Staying the Course

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Staying the Course

Postby ihckennedy » Mon Jul 01, 2013 11:33 am

A response to a recent post of mine about TIPS accused me of the ultimate boglehead heresy: failure to “stay the course!”

In fact, I’m a passionate advocate of staying the course, but this comment made me wonder whether the meaning of that phrase might be subject to differing interpretations. So I thought it might be instructive to initiate a conversation on this question: what do you take “stay the course” to mean?

To kick-start this, my own answer may be found at

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Re: Staying the Course

Postby chaz » Mon Jul 01, 2013 11:44 am

To me, it means: avoid market timing.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | |

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Re: Staying the Course

Postby IlliniDave » Mon Jul 01, 2013 12:00 pm

To me it means to avoid wholesale jumping in/out of markets and to maintain and consistently execute some sort of long-term plan, preferably written. Occasionally rearranging marginal tilts (when circumstances suggest it's prudent) and revising one's plan as life circumstances dictate would not necessarily violate "staying the course".
Don't do something. Just stand there!

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Re: Staying the Course

Postby livesoft » Mon Jul 01, 2013 12:05 pm

To me, "stay the course" means to follow one's IPS. So in my IPS, I have written up how to do my market timing (plus the regular things like AA, rebalancing, tax-loss-harvesting, etc).

That way, "stay the course" means do market timing when my IPS calls for it. :)
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Re: Staying the Course

Postby garlandwhizzer » Mon Jul 01, 2013 12:09 pm

Very interesting article, making some good points. Food for thought.

The CAPE model is very good at predicting future returns when it is at extreme positions, like the 1999 tech bubble or the 2009 stock market nadir. When it is where it is now, which is I believe in the low-mid 20s, higher than average but not extremely so, there is a relatively wide dispersion of future stock returns historically. At least that is my understanding, although I'm certainly not an expert on this. Bond returns are not as widely dispersed and are much more closely tied to current yields. The likelihood of zero real returns over the next 5 - 10 years is high for TBM.

I agree with the premise of the paper that you should consider adjusting your stock bond allocation in line with your risk tolerance when these parameters (bond yields for bond, CAPE or simply PE ratios for stocks) reach extreme levels. We are at or near record lows for TBM yields after a 30+ year bull market in bonds and in mid range of PE values for stocks given our current low level of inflation. I reduced my bond holdings to 25% of my portfolio (age minus 41) last year because of the expected real return difference between stocks and bonds going forward. I don't think it is optimal to stay the course inflexibly without regard to market parameters when they reach extreme levels. I clearly expect greater long term returns for equities relative to bonds starting from here, a probable but not certain outcome. I'm willing to take that risk.

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Re: Staying the Course

Postby Simplegift » Mon Jul 01, 2013 1:22 pm

For beginning or inexperienced investors, the beauty of "stay the course" is that it takes emotion out of the equation. If a beginning investor has a good plan with a sensible starting asset allocation that's appropriate for their needs — and rebalances when necessary — they can't make any big mistakes. If held for the long term, this naive portfolio will most likely accomplish its goals. To me, this is the wonderful advantage of the Boglehead investing philosophy over any other.

As an investor gains experience and emotional maturity, it seems perfectly reasonable to adopt other portfolio management techniques, e.g., adjusting duration on the bond side or adjusting equity allocation based on valuations. To me, these adjustments don't violate the "stay the course" maxim since they are calculated bets (which may or may not pay off) that are done entirely without emotion. The more sophisticated a passive investor becomes, the more nuanced the passive strategy can be, in my view. For a case in point, see John Bogle's latest interviews.
Last edited by Simplegift on Mon Jul 01, 2013 2:54 pm, edited 1 time in total.
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Re: Staying the Course

Postby stemikger » Mon Jul 01, 2013 2:48 pm

I'm ashamed of myself recently. I have been acting like someone who just started investing. However, thanks to many here, I managed to not make any huge mistakes.

To me staying the course is picking a stock and bond allocation that makes you feel like you can reach your goals and sleep well at night if the market tanks and not even looking at your 401K and/or IRA statements. Rebalancing once a year and going back to sleep until retirement.
Stay the Course!! ~ Press on Regardless!!!

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Re: Staying the Course

Postby chaz » Mon Jul 01, 2013 3:30 pm

Chaz | | | | “Money is better than poverty, if only for financial reasons." Woody Allen | | | |

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