Ignore the noise

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goshenBogle
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Ignore the noise

Post by goshenBogle »

Interesting to watch the current market fall. The world seems to be panicking just because China is not doing as well as it did in the past plus oil prices are falling. Heck, falling oil prices are good for the U.S. economy so if anything, US stocks should go up and not down, right? Frankly I think this panic is stupid. Plus I don't know why all of the radio stations including NPR report on the current market prices. The stock market is not the economy and the economy is not the stock market. Perhaps if the radio stations did not report the market prices as though this is really news, maybe the market would not gyrate so much? :D

In my case, I am in my late 60's, retired, have approx. $3.5 million in my portfolio split 35% stock / 65% bonds, and I plan to do NOTHING. Just hold on to what I have, try to ignore the noise, and if the markets ever settle down, I will look at re-balancing.

Any other retirees in this forum who want to comment?
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The Wizard
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Re: Ignore the noise

Post by The Wizard »

Waiting for markets to "settle down" may not be an optimal strategy.
The time to strike may well be when the crazies are peaking, so consider that...
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nisiprius
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Re: Ignore the noise

Post by nisiprius »

I hate the market drop. And I'm doing nothing.

As for rebalancing, it's a good idea to actually state a rebalancing policy, because if you actually follow a traditional "rebalancing bands" system and calculate numbers, you may be surprised at just how far the market has to fall for rebalancing to become necessary.

Consider a retiree who is at 30% stocks, 70% bonds, and is following a policy of rebalancing when the percentages change by 5% absolute (stocks reach 25%) or 25% relative (stocks reach 75% of 30% = 22.5%).

Suppose the retiree had $150,000 in stocks and $350,000 in bonds when the Dow was at 18. Now she is at about 16/18 x $150,000 stocks = $133,000, which works out to $133,000 / $483,000 = 27.5% stocks.

In order to hit 25% stocks and require rebalancing, we need (see? eventually you do get to use high-school algebra!)
x / ($350,000 + x) = 25%
x = 25% * (350,000 + x)
75% (x) = 25% (350,000)
x = $350,000 x (25% / 75%) = $117,000

which will be reached when the Dow reaches about (117 / 150) x 18,000 = 14,000.

Mind you, I am not expressing any opinion on the wisdom of rebalancing on the way down. I didn't have the guts to do it myself in 2008-2009 and I have worked out a rationalization which may or may not be valid. All I'm saying is: according to some systems of rebalancing bands, it won't be necessary until the Dow hits about 14,000.
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whaleknives
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Re: Ignore the noise

Post by whaleknives »

On the other hand, my combination of high total bond fund (VBTLX) and low total international stock fund (VTIAX) had me rebalancing this week. Bonds were +5.5%, international -4.4%. Portfolio target is 60/40 stocks/bonds with 30% international stocks. My last rebalancing was during a Roth conversion in April 2015, 9 months ago.
"I'm an indexer. I own the market. And I'm happy." (John Bogle, "BusinessWeek", 8/17/07) ☕ Maritime signal flag W - Whiskey: "I require medical assistance."
Van
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Re: Ignore the noise

Post by Van »

I'm ignoring the drop. My plan is to rebalance at the beginning of each new calendar year, rather than using the % change in AA approach. To rebalance at the beginning of this year, I moved $ into stocks. So, I'm down more than if I had not rebalanced.

So my questions (mainly to myself) are: 1. Can I wait a whole year to rebalance again or will I jump the gun and put more $ into stocks? 2. Should I adopt at % plan instead of doing the annual thing? Unfortunately, I'm really terrible at sticking to whatever plan I tell myself I'm using for the moment. This time may be different!
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randomizer
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Re: Ignore the noise

Post by randomizer »

goshenBogle wrote:In my case, I am in my late 60's, retired, have approx. $3.5 million in my portfolio split 35% stock / 65% bonds, and I plan to do NOTHING. Just hold on to what I have, try to ignore the noise, and if the markets ever settle down, I will look at re-balancing.
Sounds like a great plan, although as others have suggested, having an explicit rebalancing policy that doesn't depend on some vague/indefinite notion of the market "settling down" is probably a good idea. It can be as simple as "at the end of each year, I rebalance if any category in my AA has deviated 5% or more from my desired allocation".
87.5:12.5, EM tilt — HODL the course!
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randomizer
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Re: Ignore the noise

Post by randomizer »

Van wrote:So my questions (mainly to myself) are: 1. Can I wait a whole year to rebalance again or will I jump the gun and put more $ into stocks? 2. Should I adopt at % plan instead of doing the annual thing? Unfortunately, I'm really terrible at sticking to whatever plan I tell myself I'm using for the moment. This time may be different!
I think it's good that you have enough insight into yourself to know your strengths/weaknesses.

Maybe you can trawl the forums for dozens of hours until you convince yourself that you know what you want to do, then write it down somewhere and stick to it.
87.5:12.5, EM tilt — HODL the course!
chrisjul
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Re: Ignore the noise

Post by chrisjul »

I tend to agree with William Bernstein. He says that once you have won the game, why continue to play it? I am 8% stocks and feel fine.
Van
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Re: Ignore the noise

Post by Van »

chrisjul wrote:I tend to agree with William Bernstein. He says that once you have won the game, why continue to play it? I am 8% stocks and feel fine.
Then why do you have 8% stocks instead of 0%?

I have also "won the game", but I have 20% in stock funds. I guess it is for the little rush I get when stocks zoom upward.
chrisjul
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Re: Ignore the noise

Post by chrisjul »

Mainly due to tax consequences....my basis is so low in this fund that I will owe the Uncle more than I would like to pay now.
livesoft
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Re: Ignore the noise

Post by livesoft »

It is nice to ignore the noise, but do you also ignore the signal? Or do you perk up when there is a signal and pay attention to it?
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victork
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Re: Ignore the noise

Post by victork »

I'm 72, retired, and I'm 36% stock. Yes, I have enough. (I don't need to buy lottery tickets.)

I remember that 2007/2008 business. At that time, I was 50/50. And I was out of the country in the fall of 2007, when Lehman Brothers failed. So I watched the news. When I got back, I rebalanced, moving from bond funds to stock funds. Again, in February of 2008, I rebalanced, again moving from bond funds to stock funds.. (About a week later, the President was asked about the stock market, and he said that it was a good time to buy stocks.)

Well, I feel that I did the right thing, but I certainly did not like the experience. I guess that I had discovered my risk tolerance. So, a couple of years later, I moved to 40% stock. Recently, after reading Bill Bernstein's article, I moved to 36% stock.

Certainly, it's more fun when stock prices are increasing, and I feel wealthier and wealthier. But to own stocks is to sign up for both the ups and the downs. Right now, I'm staying the course.
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Sbashore
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Re: Ignore the noise

Post by Sbashore »

I think things are interesting right now. Nothing more. As far as my portfolio, it's a non-event, I'm down less than 5% year to date. Nothing to do, no re-balance signals flashing in my Excel Spreadsheet.
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Clever_Username
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Re: Ignore the noise

Post by Clever_Username »

I used to get the noise regularly. I'd still ignore it, but I'd check Google Finance every day the market was open. A few months ago, I kicked this habit.

When I visit my parents, I get the noise again. My dad likes to keep various financial news on the television. I know their market exposure is small and they don't act on the news anyway, so I'm not worried. But my dad did point out how many points the Dow dropped yesterday, and I asked him what it was out of -- he didn't know offhand (neither did I).
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.
J295
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Re: Ignore the noise

Post by J295 »

We are (mostly) retired and turn 57 this year.

AA is Age -10 in "Bonds (which includes, bonds, CDs, Ibonds, TIPS, cash, etc.).
So,
47% "Bonds"
49% Stocks
4% Alternataives

Review for re-balancing quarterly (if AA for stocks off by 5%), and adjust AA annually for the age change.

May or may not in theory "maximize" returns, but it works for us and whatever gain or loss incurred by not reviewing or re-allocating more frequently is not material to our lifestyle and relationship with money (a good servant and a poor master).

Enjoy the weekend all, and we appreciate the posts from others, both in our age bracket and "more experienced" retirees
mickroark
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Re: Ignore the noise

Post by mickroark »

I like the idea of rebalance, so I us multi asset funds that rebalance automatically. I like automatic in my old age, like auto bill pay and auto rebalance. I wish I could get a automatic hair cut. Low stress Hi reward.
Topic Author
goshenBogle
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Joined: Thu Oct 06, 2011 6:12 pm

Re: How to make the noise sound sweet

Post by goshenBogle »

During this strong market downturn, I do follow the market on a daily basis. But to sweeten the noisy sounds, I have a spreadsheet where I calculate how much my portfolio has dropped vs the S&P 500. Comparing Friday 1/15/16 to 12/31/15, S&P 500 down 8%, my portfolio down 1.8%. As a retiree, I am not bothered by a 1.8% drop. Of course, I think it will drop more, but if my portfolio drop at most, say 3%, not a problem.
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