I am dead serious about this: to me, "stay the course" means a component of intentionally, deliberately, and stubbornly adhering to whatever you have previously decided to so, even if you now think what you previously decided to do was suboptimal. The whole point is not to tweak and shift and fiddle and agonize.
To me, "stay the course" means "when in doubt, just keep doing the same thing."
Given two roughly comparable, broadly suitable, basically OK investments, A and B, you know what every analysis is going to show: the analysis is going to show that over some really inhumanly long period of time, they did about the same; one did slightly better; and during that inhumanly long period of time there were decades or more when one was ahead, then the other was ahead, etc. In order to get the long-term returns of either of them, you need to do your best to hold for the long term. That means holding through periods that look good and periods that look bad. Because tempting as it is, all the evidence is that trying to shift back and forth so that you are always going to hold the good one isn't going to work. For sure, it is going to keep you in a constant state of anxiety and gamblers' mood swings. Opinion is sort of divided on whether you will merely add your personal "manager risk" without adding return, or whether most of us are negatively talented and have the anti-skill set that enables us to consistently buy high and sell low.
As to what I do personally, I try to pay a lot of attention to risk characteristics--2008-2009 has given me a convenient yardstick for that
--to broad patterns of risk and return. I honestly believe that past similarity
actually does predicts future similarity
. That is, if funds X and Y stay close to each other on the growth chart in detail, the only way that can happen is that they are holding broadly similar portfolios, which predicts they will continue to stay close to each other. I pay attention to matching my portfolio to my personal taste, needs, etc.--to getting a good fit
. And then I just try to let go and forget about it.
Yeah, I shifted from active to indexed when I rolled over my 401(k) and had a free choice of funds. But I don't think that counts as a course change because the reason I was in the active funds was that there were no index funds to use.
My mental model is that there are active managers that can squeeze out a little alpha, but not a lot--0.5%, 1% maybe--and that they keep all of it for themselves
. When an active fund outperforms after expenses, it's because there's some extra risk, often hidden in subtle ways.
A sane person might say "I prefer Intermediate-Term Bond Index to Total Bond; I see the higher risk but given that I also hold stocks it hardly matters, and for my tastes I'll take that risk to get the return."
Similarly, a sane person might also say "I prefer PTTRX to Intermediate-Term Bond Index. I see the higher return. I don't actually see the higher risk, I see lower
risk. Based on what I know, I have to believe the higher risk is there
, but, once again, I'm happy with it. I'm willing to live with the lower credit quality, the use of leverage, and the uncertainty of the fund manager's judgement. A bit more risk for a bit more return suits me
Look at 2008-2009. All of the bond funds did the job you wanted them to do: coasted almost straight across while Total Stock was plunging. And at another times. That's the big thing. "Which was 'best'" is secondary.
So, my own decision-making process would be: any of these three funds looks like a nice plain "core" bond fund and acts like a nice plain "core" bond fund, and they all are completely different from any stock fund (Total Stock, yellow) at all. I don't think anyone in the world is going to say that any of these funds is an inappropriate choice to be the core bond fund in a three-fund portfolio. They will all work. So I'd just sorta pick the one I like best, based on ticker symbol or eeny-meeny-miney-mo or personal risk tolerance or Larry Swedroe's dislike of GNMAs or liking Bill Gross's column--and then stick with it.
And when people ask why you chose that one, I'd look them straight in the eye and say "I got down to where I couldn't see much difference and picked the one I liked at the time."
Having chosen PTTRX, it seems to me that one should stick with it, because the proposition that you know so much better than BIll Gross that you can anticipate his mistakes and jump off before he makes them
just seems really unlikely.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.