NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by PFInterest »

I usually enjoy Carl Richard's The Sketch Guy.
I thought this was a rare miss by him.

You’re No Coward if You’re Keeping Some Money Out of Stocks
Grt2bOutdoors
Posts: 23232
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by Grt2bOutdoors »

It's not a miss. It's his way of saying "invest according to your ability, need and willingness to accept risk". If you lack any of those three traits, then it's okay to step back and reevaluate your plan. You have to read between the lines.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
aspiringlawyer
Posts: 48
Joined: Fri Apr 07, 2017 10:06 am

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by aspiringlawyer »

Risk in the market vs. risk of starting three businesses

I'll take the first.
User avatar
nedsaid
Posts: 14215
Joined: Fri Nov 23, 2012 12:33 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by nedsaid »

Actually, this week I did another round of mild rebalancing from stocks to bonds. I started this process in July of 2013 during the time of the "taper tantrum". So I have been in this process for four years now. I have reduced my stocks from 69% of my portfolio to 67% over that time period. Had I done nothing, I would be at probably 75% stocks now.

I did this for several reasons. First, I am getting older and this was a baby step in starting to reduce my risk profile. Second, I missed a rebalancing opportunity that I had before the 2008-2009 financial crisis and I swore I would not let this happen again. Third, the rising stock market is making even an optimist like me a bit nervous. Market valuations are looking a bit rich even for me.

Stocks are risky. Sometimes we forget this. I remember losing a few hundred dollars in the October 1987 stock market crash and I saw my financial life flash in front of my eyes. Emotionally, I may as well have lost billions and not hundreds. Imagine what that would be like now, after many years of portfolio growth? The dollar amounts are larger and my years to retirement get to be shorter and shorter. If I came into a big windfall, I would be very leery about just throwing that wad of money at the US Stock Market. I would probably work money in over time, maybe over two years.

So I see the point of the article. It doesn't hurt to err on the side of conservatism as our risk tolerance is never as high as we think it is. It takes a true bear market to determine that.
A fool and his money are good for business.
User avatar
iceport
Posts: 4662
Joined: Sat Apr 07, 2007 4:29 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by iceport »

PFInterest wrote:I usually enjoy Carl Richard's The Sketch Guy.
I thought this was a rare miss by him.
That was my initial reaction also. But by the end of the thought-provoking piece, I see the wisdom in his holistic perspective.
"Discipline matters more than allocation.” ─William Bernstein
User avatar
iceport
Posts: 4662
Joined: Sat Apr 07, 2007 4:29 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by iceport »

nedsaid wrote:...So I have been in this process for four years now. I have reduced my stocks from 69% of my portfolio to 67% over that time period.

...this was a baby step in starting to reduce my risk profile.
A "baby step?" No kidding!

8-)
"Discipline matters more than allocation.” ─William Bernstein
User avatar
TomatoTomahto
Posts: 11640
Joined: Mon Apr 11, 2011 1:48 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by TomatoTomahto »

I think it was a good, if not earth shaking, piece. Why not fight against FOMO (Fear of Missing Out)?

I have also left money on the table by having a substantial amount in TBM. Meh. So what?
I get the FI part but not the RE part of FIRE.
pkcrafter
Posts: 14565
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by pkcrafter »

If you want to understand Carl Richards position on risk, read this.

http://www.nytimes.com/2011/11/09/busin ... house.html


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.
User avatar
greg24
Posts: 3972
Joined: Tue Feb 20, 2007 10:34 am

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by greg24 »

This seems like an inefficient and haphazard way to lower your asset allocation to risky assets.

If he wants to avoid putting more in equities, then bonds or CDs or other fixed income are better vehicles than a 0.16% savings account.

But I'm not a certified financial planner.
User avatar
willthrill81
Posts: 22661
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by willthrill81 »

I'm not a fan of this piece.

"Why are they scared? Many of them cite the fact that markets are at record highs and the endless stream of uncertainty in the news. Feel that way yourself? Well guess what: You don’t have to invest the money."

If you're basing your willingness to invest on such factors, then you're nothing more than an emotional market timer. There is always uncertainty in the news, and the market's biggest historic gains are made when it's at or near record highs, never mind that around one-third of the time, the market is near its record highs. Over the long-term, stocks just grow, and being scared that they haven't withered enough to suit your taste in a while is simply illogical.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
rkhusky
Posts: 10909
Joined: Thu Aug 18, 2011 8:09 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by rkhusky »

I don't mind uncertainty. I get nervous about certainty, such as the banking industry is going to fail, insurance companies are going to fail, your stocks and bonds will be worth pennies on the dollar, etc.
User avatar
iceport
Posts: 4662
Joined: Sat Apr 07, 2007 4:29 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by iceport »

willthrill81 wrote:I'm not a fan of this piece.

"Why are they scared? Many of them cite the fact that markets are at record highs and the endless stream of uncertainty in the news. Feel that way yourself? Well guess what: You don’t have to invest the money."

If you're basing your willingness to invest on such factors, then you're nothing more than an emotional market timer. There is always uncertainty in the news, and the market's biggest historic gains are made when it's at or near record highs, never mind that around one-third of the time, the market is near its record highs. Over the long-term, stocks just grow, and being scared that they haven't withered enough to suit your taste in a while is simply illogical.
These are valid points. I have just two comments in defense of the piece. First, the overall sense I get is that Richards really has in mind a more enduring fear than just recent market/world conditions. Second (and I guess assuming the first point), it's easy for me to see this as but one more choice, albeit an extreme one, on the risk/return continuum. We don't typically admonish investors choosing to keep 40% out of the equity market, nor should we, even though higher returns are expected with a higher equity allocation.
"Discipline matters more than allocation.” ─William Bernstein
pkcrafter
Posts: 14565
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by pkcrafter »

If you read the link I provided above, you will understand that Carl Richard is somewhat risk averse and he knows it. He learned the hard way. He also realizes that there are risk averse investors out there like him who don't yet know it.

If an investor is acting nervous or concerned about the market - and we've seen several lately - it is a good indication that the level of market risk they are now taking is too high. That does not mean investors should pull back now and up equity allocation when they feel more confident, it means the AA should stay at the lower level from now on.

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.
User avatar
1210sda
Posts: 1788
Joined: Wed Feb 28, 2007 8:31 am

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by 1210sda »

aspiringlawyer wrote:Risk in the market vs. risk of starting three businesses

I'll take the first.
+1
I wonder what the failure rate of small businesses is?

As a CFP, he must/should be aware that at 0.16% return, he is losing to inflation.

1210
User avatar
nedsaid
Posts: 14215
Joined: Fri Nov 23, 2012 12:33 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by nedsaid »

iceport wrote:
nedsaid wrote:...So I have been in this process for four years now. I have reduced my stocks from 69% of my portfolio to 67% over that time period.

...this was a baby step in starting to reduce my risk profile.
A "baby step?" No kidding!

8-)
Well, I keep saying that I am thoughtful and conservative in my approach. I don't like to make dramatic changes in my portfolio. Plus, I just hate to trade. Vanguard's stock allocation for the 2025 fund is 65%, so I am not far off the reservation. But yes, this is a baby step. My portfolio has gotten large enough that my minor shifts are pretty serious dollars. In reality, I would be at 75% stocks or perhaps higher if I just let my portfolio drift.
A fool and his money are good for business.
Tamales
Posts: 1495
Joined: Sat Jul 05, 2014 10:47 am

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by Tamales »

1210sda wrote: As a CFP, he must/should be aware that at 0.16% return, he is losing to inflation.

1210
Intent is to consider the impact (volatility reduction and perhaps psychological effects therein) on overall portfolio, not the cash piece in isolation.

A cash position used to be a standard,recommended part of one's portfolio (Nisiprius has posted links to historic references to this in the past; I'll see if I can locate them later and add as an edit)
User avatar
saltycaper
Posts: 2650
Joined: Thu Apr 24, 2014 8:47 pm
Location: The Tower

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by saltycaper »

Tamales wrote:
A cash position used to be a standard,recommended part of one's portfolio (Nisiprius has posted links to historic references to this in the past; I'll see if I can locate them later and add as an edit)
Here's one: Re: Is 30% stock enough to keep up with (or beat) inflation?

Here's another: Re: An "out of sample" test of two specific factor-based portfolios published pre-2008
Quod vitae sectabor iter?
User avatar
willthrill81
Posts: 22661
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by willthrill81 »

Tamales wrote:A cash position used to be a standard,recommended part of one's portfolio (Nisiprius has posted links to historic references to this in the past; I'll see if I can locate them later and add as an edit)
Cash does not necessarily mean a savings account earning .16%. Tyler at Portfolio Charts makes a solid argument that treasury bills have been a great inflation hedge across both time and countries.

Image

"As you can see, while there are certainly a few times when cash lost money to inflation it actually provided a small return above inflation the vast majority of the time. And lest you think this is an isolated phenomenon, it works this way in every country and currency and even holds up in times of very high inflation. Believe it or not, even as inflation in the US spiked well into double digits in the late 70s and early 80s, Tbills lagged inflation by more than 1% only once in that period! Completely counter to common belief, properly invested cash is perhaps the single most consistent inflation hedge available.

That consistent performance has its benefits, and here’s a real mind-bender for US-centric investors — in Canada since 1970, the safe withdrawal rates for all retirement lengths up to 40 years with a 100% cash portfolio have been equal or superior to one with 100% stocks!"

https://portfoliocharts.com/2017/05/12/ ... -investor/

It's a very good piece that I highly recommend.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
User avatar
iceport
Posts: 4662
Joined: Sat Apr 07, 2007 4:29 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by iceport »

nedsaid wrote:
iceport wrote:
nedsaid wrote:...So I have been in this process for four years now. I have reduced my stocks from 69% of my portfolio to 67% over that time period.

...this was a baby step in starting to reduce my risk profile.
A "baby step?" No kidding!

8-)
Well, I keep saying that I am thoughtful and conservative in my approach. I don't like to make dramatic changes in my portfolio. Plus, I just hate to trade.
All positive characteristics. I just see a 2% shift as fairly insignificant to begin with, and to take 4 years to do it just struck me as very slow. I like to have a light touch with my portfolio too, but my shift from 70% to 56% equities took less than 8 years, and the last few years were at a rate of almost 2% per year. At your pace, it would have taken about 28 years. (I might very well be gone before that!) But kudos to you, as your portfolio is probably much larger. I was able to make the shift nearly exclusively with new contributions.
"Discipline matters more than allocation.” ─William Bernstein
User avatar
nedsaid
Posts: 14215
Joined: Fri Nov 23, 2012 12:33 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by nedsaid »

iceport wrote:
nedsaid wrote:
iceport wrote:
nedsaid wrote:...So I have been in this process for four years now. I have reduced my stocks from 69% of my portfolio to 67% over that time period.

...this was a baby step in starting to reduce my risk profile.
A "baby step?" No kidding!

8-)
Well, I keep saying that I am thoughtful and conservative in my approach. I don't like to make dramatic changes in my portfolio. Plus, I just hate to trade.
All positive characteristics. I just see a 2% shift as fairly insignificant to begin with, and to take 4 years to do it just struck me as very slow. I like to have a light touch with my portfolio too, but my shift from 70% to 56% equities took less than 8 years, and the last few years were at a rate of almost 2% per year. At your pace, it would have taken about 28 years. (I might very well be gone before that!) But kudos to you, as your portfolio is probably much larger. I was able to make the shift nearly exclusively with new contributions.
Iceport, I am a stock guy but I know about portfolio theory and age adjusted portfolios. You are right, I will have to pick up the pace on de-risking and I have been putting it off. I am age 58 and I am thinking seriously hard about this. Can't believe I got so old so fast!
A fool and his money are good for business.
User avatar
iceport
Posts: 4662
Joined: Sat Apr 07, 2007 4:29 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by iceport »

nedsaid wrote:Can't believe I got so old so fast!
Ha! You and me both! I had barely any (5-10%) fixed income until I was around 40, when I woke up one day and realized (with Taylor's gentle prodding, BTW) I was no longer the yout' I thought I was. ;^) Suddenly seeing my age more clearly (denial is a formidable adversary) was like flicking a switch.

By mid-40s I was at a steady 30% — just about in time to start winding down further in anticipation of a mid-50s retirement. Now I'm at "permanent" 44% (as "permanent" as my life is...).
"Discipline matters more than allocation.” ─William Bernstein
User avatar
aj76er
Posts: 845
Joined: Tue Dec 01, 2015 11:34 pm
Location: Austin, TX

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by aj76er »

willthrill81 wrote:
Tamales wrote:A cash position used to be a standard,recommended part of one's portfolio (Nisiprius has posted links to historic references to this in the past; I'll see if I can locate them later and add as an edit)
Cash does not necessarily mean a savings account earning .16%. Tyler at Portfolio Charts makes a solid argument that treasury bills have been a great inflation hedge across both time and countries.

Image

"As you can see, while there are certainly a few times when cash lost money to inflation it actually provided a small return above inflation the vast majority of the time. And lest you think this is an isolated phenomenon, it works this way in every country and currency and even holds up in times of very high inflation. Believe it or not, even as inflation in the US spiked well into double digits in the late 70s and early 80s, Tbills lagged inflation by more than 1% only once in that period! Completely counter to common belief, properly invested cash is perhaps the single most consistent inflation hedge available.

That consistent performance has its benefits, and here’s a real mind-bender for US-centric investors — in Canada since 1970, the safe withdrawal rates for all retirement lengths up to 40 years with a 100% cash portfolio have been equal or superior to one with 100% stocks!"

https://portfoliocharts.com/2017/05/12/ ... -investor/

It's a very good piece that I highly recommend.
Yes that is a good piece. I enjoyed reading it. Cash is the asset I most want to love :).

Couple of things to note:

1. Cash held in taxable will most certainly lose to inflation after taxes. And it is rare to find a pure tbill MM fund in 401k's but perhaps tIra could be used.

2. The chart above conspicuously leaves off the last decade during which cash has been a real dog underperforming inflation.

IBonds can help mitigate both #1 and #2
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
User avatar
willthrill81
Posts: 22661
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by willthrill81 »

aj76er wrote:
willthrill81 wrote:
Tamales wrote:A cash position used to be a standard,recommended part of one's portfolio (Nisiprius has posted links to historic references to this in the past; I'll see if I can locate them later and add as an edit)
Cash does not necessarily mean a savings account earning .16%. Tyler at Portfolio Charts makes a solid argument that treasury bills have been a great inflation hedge across both time and countries.

Image

"As you can see, while there are certainly a few times when cash lost money to inflation it actually provided a small return above inflation the vast majority of the time. And lest you think this is an isolated phenomenon, it works this way in every country and currency and even holds up in times of very high inflation. Believe it or not, even as inflation in the US spiked well into double digits in the late 70s and early 80s, Tbills lagged inflation by more than 1% only once in that period! Completely counter to common belief, properly invested cash is perhaps the single most consistent inflation hedge available.

That consistent performance has its benefits, and here’s a real mind-bender for US-centric investors — in Canada since 1970, the safe withdrawal rates for all retirement lengths up to 40 years with a 100% cash portfolio have been equal or superior to one with 100% stocks!"

https://portfoliocharts.com/2017/05/12/ ... -investor/

It's a very good piece that I highly recommend.
Yes that is a good piece. I enjoyed reading it. Cash is the asset I most want to love :).

Couple of things to note:

1. Cash held in taxable will most certainly lose to inflation after taxes. And it is rare to find a pure tbill MM fund in 401k's but perhaps tIra could be used.

2. The chart above conspicuously leaves off the last decade during which cash has been a real dog underperforming inflation.

IBonds can help mitigate both #1 and #2
Good points. It's easier to buy short-term treasuries in a 401k, and they've actually earned .82% real since 2000.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Admiral
Posts: 3201
Joined: Mon Oct 27, 2014 12:35 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by Admiral »

The column strikes me as a case of stating the obvious, at least to a Boglehead. If you have a sufficient emergency fund, then it should be in cash or a cash-like instrument with low risk, or whatever meets your tolerance criteria. No need to feel guilty about it.

If you don't, then you don't follow the Bh philosophy. Which is fine, as long as you're cognizant of the risks involved in such a strategy.

He could have just substituted "bonds" or "bond funds" for cash.
User avatar
nedsaid
Posts: 14215
Joined: Fri Nov 23, 2012 12:33 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by nedsaid »

iceport wrote:
nedsaid wrote:Can't believe I got so old so fast!
Ha! You and me both! I had barely any (5-10%) fixed income until I was around 40, when I woke up one day and realized (with Taylor's gentle prodding, BTW) I was no longer the yout' I thought I was. ;^) Suddenly seeing my age more clearly (denial is a formidable adversary) was like flicking a switch.

By mid-40s I was at a steady 30% — just about in time to start winding down further in anticipation of a mid-50s retirement. Now I'm at "permanent" 44% (as "permanent" as my life is...).
Similar story here. I was 94% stocks in my retirement account at age 40. Just before the 2000 crash, I went to 80% stocks/20% bonds and cash. Put new monies in at 60% stocks/40% bonds. Took me a few years but I worked down to 70% stocks and now am at 67% stocks today. Haven't de-risked all that much in recent years but I feel a bit like Cramer hitting the "sell" button over and over. All that selling has about kept me even. It shows what a strong bull market in stocks can do. Whenever the next bear market hits, I at least will know that I took the opportunity to rebalance. I didn't rebalance before 2008-2009 and really regretted it. I had the good sense to hang in there and not sell my stocks.
A fool and his money are good for business.
User avatar
Abe
Posts: 2215
Joined: Fri Sep 18, 2009 5:24 pm
Location: Earth in the Milky Way Galaxy

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by Abe »

I understand having a limit on how much one puts in the market. Isn't that what asset allocation is all about? I don't agree with having the money in cash yielding .16%. There are plenty of low risk places to put it that pay a higher rate than .16%.
Slow and steady wins the race.
chrisCD
Posts: 1
Joined: Wed Sep 30, 2015 3:44 pm
Location: Sacramento Area

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by chrisCD »

He says he is reducing risk yet he invested in 3 different businesses. What is the failure rate of new businesses? I guess maybe they aren't new. Seems he traded one risk for another.

cd :O)
User avatar
burt
Posts: 808
Joined: Sun Feb 17, 2008 7:47 am

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by burt »

I like the Zvi Bodie video regarding risk.
"I don't like to lose".

https://www.youtube.com/watch?v=Yfta3z6I7Xs

burt
JFP_SF
Posts: 76
Joined: Sat Oct 01, 2016 12:01 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by JFP_SF »

chrisCD wrote:He says he is reducing risk yet he invested in 3 different businesses. What is the failure rate of new businesses? I guess maybe they aren't new. Seems he traded one risk for another.

cd :O)
Or perhaps he looks at it as offsetting that risk. I keep a lot more cash around than I should, but I work for a start-up and have a lot of my potential net worth tied up in illiquid private stock.
User avatar
willthrill81
Posts: 22661
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by willthrill81 »

chrisCD wrote:He says he is reducing risk yet he invested in 3 different businesses. What is the failure rate of new businesses? I guess maybe they aren't new. Seems he traded one risk for another.

cd :O)
Think of it this way: would you want to have a substantial portion of your wealth in three stocks?

He might not be experiencing quite as much risk as it sounds like, but then he again he might. I know of many business owners who have gone bankrupt or close because their business failed.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Calli114
Posts: 194
Joined: Tue May 16, 2017 12:54 am

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by Calli114 »

pkcrafter wrote:If you want to understand Carl Richards position on risk, read this.

http://www.nytimes.com/2011/11/09/busin ... house.html


Paul
Interesting - I had no idea.
User avatar
iceport
Posts: 4662
Joined: Sat Apr 07, 2007 4:29 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by iceport »

nedsaid wrote:
iceport wrote:
nedsaid wrote:Can't believe I got so old so fast!
Ha! You and me both! I had barely any (5-10%) fixed income until I was around 40, when I woke up one day and realized (with Taylor's gentle prodding, BTW) I was no longer the yout' I thought I was. ;^) Suddenly seeing my age more clearly (denial is a formidable adversary) was like flicking a switch.

By mid-40s I was at a steady 30% — just about in time to start winding down further in anticipation of a mid-50s retirement. Now I'm at "permanent" 44% (as "permanent" as my life is...).
Similar story here. I was 94% stocks in my retirement account at age 40. Just before the 2000 crash, I went to 80% stocks/20% bonds and cash. Put new monies in at 60% stocks/40% bonds. Took me a few years but I worked down to 70% stocks and now am at 67% stocks today. Haven't de-risked all that much in recent years but I feel a bit like Cramer hitting the "sell" button over and over. All that selling has about kept me even. It shows what a strong bull market in stocks can do. Whenever the next bear market hits, I at least will know that I took the opportunity to rebalance. I didn't rebalance before 2008-2009 and really regretted it. I had the good sense to hang in there and not sell my stocks.
Interesting narrative. In my story, it was the dot.com bust that a) got me to add more than a token amount of bonds, and b) led to my going 100% passive. As fortune would have it, that transition was finally completed in July 2008, with 30% fixed income and a 100% passive portfolio. That combination made the crash landing of the Great Recession waaay more comfortable. But the slow-motion dot.com bust hurt.
"Discipline matters more than allocation.” ─William Bernstein
User avatar
nedsaid
Posts: 14215
Joined: Fri Nov 23, 2012 12:33 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by nedsaid »

iceport wrote:
nedsaid wrote:
iceport wrote:
nedsaid wrote:Can't believe I got so old so fast!
Ha! You and me both! I had barely any (5-10%) fixed income until I was around 40, when I woke up one day and realized (with Taylor's gentle prodding, BTW) I was no longer the yout' I thought I was. ;^) Suddenly seeing my age more clearly (denial is a formidable adversary) was like flicking a switch.

By mid-40s I was at a steady 30% — just about in time to start winding down further in anticipation of a mid-50s retirement. Now I'm at "permanent" 44% (as "permanent" as my life is...).
Similar story here. I was 94% stocks in my retirement account at age 40. Just before the 2000 crash, I went to 80% stocks/20% bonds and cash. Put new monies in at 60% stocks/40% bonds. Took me a few years but I worked down to 70% stocks and now am at 67% stocks today. Haven't de-risked all that much in recent years but I feel a bit like Cramer hitting the "sell" button over and over. All that selling has about kept me even. It shows what a strong bull market in stocks can do. Whenever the next bear market hits, I at least will know that I took the opportunity to rebalance. I didn't rebalance before 2008-2009 and really regretted it. I had the good sense to hang in there and not sell my stocks.
Interesting narrative. In my story, it was the dot.com bust that a) got me to add more than a token amount of bonds, and b) led to my going 100% passive. As fortune would have it, that transition was finally completed in July 2008, with 30% fixed income and a 100% passive portfolio. That combination made the crash landing of the Great Recession waaay more comfortable. But the slow-motion dot.com bust hurt.
I refused to chase the really hot internet/high tech stuff during the 1990's. I had investments in Lucent and Hewlett Packard and that was about it. I am Value oriented and this helped me during the 2000-2002 bear market as my peak to trough losses were 32%. Not bad for an 80/20 portfolio.
A fool and his money are good for business.
User avatar
HomerJ
Posts: 15711
Joined: Fri Jun 06, 2008 12:50 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by HomerJ »

chrisCD wrote:He says he is reducing risk yet he invested in 3 different businesses. What is the failure rate of new businesses? I guess maybe they aren't new. Seems he traded one risk for another.

cd :O)
He's a blogger and a writer. I'm guessing his three "businesses" didn't really require a huge cash investment. I would bet he's just risking not making a lot of money, I doubt he's risking a huge loss.
*3!4!/5!
Posts: 1256
Joined: Fri Sep 02, 2016 1:47 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by *3!4!/5! »

PFInterest wrote:I usually enjoy Carl Richard's The Sketch Guy.
I thought this was a rare miss by him.
You’re No Coward if You’re Keeping Some Money Out of Stocks
I assumed it was a joke.
pkcrafter wrote:If you want to understand Carl Richards position on risk, read this.
http://www.nytimes.com/2011/11/09/busin ... house.html
I remember that. It's that guy.
PFInterest wrote:I usually enjoy Carl Richard's The Sketch Guy.
I thought this was a rare miss by him.
You’re No Coward if You’re Keeping Some Money Out of Stocks
Now I reassess. The article is just clickbait trolling. This thread is just one of those threads started by a clickbait/troll article. It's pointless and should be shut down.
SGM
Posts: 3100
Joined: Wed Mar 23, 2011 4:46 am

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by SGM »

I read about Carl Richards' loss of his house when the article first came out. His earlier article indicates to me he is a bit foolish about his personal spending and following the crowd. Thanks for the reminder about how foolish FAs can be.

My strategy early in the accumulation phase was to be entirely in stocks regardless of market levels. Being out of the market for short periods of time can mean missing big run-ups. Continuing to buy while the market is down means you are buying more shares with each dollar. That is why I never got out of the market in a downturn and continued to invest with every paycheck regardless of the noise. All those previous highs during accumulation are below current market levels.

Will markets take a dive again? Most likely they will, but valuations will have a minimal or no effect on my standard of living.

Disposing of what I have previously accumulated is a different ball game. Retirement is a good time to have sufficient amounts in bond funds and cash equivalents so that you don't have to sell stocks in a downturn.

I do think cowardice has cost many investors as they have had too little invested in the market when they were young.
JFP_SF
Posts: 76
Joined: Sat Oct 01, 2016 12:01 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by JFP_SF »

willthrill81 wrote:I'm not a fan of this piece.

"Why are they scared? Many of them cite the fact that markets are at record highs and the endless stream of uncertainty in the news. Feel that way yourself? Well guess what: You don’t have to invest the money."

If you're basing your willingness to invest on such factors, then you're nothing more than an emotional market timer. There is always uncertainty in the news, and the market's biggest historic gains are made when it's at or near record highs, never mind that around one-third of the time, the market is near its record highs. Over the long-term, stocks just grow, and being scared that they haven't withered enough to suit your taste in a while is simply illogical.
Whenever I see a statement like this, I always want to ask "Are there any valuations that would cause you to reconsider being invested in stocks?"
User avatar
willthrill81
Posts: 22661
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by willthrill81 »

JFP_SF wrote:
willthrill81 wrote:I'm not a fan of this piece.

"Why are they scared? Many of them cite the fact that markets are at record highs and the endless stream of uncertainty in the news. Feel that way yourself? Well guess what: You don’t have to invest the money."

If you're basing your willingness to invest on such factors, then you're nothing more than an emotional market timer. There is always uncertainty in the news, and the market's biggest historic gains are made when it's at or near record highs, never mind that around one-third of the time, the market is near its record highs. Over the long-term, stocks just grow, and being scared that they haven't withered enough to suit your taste in a while is simply illogical.
Whenever I see a statement like this, I always want to ask "Are there any valuations that would cause you to reconsider being invested in stocks?"
There are various sides to this. One could argue, as Larry Swedroe does, that investing in stocks should be based on ability, willingness, and need. If one has achieved one's investment goals, then it is perfectly rational to reduce one's exposure to stocks. But this is not based on a "valuation."

It seems that you are referring to some metric that would indicate that stocks are no longer a good investment. Some point to P/E ratios or the closely related CAPE, but for true buy-and-hold investors, the answer to your question is an emphatic "No." Michael Kitces has shown that even when CAPE has been at its historic highs, subsequent 30 year returns were only 1% lower than the historic average.

For a good, fairly easily understood explanation as to why, I strongly encourage you to read Jeremy Siegel's book "Stocks for the Long Run." Over long-term periods, nothing else can even remotely compete with the returns of equities. In fact, he demonstrates that bonds are not necessarily the safe haven that many investors think they are, particularly over long periods of time, a perspective shared by many others including Warren Buffet.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
User avatar
ResearchMed
Posts: 11011
Joined: Fri Dec 26, 2008 11:25 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by ResearchMed »

I missed Richards' article back in 2011.
It was really interesting to read in terms of what happened then and since.

One short portion stood out to me:

"...Risk is an arbitrary concept, until you experience it. And I've noticed myself focusing more of the consequences of something going wrong than just the probability of that happening..."
[emphasis added]

But this goes both ways. There are also consequences of being "too risk averse". It's not only by way of investing too safely, as in low-interest savings account.
It's also by way of the YOLO [You Only Live Once] situation. If one keeps putting off things, including reasonable dreams, there are definitely potentially negative consequences of that. The "time" when one can do these things isn't infinite.

This especially comes up in those charts of "Probability of Success" of a variety of portfolios/etc., that typically look at the probability of "running out".
But those don't adjust for "cutting back" if one sees the trajectory changing. Nor do those take into account "how much of a miss". These are related, of course.
And those involve "consequences", not just a success/failure dichotomy.

RM
This signature is a placebo. You are in the control group.
User avatar
HomerJ
Posts: 15711
Joined: Fri Jun 06, 2008 12:50 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by HomerJ »

JFP_SF wrote:
willthrill81 wrote:I'm not a fan of this piece.

"Why are they scared? Many of them cite the fact that markets are at record highs and the endless stream of uncertainty in the news. Feel that way yourself? Well guess what: You don’t have to invest the money."

If you're basing your willingness to invest on such factors, then you're nothing more than an emotional market timer. There is always uncertainty in the news, and the market's biggest historic gains are made when it's at or near record highs, never mind that around one-third of the time, the market is near its record highs. Over the long-term, stocks just grow, and being scared that they haven't withered enough to suit your taste in a while is simply illogical.
Whenever I see a statement like this, I always want to ask "Are there any valuations that would cause you to reconsider being invested in stocks?"
Money invested in 2000, the highest valuations ever, followed by two crashes in less than a decade, still has given a positive real return over the long run.

And very few of us put all of our money in the market in the year 2000 and only the year 2000.

So far, one has not needed to avoid the crashes to make decent-to-good returns in the stock market. Those long-term historical averages INCLUDE the crashes.
bradshaw1965
Posts: 781
Joined: Tue Jul 31, 2007 9:36 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by bradshaw1965 »

I think he's trying to talk about entrepreneurial risk and balancing with safe assets rather then asset allocation. There is often an assumption that sort of like everybody has a novel somewhere in them that the same is true for a business idea. I'm not sure that's true, I've looked around at business ideas, side hustles, web projects, real estate, etc. and not everybody has that calling. Maybe something will come and knock me over the head one day but it's way easier to shovel excess money into the market then to come up with a working business.
Snowjob
Posts: 1634
Joined: Sun Jun 28, 2009 10:53 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by Snowjob »

nedsaid wrote:... I remember losing a few hundred dollars in the October 1987 stock market crash and I saw my financial life flash in front of my eyes. Emotionally, I may as well have lost billions and not hundreds. Imagine what that would be like now, after many years of portfolio growth? The dollar amounts are larger and my years to retirement get to be shorter and shorter...
This is why I could never retire early. At some point, the fear of losing that large pile is enough of a deterrent from doing the risky things that allow for out sized returns (leverage, individual bets etc) Worked for a while when i was younger but I've fully in the minimize non-market risk these days. When i started investing I wanted to retire early, and yes losing most of what I had earned the first couple years into 2007-2009 was traumatic. But I justified it as oh it was only x years of savings. Another decade later and a much larger pile of money, I know exactly what your saying.
ThrustVectoring
Posts: 771
Joined: Wed Jul 12, 2017 2:51 pm

Re: NYT Carl Richards "You’re No Coward if You’re Keeping Some Money Out of Stocks"

Post by ThrustVectoring »

JFP_SF wrote: Whenever I see a statement like this, I always want to ask "Are there any valuations that would cause you to reconsider being invested in stocks?"
Nope. Capital markets are efficient enough that I can safely assume that the 30-year outlook for other public investments is likely worse.
Current portfolio: 60% VTI / 40% VXUS
Post Reply