Minimizing losses-what if anything are you doing

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13toGo
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Joined: Wed Dec 12, 2018 3:06 pm

Minimizing losses-what if anything are you doing

Post by 13toGo »

Hi everyone,

I mentioned in my first post that I have an Intuitive Investor IRA at Wells Fargo.It's their robo investor offering pretty-much. Based on what I've read here on the start page, they seem to have a "slice and dice" approach. But all I've done is lose money since I started. I haven't been invested very long and I know the market is crashing right now. But I wonder if there's anything else I can do to help minimize the losses until the market corrects. I went in and re-adjusted my tolerance to a conservative Portfolio that gave me bond allocation that matches my age, as suggested here. But the balance continues to go south.

Are the 3-fund "own-the-market"-portfolios are faring better? Would it be a worthwhile move to transfer to Vanguard at this point, or should I just ride out the storm? I may be more worried than I should be because my timeline to retirement is only about 10-13 years. I hear these market corrections can take at least that long or longer sometimes.

I'm interested in learning more about what you pros are doing to help mitigate losses. Thanks in advance!
Ron
dbr
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Re: Minimizing losses-what if anything are you doing

Post by dbr »

I am not a pro, but I can tell you that you minimize losses by selecting the appropriate asset allocation to start with. After that you understand that you will get the performance you chose, for better or for worse. That includes that stocks go up and stocks go down. There is no miracle asset allocation that promises return but is immune to losses. The iron law that expected return requires expected risk has no run-around.

If you don't want losses at all, then in real dollars that is probably not possible. The only instrument that adjusts for inflation and remains at fixed real value is I bonds, access to which is limited. Short term bonds can come close. I don't think this is what you are talking about.
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JoMoney
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Re: Minimizing losses-what if anything are you doing

Post by JoMoney »

You "minimize losses" by having cash and short-term bonds to get you through an extended downturn, and either buy more to reduce your average cost, or just ignore downturn and any spending comes out of your cash.

The only thing that did well for me at this point in the year is cash/money market and the bonuses/cash back I get from my credit card usage
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Silk McCue
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Re: Minimizing losses-what if anything are you doing

Post by Silk McCue »

Don't do anything else. By rebalancing to a more conservative portfolio you sold equities at a loss and locked in that loss. Just sit tight. Making further changes at this time is likely to cost you in the long run. I have a 3 fund portfolio and a down 6.84% since Dec 1 and 7.67% since January 1. We are 2 years from retiring and because of our overall plan is of no consequence to us.

Cheers
delamer
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Re: Minimizing losses-what if anything are you doing

Post by delamer »

We don’t have any way of knowing if your portfolio is doing better than a typical 3 fund portfolio. You didn’t provide any information on yours.

It may be that your portfolio is aggressive for your age and risk tolerance, but moving your funds to Vanguard doesn’t solve that particular problem. No matter where your money is being held, you have to determine an asset allocation that you are comfortable holding.

In the short term, stocks go up and stocks go down. If you can’t tolerate that volatility, then you should limit (or even eliminate) exposure to them. Stocks are a long-run investment.

No one here is going to recommend that you sell stocks when their value has dropped.

Finally, remember that the performance of a 3 fund portfolio depends on how the components are weighted.

For example, a 3-fund with 1/3 in US stocks, 1/3 in international stocks, and 1/3 in bonds is going to have a different return than a 3-fund with 50% in US stocks, 40% in international stocks, and 10% in bonds.

It is individual risk tolerance and goals that should determine how you weight the components. A 50 year old might be comfortable with 1/3 to each while a 30 year old might be comfortable with the other,more aggressive option.

FYI, I use a 7 component portfolio for my retirement savings that fits my risk tolerance.

Good luck.
Last edited by delamer on Mon Dec 24, 2018 11:32 am, edited 1 time in total.
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CaliJim
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Re: Minimizing losses-what if anything are you doing

Post by CaliJim »

Hi Ron,

Deep breath. Exhale slowly. Many (Most?) things cannot be controlled. It may be time to reset expectations perhaps?

Experiencing one's first market correction is a great learning tool! Sit tight! Stay the course! Follow the instructions! Read the manual in the wiki!

The main lesson is: ASSET ALLOCATION and PATIENCE ARE THE KEYS.

See also posts about Adrian's Rule
viewtopic.php?t=30309

IMHO, and others (Bill Graham...) agree, investors should have a minimum of 20%-25% of their portfolio in cash/bond/fixed income investments.

With your future savings and investments, DCA into an allocation with more bonds/fixed income.

Regret is a powerful emotion. Regret and fear can be strong drivers of investment mistakes. They tend to come from worry about the past and the future. But... what is going on in the present moment? Regret? Fear? The market is at some number. Big deal. Likely in 10 years this moment will be all but forgotten. There are lots of little wiggles in the long term charts. This is just one of them.
Avoid letting emotions (regret over past, fear of future) drive behavioral mistakes (ie... trying to catch a falling knife...selling low, buying high.)

The past and the future are not here. Losses are all water under the bridge. Uncontrollable. Losses are hard (impossible?) to recover or minimize. Tilt the earth back the other way so the water will flow up hill? Make time run backwards?

Preparation in advance via a lower risk asset allocation (not predicting/timing market pull backs)... markets fluctuate, sometimes as much as 50%. There is no return without taking risk. When you put your money at risk, you must expect pullbacks. It is the nature of the beast.

My approach is... a little belt tightening is in order..... just get a little more aggressive in saving when prices are lower!
Dealing with it. Losses are what they are.

Do you have a written Investment Policy Statement yet? (See examples in the wiki)

The one thing that DOESN'T WORK WELL to minimize losses is go start chasing higher returns in the future or increase risk. That approach MAXIMIZES the potential for bigger losses in the future!

ALL the best. ALL of it!
Happy Holidays.
-calijim- | | For more info, click this Wiki
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ruralavalon
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Re: Minimizing losses-what if anything are you doing

Post by ruralavalon »

13toGo wrote: Mon Dec 24, 2018 10:55 am Hi everyone,

I mentioned in my first post that I have an Intuitive Investor IRA at Wells Fargo.It's their robo investor offering pretty-much. Based on what I've read here on the start page, they seem to have a "slice and dice" approach. But all I've done is lose money since I started. I haven't been invested very long and I know the market is crashing right now. But I wonder if there's anything else I can do to help minimize the losses until the market corrects. I went in and re-adjusted my tolerance to a conservative Portfolio that gave me bond allocation that matches my age, as suggested here. But the balance continues to go south.
An allocation with age in bonds is already moderately conservative in my opinion.

The balance would be further south at a higher stock allocation.


13toGo wrote: Mon Dec 24, 2018 10:55 amAre the 3-fund "own-the-market"-portfolios are faring better? Would it be a worthwhile move to transfer to Vanguard at this point, or should I just ride out the storm? I may be more worried than I should be because my timeline to retirement is only about 10-13 years. I hear these market corrections can take at least that long or longer sometimes.
I have no way of knowing your current portfolio, or how it might compare to a three-fund type portfolio.

For now stick with your plan, stay the course, and do not make any changes in haste.

I suggest some reading to educate yourself. Here is a wiki article you could read to start: "Bogleheads® investment philosophy. For a quick overview of investing basics for the new person read Dr. Bernstein's short book, "If You Can". I also suggest reading one or two books on general investing. Wiki article, "Books: recommendations and reviews";

If you want some reading about asset allocation, see these:
1) Graph, "An Efficient Frontier: the power of diversification";
2) the wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
3) and the wiki article "Asset allocation".


13toGo wrote: Mon Dec 24, 2018 10:55 amI'm interested in learning more about what you pros are doing to help mitigate losses. Thanks in advance!
Ron
I am not a pro. I am age 73, retired 8 years, no pension or annuity, and our asset allocation is 50/50 (which has been unchanged for the last 10 years). I am not doing anything to "mitigate losses". I have a plan that suits us, and will stay the course.

For now stick with your plan, stay the course, and do not make any changes in haste. Continue to make reguar contributions to your retirements accounts every pay period.

If you want any specfic ideas, please post your financial and personal details. Please see this for information needed and format: "Asking Portfolio Questions".
Last edited by ruralavalon on Mon Dec 24, 2018 4:39 pm, edited 6 times in total.
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galeno
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Re: Minimizing losses-what if anything are you doing

Post by galeno »

Our 40/60 port is down 11% from its peak.
KISS & STC.
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Earl Lemongrab
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Re: Minimizing losses-what if anything are you doing

Post by Earl Lemongrab »

I have an overall investing plan. These are best to develop dispassionately, preferably before you buy anything. Mine is 60% stocks and 40% fixed-income. The former is 70% US, with a tilt towards small and value. The latter is divided between bond index and stable-value. My rebalancing plan calls for doing so only when the asset is off-target by a certain amount (5/25 rule). Otherwise, liquid assets for investing are directed towards whichever sub-allocation is off its mark the most.

As I spent time researching first, I knew that a sharp drop is always possible. In fact I developed the original plan (70/30 base at that time) right before the 2008 crash. So it got tested pretty quickly. The worst time to monkey with the plan is during a crisis.

As time went on and my total portfolio grew, I reduced the stock percentages twice to get to the current. I don't have immediate plans to change that.
Mike Scott
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Re: Minimizing losses-what if anything are you doing

Post by Mike Scott »

Nothing really. Everything but the money market and savings accounts are down. I''m waiting for the next buy date on my calendar which will come at the end of January and it will go as planned whatever happens between now and then.
livesoft
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Re: Minimizing losses-what if anything are you doing

Post by livesoft »

13toGo wrote: Mon Dec 24, 2018 10:55 amAre the 3-fund "own-the-market"-portfolios are faring better?
No, they cannot be better because people who "own the market" when the market drops 20% will have portfolios that drop 20%.
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Topic Author
13toGo
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Re: Minimizing losses-what if anything are you doing

Post by 13toGo »

Thanks so much for all the input everyone. One thing I don't think I fully understood is that when you change your allocation you sell stocks. I saw my balance continuing to drop and thought "ok maybe I can't stand as much risk as I thought!" . So I went in and re-took the questionnaire to make my asset allocation much more conservative. I basically kept taking it until I got the bond allocation to my age, which is 54.

I understood the potential for loss going in, of course. So I'm not looking for a way to completely avoid any loss at all. Just trying to make sure I'm doing the right thing right now.

One thing I haven't been doing though is making contributions. I set up a weekly transfer last week though, so that should help. One question about contributions though. When you transfer money to your IRA, how is it applied? Is it used to buy more stocks or bonds? Or just to increase your cash balance?

I'll read up on the information required to post my financial info and get back to you guys. Thanks for the encouragement. Happy holidays!
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ruralavalon
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Re: Minimizing losses-what if anything are you doing

Post by ruralavalon »

13toGo wrote: Wed Dec 26, 2018 12:01 pm Thanks so much for all the input everyone. One thing I don't think I fully understood is that when you change your allocation you sell stocks. I saw my balance continuing to drop and thought "ok maybe I can't stand as much risk as I thought!" . So I went in and re-took the questionnaire to make my asset allocation much more conservative. I basically kept taking it until I got the bond allocation to my age, which is 54.

I understood the potential for loss going in, of course. So I'm not looking for a way to completely avoid any loss at all. Just trying to make sure I'm doing the right thing right now.

One thing I haven't been doing though is making contributions. I set up a weekly transfer last week though, so that should help. One question about contributions though. When you transfer money to your IRA, how is it applied? Is it used to buy more stocks or bonds? Or just to increase your cash balance?

I'll read up on the information required to post my financial info and get back to you guys. Thanks for the encouragement. Happy holidays!
It's good to see you have set up automatic contributions to your IRA.

Do you also have a work-based plan with automatic contributions every pay period like a 401k, 403b, 457, SIMPLE IRA, or TSP?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
koldude
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Re: Minimizing losses-what if anything are you doing

Post by koldude »

@13togo: Assuming that you are only using an IRA (Roth or tIRA, it doesn't matter), then you basically have $6000 to work with in contributions every year.

With that being said, I would advise that you look at your Asset Allocation and see if you are deviating significantly (based on your IPS) from your desired AA. For most people (myself included), I would recommend using your new contributions moving forward as a way to adjust your AA if you're not happy with your current AA. Personally, I have a 95/5 split with 95% of my new contributions going towards purchasing new equities and only 5% of new contributions going towards fixed income. (I am only 27 years old, so my AA should not be any indication for you).

If you have not deviated significantly from your intended AA, I would recommend that you take a deep breath, relax, and understand that the market does whatever it wants to. Many people on this forum would say that equities plunging would be a good opportunity to buy more equities, since they are "on sale." Whether that is true or not is dependent on your time horizon. Assuming your age of 54 and a standard retirement age of 65, you have at least 10 more years to recuperate any "losses" you may be experiencing on your equities (remember, losses are not real until you sell), That time horizon of 10+ years almost always gives you the time you will need to recuperate these losses.

At the end of the day, as many of the prior posters have more eloquently described, you need to choose an AA that works for you and helps you sleep at night. Only you can judge how much the "safety net" of bonds and minimizing losses will be a benefit to you compared to "big" losses now that may be recuperated and recovered from with excess by the time you have to start withdrawing from your investment accounts.

Cheers :sharebeer
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whodidntante
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Re: Minimizing losses-what if anything are you doing

Post by whodidntante »

I've realized more than 3k of net capital losses so I'll be dropping my taxable income by 3k this year. I've also sold some foreign equities to prop up my US equity allocation although I am still slightly overweight in foreign equities in spite of this. This keeps my overall risk exposure at a level I'm comfortable with. I always wish I had more cash/T-bills when the market drops, but the market has made fools of most people who try that since they missed out of years of gains, so I just stay invested with an AA that I find appropriate to my situation.
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delamer
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Re: Minimizing losses-what if anything are you doing

Post by delamer »

13toGo wrote: Wed Dec 26, 2018 12:01 pm Thanks so much for all the input everyone. One thing I don't think I fully understood is that when you change your allocation you sell stocks. I saw my balance continuing to drop and thought "ok maybe I can't stand as much risk as I thought!" . So I went in and re-took the questionnaire to make my asset allocation much more conservative. I basically kept taking it until I got the bond allocation to my age, which is 54.

I understood the potential for loss going in, of course. So I'm not looking for a way to completely avoid any loss at all. Just trying to make sure I'm doing the right thing right now.

One thing I haven't been doing though is making contributions. I set up a weekly transfer last week though, so that should help. One question about contributions though. When you transfer money to your IRA, how is it applied? Is it used to buy more stocks or bonds? Or just to increase your cash balance?

I'll read up on the information required to post my financial info and get back to you guys. Thanks for the encouragement. Happy holidays!
Regarding how your contributions are invested, that would vary depending on where your IRA is held and what instructions ypu provided.

It may be that they go into a money market settlement account and sit there until you decide to move them to another fund.

Or they may be split between your current funds, if that is what you instructed.

Etcetera. My kids each have one target date mutual funds in their IRAs, and all contributions go directly into it.

If you have online access to your accounts you should be able to figure this out by logging in.
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13toGo
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Re: Minimizing losses-what if anything are you doing

Post by 13toGo »

13toGo wrote: Wed Dec 26, 2018 12:01 pm

Do you also have a work-based plan with automatic contributions every pay period like a 401k, 403b, 457, SIMPLE IRA, or TSP?
My current job doesn't offer benefits yet, but word is they'll roll out a package next year. I'm not sure yet if it wil include a 401k.
Topic Author
13toGo
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Re: Minimizing losses-what if anything are you doing

Post by 13toGo »

13toGo wrote: Mon Dec 24, 2018 10:55 am

1. This is not the time to minimize losses. That time passed. Go back and check the giddiness of the Forum in Aug-Sep. That was your opportunity to mitigate losses.
2. Right now is the time to embrace opportunity and improve your forward returns.
3. Always look forward.
4. Know yourself and orient your financial life around it.
5. Don't pay too much in fees and taxes.
6. Read the news only for entertainment purposes

Always look at the bright side in stocks, there's a powerful drift of 0.03% per day and you should find ways to benefit from it. The market is in a much healthier state right now than 3-6 months ago.

:greedy
Yeah I think right around then I was just rolling my 401k from the old job over into the IRA it's in now with Wells Fargo. Maybe that's why I saw a jump of around $500 when I first funded the account, then a gradual decline afterwards. I looked today though and it seems to be on the up-swing again. I have a lot to learn yet about the fees and taxes portion of it all, but I'm reading. This place will be a wealth of information.
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