Another critique is that a cap weighted index fund may have a high correlation to you losing your job.
Especially if you work in startups or the "consumer discretionary" sector (e.g. car salesman). It is less of a problem in e.g. government/healthcare.
A tailored set of stocks chosen in such a way that you don't lose your job AND your portfolio 5 years before retirement would seem more ideal.
Whether this is really possible in a cost efficient way is another question, but it is a way advisors will convince you to invest via them.
Search found 97 matches
- Tue Jan 01, 2019 5:11 pm
- Forum: Investing - Theory, News & General
- Topic: What are some critiques of passive investing/index funds?
- Replies: 75
- Views: 7977
- Fri Dec 21, 2018 4:48 pm
- Forum: Investing - Theory, News & General
- Topic: Rebalance based on time or threshold?
- Replies: 9
- Views: 768
Re: Rebalance based on time or threshold?
Here is an interesting study vanguard did on the matter: Best practices for portfolio rebalancing They basically say it doesn't really matter much in terms of return or volatility. It seems like there isn't much of a "rebalancing bonus". You mainly rebalance to control risk as you become closer to retirement. I think one disadvantage of rebalancing monthly is that you may quickly have far greater losses than expected in a bear market. For example, if you have a 50/50 allocation (e.g. 500k bonds and 500k stocks) and over a years time stocks go down by 50%, you might e.g. have 600k left instead of the expected 750k. If you only rebalance yearly you're better protected. Personally to me it seems like the best strategy is to slowly re...
- Tue May 08, 2018 2:58 pm
- Forum: Non-US Investing
- Topic: Swiss or European Equivalent of Vanguard?
- Replies: 12
- Views: 2277
Re: Swiss or European Equivalent of Vanguard?
To reduce currency risk, I think you have 2 options:
* Buy assets (stocks/real estate) that earn profit in the local currency. E.g. international small/mid caps. In this case, it does not matter in which currency they are denoted. If they are denoted in USD then their relative value will increase if USD weakens.
* Buy unhedged bonds/funds. E.g. iShares Global Govt Bond UCITS ETF (IGLO) has a TER of 0.20% and comprises of almost 60% non-USD currency bonds.
One additional question to ask is why they need protection from currency risk. Do they import a lot of goods? If they are simply afraid of inflation, then TIPS or stocks (in the long term) should guard against that.
* Buy assets (stocks/real estate) that earn profit in the local currency. E.g. international small/mid caps. In this case, it does not matter in which currency they are denoted. If they are denoted in USD then their relative value will increase if USD weakens.
* Buy unhedged bonds/funds. E.g. iShares Global Govt Bond UCITS ETF (IGLO) has a TER of 0.20% and comprises of almost 60% non-USD currency bonds.
One additional question to ask is why they need protection from currency risk. Do they import a lot of goods? If they are simply afraid of inflation, then TIPS or stocks (in the long term) should guard against that.
- Fri Mar 30, 2018 2:04 am
- Forum: Investing - Theory, News & General
- Topic: Simple-minded inspection of actual low-vol fund
- Replies: 34
- Views: 4541
Re: Simple-minded inspection of actual low-vol fund
Thank you nispirius, it is always enlightening to see such graphs.
The question is whether their performance was similar only by chance or not. One major advantage of bonds during this period were the declining interest rates. Do low volatility funds have the same sensitivity to interest rates? On the otherr gand, low vol also has had a giant influx of money the last years which have surely attributed to its returns.
- Sun Mar 18, 2018 4:25 pm
- Forum: Investing - Theory, News & General
- Topic: Larry Swedroe: Don’t Count Out Commodities
- Replies: 51
- Views: 10421
Re: Larry Swedroe: Don’t Count Out Commodities
I appreciate Larrys article and the discussion.
One thing I'm missing is an intuitive explanation of why commodities would hedge better than TIPS (or: respond stronger to inflation).
Is it because commodities are raw products and sold at a multiple to consumers?
One thing I'm missing is an intuitive explanation of why commodities would hedge better than TIPS (or: respond stronger to inflation).
Is it because commodities are raw products and sold at a multiple to consumers?
- Fri Feb 16, 2018 1:40 pm
- Forum: Investing - Theory, News & General
- Topic: MarketWatch article-Vanguard investors kept their cool during stock-market turmoil
- Replies: 18
- Views: 2535
Re: MarketWatch article-Vanguard investors kept their cool during stock-market turmoil
What you're suggesting is that bogleheads should've taken the opportunity to "buy the dip" so to speak. But the truth is that none of us knew what was going to happen. In the 2008 thread you'll find plenty of examples of people regretting that they kept rebalancing on the way down.
Personally I invested the same as every month and did not rebalance.
- Fri Feb 09, 2018 2:24 am
- Forum: Investing - Theory, News & General
- Topic: Does this strategy make sense in a falling market?
- Replies: 19
- Views: 3324
Re: Does this strategy make sense in a falling market?
It would make sense if we knew for sure that we'd recover quickly. However, we don't. In the history of the US Stock market, there have been several bear markets spanning years. In some other markets (e.g. Japanese Stock Market), decades. Like Pajamas wrote, this sounds very similar to a Martingale strategy. You're assuming that a sequence of negative returns makes the chance of getting a positive return higher. This is also very similar to trend following, which assumes positive returns follow positive returns. Bogleheads don't believe they can predict the future. They more or less believe that the outcome of each day is like an independent coin flip, with a slight bias to a positive return. I understand this is hard. When the market tanks...
- Fri Jan 26, 2018 4:52 pm
- Forum: Investing - Theory, News & General
- Topic: Age-based allocation when you don't need the money?
- Replies: 22
- Views: 2544
Re: Age-based allocation when you don't need the money?
Definitely agree with dbr that you should think about what you might want to use the money for.
If you truely don't need/want the money and don't have heirs, it doesn't matter what you do with it.
If you want to see it as some kind of big "emergency" fund that you might one day find a purpose for, then it would seem prudent to take a very safe AA that allows your portfolio to stay with inflation but not have too much risk, e.g. 35 stocks/65 bonds.
If you truely don't need/want the money and don't have heirs, it doesn't matter what you do with it.
If you want to see it as some kind of big "emergency" fund that you might one day find a purpose for, then it would seem prudent to take a very safe AA that allows your portfolio to stay with inflation but not have too much risk, e.g. 35 stocks/65 bonds.
- Fri Jan 26, 2018 4:18 pm
- Forum: Investing - Theory, News & General
- Topic: When did the bad news start in 2008?
- Replies: 135
- Views: 18170
Re: When did the bad news start in 2008?
Right now, we have a situation like this: https://i.imgur.com/QMrnox7.png Because of the high valuations, the expected growth for the next 15 years is not very high (~5% per year?) but higher than zero. Let's assume that over the next 15 years, stocks will double in value. It can go like this, with a correction: https://i.imgur.com/v585vM5.png But the correction can also happen later, and not actually reach the current price level anymore: https://i.imgur.com/YHejWN3.png It is even theoretically possible that we will have a very long, slow, sustained growth like this: https://i.imgur.com/JUGJ3kC.png In short, we know a correction is coming but we have no idea whether they will lower the prices enough to ever reach current levels again. You ...
- Thu Jan 11, 2018 1:40 pm
- Forum: Non-US Investing
- Topic: Anyone Have Experience With Broker Degiro?
- Replies: 4
- Views: 1645
Re: Anyone Have Experience With Broker Degiro?
I live in the Netherlands and have been with Degiro for about a year. I agree with everything alpine_boglehead and my experiences so far have been good. The interface works pretty well, they take care of tax treaties for you and you can instantaneously deposit money. The only disadvantage is the 0.1% currency exchange fee, although you won't have that problem if you buy ETFs from the same currency as you (e.g. VWRL in euro or VT for dollars). Also most other providers have much higher buy and sell fees. I've also used Meesman and Brandnewday in the past (that provide their own index funds) but I feel like their 0.5% TER and 0.25% entry/exit fees are a little steep. Most of the banks and other brokers have high yearly costs. In the short ter...
- Sat Jan 06, 2018 3:51 pm
- Forum: Investing - Theory, News & General
- Topic: Talk me out of a 60/40 AA
- Replies: 116
- Views: 21731
Re: Talk me out of a 60/40 AA
There is a nonzero chance that bonds (or safe equivalents like CDs, TIPS or savings) will outperform stocks over a long period. E.g. like what happened in Japan or because of the effects of an aging workforce/global warming or after a war/natural disaster. Japan is an anomaly caused by terrible central bank policy. Such things are always easy to see in hindsight, but apparently most investors back then did not. Basically, safe investments protect you against any event seriously impacting companies but not the government. There is also a chance you may need the money earlier than 20 years during a bear market. If you treat your non-retirement finances conservatively, this is fairly unlikely. I know people do in fact raid retirement accounts...
- Sat Jan 06, 2018 3:10 am
- Forum: Investing - Theory, News & General
- Topic: Talk me out of a 60/40 AA
- Replies: 116
- Views: 21731
Re: Talk me out of a 60/40 AA
If you're saving for things other than retirement in 20+ years, you might need bonds. Otherwise, good portfolio performance during bear markets doesn't matter, only average performance over both bear and bull markets. And both historically and in expectation, equities perform better on average in both bear and bull markets. There is a nonzero chance that bonds (or safe equivalents like CDs, TIPS or savings) will outperform stocks over a long period. E.g. like what happened in Japan or because of the effects of an aging workforce/global warming or after a war/natural disaster. There is also a chance you may need the money earlier than 20 years during a bear market. You're right that stocks do have higher expectation and safe investments als...
- Wed Jan 03, 2018 4:09 pm
- Forum: Investing - Theory, News & General
- Topic: Talk me out of a 60/40 AA
- Replies: 116
- Views: 21731
Re: Talk me out of a 60/40 AA
At the moment, 50/50 or 40/60 also seems to make a lot of sense to me. The truth is that we don't know what will happen the next 10-40 years. Bonds/cash may outperform stocks over this period, or you may want to withdraw your portfolio earlier for some reason (e.g. study, home/health care costs). From what I've read, something like 20/80 is *more* risky because of inflation risk, but 40/60 or 50/50 may hit the sweet spot. It is true that the more stocks you have the higher the expected returns become, but also the worse the worst case outcomes become. Some people say that they keep enough "safe" money in cash or SS to keep an income floor they can live happily off, but if that is true, why take the the risk with the rest of the mo...
- Wed Dec 27, 2017 9:16 am
- Forum: Investing - Theory, News & General
- Topic: How to setup a crypto-currency "index fund" (Bitcoin, etc.)
- Replies: 77
- Views: 10735
Re: How to setup a crypto-currency "index fund" (Bitcoin, etc.)
I'll just say that why do we have discussion on gold, commodities or alternative asset class then? I lump crypto in the same categories, albeit an emerging/riskier/untested class. There is no intrinsic reason why gold should hold value, just like like crypto. Yes, I think most bogleheads are also against holding gold or commodities. Alternative asset classes may be okay if they are expected to produce income for the average investor (e.g. something like a lending club or renting out properties.) The thing is that for the average investor (over a large time period) there is no reason for any commodity to increase in value, after inflation. This makes sense because the commodities themselves are not producing anything or producing value for ...
- Wed Dec 27, 2017 6:04 am
- Forum: Investing - Theory, News & General
- Topic: How to setup a crypto-currency "index fund" (Bitcoin, etc.)
- Replies: 77
- Views: 10735
Re: How to setup a crypto-currency "index fund" (Bitcoin, etc.)
Here is another recent topic: https://www.bogleheads.org/forum/viewtopic.php?t=221744 Personally, I've been involved in crypto *and* a bona-fide Boglehead in all other things since 2012, and basically stopped contributing to crypto threads since 2014 because attempting to to get actual facts out and debated kept getting drowned out by anti-crypto brigading (IMHO). It seems a lot better now - there are actual conversations - but the anti-crypto folk still reflexively interject at times. On Reddit they would get downvoted to not be a nuisance, but here this is up to mods, who aren't keeping the threads 'clean' of that sort of lower-quality posts when it comes to crypto. I agree that some "anti-"crypto posts are low quality, just as ...
- Mon Dec 25, 2017 11:22 am
- Forum: Investing - Theory, News & General
- Topic: What ever happened to the Larry portfolio?
- Replies: 120
- Views: 23274
Re: What ever happened to the Larry portfolio?
I just wonder how well these funds will be able to implement these factors and whether they'll keep giving a better risk adjusted return if they become accepted.Random Walker wrote: ↑Mon Dec 25, 2017 10:12 am I too would potentially have trepidation about jumping on something very new like reinsurance, alt lending, variance risk premium. But the strategies have been around a very long time; it’s just that they recently became investable. The logic behind them makes total intuitive sense. Given these conditions, I think being an early adopter makes reasonable sense.
Wouldn't it be more prudent to wait and see or is it time sensitive?
- Sun Dec 24, 2017 6:03 pm
- Forum: Investing - Theory, News & General
- Topic: "The Most Important Investment Decision You'll Ever Make"
- Replies: 16
- Views: 5784
Re: "The Most Important Investment Decision You'll Ever Make"
The article posits that the main reason to have bonds is to "stay disciplined" and not get out of the market. Which seems to imply that it's safe to assume you'll come out ahead with stocks, as long as you can "stick it out". However I'd say bonds' primary purpose for bogleheads is diversification. So that even if there is a very rough market that does not recover before you retire/need the money, you'll still have the money from that part of your portfolio. This is especially true as you start having a bigger amount and get closer to your target date/number. Stocks have a better chance of a good outcome than bonds, but also have a small chance of a much worse outcome. These 2 statements really resonate with me: Never tr...
- Tue Dec 12, 2017 5:34 pm
- Forum: Investing - Theory, News & General
- Topic: Automated Market Timing
- Replies: 66
- Views: 5887
Re: Automated Market Timing
Now I'd like to leave you with this thought: 80% of active managers, people who make it their entire job to learn everything there is to know and use powerful trading computers, underperform the market. Now you guys are intelligent individuals, and you think it is an interesting puzzle to get the return without the risk. But everyone wants that! The only way to get a lot less risk, is to accept a lot less expected return. You have to take the risk if you want growth, up to the risk that you're willing and able to take. Maybe there are some strategies or managers that you are able to find that improve your returns a little bit without extra risk. But there are many more things you can invest in. If you use your intelligence and drive to inve...
- Tue Dec 12, 2017 5:07 pm
- Forum: Investing - Theory, News & General
- Topic: Automated Market Timing
- Replies: 66
- Views: 5887
Re: Automated Market Timing
Losing "diversification across time" can be a very good thing when the market is in a downward trend. Unfortunately you don't know whether the downward trend will continue when you already lost a lot of money and are deciding to get out of the market. There is certainly an element of randomness involved in the performance of any strategy, but the ability to profitably capitalize on human behavior is not entirely based on luck. The number of buyers and sellers, relative to each other, is constantly shifting due to changes in prices. In some situations, there are more sellers than buyers, causing prices to fall, sometimes dramatically. Like during a correction, exactly when you're proposing to sell because of the negative momentum?...
- Tue Dec 12, 2017 4:32 pm
- Forum: Investing - Theory, News & General
- Topic: Automated Market Timing
- Replies: 66
- Views: 5887
Re: Automated Market Timing
But I still wonder.... Once upon a time buying the whole market was not something the average investor could do but an innovation (the index fund) changed that. Currently, active management doesn't usually outperform index funds. But could an innovation change that, too? It is impossible for more than half of active managers to beat the index. I think the only exception is some funds that are managed in a very tax efficient way (e.g. you could get a tax benefit by only investing in "green" companies as a European investor) and are still low cost. 1. I proposed a way to stay in the market 100% of the time (not the stock market, but in stock/bonds) 2. My proposal doesn't lose diversification permanently and arguably maintains some ...
- Mon Dec 11, 2017 4:50 pm
- Forum: Investing - Theory, News & General
- Topic: Automated Market Timing
- Replies: 66
- Views: 5887
Re: Automated Market Timing
I'm not concerned about the investors who, for instance, thought they were 'buy-and-hold' investors and yet sold in early 2009 and never reentered the market. Such investors likely experienced a much lower annualized return than what you specify. ... Conversely, it is well known that many strategies exist which are sub-optimal to buy-and-hold, and Bogleheads are quick to acknowledge this. Most bogleheads would say that timing the market is always bad. By getting in and out of the market you are losing your diversification across time (time in the market) and yes you may get lucky and miss a crash or get unlucky and miss a recovery/boom. You are assuming that all investment strategies are 'created equal' (i.e. they will all eventually rever...
- Mon Dec 11, 2017 3:24 pm
- Forum: Investing - Theory, News & General
- Topic: Automated Market Timing
- Replies: 66
- Views: 5887
Re: Automated Market Timing
Your logic cuts both ways. What if the last decade of your accumulation phase turned out to be a repeat of 2000-2009, when VTSMX had an annualized return of -.27%? Why risk that? By comparison, had you used the above 200 DMA strategy with TSM and TBM, you would have had an annualized return of 8.61%. Sure, but for every person who got a 8.61% return there was another person who got a -8.87% return (approximately, for the sake of argument). For every investment making more than the market return there is another investment making less. Index investing will always be square in the middle. Why gamble you pick the right method? Everyone thinks they are smarter and better than average. You are equating index investing with buy-and-hold. They ar...
- Mon Dec 11, 2017 1:53 pm
- Forum: Investing - Theory, News & General
- Topic: Automated Market Timing
- Replies: 66
- Views: 5887
Re: Automated Market Timing
If we had a crystal ball and could check out which algorithm with what parameters would be doing best we could just pick that and be set! However, in the real world we only have historical data to rely on. So we can use that to pick one of the infinite number of trading strategies possible (hoping it wasn't data-mined or already priced into the market) and make it go up against the all of the other strategies used by millions of investors around the world (that are using same data as you to decide to SELL when you BUY) and hope it does better than 80% of them (after costs). Or you can just index invest and invest in all possible strategies at once. Most people end up underperforming the index. Why risk that? Your investment horizon is relat...
- Sun Dec 10, 2017 2:20 pm
- Forum: Investing - Theory, News & General
- Topic: Automated Market Timing
- Replies: 66
- Views: 5887
Re: Automated Market Timing
Oh, I see your point. I'm kicking the can down the road, but I'm still choosing something/someone and introducing extra risk on top of the market risk, just like picking single stocks or an active manager. (Did I get it?) Yes, you've got it exactly! The "boglehead" way will never be the optimal strategy in hindsight, but (assuming the market trends upwards) is guaranteed to always do okay (beat 50% of the market before, 80% of the market after costs). The average person who chooses a different strategy (e.g. timing or sector/stock picking) ends up losing (often considerably after costs). Mathematically speaking it has to be so. The only reason to go active is if you have specific knowledge or skills superior to the average invest...
- Sun Dec 10, 2017 1:57 pm
- Forum: Investing - Theory, News & General
- Topic: Automated Market Timing
- Replies: 66
- Views: 5887
Re: Automated Market Timing
Ok, so, how do you pick that smart team/brokerage? On past performance? If they underperform for years/decades will you move your money away?Veiled wrote: ↑Sun Dec 10, 2017 1:52 pm Myself? Definitely, definitely not. Never in my wildest daydreams would I consider myself able to create such a program. (Post right above proves I can't even figure out how to backtest without a googleable calculator.) But if a smart team at a respected brokerage added this feature to its robo-advisor, perhaps considering multiple ways of assessing valuation, I would think it worth considering.
- Sun Dec 10, 2017 1:38 pm
- Forum: Investing - Theory, News & General
- Topic: Automated Market Timing
- Replies: 66
- Views: 5887
Re: Automated Market Timing
In short, my question is: could automated tactical adjustment be useful? I'd get a stabler portfolio performance, I wouldn't screw up market timing by forgetfulness, fear, or greed, and I don't have to spend a lot of time thinking about it. I understand this is market timing, but would market timing be any more acceptable if it was planned, desired according to risk tolerance, and automated? I think the question is whether you truly believe that CAPE or any other indicator can tell you whether the market is "overvalued" or dangerous. If your program wrongly indicates that currently is a very good time to invest (e.g. CAPE is very low), chooses to go 100% equities and then the market crashes 50% then you won't have a very stable r...
- Sun Dec 10, 2017 10:03 am
- Forum: Investing - Theory, News & General
- Topic: An argument for investing in bitcoin
- Replies: 10
- Views: 1031
Re: An argument for investing in bitcoin
But there might be more investments such as bitcoin that we could add to our portfolios that offer a higher expected return for given variance/risk. The main question is: Does this hold for investments with a low or negative expected return? The answer is no: It does not add any more diversification than cash. Imagine this thought experiment: Imagine you had a million uncorrelated investments all with an expected 8% yearly return. What would the variance/risk be? Basically 0. You would almost be guaranteed to have exactly 8% return each year. An investors wet dream. Now do the same for a million highly volatile investments with an expected 0% return: The return would be 0% no? If you add a percentage of that to your portfolio your risk dec...
- Sat Dec 09, 2017 3:26 am
- Forum: Investing - Theory, News & General
- Topic: "Think you can time the stock market? Look at this chart first"
- Replies: 42
- Views: 5945
Re: "Think you can time the stock market? Look at this chart first"
Here is a chart I created with the daily changes of VFINX (S&P 500).
The percentage change is calculated by dividing the closing price of the current day by the previous day:
Very good days seem to occur in times of high volatility, in which very bad days also occur.
The percentage change is calculated by dividing the closing price of the current day by the previous day:
Very good days seem to occur in times of high volatility, in which very bad days also occur.
- Thu Dec 07, 2017 4:43 pm
- Forum: Investing - Theory, News & General
- Topic: Larry Swedroe: Bitcoin & It’s Risks
- Replies: 57
- Views: 8276
Re: Larry Swedroe: Bitcoin & It’s Risks
a couple more thoughts: as bogleheads, we're not in the initial rounds of funding or issuance of shares. so the companies we "invest" in aren't really taking our cash to put to work. rather we're buying a fraction of ownership after it's changed hands multiple times over, in hopes that we can sell it at a higher price later. this sounds a lot similar to the mechanics with bitcoin and many other things people invest in. Hrm yeah, that's a good point. When we buy stocks we're not directly investing in that company, we're just giving money to someone else who did that (and possibly who got it from someone else). Unless it's the company itself that is issuing (extra) shares. Although, ultimately, someone directly put money into the c...
- Wed Dec 06, 2017 1:51 pm
- Forum: Investing - Theory, News & General
- Topic: Larry Swedroe: Bitcoin & It’s Risks
- Replies: 57
- Views: 8276
Re: Larry Swedroe: Bitcoin & It’s Risks
Characterizing an investment as only something that can produce cash flows in the future is another BogleMyth. That's your personal definition of "investment", and numerous reference sources disagree with you: Jonathan, I think the main point is that Bogleheads basically embrace being average. They try to get the results the average investor should get with the least amount of risk & expenses as possible. Now if you take bitcoin or commodities or currencies, what will the average person in these markets make on profits? Zero (after inflation and over the long term). Because it is a zero sum game. All profits that are made just go into the pockets of the traders. With stocks however the odds are stacked in favor of the average...
- Sun Dec 03, 2017 7:39 am
- Forum: Investing - Theory, News & General
- Topic: how can an index fund outperform its index??
- Replies: 6
- Views: 1550
Re: how can an index fund outperform its index??
There are 2 possible reasons:
1. Tracking error: The index fund does not fully follow the index (e.g. it only 'samples' stocks)
2. Securities lending: The operators lend out a small percentage to short-sellers and returns to proceeds to investors, this is what some popular Vanguards funds do.
1. Tracking error: The index fund does not fully follow the index (e.g. it only 'samples' stocks)
2. Securities lending: The operators lend out a small percentage to short-sellers and returns to proceeds to investors, this is what some popular Vanguards funds do.
- Sat Dec 02, 2017 1:56 pm
- Forum: Investing - Theory, News & General
- Topic: "Diversification: A Reason to Stay the Course With Your High-Quality Bond Fund."
- Replies: 21
- Views: 4540
Re: "Diversification: A Reason to Stay the Course With Your High-Quality Bond Fund."
I think online savings/CDs are better right now because of their higher yield.
Bonds might earn you more if demand sours during a recession and you rebalance into stocks. But otherwise, the largest predictor of bond funds earnings has always been their current yield. So especially if you intend to hold to maturity and your amount is small enough to be insured, CDs seem like the better deal.
Bonds might earn you more if demand sours during a recession and you rebalance into stocks. But otherwise, the largest predictor of bond funds earnings has always been their current yield. So especially if you intend to hold to maturity and your amount is small enough to be insured, CDs seem like the better deal.
- Mon Nov 27, 2017 5:15 pm
- Forum: Investing - Theory, News & General
- Topic: Ray Dalio's All Weather Porfolio
- Replies: 7
- Views: 2366
Re: Ray Dalio's All Weather Porfolio
I don't think you'll find a lot of supporters here.
Long-term bonds have had an exceptional performance the last 40 years because of the decreasing interest rates. But if you buy them now you have a huge chance of not even keeping up with inflation.
Long-term bonds have had an exceptional performance the last 40 years because of the decreasing interest rates. But if you buy them now you have a huge chance of not even keeping up with inflation.
- Sun Nov 26, 2017 3:32 pm
- Forum: Personal Investments
- Topic: Gold?
- Replies: 64
- Views: 6986
Re: Gold?
The main thing gold has going for is that it is small/easy to store and transport, valuable and somewhat keeps up with inflation. It is not an investment but probably does better than cash (unless in case of deflation, but the government knows how to cure that.) However, in pretty much any conceivable situation another solution would be better. E.g. In case of calamity, "prepping" type items would be more valuable, because you won't have to leave the house and buy/trade those items (who will know your gold coins are genuine anyway? and how will they give you change for a gold coin). If you just want to leave something to your grand kids, why not some beautiful art or things with sentimental value together with inheritance money? I...
- Sun Nov 26, 2017 6:14 am
- Forum: Personal Investments
- Topic: Bonds: Why?
- Replies: 29
- Views: 3348
Re: Bonds: Why?
Some financial experts (e.g. Larry Swedroe) are advising people to use CDs instead of bonds also. The main difference is that institutions/governments cannot buy CDs which has kept their interest up higher.
The main disadvantage of some CDs in comparison to bond (funds) is that you'll have less liquidity. There is no aftermarket to sell them to. Since bonds are supposed to be the "safe" part of your portfolio during recessions and market turmoil, you will want to make to sure you can access them. So make sure you check the conditions and penalties for cancelling them early (e.g. some have no penalty when you get unemploymed or want to buy a house).
The main disadvantage of some CDs in comparison to bond (funds) is that you'll have less liquidity. There is no aftermarket to sell them to. Since bonds are supposed to be the "safe" part of your portfolio during recessions and market turmoil, you will want to make to sure you can access them. So make sure you check the conditions and penalties for cancelling them early (e.g. some have no penalty when you get unemploymed or want to buy a house).
- Sun Nov 19, 2017 4:25 pm
- Forum: Personal Investments
- Topic: Bond funds vs Ladder
- Replies: 26
- Views: 3586
Re: Bond funds vs Ladder
It seems like you're assuming that bonds only serve to "calm your nerves", but that by the time you retire/need the money stocks are 100% sure to have recovered/have higher returns than bonds (or CDs etc.). In that case, you're right.
However, what will you do if stocks crash and take 40+ years to recover? Or perhaps you need to access your funds at a much earlier date after a crash, e.g. for healthcare costs or training to get a new job or because you get a terminal illness.
By reducing risk you have a lesser chance at luxuries but you ensure you'll at least get your necessities.
- Tue Nov 14, 2017 4:34 pm
- Forum: Non-US Investing
- Topic: Dangers of a Broker
- Replies: 7
- Views: 1744
Re: Dangers of a Broker
He lives is the Netherlands and I'm assuming he is talking about DeGiro which is waaay cheaper than any other broker. Each broker holds the ETFs of their clients in a separate holding company so if they went bankrupt no-one could claim their assets. So yeah it would be a matter of transferring your ETFs to another company but I have no idea how it would go practically (e.g. do they have the infrastructure in place to handle all of their clients orders quickly?) In the case of DeGiro, they are able to lend out your ETFs up to 30% though so if both their clients and they went bankrupt you might lose up to 30% with a "normal" account in the absolute worst case. I believe this lending out is how they make most of their money, apart fr...
- Sat Nov 11, 2017 5:34 pm
- Forum: Investing - Theory, News & General
- Topic: Value Averaging with Bonds: an example
- Replies: 2
- Views: 695
Re: Value Averaging with Bonds: an example
I think from a bogleheads' perspective, this is a bad idea because they don't believe/trust in RTM (return-to-the-mean).
Basically, you're trusting a formula to determine how much risk you should take. If the formula is wrong, you may stay (partially) out of the market because it believes it is overvalued or go fully into the market just before a crash. In the worst-case, the market may rise significantly just after you start investing (causing you to keep a large amount of cash) and then drop significantly just before you withdraw.
Using a fixed allocation with rebalancing has better worst-case scenario outcomes which seems especially important for the "safe" part of your portfolio.
Basically, you're trusting a formula to determine how much risk you should take. If the formula is wrong, you may stay (partially) out of the market because it believes it is overvalued or go fully into the market just before a crash. In the worst-case, the market may rise significantly just after you start investing (causing you to keep a large amount of cash) and then drop significantly just before you withdraw.
Using a fixed allocation with rebalancing has better worst-case scenario outcomes which seems especially important for the "safe" part of your portfolio.
- Sun Oct 22, 2017 11:03 am
- Forum: Investing - Theory, News & General
- Topic: I believe one can beat the market with a simple contrarian strategy. Am I a fool?
- Replies: 32
- Views: 5469
Re: I believe one can beat the market with a simple contrarian strategy. Am I a fool?
smesman is right: a value averaging strategy will underperform a DCA strategy if the market keeps going down forever without ever recovering. This type of doomsday scenario does not preoccupy me because if it happens, we will all become much poorer. I didn't say it kept going down "forever". It may go down say 70% and then grow an average of 6% from that point on for the next 50 years. That would mean you would need to adapt your formula. Unless you can justify that scenario is impossible. And yes, I believe I would have continued even if there was a war or another catastrophic event. I guess that is what it means for me to “stay the course” and to be a “contrarian.” I believe that you're fully committed to your method after your...
- Sun Oct 22, 2017 4:00 am
- Forum: Investing - Theory, News & General
- Topic: I believe one can beat the market with a simple contrarian strategy. Am I a fool?
- Replies: 32
- Views: 5469
Re: I believe one can beat the market with a simple contrarian strategy. Am I a fool?
smesman points out the danger of “Japan-type scenario.” As per my initial post, yes, this strategy does not guarantee a gain. In a Japan-style scenario, everybody loses, but this strategy loses less than a traditional DCA (as experienced in the International (VTGMX) account). Given the gyration of the market over the past 19 years, I believe that this strategy works with steep inclines (as much as 13% per month) and declines (as much as -40% per month) and not just with some zig-zags I think it would go further than "not guarantee a gain": It should underperform a fixed percentage allocation because when the market goes down you increase your risk exposure (to a higher % than the fixed %) which means that if it goes down even fur...
- Sat Oct 21, 2017 1:08 pm
- Forum: Investing - Theory, News & General
- Topic: I believe one can beat the market with a simple contrarian strategy. Am I a fool?
- Replies: 32
- Views: 5469
Re: I believe one can beat the market with a simple contrarian strategy. Am I a fool?
Your method seems to be very similar to Value Averaging.
You're basically saying that you can know the "true value" of stocks based on a simple formula. If things were so simple, wouldn't everyone do it? And what happens if a major event happens: Imagine an epidemic kills 50% of the population, if the market then drops by 50% will you consider it undervalued?
What happens when a Japan-type scenario happens where equities keep dropping for a long period of time, you'll keep adding on more and more risk and perhaps lose much more than if you would've just used for example a constant percentage. Basically, your method works if the market zigs and zags much more than it has steep inclines and declines.
You're basically saying that you can know the "true value" of stocks based on a simple formula. If things were so simple, wouldn't everyone do it? And what happens if a major event happens: Imagine an epidemic kills 50% of the population, if the market then drops by 50% will you consider it undervalued?
What happens when a Japan-type scenario happens where equities keep dropping for a long period of time, you'll keep adding on more and more risk and perhaps lose much more than if you would've just used for example a constant percentage. Basically, your method works if the market zigs and zags much more than it has steep inclines and declines.
- Wed Oct 18, 2017 4:04 pm
- Forum: Investing - Theory, News & General
- Topic: First and maybe last option trade
- Replies: 5
- Views: 1265
Re: First and maybe last option trade
Bogleheads use them very sparingly.
Owning a stock for a long period of time is cheaper than holding options for long amount of time.
Options are only useful in some specific situations (e.g. for companies that want to merge or as employee benefits) or when you somehow know that the market is about to go up significantly. However most bogleheads are not in such situations and believe they cannot predict the market in the short term, and as such don't trade options.
Owning a stock for a long period of time is cheaper than holding options for long amount of time.
Options are only useful in some specific situations (e.g. for companies that want to merge or as employee benefits) or when you somehow know that the market is about to go up significantly. However most bogleheads are not in such situations and believe they cannot predict the market in the short term, and as such don't trade options.
- Sun Oct 08, 2017 6:03 pm
- Forum: Investing - Theory, News & General
- Topic: BitConnect [Cryptocurrency]
- Replies: 10
- Views: 1809
Re: BitConnect [Cryptocurrency]
It seems like the main difference from normal cryptos is that they have a lending system where you are guaranteed to earn a certain amount of bitcoin after a certain amount of time. So you are certain to get profits as long other keep pouring new bitcoin into the system. I would never invest/gamble more than a few % of my net worth on this, but when I see what appears to be a sane mind making tons of money on something I don't understand I want to be sure I'm not missing an opportunity. The question you have to ask yourself is; if I put money into this how will people use that money to generate value for us? E.g. lets say you buy a tractor for a farmer; now suddenly he can grow more crops and give you a cut of the profits: a win-win. Howeve...
- Sun Oct 08, 2017 3:02 am
- Forum: Investing - Theory, News & General
- Topic: The Stock Market Is "Fully Valued," Says Vanguard's Jack Bogle 10/7/17
- Replies: 87
- Views: 15358
Re: The Stock Market Is "Fully Valued," Says Vanguard's Jack Bogle 10/7/17
When could we truely say they were overvalued though? When the YTM of treasuries is higher than stock earnings?
- Fri Sep 29, 2017 1:09 am
- Forum: Investing - Theory, News & General
- Topic: Which bogleheads have a "high need to take risk"?
- Replies: 51
- Views: 6958
Re: Which bogleheads have a "high need to take risk"?
You might still take the deal, but I think you'd agree with me that if you have enough money to spend $2M on a luxury item then that $1000 will probably mean less to you than the average joe that just wants a really good recliner. And I'd say that that recliner to a poor person might bring as much happyness as the golden egg to super rich person.Phineas J. Whoopee wrote: ↑Thu Sep 28, 2017 7:48 pm In both cases you get a benefit of $1,000 for driving an hour. I'd take that deal.
The gist of what I'm saying is that the relationship between money and wellbeing is logarithmic. Doubling your income doesn't make you double as happy. Losing $X hurts more than earning $X helps you.
- Thu Sep 28, 2017 5:31 pm
- Forum: Investing - Theory, News & General
- Topic: Which bogleheads have a "high need to take risk"?
- Replies: 51
- Views: 6958
Re: Which bogleheads have a "high need to take risk"?
I appreciate your replies. From most of your responses it seems like no-one here really *needs* to take a large amount of risk. It's just that some have a desire to do so or belief that their investing horizon is long enough that stocks are safer than bonds (and as such are not really taking a large amount of risk). For me one aspect I find interesting is that I believe that the "worth" of money is relative. Going from say a $1M to a $2M adds much more pleasure than going from $10M to $11M. $20K in groceries and basic living expenses is more valuable than $20K in luxuries. If this is true then it seems very counter-intuitive to gamble with your retirement, even if the odds are in your favor, because the "worth" you might...
- Thu Sep 28, 2017 5:12 am
- Forum: Investing - Theory, News & General
- Topic: Which bogleheads have a "high need to take risk"?
- Replies: 51
- Views: 6958
Re: Which bogleheads have a "high need to take risk"?
So why not "insure" that you will be able to retire somewhat early even if the market underperforms by taking a safer allocation? If you don't mind the possibility of having to work much longer in the worst case, why not decide to work a few years longer in any case and be sure you'll be done by then?
- Thu Sep 28, 2017 3:21 am
- Forum: Investing - Theory, News & General
- Topic: Which bogleheads have a "high need to take risk"?
- Replies: 51
- Views: 6958
Which bogleheads have a "high need to take risk"?
I'm curious: Whom of you feels like they need to go e.g. 90%+ stocks to meet some financial goal?
I'm talking about bogleheads who have a limited investment horizon and think another allocation would be safer, but have decided to take on more risky assets.
If the risk doesn't pay off, what will you do? If you would cut expenses or work longer, why not take a safer allocation and plan to do those things in any case?
I'm talking about bogleheads who have a limited investment horizon and think another allocation would be safer, but have decided to take on more risky assets.
If the risk doesn't pay off, what will you do? If you would cut expenses or work longer, why not take a safer allocation and plan to do those things in any case?
- Thu Sep 28, 2017 2:50 am
- Forum: Investing - Theory, News & General
- Topic: Why do you LBYM? Why do you save and invest?
- Replies: 204
- Views: 22389
Re: Why do you LBYM? Why do you save and invest?
For me, there are three reasons I save: I've been somewhat poor large parts of my life, so I translate expenses into how much groceries I could buy or how much rent I could pay from that. Any dollar I save may need to be used for that goal someday. I've seen first-hand how much some old people struggle with money. When I talk to them how much things cost literally come up every 3 minutes. I never ever want to worry about money like that. I like to reward places that fairly price goods. If they have any products with large profit margins I feel they are cheating customers. With places like fast-food joints I feel like they don't care about their workers and customers. I would never buy a $6 coffee. I'm trying to keep an eye on the big pictur...
- Sun Sep 10, 2017 4:45 pm
- Forum: Investing - Theory, News & General
- Topic: "The Market" Portfolio
- Replies: 26
- Views: 9190
Re: "The Market" Portfolio
Sorry to hear about your tragic life event Krugon. For what it's worth, you seem to be a good writer, so perhaps there are some work at home type things you could do? It probably makes sense to look at the advice given to other people who aim to be financially independent at a younger age. They do usually include a larger allocation to stocks than older retirees. As to your question: Now I don't have a problem with international, my question is simply "why doesn't this same logic apply on a global scale?" What happens if the global stock market does what the Japanese stock market did? How is over weighting stock any different than taking a sector bet? The thing is that high-quality bonds serve a completely different function from ...