see this "worldview" in your allocation. And that is fine with me. Having a world view I consider to be a very good thing.
My objection is not to your worldview, but to the risk - if you are wrong.
Why take that risk? You can still protect against your fears in ST Bonds/cash or TIPs - without taking on the risk of being wrong and continually falling long bond rates do not occur.
I do own 2 long dated (as in beyond my lifetime) individual muni's in my home state each paying 6% - tax free, I consider that a yield I can hold forever. Or they could go to zero (one must always consider this possibility). I wanted to allocate capital to my home state - as corny as that sounds.
It was you that opened the subject of risk --- and I see you hanging out there, when you don't need to. Or rather I don't see any potential reward there, against the risk --- for those LT bonds, that is. The rest is fine.
neverknow |
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freebeer
Joined: 02 May 2007
Posts: 196
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| Posted: Sat Nov 07, 2009 4:00 pm Post subject: |
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| grayfox, With all due respect your risk seems to be chasing performance rather than sticking to a plan. Jan 08 you seem to have been 40% equity - now you are 9%. Rhetorical question: how many moves did you make over the last 3 years, beyond rebalancing per an existing investment plan, and what would have happened had not done any of them? |
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grayfox
Joined: 15 Sep 2007
Posts: 1454
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| Posted: Sat Nov 07, 2009 4:13 pm Post subject: |
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| freebeer wrote: | | grayfox, With all due respect your risk seems to be chasing performance rather than sticking to a plan. Jan 08 you seem to have been 40% equity - now you are 9%. Rhetorical question: how many moves did you make over the last 3 years, beyond rebalancing per an existing investment plan, and what would have happened had not done any of them? |
Performance Chasing comment does not compute. I have done the exact opposite. I had 50 or 60% equity at start of 2007. By the beginning of 2008 I had reduced that to 30% or 40%. The 2008 market took that down to about 15% at the bottom. A couple of months ago I cut it to 11%. Friday to 9%
The plan i am sticking to is to not loose money. |
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speedbump101
Joined: 18 Oct 2007
Posts: 605
Location: Alberta Canada
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| Posted: Sat Nov 07, 2009 4:31 pm Post subject: |
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William Bernstein, from his new book, 'The Investor's Manifesto'
When Dr. Bernstein talks I listen, and he is 100% right in my case... I fully accept and embrace my limitations... With my weaknesses in mind, I have engaged a third party to help me construct and maintain my IPS. For me the result has been peace of mind, along with a handful of encouragement / discouragement when necessary... I agree that this is certainly not for everyone, especially people on this forum, however for me it has been one of the best decisions I've made in my 30+ year investing timeline...
"I have come to the sad conclusion that only a tiny minority will ever succeed in managing their money even tolerably well."
http://infoproc.blogspot.com/2....lliam.html
"Even if investors possess all three of these abilities, it will all be for naught if they do not have a fourth one: the emotional discipline to execute their planned strategy faithfully, come hell, high water, or the apparent end of capitalism as we know it. “ Stay the course ” : It sounds so easy when uttered at high tide. Unfortunately, when the water recedes, it is not. I expect no more than 10 percent of the population passes muster on each of the above counts. This suggests that as few as one person in ten thousand (10 percent to the fourth power) has the full skill set. Perhaps I am being overly pessimistic. After all, these four abilities may not be entirely independent: if someone is smart enough, it is also more likely he or she will be interested in finance and be driven to delve into financial history."
SB...
_________________
“To know the true reality of yourself, you must be aware not only of your conscious thoughts, but also of your unconscious prejudices, bias and habits.” - Unknown |
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grayfox
Joined: 15 Sep 2007
Posts: 1454
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| Posted: Sat Nov 07, 2009 4:37 pm Post subject: |
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I gave up on William Bernstein when he proved back in 2005 that there was no housing bubble.
| Quote: | | Third, investors need a firm grasp of financial history, from the South Sea Bubble to the Great Depression. Alas, as we shall soon see, this is something that even professionals have real trouble with. |
It is amazing that he studied bubbles throughout history, yet he couldn't recognize the ones he was living through. |
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bob90245
Joined: 19 Feb 2007
Posts: 3369
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| Posted: Sat Nov 07, 2009 4:47 pm Post subject: |
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| grayfox wrote: | Performance Chasing comment does not compute. I have done the exact opposite. I had 50 or 60% equity at start of 2007. By the beginning of 2008 I had reduced that to 30% or 40%. The 2008 market took that down to about 15% at the bottom. A couple of months ago I cut it to 11%. Friday to 9%
The plan i am sticking to is to not loose money. |
So your new long term stock allocation is 9%, right? Or is this just a stop along the way to 7% to 5% to 3% to 0%? Pick one and then stay the course.
_________________
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands. |
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Rodc
Joined: 26 Jun 2007
Posts: 4463
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| Posted: Sat Nov 07, 2009 4:47 pm Post subject: |
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| grayfox wrote: | | freebeer wrote: | | grayfox, With all due respect your risk seems to be chasing performance rather than sticking to a plan. Jan 08 you seem to have been 40% equity - now you are 9%. Rhetorical question: how many moves did you make over the last 3 years, beyond rebalancing per an existing investment plan, and what would have happened had not done any of them? |
Performance Chasing comment does not compute. I have done the exact opposite. I had 50 or 60% equity at start of 2007. By the beginning of 2008 I had reduced that to 30% or 40%. The 2008 market took that down to about 15% at the bottom. A couple of months ago I cut it to 11%. Friday to 9%
The plan i am sticking to is to not loose money. |
How is that going to work when the "bond bubble" bursts? (provided there is such a thing, an open question that will only be answered in the fullness of time).
I am not predicting such a thing, but seems like a possibility to factor into portfolio construction that bonds will do very poorly going forward as inflation returns and/or yields on new issues start to increase.
Personally if I were that concerned I'd get more TIPS and ST and a lot less LT bonds.
_________________
"all standard caveats apply" |
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grayfox
Joined: 15 Sep 2007
Posts: 1454
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| Posted: Sat Nov 07, 2009 5:12 pm Post subject: |
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| Rodc wrote: |
Personally if I were that concerned I'd get more TIPS and ST and a lot less LT bonds. |
Most of my LT bonds are muni bond fund. You are convincing me that I should move either to a shorter muni fund or even tax-exempt mmf.
Basically I have been taking less and less risk since 2000
Starting from about 90 or 100% stocks in 2000
to 50 or 60% in 2003-2007
to 30 or 40% in 2008
to 10 or 15% in 2009
Maybe 5 or 10% going forward. |
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grayfox
Joined: 15 Sep 2007
Posts: 1454
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| Posted: Sat Nov 07, 2009 5:16 pm Post subject: |
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| bob90245 wrote: | | grayfox wrote: | Performance Chasing comment does not compute. I have done the exact opposite. I had 50 or 60% equity at start of 2007. By the beginning of 2008 I had reduced that to 30% or 40%. The 2008 market took that down to about 15% at the bottom. A couple of months ago I cut it to 11%. Friday to 9%
The plan i am sticking to is to not loose money. |
So your new long term stock allocation is 9%, right? Or is this just a stop along the way to 7% to 5% to 3% to 0%? Pick one and then stay the course. |
If the S&P gets back up to making new all time highs, my NAV will be higher so less need to take on risk. Why would I want to keep the same risk? I could see having only 5% stock if S&P got to 1600. |
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neverknow
Joined: 05 Jun 2009
Posts: 719
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| Posted: Sat Nov 07, 2009 6:28 pm Post subject: |
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| grayfox wrote: | | The plan i am sticking to is to not loose money. |
This is my plan also, grayfox. It is often credited to Buffet; Rule #1 don't loose money, Rule #2 don't forget rule #1
It is not at all clear, how best to do this, at all times --- as all store's of value have some kind of risk.
In investing, as in life, there are no guarantees - therefore we must exercise our own best judgment.
For a Boglehead that is one thing. As one poster in this thread mentioned, it is utilizing a 3rd party to act on your behalf.
I am no longer a Boglehead (though I was 1992 through 2007) -- I have run out of time horizon in which to hold in (as in I will be dead).
What I judge is best for me and my family - may not be at all appropriate for anyone else.
grayfox - your hanging out there with 30% in LT Bonds. That is a pretty hefty bet on a future none of us can know. You may be right or you may be wrong. How are you going to know when to cut your losses? Maybe like me you'll assert that you will "just know" and maybe you will and maybe you won't.
We make bets around here on silly things like will the S&P be higher or lower at the end of the week, with the looser paying for Friday night carry out. My recent record is lousy. I end up buying because I am wrong. In fact, I can't recall the last time I was right. Lucky for me my investing is working out better then my side bets.
You got more risk on with those LT Bonds then you are telling us you want. Shorten that duration up some, okay? You got nothing on to balance that risk.
neverknow |
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bob90245
Joined: 19 Feb 2007
Posts: 3369
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| Posted: Sat Nov 07, 2009 6:41 pm Post subject: |
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| grayfox wrote: | | bob90245 wrote: | | grayfox wrote: | Performance Chasing comment does not compute. I have done the exact opposite. I had 50 or 60% equity at start of 2007. By the beginning of 2008 I had reduced that to 30% or 40%. The 2008 market took that down to about 15% at the bottom. A couple of months ago I cut it to 11%. Friday to 9%
The plan i am sticking to is to not loose money. |
So your new long term stock allocation is 9%, right? Or is this just a stop along the way to 7% to 5% to 3% to 0%? Pick one and then stay the course. |
If the S&P gets back up to making new all time highs, my NAV will be higher so less need to take on risk. Why would I want to keep the same risk? I could see having only 5% stock if S&P got to 1600. |
How the heck will S&P reach 1600? It seems like a hopeless fantasy based on what you wrote upthread:
| grayfox wrote: | I feel like we are in the eye of the hurricane, waiting for round #2. 10.2% official unemployment rate last week. U-6 is 17.5%. Jobs continue to be lost. The rustbelt is in a depression. Don't forget all the mortgage resets coming in 2011,12,13.
Get out while the gettin' is good. |
If you really believe that it's best to "get out while the gettin' is good", then you should be going to 5% stock, or even 0%, right now.
_________________
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands. |
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freebeer
Joined: 02 May 2007
Posts: 196
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| Posted: Sat Nov 07, 2009 7:55 pm Post subject: |
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| grayfox wrote: | .
Basically I have been taking less and less risk since 2000
Starting from about 90 or 100% stocks in 2000
to 50 or 60% in 2003-2007
to 30 or 40% in 2008
to 10 or 15% in 2009
Maybe 5 or 10% going forward. |
Selling (stocks) low and buying (bonds) high doesn't necessarily mean less risk. You still have inflation risk and depending on your funds probably NAV risk as well.
But if you are financially "set", and not interested in maximizing total risk-adjusted returns, you could certainly go all TIPS. For that matter, if you have no bequest motive you could purchase inflation-adjusting annuities. |
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Adrian Nenu
Joined: 12 Apr 2007
Posts: 3760
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| Posted: Sat Nov 07, 2009 8:38 pm Post subject: |
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I have been 100% in stocks since March and still buying via periodic investing. The only other way I can significantly increase my risk is to use leverage which I will not do.
Adrian
anenu@tampabay.rr.com |
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retcaveman
Joined: 21 Oct 2009
Posts: 95
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| Posted: Sat Nov 07, 2009 10:23 pm Post subject: |
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| At the risk of piling on, I agree with neverknow on this one. While we each have to do what we think is best, my reaction to grayfox is the LT bonds are unnecessary. With interest rates so low, the only way for them to go is up. And while that may not happen for a while, I can't envision a scenario where I would go beyond intermediate term bonds. |
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renditt
Joined: 25 Apr 2008
Posts: 315
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| Posted: Sun Nov 08, 2009 6:55 am Post subject: |
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Have reduced my risk significantly over the last 3-4 months. Currently only 11% in Equities, no REITs and only a very small Commodities position. 30% in Cash. Have to add that my need to take risk is low.
I think the recent run up was a gift for everybody to (almost) get back to pre-crash levels, the next few years will most likely be very different. |
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YDNAL
Joined: 10 Apr 2007
Posts: 3824
Location: Biscayne Bay
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| Posted: Sun Nov 08, 2009 8:46 am Post subject: Reducing Risk or Increasing Risk? |
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Grayfox,
To be fair, you've been worried about 2000 sheckles (or is it shuckles?) for quite a while. I remember this thread 2 years ago.
http://www.bogleheads.org/foru....ght=#76407
Like you, Grayfox, I've reduced overall Equity risk in the portfolio. Unlike you, I have $0 LT Bonds and $0 Gold (except my watch and wedding band).  | Grayfox wrote: | Here is where I stand now:
Equity 9.1%
Gold 1.4%
LT Bonds 30.6%
ST Bonds/Cash 25.8%
TIPS 34.0% |
_________________
Landy
“The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.” - Warren Buffett |
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cleosdad
Joined: 02 Feb 2008
Posts: 14
Location: Littleton Co
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| Posted: Sun Nov 08, 2009 9:38 am Post subject: |
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| neverknow wrote: | | grayfox wrote: | | The plan i am sticking to is to not loose money. |
This is my plan also, grayfox. It is often credited to Buffet; Rule #1 don't loose money, Rule #2 don't forget rule #1 I just hope you don't lose money. cleosdad
It is not at all clear, how best to do this, at all times --- as all store's of value have some kind of risk.
In investing, as in life, there are no guarantees - therefore we must exercise our own best judgment.
For a Boglehead that is one thing. As one poster in this thread mentioned, it is utilizing a 3rd party to act on your behalf.
I am no longer a Boglehead (though I was 1992 through 2007) -- I have run out of time horizon in which to hold in (as in I will be dead).
What I judge is best for me and my family - may not be at all appropriate for anyone else.
grayfox - your hanging out there with 30% in LT Bonds. That is a pretty hefty bet on a future none of us can know. You may be right or you may be wrong. How are you going to know when to cut your losses? Maybe like me you'll assert that you will "just know" and maybe you will and maybe you won't.
We make bets around here on silly things like will the S&P be higher or lower at the end of the week, with the looser paying for Friday night carry out. My recent record is lousy. I end up buying because I am wrong. In fact, I can't recall the last time I was right. Lucky for me my investing is working out better then my side bets.
You got more risk on with those LT Bonds then you are telling us you want. Shorten that duration up some, okay? You got nothing on to balance that risk.
neverknow |
I just hope you don't lose money. |
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spam
Joined: 10 Jun 2008
Posts: 643
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| Posted: Sun Nov 08, 2009 12:33 pm Post subject: |
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I increased my risk substantially in early 2009 through the middle of April. Since then, I have been putting everything into fixed income of all types to reach my target of 60 - 40 across the board at dow 10000 which is now. I still have more to do, and I prefer to not rebalance. I have had to do it twice since early April because I was just too far outside my band with little chance of correcting it any other way.
If and when the dow reaches 13,000 I would like to be at 50/50 with even fewer equities beyond that. |
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Fbone
Joined: 20 Jun 2009
Posts: 241
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| Posted: Sun Nov 08, 2009 5:02 pm Post subject: |
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| My personal circumstances has determined my risk must be low and so it is. World economy, stock market, inflation and interest rates dont factor in. |
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grayfox
Joined: 15 Sep 2007
Posts: 1454
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| Posted: Mon Nov 09, 2009 10:14 am Post subject: |
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| bob90245 wrote: |
How the heck will S&P reach 1600? It seems like a hopeless fantasy based on what you wrote upthread:
| grayfox wrote: | I feel like we are in the eye of the hurricane, waiting for round #2. 10.2% official unemployment rate last week. U-6 is 17.5%. Jobs continue to be lost. The rustbelt is in a depression. Don't forget all the mortgage resets coming in 2011,12,13.
. |
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What I wrote about is the U.S. economy. What the market does can be different. Even now as unemployment goes up, the market has been going up.
I heard on Planet Money podcast that despite all the investment losses the "giant pool of money" has grown by about 6 trillion dollars in the past year to something like 83 trillion. This is a result of all the governments of the world creating money to fight the economic crisis. This money has to go somewhere, and banks won't lend it out for investment in new capital, so it goes into existing assets--stocks, bonds, gold, etc.
So the stock market can easily go to 1600 or DOW 36,000, gold can go to $2000, and Treasury yields can go to zero. The sky is the limit. They are creating more asset bubbles. That is their rescue plan. |
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neverknow
Joined: 05 Jun 2009
Posts: 719
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| Posted: Mon Nov 09, 2009 10:56 am Post subject: |
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| grayfox wrote: | | They are creating more asset bubbles. That is their rescue plan. |
grayfox, the world is much more complicated then this. It is so complicated, every day I find out how little I know -- about anything.
The scenario you are invested for -- well, those long bonds, is for the US to go through a Japan crash like scenario. For sure, this indeed may happen. But I will give you the #1 reason Japan and the US are different, and that is their currency. The yen was not the currency of International trade, where as the US Dollar currently is. The yen carry trade was a big deal for a long time. It has become a US Dollar carry trade, and personally - I don't think anyone is capable of figuring out what this means - except it sure looks volatile. I don't know that the world has ever embarked on something like this before ... not rooted in gold, fiat currency, with a carry trade on the currency of international trade, floating rate currencies, except the wild card, in the yuan currently pegged to the US Dollar, with no idea what it will do going forward, but general agreement that it needs to strengthen against the US Dollar.
30% in LT Bonds is a heavy investment in one possible outcome. And you know, I wouldn't object so strongly if there were more reward to this big risk ... but 4% is piddly nothing. There are an awful lot of actors on this world stage with far more money and military might then I have ... you do yourself a disservice not being better diversified, or at least containing the risk in the LT Bond - with a shorter duration.
neverknow |
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bob90245
Joined: 19 Feb 2007
Posts: 3369
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| Posted: Mon Nov 09, 2009 11:17 am Post subject: |
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| grayfox wrote: | What I wrote about is the U.S. economy. What the market does can be different. Even now as unemployment goes up, the market has been going up.
I heard on Planet Money podcast that despite all the investment losses the "giant pool of money" has grown by about 6 trillion dollars in the past year to something like 83 trillion. This is a result of all the governments of the world creating money to fight the economic crisis. This money has to go somewhere, and banks won't lend it out for investment in new capital, so it goes into existing assets--stocks, bonds, gold, etc.
So the stock market can easily go to 1600 or DOW 36,000, gold can go to $2000, and Treasury yields can go to zero. The sky is the limit. They are creating more asset bubbles. That is their rescue plan. |
So based on your assessment and if you still need to accumulate money for retirement, then you are going in the wrong direction by decreasing stocks to 9%. Why leave money on the table? The logical action would be to return to 60% stocks now before S&P reaches 1600 or Dow reaches 36,000.
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Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands. |
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i-cannot-pick-stocks
Joined: 05 Nov 2009
Posts: 4
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| Posted: Mon Nov 09, 2009 11:44 am Post subject: |
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I learned in the Great Recession that my risk tolerance isn't as high as I thought it was back in 2004 when I first started investing.
By March 2009 I had lost 2 years of hard-earned income. |
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speedbump101
Joined: 18 Oct 2007
Posts: 605
Location: Alberta Canada
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| Posted: Mon Nov 09, 2009 12:31 pm Post subject: |
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| neverknow wrote: | | grayfox wrote: | | They are creating more asset bubbles. That is their rescue plan. |
grayfox, the world is much more complicated then this. It is so complicated, every day I find out how little I know -- about anything.
The scenario you are invested for -- well, those long bonds, is for the US to go through a Japan crash like scenario. For sure, this indeed may happen. But I will give you the #1 reason Japan and the US are different, and that is their currency. The yen was not the currency of International trade, where as the US Dollar currently is. The yen carry trade was a big deal for a long time. It has become a US Dollar carry trade, and personally - I don't think anyone is capable of figuring out what this means - except it sure looks volatile. I don't know that the world has ever embarked on something like this before ... not rooted in gold, fiat currency, with a carry trade on the currency of international trade, floating rate currencies, except the wild card, in the yuan currently pegged to the US Dollar, with no idea what it will do going forward, but general agreement that it needs to strengthen against the US Dollar.
30% in LT Bonds is a heavy investment in one possible outcome. And you know, I wouldn't object so strongly if there were more reward to this big risk ... but 4% is piddly nothing. There are an awful lot of actors on this world stage with far more money and military might then I have ... you do yourself a disservice not being better diversified, or at least containing the risk in the LT Bond - with a shorter duration.
neverknow |
Excellent post, thank you... My thoughts are aligned with yours; however I could never regurgitate them in such a clear and concise manner…
SB...
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“To know the true reality of yourself, you must be aware not only of your conscious thoughts, but also of your unconscious prejudices, bias and habits.” - Unknown |
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grayfox
Joined: 15 Sep 2007
Posts: 1454
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| Posted: Tue Nov 10, 2009 8:21 am Post subject: |
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Well I decided to heed some of the good advice from posters like neverknow. Most of my LT Bonds are on Muni bond funds. So yesterday I moved a large chunk from longer Muni funds into cash. Aside from the risk of rising interest rates, I think munis also have a lot of credit risk if local governments become insolvent, which looks like a real possibility.
Equity 9.1%
Gold 1.4%
LT Bonds 11.8%
ST Bonds/Cash 43.7%
TIPS 34.0%
Now the problem I have is the interest on cash is practically zero thanks to Bernanke. Maybe I will be lookling at insured CDs. I saw where PenFed has 7-year CDs at 4%. |
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neverknow
Joined: 05 Jun 2009
Posts: 719
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| Posted: Tue Nov 10, 2009 9:36 am Post subject: |
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Good for you, grayfox!
For whatever it is worth, my depression era parents never owned / saved in anything other then 6-12 month FDIC bank CD's or 6-12 month Treasury bills. And this worked out fine for them (Dad had a public pension with COLA).
If that 7 year 4% CD is part of a laddered CD approach you can enhance your yield, while still mitigating interest rate risk.
I just tucked my brand new shiny paper I Bond in my fireproof safe - with all the others. I'm more conservative then my 100 minus my age also, grayfox ... but I tend to bar bell my risk --- very low risk things (like the I Bond) paired with very high risk things. It all has some kind of risk. And I have no idea which one will actually turn up.
neverknow |
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wearethefall
Joined: 29 Jul 2007
Posts: 155
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| Posted: Tue Nov 10, 2009 10:49 am Post subject: |
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| grayfox wrote: | | Rodc wrote: |
Personally if I were that concerned I'd get more TIPS and ST and a lot less LT bonds. |
Most of my LT bonds are muni bond fund. You are convincing me that I should move either to a shorter muni fund or even tax-exempt mmf.
Basically I have been taking less and less risk since 2000
Starting from about 90 or 100% stocks in 2000
to 50 or 60% in 2003-2007
to 30 or 40% in 2008
to 10 or 15% in 2009
Maybe 5 or 10% going forward. |
As far as I was aware, the minimum variance portfolio is around 20% equities. I think, maybe your focusing too much on stock risk, with not enough thought about total portfolio risk. |
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bob90245
Joined: 19 Feb 2007
Posts: 3369
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| Posted: Tue Nov 10, 2009 11:19 am Post subject: |
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| grayfox wrote: | Well I decided to heed some of the good advice from posters like neverknow. Most of my LT Bonds are on Muni bond funds. So yesterday I moved a large chunk from longer Muni funds into cash. Aside from the risk of rising interest rates, I think munis also have a lot of credit risk if local governments become insolvent, which looks like a real possibility.
Equity 9.1%
Gold 1.4%
LT Bonds 11.8%
ST Bonds/Cash 43.7%
TIPS 34.0%
Now the problem I have is the interest on cash is practically zero thanks to Bernanke. Maybe I will be lookling at insured CDs. I saw where PenFed has 7-year CDs at 4%. |
Unless you no longer need to accumulate funds for retirement, you are ignoring the opportunity cost of being only 9% stocks especially since you are forecasting S&P 500 going to 1600. The only reason to have such a low stock allocation (other than not needing to accumulate more funds) is if you expect stocks to go down first with the expectation of buying at lower prices.
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Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands. |
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