New Investor – Novice Jitters

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Stivo
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New Investor – Novice Jitters

Post by Stivo » Sat Mar 04, 2017 4:27 pm

Hello Bogleheads!

My wife and I are in our mid-30s and we invested in the stock market for the first time last week with an allocation of 95% stocks/5% bonds. I did not invest during the recent 8 year bull market even though I had wanted to because I did not have enough money beyond my emergency fund to allow for it. Now, after using most of my twenties and early thirties to obtain a doctorate, and working my butt off since then, we have managed to save up enough to invest. I am realizing that I have two problems and would appreciate the advice and combined wisdom of this forum:

1) I tried my best to accurately assess my risk tolerance and have come to the conclusion that I have – NONE! I am an extremely risk intolerant person, but I also would like a decent retirement and know that I am come to investing later than ideal. My logical side says to put everything in the market as soon as possible, go heavy in equities, and let the magic of time take care of the rest. I do not believe that I would panic sell during a bear market (although I have never experienced a bear market with money invested). However, I am confident that I will fail the sleep test during the next bear market. I do not believe that having a more conservative allocation would help me feel better, and I have a high need to take on a lot of risk. As a person with a fairly low risk tolerance, how do I reconcile my low risk tolerance with my high need? Do I simply invest in the way that feels logical and take it as a given I will get little sleep when the next bear market hits?

2) Here are my beliefs: I believe that the market will plummet in the next 0-3 years to a point that is well below where it is right now. I believe this due to high valuations, the volatility that comes with a less predictable president, and the Feds need to aggressively raise rates despite a weaker than ideal economy. I believe that Yellen feels comfortable popping the current bubble starting with a rate hike this March. I believe that our society is a lot savvier than it was in 2000 and that this bubble will pop much earlier than that one because that bubble and 2008 are still fresh in the collective memory. While I do not believe that I would panic sell during a bear market, I have had the strong urge to take my money out of the market every day since I invested it a week ago. I believe that by investing now, I am setting myself up to be the stupid money that invests when the market is at or near its top and have less in retirement as a result. I know that I cannot predict the future and would not know when the true bottom is during the next bear market if I took my money out now, yet I still feel confident that I could get my money into the market when it is lower priced than it is now. Although it is irrelevant and irrational, I also feel like I would have an easier time investing at these high valuations from a psychological perspective if I had benefited from the recent 8-year bull market and was playing with the house’s money so to speak. How do I handle the cognitive dissonance generated when I hold these beliefs and continue to keep my money invested in the market? Am I deluding myself in believing that current events are set up for a soon-ish bear market and my ROI is higher if I attempt to reinvest at a later date when the market is lower than it is at now?

I know that this post might seem silly to many of the experienced members of this forum, and I am hopeful that I will look back at this post after a successful career of dispassionately investing according to Boglehead principles and feel that way as well, but I am new to this, so please be gentle with your responses. I have read about the Boglehead investing principles and believe that I understand them intellectually, but I am having a lot of trouble internalizing and trusting those principles. I have recently ordered Taylor Larimore’s, The Boglehead’s Guide to Investing, and I am hoping that will help me as well.

My sincere thanks for all of your responses! They are truly appreciated.

Stivo
Last edited by Stivo on Sat Mar 04, 2017 5:01 pm, edited 1 time in total.

Dirghatamas
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Re: New Investor – Novice Jitters

Post by Dirghatamas » Sat Mar 04, 2017 4:45 pm

Stivo

So, you are saying, you are the world's worst market timer? Great, then you should read about the track record of the previous worst market timer :shock:
http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

You maybe pleasantly surprised at how important "time in market" vs. "timing the market" really is. Read the article. It may calm you down. Obviously, it just shows what hapepned in the past. Our future may be different but I wouldn't bet on it. :beer

The other thing to do if you are a new investor (but with a Doctorate) is print our Buffett's annual shareholder letters for the last 20 years. Read them all! Serioulsy..the wisdom you will have access to by reading his letters is MUCH greater than one you can attain by reading a lot more complex books.

runnerguy
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Re: New Investor – Novice Jitters

Post by runnerguy » Sat Mar 04, 2017 4:56 pm

A few things.

1) Dollar cost average. Invest a little bit at a time. Eventually you get over the fear and lose track of the original investment amount that you are psychologically pegged to. Invest everything you have now in bonds an then every month move 10% to equities. Stretch it out longer if you want.

2) Look into trend following with 10m or 200 day simple moving average. That stuff isn't really popular here, but it does work if you can stick to the system. Over a long term period, on paper, you basically do the same as the market. In practice due largely to taxes and a little bit of trading slippage (difference between the closing prices used in back testing, and price u actually get when when you trade), you will lose a little bit, but you just have to look at it as insurance. Seriously though, first start with the DCA.

3) There's always some doom and gloom and a reason why this time is different and everything is going to crash. The only people that miss out are the ones that stay out. I wrote this little blog post comparing the period of 65-80 to the past 15 years. http://www.beatyourtargetdate.com/right ... to-invest/

Vanguard Fan 1367
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Re: New Investor – Novice Jitters

Post by Vanguard Fan 1367 » Sat Mar 04, 2017 5:07 pm

I spent 22 bucks on The John C. Bogle reader Kindle edition. I also sort of speed read my way through it but got a lot out of it. It is several of Bogle's books combined into one Amazon title.

You are right that the market is pretty high right now compared to say the PE of the S & P 500 historically. A few years ago I sat on some cash waiting for the inevitable drop of 10 to 50 percent and it hasn't happened yet. So in the summer of 2014 I invested and it has worked out great so far.

Bogle would suggest that you not "peek" at your statements. He also says that he doesn't know nor does he know anybody who knows what the market is going to do in the short term.

If you are inclined to sell if the market drops 10 to 50 percent or more then maybe you should reconsider investing in the stock market. The worst think you can do is buy when it is high like right now and then sell when it has the "correction." When the correction occurs that is the best time to buy, not sell.

I also hope that your 95 percent stocks are in something like Vanguard or Fidelity Total Market or S & P 500 index funds with no loads and extremely low fees. Those are good for buying and forgetting about them for long periods of time, like at least 10 years.

Gropes & Ray
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Re: New Investor – Novice Jitters

Post by Gropes & Ray » Sat Mar 04, 2017 5:51 pm

You sure have a lot of beliefs. Do you believe that the stock market will be higher in 30 years than it is today? If yes, then today is a good day to invest.

Random Walker
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Re: New Investor – Novice Jitters

Post by Random Walker » Sat Mar 04, 2017 6:28 pm

Stick,
You actually sound quite wise beyond your investing years. You're caught in the same conundrum we all are: valuations matter / can't time the market. You've done the right mind experiment: pondering losing 50%. When deciding between your need to take risk and your willingness to take risk, I'd let your stomach decide and give priority to your willingness / stomach. Maybe commit to a conservative asset allocation and go all in at
This time. Maybe 40/60-60/40 range. You can adjust in the future as you learn more about investing and about your own ability, willingness, need to take risk


Dave

TRC
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Re: New Investor – Novice Jitters

Post by TRC » Sat Mar 04, 2017 8:22 pm

You sound like a nervous nellie. Maybe investing in stocks isn't for you? Perhaps you can just stockpile savings in CDs?

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Sandtrap
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Re: New Investor – Novice Jitters

Post by Sandtrap » Sat Mar 04, 2017 8:28 pm

Actionable suggestion: some variation of the following "process" for the risk adverse.

10/90 or 20/80 (eq/bd) allocation with a portion of your funds (training wheels)
Check "sleep factor". . . . . wait. . . .
30/70 with a portion of your funds. . . .
repeat. . . . . (maybe go nor further. . or proceed)
40/60. . . . .
repeat. . . . .

As previously mentioned. There's no wrong or right, just what fits "you". You may be more comfortable with a higher percentage of your funds in CD's, TIPS, Treasuries, etc.
Some folks jump into the pond on the deep end, some wade in and get used to the water bit by bit.
The cognitive dissonance is very real, to you, and something to be accomodated or you will not sleep. YMMV.
Not a financial expert - just a retired businessman hacking out of a sand trap -- again.

Fallible
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Re: New Investor – Novice Jitters

Post by Fallible » Sat Mar 04, 2017 9:13 pm

Welcome to the forum!

Considering your apparently very low risk tolerance (or "NONE," as you said), your best choice for now may be to choose a conservative allocation, say, 40/60 or even 30/70, then dollar-cost-average into the market. Meantime, read the Bogleheads' book you've ordered, and many more books and blogs recommended in the wiki under "Getting Started," "Asset Allocation," and "Risk Tolerance":
https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Asset_allocation (look for links to Larry Swedroe's blogs on the willingness, need, and ability to take risk)
https://www.bogleheads.org/wiki/Risk_tolerance

Hopefully, as you gain more experience in the market and learn more about investing, you'll feel more confident and possibly even discover a higher risk tolerance. But if all it gets you are increasingly anxious-ridden days and sleepless nights, then perhaps reconsider investing in the stock market, at least for awhile.

Whatever you do, stop wasting your time and spooking yourself even more by trying to guess what the market will do. Then realize that you're asking the right questions, have prepared well to invest well, and perhaps wisest of all, are being honest with yourself about how much risk you can and want to take. Risk tolerance is about knowing yourself and then staying true to yourself. The right asset allocation is what is right for you and your wife.
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

Cyclesafe
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Re: New Investor – Novice Jitters

Post by Cyclesafe » Sat Mar 04, 2017 11:07 pm

Those in their middle '30's who indeed invested in the latest bull market should feel no different than you. The source of the funds, whether it be basis or gains, is irrelevant. What matters to them (and you) is what the account will look like in 30 years. What it is today is irrelevant. What it is in the interim is irrelevant. What matters is what the value will be in the year 2047 and beyond when you start drawing it down.

Although they are useful as portfolio ballast, bonds these days will not help you with inflation. Real estate (via REITS in tax deferred accounts) may be a viable non-equity alternative. Paying off all of your debts should be considered as well. Paying off a 4% mortgage is roughly akin to getting a 4% risk-free return.

2comma
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Re: New Investor – Novice Jitters

Post by 2comma » Sat Mar 04, 2017 11:52 pm

Here are some of my beliefs:

As long as the worker bees drag themselves out of bed in the morning and go to work business will eventually make more money and it will eventually all work out for those that invest.
No one knows what the future will bring and every minute you spend listening to those that purport to know isjust a minute you wasted of your life. Ignore the noise.
Mid thirties does not mean you have to take on excessive risk.
No one politician or major catastrophe can destroy the system.

My wife and I didn't really get started until our mid thirties, we increased our savings with each raise and kept our stock/bond ratio at 80/20 while accumulating and we lived below our means. We did things the Boglehead way and guess what, I'm retired, wife still has a few more years to go, our invested assets just crossed into multi-millionair territory. Don't make the boneheaded mistakes, work hard and save, odds are in your favor.
If I am stupid I will pay.

hadron
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Re: New Investor – Novice Jitters

Post by hadron » Sun Mar 05, 2017 1:00 am

If you are investing for retirement and you are in your 30s, then you should not be concerned about the next big drop when ever that happens. If I were you, I'd look forward to it so that I can buy even more stocks. But I'd not hold my breath for it and sit on the sidelines. If you are just starting out investing and assuming you don't have a windfall what you will buy now will be a small fraction of what you'll buy over time. So don't sweat too much about it.

samuck
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Re: New Investor – Novice Jitters

Post by samuck » Sun Mar 05, 2017 5:06 am

I've had similar concerns a couple of years ago when I started investing. What worked for me was to just invest what I could save from my salary every month. Over time, I got an understanding of my risk tolerance and was therefore mentally able to invest my extra savings accumulated over the prior years. In hindsight, I should have done so from the very start of course, but this approach was me "entry ticket" / safety buffer that I needed to get off the sidelines.

So my advice to you would be not to worry about your stash for now, but to invest every month what you can take from your income. You'll get a better understanding of your behavioral patterns, and the pain of a possible drop won't be as bad - in case it does happen in the near future. In case there is a drop, you'll feel smart by investing some extra at lower levels, in case there is none, at least you got started.

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randomizer
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Re: New Investor – Novice Jitters

Post by randomizer » Sun Mar 05, 2017 5:24 am

Start with a conservative asset allocation for your age (75:25), read more on behavioural economics ("Your money, your brain", and "Why smart people make dumb money mistakes") and stuff by William Bernstein (he's very good at explaining risk and is not mouth-foamingly optimistic), dollar cost average to mitigate your concerns about timing, and don't look at the darn market: forget about it.

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BL
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Re: New Investor – Novice Jitters

Post by BL » Sun Mar 05, 2017 5:52 am

You have received good advice here. Take what makes sense to you after doing some more reading. Avoiding the big mistakes is important: bad advice, costly investing, "gambling" instead of boring investing.

Here is a free nice little pdf for new investors to also help you get started:
https://www.etf.com/docs/IfYouCan.pdf

Do you have debts to pay? Higher interest rates mean pay it off ASAP.

Do you have a 401k or similar at work? Set up regular contribution to buy low-expense-rate funds (often with names like: index, S&P500, Vanguard, maybe institutional). A low-ER target date fund might be great, or even a single S&P500 if that is the only low-ER fund available. Watch for 3-fund portfolio threads, in Wiki, in Boglehead books: simple, diversified, cheap.

lsp12
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Re: New Investor – Novice Jitters

Post by lsp12 » Sun Mar 05, 2017 7:52 am

Lots of good advice here already.

I would say a couple of additional things. First, regarding the money you are investing, when will you need it? If it is for retirement, then that argues strongly towards equities. Assuming you will be continuing to save/invest over the next 30'ish years, then you will be dollar cost averaging simply due to the timing of your investments. On the other hand, if it is for something like a down payment on a house, then that argues for a less aggressive portfolio mix.

Second, you need to somehow come to the intellectual and emotional understanding that risk isn't simply about the market going down; if you don't invest in equities, there is the risk that you won't have enough resources to retire, or that you will have to work many more years before you can afford to retire. How does that risk feel, vs. the risk that the market is 'overvalued' right now?

I understand that it is difficult to pull the trigger on stock purchases. I too have trouble doing it; however, I think you simply need to have faith that, over the long run, equities are simply by far the highest-likelihood way of making money with your savings, after having paid off debt. I would suggest reading some of Warren Buffett's writings (e.g. his recent Berkshire Hathaway investors' letter); this guy is perhaps the greatest investor ever, and I think he makes a lot of persuasive and cogent points about why equities are the place to be.

I suggest that you need to make the decision and set up an automatic process for the investments simply happening (e.g. an automatic 401k investment, or a monthly transfer from checking to an investment account, or whatever). That way, you don't have to make independent decisions to 'pull the trigger.' I find that makes it alot easier.

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ruralavalon
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Re: New Investor – Novice Jitters

Post by ruralavalon » Sun Mar 05, 2017 8:29 am

Consider these ideas:

1) In your 401k and IRA just use a nice balanced fund with a moderately conservative 60/40 asset allocation such as Vanguard Balanced Index Fund or Vanguard Wellington Fund.

2) Invest a fixed amount or fixed percentage of your earnings automatically every pay period.

3) Keep this up consistently no matter what the market does.
Last edited by ruralavalon on Sun Mar 05, 2017 8:40 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Agrippa
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Re: New Investor – Novice Jitters

Post by Agrippa » Sun Mar 05, 2017 8:34 am

Stivo, based on my reading of your post, you already understand that your urge to market time is irrational. The question then is what to do about it. I second the suggestion by poster lsp12 to make your investing as automatic as possible. Set up automatic contributions and stop obsessing about your current balance by focusing on other activities.

One other thing – you state that you “do not believe that having a more conservative allocation would help me feel better.” I don’t know if it would make you feel better now but I’d guess you’d feel better during the next market downturn with a more conservative allocation. A 95/5 stock/bond split would not typically be recommended for someone with a low risk tolerance. How about 60/40 if you still want a significant portion of equities?
Agrippa

lsp12
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Re: New Investor – Novice Jitters

Post by lsp12 » Sun Mar 05, 2017 9:08 am

One other thought.

I think you need to do a bit of a thought experiment about how you would feel in two scenarios.

First, if you do invest now, and the market corrects say 20% 6 months from now, how badly will you beat yourself up over the notion that 'I knew the market was going to go down, but I invested anyway. Now, I'm down 20%'? And, will you really be able to pull the trigger then? Or will you say, 'Wow, I will just wait til the market goes down another 10% (or X%)'? And then the market heads back up? Timing the market is shown to be hard, if not impossible.

versus

If you don't invest now, and the market is up 20% in the next 6 months, will you be mad that you didn't invest. Moreover, if the market is up 20%, will you then be willing to invest, or will your belief in a future decline make it even harder for you to invest?

I don't know the math, but I believe there is a significant likelihood that the market will never be lower than it is today -- simply because, over the long run, the market has a positive rate of return. Clearly, the likelihood that the market is higher (including reinvested dividends) in 1 year than it is today is greater than the likelihood that the market will be lower. Maybe that likelihood is 51/49, but still it is positive. So, over the long term, I think you've got to simply play the odds. Unlike goods (e.g. groceries, electronics, clothing), there is no guarantee that the 'sale price' of the market will ever be lower than it is today. If you are waiting for a 'sale' relative to today's prices, it may never come. Yes, some day there will be a '20% off' sale (i.e. market correction), but that may be from a much higher point.

Again, easy to say, harder to do. I am managing some money for my young children. I have a bunch in cash, because of various things that have happened in their portfolios. I have kept waiting for the market to drop..... how much money have I left on the table because of the positive returns in the market? I don't want to think about that. Just need to get one's emotions/fear/risk aversion out of it; make it automatic, make ongoing investments over time, and trust that, in the long run, ownership of companies is a better way to make money than the alternatives.

JW-Retired
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Re: New Investor – Novice Jitters

Post by JW-Retired » Sun Mar 05, 2017 10:05 am

Stivo wrote:
My wife and I are in our mid-30s and we invested in the stock market for the first time last week with an allocation of 95% stocks/5% bonds. I did not invest during the recent 8 year bull market even though I had wanted to because I did not have enough money beyond my emergency fund to allow for it. Now, after using most of my twenties and early thirties to obtain a doctorate, and working my butt off since then, we have managed to save up enough to invest.
..............snip.......

While I do not believe that I would panic sell during a bear market, I have had the strong urge to take my money out of the market every day since I invested it a week ago. I believe that by investing now, I am setting myself up to be the stupid money that invests when the market is at or near its top and have less in retirement as a result.

I think some context would help us answer. How much is this first time equity investment? Was this a huge sum you had sitting in cash in your 401k for a long while? Or what?

When you are investing periodically in an employer plan just set it an forget it. Some money will go in at temporary market highs and some at temporary market lows but you can't predict them in advance. Relying on your "beliefs" to time the market is not going to work.

Suggest you post in our preferred format. That will let us understand your situation better.........
viewtopic.php?f=1&t=6212
JW
Retired at Last

Cyclesafe
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Re: New Investor – Novice Jitters

Post by Cyclesafe » Sun Mar 05, 2017 10:25 am

OP, another way of thinking that bridges from what you "know".

Your retirement without substantial investment gains - bleak (your assumption)

Case 1
Investing now mostly in fixed assets, yielding sufficient substantial investment gains in 30 years - lowest probability. But is a 3% nominal return good enough?

If no....

Case 2
Investing mostly in equity, yielding sufficient substantial investment gains after 30 years - medium probability.
Investing mostly in equity, yielding inadequate investment gains after 30 years - lower probability.

Case 1 bakes in failure. Case 2 might fail too, but you have a medium probability of success. Also, if Case 2 fails, if things are so bad in 30 years that Case 1 would have been better in hindsight, I submit that Case 1 would be untenable: you might have a tough time liquidating during Armageddon.

I don't see that you have any other choice than to invest now mostly in equity. Then as you accumulate savings double down. If you are wrong about this, you will have plenty of company.

Artisan
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Re: New Investor – Novice Jitters

Post by Artisan » Sun Mar 05, 2017 10:47 am

Here is what I think (sorry in advance for the tough love).

People with a lot more financial and market savy then you admit they cannot predict the future of the economy.

You may be correct in all your assumptions about what will happen. Most likely you will be wrong.

If you think you know more then Mr. Bogle, Mr. Buffet and others like them then you should reduce your equity exposure.

You should not be taking higher risk to catch up. If a reduced equity exposure won't allow you to stay the course and sleep well at night then you shouldn't be invested in the market.

You have plenty of time to save for retirement without a 95/5 stocks/bonds ratio.

If you posted here so the people here can make you feel better by saving it is okay, you'll be alright then:

It is okay, you will be alright.

And remember this quote, attributable to many authors:

"It is difficult to make predictions, especially about the future"

Fundhunter
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Re: New Investor – Novice Jitters

Post by Fundhunter » Sun Mar 05, 2017 11:10 am

Why not invest only in Vanguard Target Retirement 2055 or 2060 and let VG do the thinking for you? Both are about 90% stock and 10% bonds and this ratio slowly adjusts with more fixed income as you get closer to the target date. Just keep on putting $$ in every month, and when the market goes down (and you have no reason to know when that will be), then you are buying "stocks on sale" (more shares for the same money).

You have to believe in the Boglehead philosophy and do not deviate from it because of what the market may do. If you are not fully on board mentally, then read some of the recommended books- the one you ordered is good at explaining the Boglehead philosophy.

pyld76
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Re: New Investor – Novice Jitters

Post by pyld76 » Sun Mar 05, 2017 11:21 am

If the majority of your market participation is in tax sheltered or tax deferred vehicles (401k/403b/457/tIRA/rIRA), buy yourself the VG life strategy fund that's 80% stock. Or the VG balanced fund

Then don't open the statements for about a decade.

This becomes harder to do if you have to have a significant taxable portfolio because you are going to have to do more planning around taxes.

A very good friend of DW and I made the "mistake" of putting all her monies into the VG balanced fund across her IRA, 403b, and taxable during the period of 2000 (or so) to present. And reinvesting the dividends, which of course generated negative tax consequences. But she never "peeked" until mid-2016. The resultant balances damn near gave her heart failure, despite the tax drag from a balanced fund in taxable and all that. I firmly believe that her deviation from the tax "correct" thing to do likely saved her from herself in the end.

As an investor, if you recognize that your bevahior is the problem, do things to minimize its impact. It's not going to be a popular opinion around here, but perhaps consider paying Vanguard PAS to hold your hand. If you believe you will do yourself more than the 30 basis points worth of damage by doing irrational things during market swings, pay someone to Do it.

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BL
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Re: New Investor – Novice Jitters

Post by BL » Sun Mar 05, 2017 11:30 am

pyld76 wrote:
A very good friend of DW and I made the "mistake" of putting all her monies into the VG balanced fund across her IRA, 403b, and taxable during the period of 2000 (or so) to present. And reinvesting the dividends, which of course generated negative tax consequences. But she never "peeked" until mid-2016. The resultant balances damn near gave her heart failure, despite the tax drag from a balanced fund in taxable and all that. I firmly believe that her deviation from the tax "correct" thing to do likely saved her from herself in the end.

As an investor, if you recognize that your bevahior is the problem, do things to minimize its impact. It's not going to be a popular opinion around here, but perhaps consider paying Vanguard PAS to hold your hand. If you believe you will do yourself more than the 30 basis points worth of damage by doing irrational things during market swings, pay someone to Do it.

Love that story!

Minor point: it was the dividends, not the reinvestments, that had the tax drag.

So, OP, either a balanced fund or PAS would be a way to help avoid messing things up.

pkcrafter
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Re: New Investor – Novice Jitters

Post by pkcrafter » Sun Mar 05, 2017 12:44 pm

Stivo, you have been given good advice, and just wanted to add a bit on perspective.

My wife and I are in our mid-30s and we invested in the stock market for the first time last week with an allocation of 95% stocks/5% bonds.

This allocation is clearly not right for you, plus it isn't necessary.

I did not invest during the recent 8 year bull market even though I had wanted to because I did not have enough money beyond my emergency fund to allow for it. Now, after using most of my twenties and early thirties to obtain a doctorate, and working my butt off since then, we have managed to save up enough to invest.

How much did you invest?

I am realizing that I have two problems and would appreciate the advice and combined wisdom of this forum:

Maybe you only have one problem - emotional, which will result in harmful behavior if not controlled.

1) I tried my best to accurately assess my risk tolerance and have come to the conclusion that I have – NONE! I am an extremely risk intolerant person, but I also would like a decent retirement and know that I am come to investing later than ideal.

You have to address your risk intolerance, and one big reason it's a problem is you have a strong misconception about your situation. You are not behind and you have no urgency to make up for lost time or to push for highest returns. Take a breath. :happy

Also, keep in mind that every decision we make about investing involves a compromise--no situation is really ideal, so not feeling completely fine with everything is normal, but you have to find a good compromise, and right now you are far from that.

My logical side says to put everything in the market as soon as possible, go heavy in equities, and let the magic of time take care of the rest.

No. Your starting age and position are about average and when starting out the amount you contribute to retirement is far more important than the returns you get. The power of compounding is about time.
I do not believe that I would panic sell during a bear market (although I have never experienced a bear market with money invested).

Why do you think that? Everything you've written says you will panic. In fact, you already seem panicked. You are not going to know your emotional limit until you are under the stress of actually watching your hard earned money disappear, and clearly 95% equity isn't right nor are your reason for being 95% equity. We talk about financial need and ability to take risk and willingness (emotional tolerance) to take risk. As I mentioned, you do not have the need to take high risk and it's far out of sync with your willingness.

However, I am confident that I will fail the sleep test during the next bear market. I do not believe that having a more conservative allocation would help me feel better, and I have a high need to take on a lot of risk. As a person with a fairly low risk tolerance, how do I reconcile my low risk tolerance with my high need? Do I simply invest in the way that feels logical and take it as a given I will get little sleep when the next bear market hits?

Again, you don't have high need. No, you can't really go on logic because panic is real and induces chemical changes that will scream, Get OUT of here! This is the same response our ancestors had when confronted with a life and death situation. Emotional panic will easily push logic and reason out of the way!

2 Here are my beliefs:


I'm not going to address your beliefs, I'm just going to say, so what, nothing you can do about them. Maybe you are a person who likes to be in control and you now find yourself in a situation that you feel you are not in control. But you are looking at the wrong things. Suppose none of what you are worried about happens in the next 3 years? Do you not think uncomfortable things will happen several times in the next 30 years? You may experience them now, and certainly you will experience them later.

A definition of risk: Not having the money for something important when you need it.

So, what happens in the next 5 years isn't even on the radar. Finally, what you are concerned about is volatility risk, and by definition volatility is the down and UP movement of the stock market. It happens all the time and you cannot avoid it. You can attenuate it though with lower equity allocations.

Asset allocation: I don't think anyone should be above 80% equity. 60% equity has been shown to be a very good balance between risk taken, and reward received. 50% equity will most likely get you there if you have a good rate of savings.
I know that this post might seem silly to many of the experienced members of this forum


Doesn't seem silly at all.

I have read about the Boglehead investing principles and believe that I understand them intellectually, but I am having a lot of trouble internalizing and trusting those principles. I have recently ordered Taylor Larimore’s, The Boglehead’s Guide to Investing, and I am hoping that will help me as well.

The two most important things you need to constantly do are; keep costs low and don't make behavioral errors. Investing is literally a lifetime endeavor.

The Bogleheads guide is an excellent starting point. One of first books I read that had a real impact was Larry Swedroe's, The Only Guide to a Winning Investment Strategy You'll Ever Need.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Stivo
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Re: New Investor – Novice Jitters

Post by Stivo » Sun Mar 05, 2017 6:56 pm

I just read through your replies. Many thanks to each of you who took the time to share your thoughts, experiences, book suggestions, blogs, and stories. This feels like a very welcoming and supportive community. I get the idea from your replies that it might be a good idea for me to continue to self-reflect, read more about the Boglehead philosophy, consider a more conservative asset allocation and/or DCA approach, and attempt to automatize everything I can.

As suggested by several posters, I'll create a post in the Help with Personal Investments forum when I have some time to do so and use the preferred Boglehead forum format. I'll also go ahead and start reading The Bogleheads' Guide to Investing tonight.

Stivo

pyld76
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Re: New Investor – Novice Jitters

Post by pyld76 » Sun Mar 05, 2017 10:17 pm

BL wrote:Love that story!

Minor point: it was the dividends, not the reinvestments, that had the tax drag.

So, OP, either a balanced fund or PAS would be a way to help avoid messing things up.


Yeah, I wasn't concise but you encapsulated the gist: the "right" thing to do isn't having a balanced or bond fund that throws taxable dividends in, well, taxable. In our friends' case, I'm quite certain that ignoring the noise during her mid to late-career earning peak was better than the most tax efficient allocation. Beyond a doubt.

I'm also of the belief that most individuals who never reach beyond tax deferred or tax sheltered vehicles for retirement investment are going to be better served by a good target retirement style fund or life strategy style funds because they could credibly do the "don't peek" strategy for years/decades at a time.

Fundhunter
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Re: New Investor – Novice Jitters

Post by Fundhunter » Mon Mar 06, 2017 12:45 am

Stivo wrote:I just read through your replies. Many thanks to each of you who took the time to share your thoughts, experiences, book suggestions, blogs, and stories. This feels like a very welcoming and supportive community. I get the idea from your replies that it might be a good idea for me to continue to self-reflect, read more about the Boglehead philosophy, consider a more conservative asset allocation and/or DCA approach, and attempt to automatize everything I can.

As suggested by several posters, I'll create a post in the Help with Personal Investments forum when I have some time to do so and use the preferred Boglehead forum format. I'll also go ahead and start reading The Bogleheads' Guide to Investing tonight.

Stivo


I think a lot of the problem with some people new to this way of investment thinking is really believing that this is the right way to invest. Once you buy into it, it is really pretty easy. Read some of the books.

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ruralavalon
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Re: New Investor – Novice Jitters

Post by ruralavalon » Mon Mar 06, 2017 8:10 am

Stivo wrote:I just read through your replies. Many thanks to each of you who took the time to share your thoughts, experiences, book suggestions, blogs, and stories. This feels like a very welcoming and supportive community. I get the idea from your replies that it might be a good idea for me to continue to self-reflect, read more about the Boglehead philosophy, consider a more conservative asset allocation and/or DCA approach, and attempt to automatize everything I can.

As suggested by several posters, I'll create a post in the Help with Personal Investments forum when I have some time to do so and use the preferred Boglehead forum format. I'll also go ahead and start reading The Bogleheads' Guide to Investing tonight.

Stivo

Excellent choice of reading material. It's good to see will will pause to create a good plan by learning about investing and gathering together your own financial data.

A good summary you could read on investing is the wiki article on "Bogleheads Investment Philosophy".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

eldinerocheapo
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Re: New Investor – Novice Jitters

Post by eldinerocheapo » Mon Mar 06, 2017 8:41 am

Stivo, I was in your shoes.......thirty years ago, got creamed on Black Monday in '87, and sat on the sidelines nursing my ego for about two years after that. I used to get newsletters from Louis Rukyeser urging me to get in the game (and subscribe to his newsletter). I re entered the market via my 401k and employer contributions. Through good and bad markets, I have not waivered since that time and invest the max annually and it has paid off over the long haul. Take the long term perspective and look at the tax advantages available and go for it. If you have the jitters, start small in a balanced fund, and watch the dividends roll in quarterly. An eventual down market could mean more shares allocated to your account several times a year.

Yes, we all play the fool at times in the market, but I can tell you from experience that nothing, and I mean nothing, has made us more money in the last ten years. I'm hopeful we can retire in two years and this would not be possible without taking the risk of investing.

Good luck with your decision.

sco
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Re: New Investor – Novice Jitters

Post by sco » Tue Mar 07, 2017 1:08 am

THe others have said much better than me... But let me try to say something as simple as possible.

When do you hope to retire? Is it 20-30 years? Pick a number.

There's your target, now you need to pick an allocation that can allow you to do 2 things. 1 reach your target with a reasonable level of certainty, and more importantly sleep at night and not obsess about it.


It does take a while and a few cycles to learn that "ignoring the noise", is something you must do. Then actually ignoring it, can take a bit longer...

lazydavid
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Re: New Investor – Novice Jitters

Post by lazydavid » Tue Mar 07, 2017 8:55 am

My wife is extraordinarily risk-averse, and about 2/3 of our retirement savings are rollover from her previous employer's profit sharing plan. This combined with the fact that we're still relatively young (late 30s) and have a need to take risk in order to achieve our goals put me in a challenging spot last year when I started really managing our portfolio.

What I settled on for her IRA is Wellington. This is a low-cost (18bp for Admiral Shares) actively-managed Vanguard fund that's been around for 80+ years. It has a 65/35 AA, almost entirely US, with a tilt to large value. I chose it because it has a long history (past performance is no guarantee.....) of slightly trailing market returns, with a LOT less volatility. I understand that I'm giving up some total return in exchange for a bit more stability, which will help her sleep well at night. I then have a very aggressive AA in our 401ks (almost 60% international equity, less than 10% bonds) to drag our overall AA back to 49/21/30 (US Equity, International Equity, Bonds). Ongoing contributions there will somewhat mitigate falling balances due to corrections or bear markets.

Later on, as our need/willingness to take risk decreases, we'll gradually migrate Wellington shares over to Wellesley, which is run by the same management company but has the inverse 35/65 AA.

Wellington might be an option for you, since you seem to have a similar fear of loss as my wife does. As previously brought up, Vanguard PAS may be another good option. But regardless, 95/5 is WAY too aggressive, given your lack of risk tolerance. You simply cannot go 3-5 years without sleeping, with the only alternative being selling near the bottom.

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