When should someone "not stay the course"?

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InvestorNewb
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When should someone "not stay the course"?

Post by InvestorNewb »

On August 28, 2006, Vanguard's Total International Stock index was priced at $16.42 per share.

On September 30, 2014, it was priced at $16.41 per share. That's almost 10 years of stagnation (or 8 years, 1 month, and 2 days to be exact).

Image

I know that I'm cherry picking the dates here, but if I invested in 2006, I would have a very difficult time staying the course with this fund.

Given that 10 years is a long time in the investing realm relative to our lifespans, does it ever make sense to "abandon" a fund and look for better opportunities elsewhere?
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bottomfisher
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Re: When should someone "not stay the course"?

Post by bottomfisher »

InvestorNewb wrote:Given that 10 years is a long time in the investing realm relative to our lifespans, does it ever make sense to "abandon" a fund and look for better opportunities elsewhere?
According to Morningstar, VGTSX 10 year annualized returned is 6.88%. I consider that decent. I recommend staying the course, fund price per share is not the same as overall return
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Re: When should someone "not stay the course"?

Post by randomguy »

You change course when
a) your reason for holding no longer exists (you decide that international diversification is for the dogs.
b) the fund isn't doing what you expect (i.e. provide international diversification)

These charts are why the simple idea of holding a diversified portfolio is so hard. Everyone wants to bail on the underperforming asset classes.

And for what it is worth I think your chart is showing what you think. For example VBMFX was at about 10 bucks in august of 2006 and is at 10.80 today. Was that 10 years of poor bond returns? Returns aren't great for international but they are a lot better than 0%.
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celia
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Re: When should someone "not stay the course"?

Post by celia »

The particular situation you came up with shows the price of a share. It does not show dividends being reinvested or put into a money market fund or something else. The holder of this fund in 2006 averaged 6.88% more shares at the end of each year if he was reinvesting in the same fund.

You would also change course when
c) your needs change (ie, you want to put the money into something that is now a higher priority, say a house, education, medical emergency)
Last edited by celia on Tue Sep 30, 2014 1:49 pm, edited 2 times in total.
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Re: When should someone "not stay the course"?

Post by Grt2bOutdoors »

Did you include dividends in your calculations? Total return is the combination of dividends and capital appreciation. Over 40% of total return comes from dividends, strip that away and most of your compounding gains are erased.

BTW, you may want to consider value averaging.....aim to accumulate shares or a specific amount of each investment.
Me....I personally like to pick up more and more shares.....what's better a 3.1% yield and pe of 15 or a 1.8% yield and pe of 18?
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Phineas J. Whoopee
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Re: When should someone "not stay the course"?

Post by Phineas J. Whoopee »

InvestorNewb wrote:On August 28, 2006, Vanguard's Total International Stock index was priced at $16.42 per share.

On September 30, 2014, it was priced at $16.41 per share. That's almost 10 years of stagnation (or 8 years, 1 month, and 2 days to be exact).
...
And all the dividends it paid over that period came directly out of the share price. We often suggest using total return charts, not price charts.

I agree with randomguy about changing course. If you've good reasons for doing so, fine. Then hold that course. It's consistently the case that people who frequently change allocations nearly always do worse than those who don't. That doesn't mean you aren't exceptional or can't buck the trend. It is to say there's the Bogleheads Guide to Investing, not the Bogleheads Guide to InvestorNewb's Investing. :wink:

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Re: When should someone "not stay the course"?

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IlikeJackB
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Re: When should someone "not stay the course"?

Post by IlikeJackB »

Prime example of cherry picking your dates. Also as mentioned this is price only. Let's cherry pick some other dates from your chart ….. in early 2003 the price was less $8 per share and by late 2007 it was pushing $22 per share. What do you make of that?

Edited to add: Went to M'star and found this….. 3-31-2003 price = $7.11. 10-31-2007 price = $21.89. Looks like a triple in a little over 4 1/2 years. Could you stay the course with that?
Last edited by IlikeJackB on Tue Sep 30, 2014 2:08 pm, edited 3 times in total.
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Re: When should someone "not stay the course"?

Post by crake »

I would say the time "not stay the course" would be when the inputs which went into creating your initial IPS have changed or when you acquire some new knowledge which you didn't have at the time you created your IPS. VGTSX being stagnant for 8 years does not meet those criteria.

Inputs which could change can include things such as windfalls, illness, moving to another country, etc. An example of new knowledge would be the creation of new investment vehicles which weren't previously around (Total Stock vs S&P 500).
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Re: When should someone "not stay the course"?

Post by Day9 »

Mr Bogle shifted his asset allocation before the 2000 crash. He noticed stock earnings were above 40 while the bond yields were about 7%. He was having health issues with his heart and wanted to protect his legacy and loved ones. He says you should "almost never and perhaps never" make a large shift in your AA like this. I suppose this is the type of situation where you should not stay the course.
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backpacker
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Re: When should someone "not stay the course"?

Post by backpacker »

We need to add dividends to the performance, but we also need to subtract inflation. Vanguard International's total returns were 1.5% since 2000. Bleh.

To answer the OP: No.

If anything, the lagging performance of international stocks is a reason to sell US stocks and buy more international. :mrgreen: :moneybag :moneybag
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Re: When should someone "not stay the course"?

Post by YDNAL »

InvestorNewb wrote:On August 28, 2006, Vanguard's Total International Stock index was priced at $16.42 per share.

On September 30, 2014, it was priced at $16.41 per share. That's almost 10 years of stagnation (or 8 years, 1 month, and 2 days to be exact).
I'm looking at a Morningstar chart.
• Starting with $10,000 on 9/30/2004 (10 years back), by August 31, 2006 VGTSX grew to $15,275.20.
• Move forward to September 29, 2014, and it has grown to $19,449.06.

Not hair-rising return, but certainly NOT "stagnation."

We should change our course when our individual/personal circumstances change.
Last edited by YDNAL on Tue Sep 30, 2014 2:30 pm, edited 1 time in total.
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Re: When should someone "not stay the course"?

Post by Tom_T »

InvestorNewb wrote:On August 28, 2006, Vanguard's Total International Stock index was priced at $16.42 per share.

On September 30, 2014, it was priced at $16.41 per share. That's almost 10 years of stagnation (or 8 years, 1 month, and 2 days to be exact).

I know that I'm cherry picking the dates here, but if I invested in 2006, I would have a very difficult time staying the course with this fund.
And if you had invested in 2008, you'd think this fund was wonderful. It's the same fund, right? Can it be both bad and good at the same time?

If you dump, then what? You will go out and look for a fund that has been growing steadily for years, and looks like a real winner. Something like, oh, Total International Stock Index, circa 2006. Oops. How do you know you won't be picking the next fund that will make you think twice at some point in the future?
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Re: When should someone "not stay the course"?

Post by YDNAL »

Tom_T wrote:And if you had invested in 2008, you'd think this fund was wonderful. It's the same fund, right? Can it be both bad and good at the same time?
LOL
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Re: When should someone "not stay the course"?

Post by Peter Foley »

crake wrote
I would say the time "not stay the course" would be when the inputs which went into creating your initial IPS have changed or when you acquire some new knowledge which you didn't have at the time you created your IPS.
I agree with crake. I would guess that most of us here have changed course after reading and learning from the forum.
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backpacker
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Re: When should someone "not stay the course"?

Post by backpacker »

YDNAL wrote:
Tom_T wrote:And if you had invested in 2008, you'd think this fund was wonderful. It's the same fund, right? Can it be both bad and good at the same time?
LOL
Ha! :D

In fact, an investor starting in 2006 who made regular contributions would have made money because most of those contributions came after the crash.
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Re: When should someone "not stay the course"?

Post by Crow Hunter »

Or you could be like me and invest quite a bit lump sum at almost the yearly high and then watch it drop like a rock.

I am down $8,000 to date.

I am just hoping it stays down through tomorrow when it is time to buy more. :mrgreen:

I have been investing in International since I started investing in 1997. It has zigged at times when the US market zagged.

I like that, so I continue to invest.

ETA:

That is actually $12,000+. I forgot to count what I moved into an inherited IRA.
Last edited by Crow Hunter on Tue Sep 30, 2014 2:38 pm, edited 1 time in total.
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Re: When should someone "not stay the course"?

Post by livesoft »

One is allowed to "not stay the course" only when forum member staythecourse gives one permission to not stay the course.
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Re: When should someone "not stay the course"?

Post by placeholder »

Are you asking "if you know in advance that a fund will under perform for the next ten years should you avoid it?" then I would say yes but wonder how you know that.
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tadamsmar
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Re: When should someone "not stay the course"?

Post by tadamsmar »

InvestorNewb wrote:On August 28, 2006, Vanguard's Total International Stock index was priced at $16.42 per share.

On September 30, 2014, it was priced at $16.41 per share. That's almost 10 years of stagnation (or 8 years, 1 month, and 2 days to be exact).
.
.
.
I know that I'm cherry picking the dates here, but if I invested in 2006, I would have a very difficult time staying the course with this fund.

Given that 10 years is a long time in the investing realm relative to our lifespans, does it ever make sense to "abandon" a fund and look for better opportunities elsewhere?
In my opinion, if you can't stay the course with that, then you should not be investing in stocks.

You are not cherry picking, because you did not pick a cherry. You just tore off part of a cherry. The actual cherry would include the dividends. It's yielding 3% now, based on that I estimate that you failed to pick about 24% or of this cherry for your examination. (Dividends are not included in price comparisons of the sort you did.)

Also, Bogleheads diversify. In my 13 years of Boglehead investing, I find that one can always find something bad in some subset of my diversified portfolio.

Also, I have not done the math carefully, but I bet that if you invest as a Boglehead and got the real return that that fund got over that 8 years as your overall real return for a lifetime, believe it or not, you would have a comfortable retirement.
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Re: When should someone "not stay the course"?

Post by John3754 »

Newb, your analysis does not include a decade of dividend yield, it also tells you absolutely NOTHING about what that fund will do going forward from this point. You are not going to get where you want to go by driving while looking in the rear view mirror. Also, lets say you do drop the international index...where are you going to go instead and what makes you think that fund will do better?
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Re: When should someone "not stay the course"?

Post by Johno »

As mentioned, the total return wasn't near zero. But presumably the main reason one might think to give up on international stocks is that they had lower total return than US stocks in that period (an answer not extremely sensitive to what exact start year you use in the relatively recent past). However in that respect a significant part of the underperformance is international stocks generally becoming cheaper relative to their (country's markets') own historical average in measures like PE, PE10, price to book etc. which US stocks have become more expensive relative to theirs. One does not to have embrace any kind of 'market timing' to know that that disparity can't keep widening forever, or to doubt how plausible it is that US stocks level off at their current lofty (per their own history) valuations for a long time *and* international stocks level off at their depressed (per their own history) valuations for a long time. Could happen, but I personally doubt it, and believe the disparity will tend to narrow, one way or the other.
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Re: When should someone "not stay the course"?

Post by ddb »

This nearly 6-year old thread comes to mind:

"Maximum Tolerable Loss" -- Not just a fear factor

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Re: When should someone "not stay the course"?

Post by FinancialDave »

crake wrote:I would say the time "not stay the course" would be when the inputs which went into creating your initial IPS have changed or when you acquire some new knowledge which you didn't have at the time you created your IPS. VGTSX being stagnant for 8 years does not meet those criteria.

Inputs which could change can include things such as windfalls, illness, moving to another country, etc. An example of new knowledge would be the creation of new investment vehicles which weren't previously around (Total Stock vs S&P 500).
Or just coming to the conclusion that your own Large-Cap Mutual Funds have plenty of international exposure anyway and you don't need any more for your risk tolerance. Many of the US Large-Cap industrial giants do all the work for you in deciding what part of the world has the industrial growth, that they need to be competitive.

My actual theory is that most people don't really need the added currency risk associated with most international investing. Sure, like most anything, international funds zig and zag, but if one of your goals is simplicity VTSAX is pretty much going to cover the map.

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Re: When should someone "not stay the course"?

Post by madbrain »

Stop looking at price charts and start looking at total return charts.
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Re: When should someone "not stay the course"?

Post by placeholder »

madbrain wrote:Stop looking at price charts and start looking at total return charts.
Or stop looking at historical charts period.
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Re: When should someone "not stay the course"?

Post by Ged »

livesoft wrote:One is allowed to "not stay the course" only when forum member staythecourse gives one permission to not stay the course.
Day9 wrote:Mr Bogle shifted his asset allocation before the 2000 crash. He noticed stock earnings were above 40 while the bond yields were about 7%. He was having health issues with his heart and wanted to protect his legacy and loved ones. He says you should "almost never and perhaps never" make a large shift in your AA like this. I suppose this is the type of situation where you should not stay the course.
Changing course due to life changes is one area where I think staythecourse should give permission. The classic example is reducing your stock allocation as your investment targets are reached.
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Re: When should someone "not stay the course"?

Post by tadamsmar »

ddb wrote:This nearly 6-year old thread comes to mind:

"Maximum Tolerable Loss" -- Not just a fear factor

- DDB
Of course, with hindsight, that was posted at a bad time to sell, near the bottom. This might be a good time if you don't need the risk, but you probably will not see a thread on that topic getting so much interest now.
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Re: When should someone "not stay the course"?

Post by HomerJ »

The DOW was at 1000 in 1966... it was STILL around 1000 in 1982...

It's not always giant crashes, and huge booms... Sometimes, the market trades sideways for long periods of time... that's 16 years there where the market didn't return much...

But it was then followed by 18 years where the DOW went to 11,000.... That means all the money people invested at DOW 1000 from 1966 to 1982, grew 11x by 2000.

Anyone who stayed the course did very well.

Stay the course... Expect long periods of nothing. Expect crashes. Stay the course anyway.
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Re: When should someone "not stay the course"?

Post by HomerJ »

tadamsmar wrote:In my opinion, if you can't stay the course with that, then you should not be investing in stocks.
I have to agree with this...

I truly hope all the feedback on these threads helps InvestorNewb stay the course during the next crash... Because there WILL be one... And his first instinct is going to be to sell everything. But I hope he comes here first.
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Re: When should someone "not stay the course"?

Post by randomguy »

HomerJ wrote:The DOW was at 1000 in 1966... it was STILL around 1000 in 1982...

It's not always giant crashes, and huge booms... Sometimes, the market trades sideways for long periods of time... that's 16 years there where the market didn't return much...

But it was then followed by 18 years where the DOW went to 11,000.... That means all the money people invested at DOW 1000 from 1966 to 1982, grew 11x by 2000.

Anyone who stayed the course did very well.

Stay the course... Expect long periods of nothing. Expect crashes. Stay the course anyway.
Thats more a sign not to buy a small, price weighted index:). The good old S&p 500 earned a nice 6% CAGR over those years (just ignore inflation:)).

People really need to go back and read those posts from 2008-9 when the stay the course people started to panic and sell off. It is real easy in hindsight to say stay the course. It is much harder when the ship is sinking. The approach of rebalancing into poor performing sectors sounds easy. It is really hard to do.
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Re: When should someone "not stay the course"?

Post by Pizzasteve510 »

A quick thought. If the OP is uncomfortable with 0, how much panic would he feel with -50%?

I agree with the posts suggesting a risk tolerance not yet ready for equity performance. Some very young, new people in this forum will not have 'really' experienced a true bear market.

One really should be able to take seeing their next egg cut in half and not bail out. This is actually easy to say but hard to do. Similarly, if one is targeting real estate or private equity, as i see others posting about, one needs to be prepared for a non zero chance of 100% loss. I have been there multiple times. It doesn't seem possible a rental property can be a total loss, but squatters, fraud and crashes exist in the real world and often all hit at the same time, when bad events start snowballing.

I advise really thinking deeply about asset allocation, perhaps with experienced help, before locking in. Note: I personally have an extremely high risk tolerance (e.g. continue to buy some investment classes despite multiple 100% losses...[edit dont worry, some 100% gains in there too]) and have a very low income need relative to goals, so i can often underestimate what others can reasonably accept. As I age I am learning to accept those who need safety, so make decisions to buy annuities, CDs etc. No free lunch. Volatility is a side effect of potential returns.
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Re: When should someone "not stay the course"?

Post by InvestorNewb »

Thanks for the replies. I bought more international today with the dividends that were paid out yesterday.
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Re: When should someone "not stay the course"?

Post by technovelist »

Pizzasteve510 wrote: Note: I personally have an extremely high risk tolerance (e.g. Continued to buy bought in some investment classes after 100% losses)
The advantage is that you can afford a lot of shares if you buy after 100% losses!
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Re: When should someone "not stay the course"?

Post by John3754 »

InvestorNewb wrote:Thanks for the replies. I bought more international today with the dividends that were paid out yesterday.
Newb, all of your posts on this forum seem to suggest that you may not have the risk tolerance for 100% equities like you say you do, and a number of people point this out in every thread. What is your response to that?
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Re: When should someone "not stay the course"?

Post by Buddtholomew »

InvestorNewb wrote:Thanks for the replies. I bought more international today with the dividends that were paid out yesterday.
Congratulations! You have reached a milestone in your investing career. Remember...its NOT different this time, it only seems that way.
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Re: When should someone "not stay the course"?

Post by cfs »

This time.

This time it's different -- these dangerous words are making a comeback.

My recommendation to everyone is to conduct The Pillow Test and proceed with caution.

Edit 1 - The Pillow Test = Can I sleep well at night with my current allocation?
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Re: When should someone "not stay the course"?

Post by InvestorNewb »

John3754 wrote:Newb, all of your posts on this forum seem to suggest that you may not have the risk tolerance for 100% equities like you say you do, and a number of people point this out in every thread. What is your response to that?
My response is that while I may appear jittery at times, I have never sold a single share. I do find myself second-guessing my investment decisions when things are down, but that is part of human nature. I'm sure that a lot of people can relate.

I honestly don't feel that having a bond allocation would make me feel any better. There is still a lot of cash at risk in stocks, and while a bond allocation would dampen that risk - it wouldn't remove it.

Right now I just want to throw as much money as I can at the market, in the hopes that it will grow to become a small fortune by retirement. As the saying goes, I ain't getting any younger.
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Re: When should someone "not stay the course"?

Post by ray.james »

I am 50% international, so last month was close to 3.5-4% loss in 1 month(10% in international small over 3 months.). It was a bad feeling. However, today morning I am back to OK.

Every first week of the month, I open my excel, enter the round figures of account balances(401k, roth etc) and write a comment.
In the past 4 years of investing; it turns out these are the comments that have highest freq.
18 times- I wish market went lower, so I can but more using bond money
12 times - I wish I get a chance to rebalance once.
10 times- market looks overvalued.

It turns out every wish I wanted in a good bull market was granted :)(international small hit rebalance bands). Downturns are harsh...from what I can see & feel now, but I am not losing sleep.
I also understood, I need to move from age-15 to age in bonds in next 5 years due to 2 reasons.
1) As balances increase, I don't seem to like the feeling of market losses of 10%. My international small is in single separate account. It made me realize while I am feeling ok now, a 30-40% overall loss is not OK.
2) I didn't foresee a DINK phase in life. so retirement goals are much easier to achieve.
3) I feel less emotional on my 401k and rollover balances, but roth and taxable seem to effect me emotionally. The reason is the view that I don't care until I am 60. I would choose a bit conservative investments in these account as I go ahead.
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Re: When should someone "not stay the course"?

Post by livesoft »

InvestorNewb wrote:Right now I just want to throw as much money as I can at the market, in the hopes that it will grow to become a small fortune by retirement. As the saying goes, I ain't getting any younger.
If you have money to throw at the market, then you are not 100% equities. That money you want to throw is part of your asset allocation.
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Re: When should someone "not stay the course"?

Post by cashinstinct »

Might be time to make sure you have the % in International your asset allocation suggests.

I am a little discouraged by the lack of International performance in my portfolio last couple of years when compared to US... but that's short-term thinking.

International stocks can certainly increase more than US stocks in the next couple of years... why not ?
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Re: When should someone "not stay the course"?

Post by tadamsmar »

InvestorNewb wrote: Right now I just want to throw as much money as I can at the market, in the hopes that it will grow to become a small fortune by retirement. As the saying goes, I ain't getting any younger.
Sounds like you don't have a long-term plan.

I think one should have an asset allocation (AA) schedule, not just a current AA.

Your lack of a long-term plan is yet another reason for concern. You can't stick to a plan if you don't have a plan.
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Re: When should someone "not stay the course"?

Post by Crow Hunter »

InvestorNewb wrote:Thanks for the replies. I bought more international today with the dividends that were paid out yesterday.
Good!

Me too.
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Re: When should someone "not stay the course"?

Post by FinancialDave »

HomerJ wrote:
tadamsmar wrote:In my opinion, if you can't stay the course with that, then you should not be investing in stocks.
I have to agree with this...

I truly hope all the feedback on these threads helps InvestorNewb stay the course during the next crash... Because there WILL be one... And his first instinct is going to be to sell everything. But I hope he comes here first.
Maybe he should just invest in the Vanguard Wellington Fund. This balanced fund has had only one down year in the last 20 and that was 2008 when it was down a little over 22%, while the rest of the world was on "tilt."

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