No Courage to Rebalance...

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sheople2
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No Courage to Rebalance...

Post by sheople2 » Wed Feb 04, 2009 10:42 pm

Age 41, SSDI.

After all my reading and studying, I thought I had decided on an allocation I could live with of 65% stocks to 35% safe money (CD). After losing 28% of life savings in 2008 my AA is now about 50/50. I know I should rebalance back to 65/35, but I can't seem to work up the courage. Instead I haven't touched anything. I did recently lock up my CD for another year at a measly 3%.

Maybe I'm making a bit of progress because in the past I've panicked and sold everything. I'm a little more educated now on the basics and I don't plan to do that again. However, I realize I'm missing another critical piece which is the rebalancing.

Scott Burns told me that "right now it's pretty difficult to squeeze much more than 3.25 percent a year, nominal, from a portfolio that's 50/50. Anything higher requires taking risk."

That leaves someone with a 50/50 making virtually no money after inflation.

Does having a 50/50 portfolio mean no growth at all as Mr. Burns suggested?

Do I have no business investing since I can't seem to rebalance yet this year?

Do I have time to work up the courage later, say in 2010?

Does rebalancing typically mean doing so with new money, or just using the money already in the AA mix? (I've been told on this board that buy and hold for the long term works even if you're not adding new money to the mix.)

As always, many thanks.

livesoft
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Post by livesoft » Wed Feb 04, 2009 10:53 pm

You don't have to rebalance all at once. I noticed that the stock market went up 20% from later November to early January. Don't you feel bad that you missed a 20% gain? Maybe we should have rebalanced twice already and today is not bad day for a 3rd time?

I've begun rebalancing, but I don't have the guts to do it all at once. I'm moving about 2% to 3% of total portfolio from fixed income to equities whenever the market drops by 2% in a day. I just make the fund exchange order just before the market closes. I will keep doing this until I'm back to my desired equity percentage.

robyates
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Post by robyates » Wed Feb 04, 2009 11:14 pm

FWIW, I am only rebalancing with the new money being added. Still very much in the accumulation phase. If nothing moved up or down then I worked out it will take me two years to get back to my desired stock allocation of 70% and this is with all new money going to stock. So to try and speed things up every time the market tanks a bit I sell some bonds and buy some stock, but in very small < 0.5 % chunks. I am about 25 yrs from retirement (depending on what the market does :) )

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Re: No Courage to Rebalance...

Post by ramsfan » Thu Feb 05, 2009 8:26 am

sheople2 wrote:Age 41, SSDI.

After all my reading and studying, I thought I had decided on an allocation I could live with of 65% stocks to 35% safe money (CD). After losing 28% of life savings in 2008 my AA is now about 50/50. I know I should rebalance back to 65/35, but I can't seem to work up the courage. Instead I haven't touched anything. I did recently lock up my CD for another year at a measly 3%.

Maybe I'm making a bit of progress because in the past I've panicked and sold everything. I'm a little more educated now on the basics and I don't plan to do that again. However, I realize I'm missing another critical piece which is the rebalancing.

Scott Burns told me that "right now it's pretty difficult to squeeze much more than 3.25 percent a year, nominal, from a portfolio that's 50/50. Anything higher requires taking risk."

That leaves someone with a 50/50 making virtually no money after inflation.

Does having a 50/50 portfolio mean no growth at all as Mr. Burns suggested?

Not necessarily, Mr Burns does not know what the future holds.

Do I have no business investing since I can't seem to rebalance yet this year?

No, you invest to meet your current and future needs. Maybe your allocation to equities was too high, but you do need to invest.

Do I have time to work up the courage later, say in 2010?

The pain will pass, but by then you may have missed a large upswing in equities.

Does rebalancing typically mean doing so with new money, or just using the money already in the AA mix? (I've been told on this board that buy and hold for the long term works even if you're not adding new money to the mix.)

Either way. For what it is worth, I chose to rebalace with new money this year. I also did not have the courage needed to get back to 65% equities in one shot, so I set up a two year rebalancing of DCA.... to get back.... then a few weeks later I put one year's worth of DCA in the market on one day....Crazy....

Do what works for you, put it all in now....or DCA it over a year or longer....or move some bonds to stocks and DCA the rest....or go with 50/50 from now on..... your call.....

As always, many thanks.

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Roverdog
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Post by Roverdog » Thu Feb 05, 2009 8:48 am

I'm actually using a blend of techniques described in the above responses.

New money is going into equity funds.

However, I've tax loss harvested numerous times over the past few months. As the taxable equity positions are sold to TLH, I've tried to remain market neutral via simultaneously buying similar (but not substantially identical) equity funds in my tax-sheltered accounts.

After 30 days or so, when I reverse the TLH (usually on a down day, as livesoft noted, since it makes me feel better ;) ), there's been occasions where I have not reversed the corresponding exchange in tax-sheltered. So there's been a shift back toward equities.

Ideally, when the market recovers, I'll shift back into bonds in tax-sheltered to rebalance, and therby restore assets to their most favorable location.

Under less-than-ideal conditions, the new money going into taxable equity also will (eventually) let me rebalance by shifting back into bonds in the tax-sheltered account -- although it would take longer in this scenario. :)

Bob

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rcshouldis
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Re: No Courage to Rebalance...

Post by rcshouldis » Thu Feb 05, 2009 9:21 am

sheople2 wrote:Age 41, SSDI.

After all my reading and studying, I thought I had decided on an allocation I could live with of 65% stocks to 35% safe money (CD). After losing 28% of life savings in 2008 my AA is now about 50/50. I know I should rebalance back to 65/35, but I can't seem to work up the courage. Instead I haven't touched anything. I did recently lock up my CD for another year at a measly 3%.

Maybe I'm making a bit of progress because in the past I've panicked and sold everything. I'm a little more educated now on the basics and I don't plan to do that again. However, I realize I'm missing another critical piece which is the rebalancing.

Scott Burns told me that "right now it's pretty difficult to squeeze much more than 3.25 percent a year, nominal, from a portfolio that's 50/50. Anything higher requires taking risk."

That leaves someone with a 50/50 making virtually no money after inflation.

Does having a 50/50 portfolio mean no growth at all as Mr. Burns suggested?

Do I have no business investing since I can't seem to rebalance yet this year?

Do I have time to work up the courage later, say in 2010?

Does rebalancing typically mean doing so with new money, or just using the money already in the AA mix? (I've been told on this board that buy and hold for the long term works even if you're not adding new money to the mix.)

As always, many thanks.
If you are still contributing to your IRA or 401K you can rebalance over a period of time. The whole purpose of rebalancing is to enable you to buy low and sell high. It's not easy to do even when times are good. Afterall, who likes selling asset classes that are doing well and buying losers?

You can redirect your contributions to purchase more of the underperformers or you can directly sell the good performers and buy the underperformers with that money.

I automatically rebalance my portfolio each year around December or January. Emotionally, it wasn't easy to do this time because I realized that I would be putting more money at higher risk. But I did buy ETFs where the prices were low. Hopefully as the economy eventually recovers I will benefit from this rebalancing.

Rebalancing reflects a commitment to following your original investment plan.

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Rick Ferri
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Post by Rick Ferri » Thu Feb 05, 2009 10:11 am

I know I should rebalance back to 65/35, but I can't seem to work up the courage. Instead I haven't touched anything. I did recently lock up my CD for another year at a measly 3%.
This is the very reason why many people hire an investment advisor. You know what you should do, but you just cannot do it. A good manager will not waver. They will apply the discipline that you know should be applied.

Sometimes staying the course requires hiring a experienced captain to pilot your ship.

Rick Ferri
Full disclosure: I am the CEO of an investment management company.

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Kenkat
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Post by Kenkat » Thu Feb 05, 2009 1:19 pm

I am doing what "livesoft" is doing except I set up monthy reoccurring transactions to do it automatically. When I am back to my target, I will stop.

It takes the angst of "what if the market goes lower" out of it for me as I am averaging my purchases out over time.

Ken

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Post by ruralavalon » Thu Feb 05, 2009 6:20 pm

Age -- 63. I had a target of 65/35, and planned a move to a more conservative allocation, but the market moved me to ~ 45/55.

I couldn't work up the courage to rebalance all at once, so am now ~ 50/50 via --
(1) put all new money in equities in a newly opened Roth IRA, fully funded for 2008.
(2) some cash "reserve" to equities.
(3) some bonds sold, to equities.

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Post by White Coat Investor » Thu Feb 05, 2009 6:53 pm

Two points-

One, Scott Burns is advocating a 3.25% withdrawal rate for 50/50. While I don't know if the rate is right or not, realize that this is an inflation-adjusted rate, meaning 3.25% above and beyond inflation. Any historical SWR can probably be adjusted upward if you are starting from valuations like today's. If 4% was a safe withdrawal rate two years ago, perhaps 5% is now.

Two, pick an asset allocation so low that it is easy to rebalance. I continually (even during this bear market) feel like I should have a more aggressive AA than I do. Somebody on this forum recently said something like this:

"Figure out what asset allocation you think you should have, and then subtract 10% stocks from it. "

I think there's some merit to that. When I was figuring out my investment plan "way back" in 2005, I was given the advice to purposely select a lower stock:bond ratio than I thought I could handle and wait for my first bear market because there's no way to really know your risk tolerance until you go through one. If you don't feel like rebalancing, you've probably got an AA that is too aggressive for you. It is a tough line to walk between your need to take risk and your ability/desire to take risk. The risk on both sides is the same....running out of money before running out of brain cells. But changing the course (or worse, abandoning the ship midstream) is guaranteed to be a losing strategy--buy high sell low if you will.

Why not rebalance to 55/45?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Post by taxman » Thu Feb 05, 2009 7:21 pm

Rick Ferri wrote:
I know I should rebalance back to 65/35, but I can't seem to work up the courage. Instead I haven't touched anything. I did recently lock up my CD for another year at a measly 3%.
This is the very reason why many people hire an investment advisor. You know what you should do, but you just cannot do it. A good manager will not waver. They will apply the discipline that you know should be applied.

Sometimes staying the course requires hiring a experienced captain to pilot your ship.

Rick Ferri
Full disclosure: I am the CEO of an investment management company.
Great point Rick, and the NAVY :wink: didnt have to get you there for a plan of AA "action":wink: you readily implement at a usually low point. :D .I'm actually waiting/betting SP500 goes to high 600s to start a total reconfiguration of my AA if that happens.~

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Post by rcshouldis » Thu Feb 05, 2009 8:35 pm

REBALANCING IS EASY!!


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sheople2
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Post by sheople2 » Wed Feb 11, 2009 10:10 pm

EmergDoc wrote:Two points-

One, Scott Burns is advocating a 3.25% withdrawal rate for 50/50. While I don't know if the rate is right or not, realize that this is an inflation-adjusted rate, meaning 3.25% above and beyond inflation. Any historical SWR can probably be adjusted upward if you are starting from valuations like today's. If 4% was a safe withdrawal rate two years ago, perhaps 5% is now.
Withdrawal rate? Mr. Burns was referring to what rate of return I can expect from a 50/50 portfolio. I added in the word nominal so that everyone would know that he meant 3.25% return rate before inflation. (Did I misuse the word "nominal"?)

sheople2
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Post by sheople2 » Wed Feb 11, 2009 10:20 pm

I appreciate ALL of the replies. They're helpful.

One more related question;

For those of us who can't stick to the proper way to invest -
do we come out more ahead if we attempt to "time the market" rather than if we did not invest in stocks and bonds at all?

Thanks.

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Post by Rick Ferri » Wed Feb 11, 2009 11:02 pm

sheople2 wrote:I appreciate ALL of the replies. They're helpful.

One more related question;

For those of us who can't stick to the proper way to invest -
do we come out more ahead if we attempt to "time the market" rather than if we did not invest in stocks and bonds at all?

Thanks.
If you cannot stick to a strategy, I suggest buying a Vanguard LifeStrategy fund or balanced fund where they do it for you.

Rick Ferri
The Education of an Index Investor: flounders in darkness, finds enlightenment, overcomplicates strategy, embraces simplicity.

sheople2
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Post by sheople2 » Tue Feb 17, 2009 10:18 pm

I was trying to ask if improper investing is better than not investing at all. Are there any studies out there that have revealed that doing one of these things over the other is better?

exeunt
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Post by exeunt » Tue Feb 17, 2009 10:35 pm

I don't feel sorry for you at all. The whole point of creating an AA and a rebalancing schedule is to discipline yourself to stick to it.

sheople2
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Post by sheople2 » Tue Feb 17, 2009 11:12 pm

Vanguard told me recently that only 2% of their clients practice counterintuitive investing. So, I guess I'm not the only chicken out there...

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tom0153
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Post by tom0153 » Tue Feb 17, 2009 11:53 pm

Hi, I just wanted to ask if I am correctly picking up on your comment, SSDI, which would suggest you would want to be more conservative than many.

How does your intended withdrawal rate from your savings complement your SSDI?

Was that intended (or needed) withdrawal rate seriously compromised with the market decrease or dip?

Best,
Best, Tom

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Post by markh » Wed Feb 18, 2009 2:30 am

I was at 65/35 before the plunge. Brought to 52/47 by Mr. Market.

I have not sold bond funds to buy equities because:

1) I have realized I was too aggressive to begin with (I am 52), and
2) I have always insisted on maintaining a bond "floor" of 15 to 20 years of living expenses that I do not want to go beneath.

However, any new monies, eg sepIRA is going into equities.

I have not sold equity shares nor do I intend to.

I have a 12 month emergency fund in MM.

There is nothing "wrong" or "undisciplined" about this approach.

mark h

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No Courage to Rebalance...

Post by YDNAL » Wed Feb 18, 2009 3:41 am

sheople2 wrote:After all my reading and studying, I thought I had decided on an allocation I could live with of 65% stocks to 35% safe money (CD). After losing 28% of life savings in 2008 my AA is now about 50/50. I know I should rebalance back to 65/35, but I can't seem to work up the courage.
sheople2 wrote:For those of us who can't stick to the proper way to invest - do we come out more ahead if we attempt to "time the market" rather than if we did not invest in stocks and bonds at all?
sheople2 wrote:I was trying to ask if improper investing is better than not investing at all.
sheople,

When you first posted this thread, I felt comfortable that you evolved/grew as an investor that has participated in the forum in the past year or two -- until your the most recent quotes. I hesitated over the past 2 weeks about posting because I didn't want to sound (or be) harsh. Do you have a realistic plan created since this post?
In Dec 2007 sheople2 wrote:$42.5K ROTH - Vanguard Total Stock Market Index Fund
$39K - CD
$5K - Vanguard Int'l Value fund
$9.5K - Vanguard Total Stock Market Index Fund
$2K - Vanguard STAR Fund
$19K - Apple Stock (I put $1K in year 2000 and held. I'd like to continue to hold for the next 30 years, hoping for an average annual return of 12% which is about what it has yielded over the last 30 years.)

It's critical that I grow this money because I don't know if I'll ever be adding to this amount. Because it's a small amount I sense that playing too conservative with it would not serve me. Someone told me that I should strive for an 11.5% return every year in order to reach a goal of $1M (future dollars) in 30 years.
Since you lost 28% of your portfolio in 2008, instead of anticipated growth of 12% (individual stock) and 11.5% (overall), it seems that you have a different perspective on returns and stock market risk. It also appears that you have a different perspective on buy-hold-rebalance for the long term. Otherwise, you should rebalance only to the appropriate AA put together to meet projected and realistic goals, and based on your risk-tolerance.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

MOBoglehead
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Post by MOBoglehead » Wed Feb 18, 2009 5:43 am

I think most of us struggle with this issue to some extent. I'm a fairly disciplined investor. I stuck it out with about 85% equities during 2000-2002, but this market has caused me to reevaluate things, in no small part because I'm closer to the distribution phase. Severe bear markets are the only true test of risk tolerance, especially when they hit late in the accumulation phase. In the late 90s, many people thought you were crazy if you were under age 30 and not 100% in equities. It was easy to have a "high" risk tolerance in those days. I wonder how many investors rebalanced by selling equities and buying bonds in 1995 thru 1999 ? We love to make money and we hate to lose it. This is just human nature.

sheople2
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Post by sheople2 » Wed Feb 18, 2009 9:56 pm

tom0153 wrote:Hi, I just wanted to ask if I am correctly picking up on your comment, SSDI, which would suggest you would want to be more conservative than many.

How does your intended withdrawal rate from your savings complement your SSDI?

Was that intended (or needed) withdrawal rate seriously compromised with the market decrease or dip?

Best,
Hi Tom,

I've actually gotten detailed info regarding this subject in a few other threads that I've started since I've entered this forum. Because of this, I won't go into detail because we'd be duplicating our efforts. I appreciate you mentioning it though. (It perhaps was not necessary for me to state my age or SSDI status for this particular post.)

I do not withdraw anything from savings. I live entirely on SSDI at this time.

sheople2
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Re: No Courage to Rebalance...

Post by sheople2 » Wed Feb 18, 2009 10:29 pm

YDNAL wrote:
When you first posted this thread, I felt comfortable that you evolved/grew as an investor that has participated in the forum in the past year or two -- until your the most recent quotes. I hesitated over the past 2 weeks about posting because I didn't want to sound (or be) harsh. Do you have a realistic plan created since this post?
In Dec 2007 sheople2 wrote:$42.5K ROTH - Vanguard Total Stock Market Index Fund
$39K - CD
$5K - Vanguard Int'l Value fund
$9.5K - Vanguard Total Stock Market Index Fund
$2K - Vanguard STAR Fund
$19K - Apple Stock (I put $1K in year 2000 and held. I'd like to continue to hold for the next 30 years, hoping for an average annual return of 12% which is about what it has yielded over the last 30 years.)

It's critical that I grow this money because I don't know if I'll ever be adding to this amount. Because it's a small amount I sense that playing too conservative with it would not serve me. Someone told me that I should strive for an 11.5% return every year in order to reach a goal of $1M (future dollars) in 30 years.
Since you lost 28% of your portfolio in 2008, instead of anticipated growth of 12% (individual stock) and 11.5% (overall), it seems that you have a different perspective on returns and stock market risk. It also appears that you have a different perspective on buy-hold-rebalance for the long term. .
Hi Landy,

I think that was part of my very first thread. It's interesting that you posted it because, before you did, I was just reflecting on how much I've learned since then. I cringe when I read the sentence, "Someone told me that I should strive for an 11.5% return every year in order to reach a goal of $1M (future dollars) in 30 years." I realize now how completely out of whack that was. I'm just lucky to be living indoors, so I've lowered my expectations a bit.(':D')

However, I have not moved any money yet. It's taken me from that time up to now, to study and decide on what I thought was a good combo of funds and a reasonable AA. I won't post them here because that would be digressing too much. I didn't want to move anything until I understood why I was doing it. Now I understand, but I'm just still too frightened and uncertain. I guess I'm in the process of deciding if investing is for me. I'm sure it's the best thing to do, the only chance at fighting inflation, but maybe not with my personality. Rick's advice about getting a financial advisor to do reallocation for me once a year is good advice, but not for me, as it's just not feasible for my budget.

...And again, one of the things I was trying to ask is if improper investing is better than not investing at all. That's not a totally stupid question. No one answered it. I may not have the temperment to invest correctly, so I was wondering if the next best thing is not being in the market at all and investing entirely in CDs, or would I come out more ahead if I continue to muddle through the market and make mistakes as I've been doing since I entered the market in the '90s. Surely there have been studies...

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Post by tom0153 » Wed Feb 18, 2009 11:39 pm

I am happy that others have recalled (very well) some of your circumstances. In fact, Landy's recall added to my own understanding. He suggests much what I would want to say, I just can't say it so succinctly!

My suggestion in reviewing the AA possibilities is that you also have a relatively good idea of your risk tolerance, since it a great component of what must go into the decision making. Some web sites let you answer a bunch of questions, and suggest that they can be helpful in guiding your decision making.

I believe many folks have found their risk tolerance tested recently; certainly, mine has. Just like you like Apple stock, I like Berkshire Hathaway. I keep focused on it, and some is in a tax advantaged account, some outside. I have to rethink that.

Your Apple stock, as you know, can offer you a return that can be low or no tax in a way, if you sell gradually and the gain does not put you into a taxable bracket.

I also note now you are living on the SSDI alone, but you want to accumulate until age 70 or so. Do you have to be in an accumlation phase that long?

Someone mentioned looking at the funds that do automatic rebalancing, and there are newer funds that aim to provide a regular withdrawal rate. The Vanguard site has good education tools to use to understand why they are offering the funds.

I also see you are taking a little heat perhaps in the thread, yet you have an important question unanswered: if investing in cash is the most conservative, should it be perceived as the most perfect investment strategy somehow, or, instead, should we look at investing in equities as an improvement on CD's alone. I am sure that folks can double check whether they are being helpful before they post.

You seem well aware of the risk that inflation presents, and what can happen if your money is locked up in cash and not available for investing in equities, except for the regular interest payments (and of course, equity returns would vary during that entire time when they can be reinvested).

You may want to study out some of the thinking then behind these funds which have automatic reallocations. Some folks use them to invest for their kids who are small, and the money would want to be more conservatively invested as the age of 18 approaches. Other folks, looking at retirement, say "hey, who wants to retire at 65, I'm shooting for 62," and maybe someone else is looking at 75 (for whatever reason).

There are hindsight studies which suggest how low you can actually reduce your exposure to risk when you are engaging in asset allocation adjusted for your risk tolerance. Hang in there, I'm pretty sure you can find the balance.

I have appreciated the genuineness of this forum. I hope you continue to encounter folks who are of that ilk.

Best, Tom
sheople2 wrote:
tom0153 wrote:Hi, I just wanted to ask if I am correctly picking up on your comment, SSDI, which would suggest you would want to be more conservative than many.

How does your intended withdrawal rate from your savings complement your SSDI?

Was that intended (or needed) withdrawal rate seriously compromised with the market decrease or dip?

Best,
Hi Tom,

I've actually gotten detailed info regarding this subject in a few other threads that I've started since I've entered this forum. Because of this, I won't go into detail because we'd be duplicating our efforts. I appreciate you mentioning it though. (It perhaps was not necessary for me to state my age or SSDI status for this particular post.)

I do not withdraw anything from savings. I live entirely on SSDI at this time.
Best, Tom

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LH
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Post by LH » Thu Feb 19, 2009 12:13 am

Just rebalance it as planned. Stay the course. Its counterintuitive, feels wrong to humans, but thats what boglehead investing is all about.

2 years ago, did you expect this to happen? The risk was hard cold real then since it happened, but humans didnt see it coming. Whats your expectation worth now? You still cant beat the market. After it happens, THEN we react. Buy high, sell low. If you were gonna put the money in, and you dont, its still very near to it, prices are LOW, and you dont buy long term? If things get "better" (better as in like we thought they were 2 years ago lol) and stock prices get HIGHER, then will you buy stock since its more expensive then, and you feel better? Is that not buying high?

To me its about ignoring the feelings and investing.

Everything is still the same. This is an expected possibility. There are no guarentees. Never were. It might drop 50 percent more and stay down for 30 years or forever. thats why we expect to get paid the 7 percent return going forward.

If you want to have an expectation to participate fully in the historical return of the stock market, stay the course through the bad times.

This is just the same thing writ large as the Magellan fund gaining I think 20 percent a year on average for 20 years (whatever it was really) and Peter Lynch looking back and seeing that 50 percent of his investors in that fund had managed to LOSE MONEY, because they act like humans. Humans are not built for this stuff.

Congratulations on not capitulating totally. I think I have put some money toward the mortgage that I would have dumped in the market myself, human nature.

But the best answer now, is the SAME answer that we would all say before this happened, stay the course, follow your plan. This is built in, great depression, 73 74 etc.

You gotta sleep though of course, good luck to us all,

LH

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Post by LH » Thu Feb 19, 2009 12:27 am

sheople2 wrote:I appreciate ALL of the replies. They're helpful.

One more related question;

For those of us who can't stick to the proper way to invest -
do we come out more ahead if we attempt to "time the market" rather than if we did not invest in stocks and bonds at all?

Thanks.
When they study brokerage accounts, they return 4 percent to the markets 7 percent if I recall correctly.

I do not recall what active mutual funds achieve on average, though it too is less than the market.

In terms of coming out ahead timing, well if your timing sucks, you can clearly actually lose money, like people who invested with Peter Lynchs awesome outlier fund somehow managed to do. But, you can follow boglehead principles to the letter, and still come out losing to money stuffed in a mattress too : ) There are no gaurentees, only expectations.

In short, I do not feel there is enough info per se to give you a better answer than above, its path dependant on what kinda timing you may do in the future. If you buy high, and sell out on the dips all the time, stuff money in a mattress of course ; )

Cheers,

LH

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Re: No Courage to Rebalance...

Post by YDNAL » Thu Feb 19, 2009 8:43 am

sheople2 wrote:Hi Landy,

I think that was part of my very first thread. It's interesting that you posted it because, before you did, I was just reflecting on how much I've learned since then. I cringe when I read the sentence, "Someone told me that I should strive for an 11.5% return every year in order to reach a goal of $1M (future dollars) in 30 years." I realize now how completely out of whack that was. I'm just lucky to be living indoors, so I've lowered my expectations a bit.(':D')
I didn't recall your earlier post for any reason other than discussing the efficacy and accuracy in relying on unrealistic market return/risk. Nah, I recalled it to call you out. :)
sheople2 wrote:However, I have not moved any money yet. It's taken me from that time up to now, to study and decide on what I thought was a good combo of funds and a reasonable AA. I won't post them here because that would be digressing too much. I didn't want to move anything until I understood why I was doing it. Now I understand, but I'm just still too frightened and uncertain. I guess I'm in the process of deciding if investing is for me. I'm sure it's the best thing to do, the only chance at fighting inflation, but maybe not with my personality. Rick's advice about getting a financial advisor to do reallocation for me once a year is good advice, but not for me, as it's just not feasible for my budget.
Since you "haven't moved any money yet", then your hit (drop) is mostly TSM and AAPL because you had little International and Star fund.
- Does it make sense to YOU to take money from CDs and add to either TSM or AAPL?
- Once you answer that question, you truly know your risk tolerance.

I can tell you, though, that Apple is undiversified risk and you should sell and put in TSM (sell low, buy low). Better yet, consider more International (sell low, buy lower). Again, this is about whether or not you believe in our entreprenurial spirit over the next 20, 30 years, risk-tolerance, and your need for this portfolio.
sheople2 wrote:...And again, one of the things I was trying to ask is if improper investing is better than not investing at all. That's not a totally stupid question. No one answered it. I may not have the temperment to invest correctly, so I was wondering if the next best thing is not being in the market at all and investing entirely in CDs, or would I come out more ahead if I continue to muddle through the market and make mistakes as I've been doing since I entered the market in the '90s. Surely there have been studies...
Improper investing is improper and you are better off in CDs. Studies show that the average investor return is much lower than market return (less cost). Go figure!
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Re: No Courage to Rebalance...

Post by Ken Reckers » Thu Feb 19, 2009 12:25 pm

sheople2 wrote:
After all my reading and studying, I thought I had decided on an allocation I could live with of 65% stocks to 35% safe money (CD).
...
my AA is now about 50/50. I know I should rebalance back to 65/35, but I can't seem to work up the courage. Instead I haven't touched anything.
I don't think this is "improper investing" at all. You decided not to touch anything. That is much, much better than "rebalancing" to 0/100 now out of fear. You are showing much, much more discipline than many people.

I personally do it differently, and so do some other people here, but that doesn't mean you're "improper."

(Sorry I can't answer whether there are any studies.)

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Re: No Courage to Rebalance...

Post by YDNAL » Thu Feb 19, 2009 12:55 pm

sheople2 wrote:One more related question;

For those of us who can't stick to the proper way to invest -
do we come out more ahead if we attempt to "time the market" rather than if we did not invest in stocks and bonds at all?
sheople2 wrote:I was trying to ask if improper investing is better than not investing at all. Are there any studies out there that have revealed that doing one of these things over the other is better?
Ken,

You are not correctly following the origin of the phrase "improper investing" that originated from (in) questions in the above quotes.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Post by Jazztonight » Thu Feb 19, 2009 5:45 pm

EmergDoc said:
Somebody on this forum recently said something like this:

"Figure out what asset allocation you think you should have, and then subtract 10% stocks from it. "
I think there's some merit to that.

I agree that "there's some merit to that."
I was 60/40 and have used the market swing to readjust to 50/50. I'm now moving toward 40/60, where I probably should have been in the first place. :?

It obviously takes a few market swings to figure out how one should be allocated. I should have paid more attention to Jack Bogle's rule-of-thumb about allocation.
"What does not destroy me, makes me stronger." Nietzsche

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Re: No Courage to Rebalance...

Post by Ken Reckers » Thu Feb 19, 2009 6:32 pm

YDNAL wrote:Ken,

You are not correctly following the origin of the phrase "improper investing" that originated from (in) questions in the above quotes.
Landy,

OK, good, now your comments make sense. I should have known better... :) And I skipped all the details of OP's plans.

I'm still not sure what sheople2 means. I would agree staying in CDs is better than trying to time the market, in the long haul. There is another valid option, which is realizing your AA numbers were wrong, so change them to where you should have been in the first place, and stick with that. I also say that it wouldn't be terrible to just say to oneself "I don't have the courage to readjust back to 65/35, so I'm just going to close my eyes, do nothing, and wait until next January to open my statements." One could do worse.

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Re: No Courage to Rebalance...

Post by White Coat Investor » Thu Feb 19, 2009 7:58 pm

sheople2 wrote: "right now it's pretty difficult to squeeze much more than 3.25 percent a year, nominal, from a portfolio that's 50/50. Anything higher requires taking risk."
He was referring to yield. Be sure you understand the difference between yield and return.

http://assetbuilder.com/forums/p/2481/5799.aspx#5799

Here's the full quote:
Income, whether from dividends or interest, is pretty scarce these days. This is a very important reality. With domestic stocks providing an average yield of about 2.8 percent and a 10 year Treasury yielding only 3.7 percent, it's pretty difficult to squeeze much more than 3.25 percent a year from a portfolio that's 50/50. Anything higher requires taking risk.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: No Courage to Rebalance...

Post by tom0153 » Thu Feb 19, 2009 9:42 pm

Doc, thanks for pointing to an exchange at another site, maintained by experts (not that there aren't a full complement of experts here). Here, there is the added value of folks willing to share their time, just for the happiness of sharing.
Some of these concepts aren't easy to digest, and swallowing them can cause indigestion!
Where there are special needs, some extra care is called for.

Best, Tom
EmergDoc wrote:
sheople2 wrote: "right now it's pretty difficult to squeeze much more than 3.25 percent a year, nominal, from a portfolio that's 50/50. Anything higher requires taking risk."
He was referring to yield. Be sure you understand the difference between yield and return.

http://assetbuilder.com/forums/p/2481/5799.aspx#5799

Here's the full quote:
Income, whether from dividends or interest, is pretty scarce these days. This is a very important reality. With domestic stocks providing an average yield of about 2.8 percent and a 10 year Treasury yielding only 3.7 percent, it's pretty difficult to squeeze much more than 3.25 percent a year from a portfolio that's 50/50. Anything higher requires taking risk.
Best, Tom

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Post by JustAsking » Thu Feb 19, 2009 10:35 pm

sheople2, you asked about reduced income (3.25%) being consumed by inflation. But inflation is also lower now. If you're uncomfortable with your AA, take a look at the all-bond portfolio described in other threads.
"In theory, there is no difference between theory and practice, but in practice there is." -- Jan L.A. van de Snepscheut (1953-1994), late of CalTech

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