What's the riskiest Bogleheadish asset?

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Re: What's the riskiest Bogleheadish asset?

Post by baw703916 » Tue Sep 09, 2014 6:36 pm

EmergDoc wrote:Frontier microcap value?
Fund name, please?
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Re: What's the riskiest Bogleheadish asset?

Post by nisiprius » Tue Sep 09, 2014 8:49 pm

Trying to take the question in the spirit in which I think the poster meant it, I would say REITs are the "winner," with emerging markets stock a close runner-up, because in 2008-2009,

Vanguard REIT Index (VGSIX) dropped more than
Vanguard Small-Cap Value Index (VISVX), or
DFA US Micro Cap (DFSCX), or
DFA US Small-Cap Value (DFSVX), or
Vanguard Emerging Markets (VEIEX)

Image
Last edited by nisiprius on Wed Sep 10, 2014 5:18 am, edited 2 times in total.
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Re: What's the riskiest Bogleheadish asset?

Post by denovo » Tue Sep 09, 2014 9:03 pm

nisiprius wrote:Trying to take the question in the spirit in which I think the poster meant it, I would say REITs are the "winner," with emerging markets stock a close runner-up, because in 2008-2009,

Vanguard REIT Index (VGSIX) dropped more than
Vanguard Small-Cap Value Index (VISVX), or
DFA US Micro Cap (DFSCX), or
DFA US Small-Cap Value (DFSVX), or
Vanguard Emerging Markets (VEIEX)

Image
Why not look at the 2000-2002 crash?
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Re: What's the riskiest Bogleheadish asset?

Post by baw703916 » Tue Sep 09, 2014 10:46 pm

nisiprius wrote:Trying to take the question in the spirit in which I think the poster meant it, I would say REITs are the "winner," with emerging markets stock a close runner-up, because in 2008-2009,

Vanguard REIT Index (VGSIX) dropped more than
Vanguard Small-Cap Value Index (VISVX), or
DFA US Micro Cap (DFSCX), or
DFA US Small-Cap Value (DFSVX), or
Vanguard Emerging Markets (VEIEX)
So REITs dropped a lot in a bear market brought on by the collapse of a real estate bubble. Hard to imagine why that would be. ;)
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Re: What's the riskiest Bogleheadish asset?

Post by Christine_NM » Tue Sep 09, 2014 11:06 pm

baw703916 wrote:
EmergDoc wrote:Frontier microcap value?
Fund name, please?
That was its name. Fund is gone. That's as risky as it gets. Bit of EmergDoc humor there. :happy
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Re: What's the riskiest Bogleheadish asset?

Post by denovo » Tue Sep 09, 2014 11:10 pm

baw703916 wrote:
nisiprius wrote:Trying to take the question in the spirit in which I think the poster meant it, I would say REITs are the "winner," with emerging markets stock a close runner-up, because in 2008-2009,

Vanguard REIT Index (VGSIX) dropped more than
Vanguard Small-Cap Value Index (VISVX), or
DFA US Micro Cap (DFSCX), or
DFA US Small-Cap Value (DFSVX), or
Vanguard Emerging Markets (VEIEX)
So REITs dropped a lot in a bear market brought on by the collapse of a real estate bubble. Hard to imagine why that would be. ;)
+1
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Re: What's the riskiest Bogleheadish asset?

Post by Gambler » Tue Sep 09, 2014 11:18 pm

tadamsmar wrote:What the single riskiest asset that Bogleheads advocate? Is it SV mutual funds?
for after tax $:
Energy MLP's with 11+% yield
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Re: What's the riskiest Bogleheadish asset?

Post by Gambler » Tue Sep 09, 2014 11:24 pm

baw703916 wrote:
nisiprius wrote:Trying to take the question in the spirit in which I think the poster meant it, I would say REITs are the "winner," with emerging markets stock a close runner-up, because in 2008-2009,

Vanguard REIT Index (VGSIX) dropped more than
Vanguard Small-Cap Value Index (VISVX), or
DFA US Micro Cap (DFSCX), or
DFA US Small-Cap Value (DFSVX), or
Vanguard Emerging Markets (VEIEX)
So REITs dropped a lot in a bear market brought on by the collapse of a real estate bubble. Hard to imagine why that would be. ;)
lol.. and take a guess on how Nasdaq (QQQ) did during the tech bubble :P
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Re: What's the riskiest Bogleheadish asset?

Post by baw703916 » Tue Sep 09, 2014 11:29 pm

Gambler wrote: lol.. and take a guess on how Nasdaq (QQQ) did during the tech bubble :P
It's almost back to where it was in the 2000 high...
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Re: What's the riskiest Bogleheadish asset?

Post by interplanetjanet » Wed Sep 10, 2014 2:40 am

tadamsmar wrote:What the single riskiest asset that Bogleheads advocate?
Human capital. It's the only one that virtually everyone is encouraged to hedge against its loss.

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Re: What's the riskiest Bogleheadish asset?

Post by nisiprius » Wed Sep 10, 2014 4:54 am

Gambler wrote:
baw703916 wrote:
nisiprius wrote:Trying to take the question in the spirit in which I think the poster meant it, I would say REITs are the "winner," with emerging markets stock a close runner-up, because in 2008-2009,

Vanguard REIT Index (VGSIX) dropped more than
Vanguard Small-Cap Value Index (VISVX), or
DFA US Micro Cap (DFSCX), or
DFA US Small-Cap Value (DFSVX), or
Vanguard Emerging Markets (VEIEX)
So REITs dropped a lot in a bear market brought on by the collapse of a real estate bubble. Hard to imagine why that would be. ;)
lol.. and take a guess on how Nasdaq (QQQ) did during the tech bubble :P
Yes, but I don't think QQQ is a "Bogleheadish asset."
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Re: What's the riskiest Bogleheadish asset?

Post by nisiprius » Wed Sep 10, 2014 5:17 am

denovo wrote:
nisiprius wrote:Why not look at the 2000-2002 crash?
Because I plead guilty to putting more mental weight on downside risk than upside risk.

Parenthetically, 2000-2002 is interesting. That's a period of time during which several of the popular "low correlation," "diversifier" asset classes actually did what people hoped for them, namely going up, meaningfully, while stocks in general were going down. REITs and small value did just that.

They also both crashed worse than the market in 2008-2009, which represents diversification, too. The benefits of diversification are not the gross benefits of a 2000-2002, they are the net benefits of all the 2000-2002's after you subtract all the 2008-2009's!

An interesting question is: did 2000-2002 really illustrate "typical" behavior for these asset classes, or was it just a one-off event? It's my opinion that many asset classes make their reputation by one-time behavior, that gets generalized into statements that say "when X happens, asset class Y tends to do Z..."

(Something that sometimes escapes notice is that during 2000-2002, these "low-correlation" stock asset classes didn't actually do all that much better than Total Bond, which, unlike REITs and small value, did not crash during 2008-2009...)

Image

We can, of course, also look at standard deviation as a measure of risk, and if I do this, using Morningstar's 15-year values--the longest time period available, and including 2000-2002 as well as 2008-2009--I see this, in order from largest to smallest:

Vanguard Emerging Markets (VEIEX), 23.57
Vanguard REIT Index (VGSIX), 22.23
DFA US Small-Cap Value (DFSVX), 22.18
DFA US Micro Cap (DFSCX), 21.19
Vanguard Small-Cap Value Index (VISVX), 19.17

Vanguard Total Stock Market Index Fund (VTSMX ) 15.89

As is customary, Morningstar doesn't give us the slightest help in guessing what the margin of error on these numbers is. (Doesn't it seem strange to you that every poll in the world does that, when all that's at stake is curiosity about public opinion... but when actual money is involved, no?)
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Re: What's the riskiest Bogleheadish asset?

Post by Valuethinker » Wed Sep 10, 2014 5:24 am

denovo wrote:
baw703916 wrote:
nisiprius wrote:Trying to take the question in the spirit in which I think the poster meant it, I would say REITs are the "winner," with emerging markets stock a close runner-up, because in 2008-2009,

Vanguard REIT Index (VGSIX) dropped more than
Vanguard Small-Cap Value Index (VISVX), or
DFA US Micro Cap (DFSCX), or
DFA US Small-Cap Value (DFSVX), or
Vanguard Emerging Markets (VEIEX)
So REITs dropped a lot in a bear market brought on by the collapse of a real estate bubble. Hard to imagine why that would be. ;)
+1
Careful.

The RE bubble that collapsed was largely a *residential* RE bubble. At least in the USA.

REITs (non mortgage REITs) are basically only exposed to residential (directly) via rental apartments. Rental apartments are a contra cyclical housing asset-- when Americans don't buy homes, they rent apartments.

What happened in 2008-09 was a *financial* bubble blowing up. The effect on REITs was:

- REITs are leveraged and so the possibility that they would not be able to roll over their real estate loans and CMBS (usual terms are 5-10 years) means that they could be insolvent.

- the valuation basis of Commercial RE collapsed. The buildings were still there, the tenants were still paying rent, the loans were still being paid on time BUT the buildings were worth say (40%) on average of pre Bubble. There was a lot of highly leveraged RE out there (Harry Macklin in NYC bought something like $5bn of buildings from Equity Office Properties (Blackstone public to private of the largest REIT) with $250m of equity) and the loan-to-value covenants on the loans were blown.

The market was working on the basis that the banks would repossess (they eventually did) and there would be fire sales (relatively less a factor). A la the S&L workout of the early 1990s.

The market was also probably forecasting a big fall in financial services occupancy. Whereas in say California that was true, in the biggest RE markets (NYC Downtown and Midtown are the 2 biggest office districts in the USA, Midtown perhaps in the world) that was not the case to the same extent, despite bankruptcy of Lehmans (Canary Wharf/ Songbird took a hit on that, which they had insured-- with AIG! ;-)).

- where CRE did collapse was in things like tertiary retail: that website with all the empty shopping malls in OC CA. However say in NYC, that was not the case.

- general economic distress then hit occupancy and rental growth (still is). As usual hotels and leisure properties got hit hardest (fall in consumer and business spending).

What can we learn from all of this about the quoted REIT sector?

- it behaves like a high beta stock during a bear market
- if the cause of the bear market is financial system ructions, it is 'double down' as both financials, and as leveraged stocks
- added to a portfolio it can *increase* rather than decrease volatility during a crisis

It has all made me much more cautious about suggesting a separate REIT rating. I don't believe 'but it recovered quickly in 2009' is a good answer-- there was no way of knowing that the US CRE market would wind up as it did vs. as it did in say, Dublin (nuclear winter until recently). I've lived through a couple of CRE crashes (London early 1990s, Toronto same time, Boston same time) to know how long they take to work through.

The diversification benefits of REITs may just have declined in recent years due to the increased exposure of the sector to quoted markets: both on the equity side (REITs) and the debt side (CMBS freely traded and widely used).

I also think that valuation is important in investing in RE.* It's one thing to buy in at cap rates of 7-8% (1999) it's another at 4% (now). You need a *lot* of rental growth, if your cap rate is 4% to get to even 5-6%. London office market, although cap rates on prime prime are back to almost 2008 level, there is little evidence of rental growth. That is true of UK CRE in general.

* you make your money in CRE from the income flow, not the price appreciation. Since payout is 90% in a REIT, where you start in income yield, and what dividend growth rate you get, is important.

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Re: What's the riskiest Bogleheadish asset?

Post by Valuethinker » Wed Sep 10, 2014 5:28 am

nisiprius wrote:
denovo wrote:
nisiprius wrote:Why not look at the 2000-2002 crash?
Because I plead guilty to putting more mental weight on downside risk than upside risk.

Parenthetically, 2000-2002 is interesting. That's a period of time during which several of the popular "low correlation," "diversifier" asset classes actually did what people hoped for them, namely going up, meaningfully, while stocks in general were going down. REITs and small value did just that. )

It's a valuation story.

In 1999 REITs were cheap relative to prevailing interest rates and stock market PEs. US stock market was yielding less than 2%, PEs were inflated, REITs were yielding say 6% (I'd have to check). The bubble, when it blew, was an equity bubble (Tech Media Telecom) and a debt bubble (loans to those companies). Then you had a bear market on utilities after Enron blew and the 2 CA utilities went broke.

It was the era of the 'super growth' stock, like GE. 30 buy ratings and 2 holds from the sell side analysts. Briefly the world's largest company (Cisco also).

There were a lot of 'value' sectors like oil & gas (the Economist had had a headline when oil was $10/bl, could it go to $5?), real estate etc. Paying 4-5% yields and on PEs of 12x when the market was 30-40x.

The low correlation of REITs in that period was, I think, largely a product of the correction of its undervaluation relative to a market which was hugely overvalued.

You won't see that again unless REITs start a bear market significantly undervalued relative to the market as a whole.

The lack of correlation is actually created by an underlying trend in the data-- if one stream is going down, and the other is going up due to structural factors (re rating of REITs by the market) it will look uncorrelated.

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Re: What's the riskiest Bogleheadish asset?

Post by riptide » Wed Sep 10, 2014 7:44 am

nedsaid wrote:My best guess would be 1) REITs, 2) Small Cap Value, and 3) Emerging Markets in order of riskiness. These help put the "Tiger in your tank."
Thank you, I have all 3 in my portfolio!
Currently 77/23 stocks/bonds

77% equities

38% VTSAX Vanguard Total Stock Market Index (TSP C fund and S fund included)
15% VTIAX Vanguard Total International Index (raised due suggestion to raise from 8%)
5% VEMAX Vanguard Emerging Markets Index Fund <<< 20% total International funds
12% VSIAX Vanguard Small Cap Value Fund (tilt)
7% VGSLX Vanguard REIT fund (real estate)

Bonds 23%
12% TSP G fund
11% U.S. Savings Bonds EE
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Re: What's the riskiest Bogleheadish asset?

Post by Cosmo » Wed Sep 10, 2014 7:58 am

G-Money wrote:
livesoft wrote:Maybe it is one's home?
Or possibly one's human capital.
+1.

Without this, it would not be possible to put any savings in any of these assets, "risky" or not...

Cosmo

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Re: What's the riskiest Bogleheadish asset?

Post by freddie » Wed Sep 10, 2014 9:10 am

nisiprius wrote: An interesting question is: did 2000-2002 really illustrate "typical" behavior for these asset classes, or was it just a one-off event? It's my opinion that many asset classes make their reputation by one-time behavior, that gets generalized into statements that say "when X happens, asset class Y tends to do Z..."

(Something that sometimes escapes notice is that during 2000-2002, these "low-correlation" stock asset classes didn't actually do all that much better than Total Bond, which, unlike REITs and small value, did not crash during 2008-2009...)
On the other hand total bond "crashed" during the 70s and provided 0 real return for the decade while SV (REITs to a much less extent) had a great decade. Is that the typical behavior of bonds or is the behavior we have had during the last 30 years of declining interest rates?:)

A lot comes down to what you are seeking with diversification. If it is just making the drops a little less,nothing beats bonds. You might not make money but your very unlikly to lose a ton. On the other hand studies have suggested that diversified (international, small value, REITS,...) can boost SWR by about .25 to.5% over what trinity portfolios (S&P 500 and bonds) but there will still be periods of volatility on the order of stocks.

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Re: What's the riskiest Bogleheadish asset?

Post by kenyan » Wed Sep 10, 2014 9:10 am

One's personal residence could be the riskiest asset, depending upon your definition. Extreme concentration of capital/lack of diversification, with far more adverse consequences for many people in the latest crash than the charted assets being discussed above.
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Re: What's the riskiest Bogleheadish asset?

Post by Taylor Larimore » Wed Sep 10, 2014 9:15 am

tadamsmar wrote:What the single riskiest asset that Bogleheads advocate? Is it SV mutual funds?
Tadamsmar:

For the 10 years ending December 2013, Vanguard's CA Tax-Exempt Money Market Fund had the worst return of any Vanguard Fund with a cumulative return of 13.4%.*

Vanguard's Energy Fund had the best cumulative return of 246.1%*

* Source: 2014 Independent Guide to the Vanguard Funds

It could be argued that Vanguard's CA Tax-Exempt Money Market Fund was the "riskiest."

Best wishes.
Taylor
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Re: What's the riskiest Bogleheadish asset?

Post by cfs » Wed Sep 10, 2014 10:07 am

On this side of the keyboard.

I just took a look at the mirror and found the riskiest asset--on this side of the keyboard the riskiest asset is this writer.

Thanks for reading.
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Re: What's the riskiest Bogleheadish asset?

Post by YDNAL » Wed Sep 10, 2014 10:26 am

tadamsmar [OP] » Thu Aug 01, 2013 8:52 am wrote:What the single riskiest asset that Bogleheads advocate? Is it SV mutual funds?
I hope everyone sees that this thread is a little over 1 year old.

The "single riskiest asset that Bogleheads advocate" is that which someone buys/owns but doesn't really understand - this, regardless if Bogleheads (or anyone) advocate(s) it.
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Re: What's the riskiest Bogleheadish asset?

Post by grap0013 » Wed Sep 10, 2014 12:12 pm

YDNAL wrote:
tadamsmar [OP] » Thu Aug 01, 2013 8:52 am wrote:What the single riskiest asset that Bogleheads advocate? Is it SV mutual funds?
I hope everyone sees that this thread is a little over 1 year old.

The "single riskiest asset that Bogleheads advocate" is that which someone buys/owns but doesn't really understand - this, regardless if Bogleheads (or anyone) advocate(s) it.
^Finally a correct answer!

It can't be ISCV because both of my core ISCV funds have had better returns with smaller standard deviations than their large caps brethrens. SFILX vs. VEA and DGS vs. VWO.
There are no guarantees, only probabilities.

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Re: What's the riskiest Bogleheadish asset?

Post by Gambler » Wed Sep 10, 2014 3:39 pm

nisiprius wrote:Yes, but I don't think QQQ is a "Bogleheadish asset."
are there any risky Boggleeadish asset?!

I wouldn't think slice and dice into SV or REIT is risky. in fact, it's common.

heck, i don't slicing and dicing into any sector by overweighing it by 5% is that risky.

Total Bonds = age - 10%
Total Intl = 20%
Reit = 5%
Small cap Value = 5%
prhsx (healthcare) = 5%
emerging markets = 5%
Total market = rest
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Re: What's the riskiest Bogleheadish asset?

Post by baw703916 » Wed Sep 10, 2014 7:41 pm

Christine_NM wrote:
baw703916 wrote:
EmergDoc wrote:Frontier microcap value?
Fund name, please?
That was its name. Fund is gone. That's as risky as it gets. Bit of EmergDoc humor there. :happy
The joke in my post is that there has yet to be a good Frontier fund of any type!
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Re: What's the riskiest Bogleheadish asset?

Post by YDNAL » Thu Sep 11, 2014 6:22 am

Gambler wrote:I wouldn't think slice and dice into SV or REIT is risky. in fact, it's common.

heck, i don't [think] slicing and dicing into any sector by overweighing it by 5% is that risky.
We should understand what we purchase (not because "it's common"), since "risk" will materialize when our *hopes* don't materialize, and we abandon that purchase at the worse possible moment.
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Re: What's the riskiest Bogleheadish asset?

Post by riptide » Fri Sep 19, 2014 10:35 am

Bogleheads,
I have both Vanguard Emerging Markets and Vanguard Reit fund in my portfolio. To make it less volatile, which one could I drop??
I hold 5% of each one within the total portfolio.
The core is
Vanguard Total Stock Market Index
Vanguard International Index fund
Vanguard Total Bond Index fund
Vanguard Small Caps Value Fund
Brokerage account 70/30 | VG total Market 40% | VG total Intl 11% | VG small cap value 12% | VG Reit index 7% | VG Total Bond 30% | TSP Account 75/25 | C Fund 45%, S 15%, I 15%, G 25% | EE Bonds=Emergency Fund

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Re: What's the riskiest Bogleheadish asset?

Post by YDNAL » Fri Sep 19, 2014 10:44 am

riptide wrote:Bogleheads,
I have both Vanguard Emerging Markets and Vanguard Reit fund in my portfolio. To make it less volatile, which one could I drop??
I hold 5% of each one within the total portfolio.
The core is
Vanguard Total Stock Market Index
Vanguard International Index fund
Vanguard Total Bond Index fund
Vanguard Small Caps Value Fund
This relates to my last post on Thursday, 9/11, since "what is common" should mean nothing to us individually, and we should invest in the things that we understand.

Choosing 3 overweights (EM, REIT, SCV) come with *hoped* benefit for taking added risk - not just volatility (a proxy). That said, volatility is not static, and no one can tell you which will be less volatile in the future - but we all can make guesses. Add VEIEX to the chart and you see what happened last 10 years - NOT what will happen. The LARGER question is: why did you choose to overweight and what has changed?
Last edited by YDNAL on Fri Sep 19, 2014 11:01 am, edited 1 time in total.
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Re: What's the riskiest Bogleheadish asset?

Post by Yesterdaysnews » Fri Sep 19, 2014 10:58 am

Private equity investments. I try to keep it under 1/3 of my investable assets however.

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Re: What's the riskiest Bogleheadish asset?

Post by scone » Fri Sep 19, 2014 11:05 am

I'd say my body is my riskiest "asset." Even if I take care of myself, I can get sick, have an accident, or be killed in any number of ways.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

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Re: What's the riskiest Bogleheadish asset?

Post by riptide » Fri Sep 19, 2014 1:43 pm

YDNAL wrote:
riptide wrote:Bogleheads,
I have both Vanguard Emerging Markets and Vanguard Reit fund in my portfolio. To make it less volatile, which one could I drop??
I hold 5% of each one within the total portfolio.
The core is
Vanguard Total Stock Market Index
Vanguard International Index fund
Vanguard Total Bond Index fund
Vanguard Small Caps Value Fund
This relates to my last post on Thursday, 9/11, since "what is common" should mean nothing to us individually, and we should invest in the things that we understand.

Choosing 3 overweights (EM, REIT, SCV) come with *hoped* benefit for taking added risk - not just volatility (a proxy). That said, volatility is not static, and no one can tell you which will be less volatile in the future - but we all can make guesses. Add VEIEX to the chart and you see what happened last 10 years - NOT what will happen. The LARGER question is: why did you choose to overweight and what has changed?
Landy, Thanks for the reply. I not only mean less volatile , but less risky. I know nobody knows the future. I chose to overweight because I thought I liked more risk, and I expect more gain than the standard. No risk, not much reward were my thoughts. I have just become more peaceful with a bit more conservative set up than I use to favor. I don't think I want to continue overweighting three different funds, maybe 1, at most two...
Brokerage account 70/30 | VG total Market 40% | VG total Intl 11% | VG small cap value 12% | VG Reit index 7% | VG Total Bond 30% | TSP Account 75/25 | C Fund 45%, S 15%, I 15%, G 25% | EE Bonds=Emergency Fund

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Re: What's the riskiest Bogleheadish asset?

Post by Bustoff » Fri Sep 19, 2014 4:40 pm

cfs wrote:On this side of the keyboard.

I just took a look at the mirror and found the riskiest asset--on this side of the keyboard the riskiest asset is this writer.

Thanks for reading.
+1
Investing is like like talking about sex.
You can do any fancy dive you want, it's just a foot of water.

YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
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Re: What's the riskiest Bogleheadish asset?

Post by YDNAL » Fri Sep 19, 2014 6:12 pm

riptide wrote:
YDNAL wrote:...The LARGER question is: why did you choose to overweight and what has changed?
Landy, Thanks for the reply. I not only mean less volatile , but less risky. I know nobody knows the future. I chose to overweight because I thought I liked more risk, and I expect more gain than the standard. No risk, not much reward were my thoughts. I have just become more peaceful with a bit more conservative set up than I use to favor. I don't think I want to continue overweighting three different funds, maybe 1, at most two...
I think that we all evolve as savers/investors -- whether that means changing our approach, mildly modifying it, or something else.

We invest under the simple premise that more risk = more [hoped-for] reward. That isn't always the case - remember all the *lost decade* articles in the media and even here at Bogleheads?

Personally, DW and I don't take a lot of risk with our retirement money... we have enough and allocate our savings accordingly. That doesn't mean that net worth is invested in a riskless manner, since a large portion is destined for other things besides retirement. My suggestion to you would be to invest based on ability & need for risk, and since this is individual in nature, decisions made would the ones best for YOU (only you).
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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