It's easy to have an investment plan until you get punched in the face

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CULater
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It's easy to have an investment plan until you get punched in the face

Post by CULater »

The Wall Street Journal asks an interesting question this week…
As the U.S. stock market continues to set all-time highs, many investors are proudly adhering to their mantra of “buy and hold.” That is what financial advisers preach, and investors are sticking to it.
For now, anyway. The tougher question is this: Will they stick to buy and hold if the market tumbles?
Here’s my guess: Nope.

You gotta ask yourself if you can hang onto to your investment plan after stocks have dropped 50% and you're a few years older. If you're not sure, it might be time to reconsider..
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TheHouse7
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Re: It's easy to have an investment plan until you get punched in the face

Post by TheHouse7 »

I sold all my PSX after a 10% drop. Learned a ton early on and haven't stopped since that lock in of loss. (Holding 20% in bonds at 30) :|
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.
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Re: It's easy to have an investment plan until you get punched in the face

Post by Grt2bOutdoors »

TheHouse7 wrote: Sun Aug 13, 2017 9:02 pm I sold all my PSX after a 10% drop. Learned a ton early on and haven't stopped since that lock in of loss. (Holding 20% in bonds at 30) :|
What drop? The stock is at 83.44, that is up from the 77 of just a few weeks ago.
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renue74
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Re: It's easy to have an investment plan until you get punched in the face

Post by renue74 »

TheHouse7 wrote: Sun Aug 13, 2017 9:02 pm I sold all my PSX after a 10% drop. Learned a ton early on and haven't stopped since that lock in of loss. (Holding 20% in bonds at 30) :|
Did your plan tell you to do that?
remomnyc
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Re: It's easy to have an investment plan until you get punched in the face

Post by remomnyc »

If you have an appropriate allocation (specific to your need, willingness, and ability to take risk), you should be able to sustain a punch in the face and get up and stand put. Through my accumulation phase, I was 80/20. I didn't flinch when the market swooned because I had decades of work ahead of me to recover. Now that I'm on the cusp of early retirement, I could no longer stomach losing 50% of my equities. I'm now 60/40 and my 40% is in savings, CDs and bonds will let me ride out a very long downturn and sleep well at night.
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Re: It's easy to have an investment plan until you get punched in the face

Post by Random Walker »

I think this brings up the huge behavioral issues involved with asset allocation. An individual needs a strong intuitive belief in his AA to stick with it. For me, the key is maximum diversification across factors / sources of return. There will always be some part of the portfolio zigging and another zagging. When maximally diversified across sources of return, hard to make changes since the individual owns a bit of everything already. For TSMers, the conviction has to come from knowing they have the lowest cost portfolios. When markets go down, the good news is that future expected returns go up.

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Re: It's easy to have an investment plan until you get punched in the face

Post by Random Walker »

Remommyc,
I'm similar to you. As retirement approaches I've gon from 80/20 to 47/33/20 stocks/bonds/alternatives. It's important for us to realize that a typical 60/40 portfolio still has about 90%'of its risk on the equity side.

Dave
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iceport
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Re: It's easy to have an investment plan until you get punched in the face

Post by iceport »

I thought this was a terribly garbled article.

Everyone’s a ‘Buy and Hold’ Investor Now. But Can You Stay That Way?

Unless you read it carefully — and probably unless you already knew its ultimate message — you could easily be misled. For the first half of the article, there is a case made that market-timing beats buy-and-hold investing sometimes, as if the two strategies move in cycles, and your job is to figure out when to be a market-timer and when to buy and hold. This notion is reinforced with the article's only graph ( https://si.wsj.net/public/resources/ima ... 143903.jpg ), but it fails to define the time periods or the methods.

Only after spending several paragraphs confusing the reader does Hulbert finally come clean:
Note carefully that these popularity swings have nothing to do with whether market timing has become a better or worse strategy over the long term. Virtually all studies have found that the vast majority of market timers lag behind a buy-and-hold strategy over periods encompassing one or more full market cycles. From a purely statistical point of view, of course, those studies’ conclusions are equally compelling regardless of whether we’re at the bottom of the bear market or at the top of a bull market.
So the message is to find an AA you can stick with, but the importance of doing so is described in an almost off-hand way.
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North Texas Cajun
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Re: It's easy to have an investment plan until you get punched in the face

Post by North Texas Cajun »

Random Walker wrote: Sun Aug 13, 2017 9:36 pm Remommyc,
I'm similar to you. As retirement approaches I've gon from 80/20 to 47/33/20 stocks/bonds/alternatives. It's important for us to realize that a typical 60/40 portfolio still has about 90%'of its risk on the equity side.

Dave
How did you determine that "a typical 60/40 portfolio still has about 90%'of its risk on the equity side."?

Are you referring to the standard deviation of returns? I think that depends on whether one is looking at 1 year returns, 2 year returns, 10 year returns, or 30 year returns, doesn't it? It also might depend on what you mean by a "typical 60/40 portfolio".
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Re: It's easy to have an investment plan until you get punched in the face

Post by Billionaire »

Random Walker wrote: Sun Aug 13, 2017 9:36 pm Remommyc,
I'm similar to you. As retirement approaches I've gon from 80/20 to 47/33/20 stocks/bonds/alternatives. It's important for us to realize that a typical 60/40 portfolio still has about 90%'of its risk on the equity side.

Dave
Could you please define "alternatives"?
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Re: It's easy to have an investment plan until you get punched in the face

Post by Call_Me_Op »

CULater wrote: Sun Aug 13, 2017 8:40 pm The Wall Street Journal asks an interesting question this week…
As the U.S. stock market continues to set all-time highs, many investors are proudly adhering to their mantra of “buy and hold.” That is what financial advisers preach, and investors are sticking to it.
For now, anyway. The tougher question is this: Will they stick to buy and hold if the market tumbles?
Here’s my guess: Nope.

You gotta ask yourself if you can hang onto to your investment plan after stocks have dropped 50% and you're a few years older. If you're not sure, it might be time to reconsider..
If they don't stick to their plan, that tells me it wasn't a good (i.e., carefully considered) plan.
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The Wizard
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Re: It's easy to have an investment plan until you get punched in the face

Post by The Wizard »

So basically, 95%+ of all investors have been surveyed and proclaim themselves buy and holders thru good times and bad?
I don't think so.
But it's an amusing premise to write an article about...
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Re: It's easy to have an investment plan until you get punched in the face

Post by Iliketoridemybike »

Billionaire wrote: Mon Aug 14, 2017 5:58 am
Random Walker wrote: Sun Aug 13, 2017 9:36 pm Remommyc,
I'm similar to you. As retirement approaches I've gon from 80/20 to 47/33/20 stocks/bonds/alternatives. It's important for us to realize that a typical 60/40 portfolio still has about 90%'of its risk on the equity side.

Dave
Could you please define "alternatives"?
They are generally considered assets less correlated to equities: gold, real estate, commodities, energy and such.
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Re: It's easy to have an investment plan until you get punched in the face

Post by Random Walker »

North Texas Cajun,
im referencing Lussier's book, Successful Investing Is A Process pages 179-180. He simply has a graph labeled Equity weight and Equity volatility. He doesn't specifically name SD or time frame. You seem to be making the argument that the risk of stocks decreases with time. Certainly the overall average annualized return may be more predictable with longer time frame, but the dispersion of outcomes for the portfolio increases with time. And in a single year equities can lose 50%. Stocks are risky no matter what the time frame.


Billionaire,
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Top99%
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Re: It's easy to have an investment plan until you get punched in the face

Post by Top99% »

The Wizard wrote: Mon Aug 14, 2017 7:08 am So basically, 95%+ of all investors have been surveyed and proclaim themselves buy and holders thru good times and bad?
I don't think so.
But it's an amusing premise to write an article about...
I can totally buy that 95%+ of all investors *proclaim* themselves to be B&H through good and bad times. But, the GFC proved otherwise. I think the reality is one really doesn't know how one will handle a big decline in one's portfolio value until it happens. Imagining how one will react to a punch in the face is different than actually receiving a punch in the face. I also think how one handles it depends a lot on whether one is in the accumulation phase or spending phase. I held fast during the tech bubble and GFC crashes but I was accumulating so I viewed these crashes as an opportunity. I feel fairly confident I will hold fast in the next crash. But, the difference will be for the next crash we will be at least partially depending on our nest egg for income so until the actual punch comes I won't know for sure. So, time to repeat the line: It is critical to have a portfolio allocation that aligns with one's need, ability and desire for risk.
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Re: It's easy to have an investment plan until you get punched in the face

Post by WhyNotUs »

It would be interesting to study what, if any, the trend toward indexes will have when the next big fall comes. Will people be more likely if they are in a "take what the market gives" rather than "beat the market" state of mind or will people sell at the bottom and be on the sidelines during the recovery (should one occur)?
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Re: It's easy to have an investment plan until you get punched in the face

Post by North Texas Cajun »

Well, we are talking about SD of percent returns. And over time the daily and one year fluctuations tend to cancel out, don't they?

Jeremy Siegel and others have researched the SD of the U.S. Stock returns. Siegel found that it gors way down over time - from 18% over 1 year to 6% over 30 years.

On the other hand, the SD of bonds in the past has not declined as much as would have been expected by a random walk.
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Re: It's easy to have an investment plan until you get punched in the face

Post by Random Walker »

Top99%,
You and I must be about the same age. I see a lot of experience and wisdom in your comment above. Sticking to the plan when young, not much savings relative to future earnings, and in accumulation phase, is one thing. I imagine sticking to plan when older, savings probably greater than future earnings, and close to decumulation, must be a whole different league. Really need that AA appropriately cooled off as retirement approaches.

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Re: It's easy to have an investment plan until you get punched in the face

Post by sixtyforty »

One's ability to stick with buy and hold is inversely proportional to the frequency they look at their accounts.
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Re: It's easy to have an investment plan until you get punched in the face

Post by warner25 »

I think it's also hard to know yourself, especially how you've changed over time. I was invested through 2008-2009, and I know how it felt then, but I also was in my early twenties, single, with low-five figures in the market. Now I'm married with kids, and we have mid-six figures in the market. I know I'm more anxious and conservative about some things than I was back then, and my wife probably is too. And of course her ability to stay the course matters just as much as mine. So I don't think I can judge how things will feel during the next downturn based on how it felt for me ten years ago.
The Wizard wrote: Mon Aug 14, 2017 7:08 amSo basically, 95%+ of all investors have been surveyed and proclaim themselves buy and holders thru good times and bad?
I think a good number of people will buy and hold until they lose their income (which happens in a downturn), and then they certainly stop buying, and eventually they're selling to pay the bills. So I think it's a fallacy to talk about "investment horizon" the way many do, e.g. "I have decades of earnings ahead of me, so I'm not worried." You just don't know.
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Re: It's easy to have an investment plan until you get punched in the face

Post by North Texas Cajun »

TIPs should have lower SD than other bonds as they are not subject to inflation risk. However, the real return of TIPs so far have been much lower than Total Bond indez.

Edit: This comment, made from the 7th hole of my golf round today, was meant to be included as part of my reply to Random Walker about the long term riskiness of bonds vs stocks.

Over the long term bonds and stocks are equally risky - the returns of both have nearly the same standard deviation over 20 and 30 year periods. But stocks, of course, have much higher returns.

TIPs will likely prove less risky than all other bonds and less risky than stocks over the long term. But the cost of that safety is near-zero real returns.
Last edited by North Texas Cajun on Mon Aug 14, 2017 2:42 pm, edited 2 times in total.
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Re: It's easy to have an investment plan until you get punched in the face

Post by Independent George »

I think most of the people buying into indexes today are actually buying ETFs, and the volume is highest on days when the market is up; these are not "buy and hold" investors, and will likely send the markets even lower than 'normal' during the next bear market.

The people on this board are not the usual investors, regardless of their income. I kept buying through 2009 despite a substantial pay cut, and so long as I have income, I'll keep buying through the next crash, too.
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Re: It's easy to have an investment plan until you get punched in the face

Post by steadyeddy »

It's easier to deal with getting punched in the face when you have an investment plan.
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Re: It's easy to have an investment plan until you get punched in the face

Post by KlangFool »

Folks,

IMHO, there is a bigger and more important question. Do you need to do something in order to maintain your investment plan if the market crashes? In my case, the answer is nothing. 40% of my portfolio is in Wellington fund. It is auto rebalance. My auto 401K contribution is 50% stock and 50% bond. I actually did a spreadsheet modeling calculated when and if I ever need to manual rebalance with my 5/25 band. In summary, only if the stock drop by 30+% on one day, I may need to manually rebalance. But, if I did nothing, my portfolio would rebalance itself in a while.

It is very simple.

If the market crashes, do you need to do something in order to rebalance? If the answer is nothing, it is easier to follow your investment plan.

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Re: It's easy to have an investment plan until you get punched in the face

Post by bayview »

sixtyforty wrote: Mon Aug 14, 2017 9:35 am One's ability to stick with buy and hold is inversely proportional to the frequency they look at their accounts.
This is certainly not true for everyone. :happy
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Re: It's easy to have an investment plan until you get punched in the face

Post by TN_Boy »

sixtyforty wrote: Mon Aug 14, 2017 9:35 am One's ability to stick with buy and hold is inversely proportional to the frequency they look at their accounts.
I don't know about that. I checked my accounts frequently during the 08/09 meltdown. But I didn't just buy and hold. I tax-loss harvested and bought more.

Many of the boglehead community think looking at your accounts is "bad." It's only bad if account fluctuations drive you into "doing things." And it's really hard to tax-loss harvest without knowing that you have a loss. Granted, if you have only tax-deferred accounts, there is less value in looking at account values.
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Re: It's easy to have an investment plan until you get punched in the face

Post by The Wizard »

bayview wrote: Mon Aug 14, 2017 11:46 am
sixtyforty wrote: Mon Aug 14, 2017 9:35 am One's ability to stick with buy and hold is inversely proportional to the frequency they look at their accounts.
This is certainly not true for everyone. :happy
Correct.
I monitor the markets and my investments several days a week on my smartphone. But seldom do I do anything.
I did rebalance a small increment out of international stocks last week before the dip.

But then, I'm a Buy, Hold, and Rebalance kinda person...
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Re: It's easy to have an investment plan until you get punched in the face

Post by SimplicityNow »

Top99% wrote: Mon Aug 14, 2017 8:38 am
The Wizard wrote: Mon Aug 14, 2017 7:08 am So basically, 95%+ of all investors have been surveyed and proclaim themselves buy and holders thru good times and bad?
I don't think so.
But it's an amusing premise to write an article about...
I can totally buy that 95%+ of all investors *proclaim* themselves to be B&H through good and bad times. But, the GFC proved otherwise. I think the reality is one really doesn't know how one will handle a big decline in one's portfolio value until it happens. Imagining how one will react to a punch in the face is different than actually receiving a punch in the face. I also think how one handles it depends a lot on whether one is in the accumulation phase or spending phase. I held fast during the tech bubble and GFC crashes but I was accumulating so I viewed these crashes as an opportunity. I feel fairly confident I will hold fast in the next crash. But, the difference will be for the next crash we will be at least partially depending on our nest egg for income so until the actual punch comes I won't know for sure. So, time to repeat the line: It is critical to have a portfolio allocation that aligns with one's need, ability and desire for risk.
Agree and well stated.
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Re: It's easy to have an investment plan until you get punched in the face

Post by Dottie57 »

WhyNotUs wrote: Mon Aug 14, 2017 8:55 am It would be interesting to study what, if any, the trend toward indexes will have when the next big fall comes. Will people be more likely if they are in a "take what the market gives" rather than "beat the market" state of mind or will people sell at the bottom and be on the sidelines during the recovery (should one occur)?

Panic sets in. I know from 2008.
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Re: It's easy to have an investment plan until you get punched in the face

Post by KlangFool »

Dottie57 wrote: Mon Aug 14, 2017 12:48 pm
WhyNotUs wrote: Mon Aug 14, 2017 8:55 am It would be interesting to study what, if any, the trend toward indexes will have when the next big fall comes. Will people be more likely if they are in a "take what the market gives" rather than "beat the market" state of mind or will people sell at the bottom and be on the sidelines during the recovery (should one occur)?

Panic sets in. I know from 2008.
Dottie57,

In 2008/2009, I was 50% VSMGX and 50% Wellington. I did not have to do anything. If I have to do something, I doubt that I have the time and energy to deal with it. At 1/1/2009, my employer laid off 50% of my co-workers at my location. Then, it was chaos at work. I could be gone in a few months too.

Bad things tend to happen at the same time during a recession.

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Re: It's easy to have an investment plan until you get punched in the face

Post by David Jay »

Random Walker wrote: Sun Aug 13, 2017 9:33 pm I think this brings up the huge behavioral issues involved with asset allocation. An individual needs a strong intuitive belief in his AA to stick with it.
As I always say, you need to believe in your AA enough to convince yourself to stay the course in a downturn.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: It's easy to have an investment plan until you get punched in the face

Post by Dottie57 »

KlangFool wrote: Mon Aug 14, 2017 1:43 pm
Dottie57 wrote: Mon Aug 14, 2017 12:48 pm
WhyNotUs wrote: Mon Aug 14, 2017 8:55 am It would be interesting to study what, if any, the trend toward indexes will have when the next big fall comes. Will people be more likely if they are in a "take what the market gives" rather than "beat the market" state of mind or will people sell at the bottom and be on the sidelines during the recovery (should one occur)?

Panic sets in. I know from 2008.
Dottie57,

In 2008/2009, I was 50% VSMGX and 50% Wellington. I did not have to do anything. If I have to do something, I doubt that I have the time and energy to deal with it. At 1/1/2009, my employer laid off 50% of my co-workers at my location. Then, it was chaos at work. I could be gone in a few months too.

Bad things tend to happen at the same time during a recession.

KlangFool

Klangfool,

I had been tested before in the late 1990's, and early 2000's. But I didn't have a lot accumulated. By 2007/2008. I had a much larger portfolio. And as I saw it decrese, panic set in. Of course I also thought the whole system might fail.

I did enough right at that time to be on the cusp of retirement at age 60.
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Re: It's easy to have an investment plan until you get punched in the face

Post by SmileyFace »

There are two classes of people that don't have a problem.
1) Us true Bogleheads whose only moves during 99-2001 and 2008 timeframes where in buying more stock funds in order to re balance our AAs
2) But then there are also the people who really do NEVER or RARELY look at how their retirement savings are doing. I know people personally who have their 401ks set on autopilot - they set them up when they took their job - are maxing or putting a lot in - but just aren't interested to look - when they heard there was a major market drop in 2008 - they didn't even look at their 401k and didn't understand the news about what was dropping or why. They simply continue to invest for retirement and don't pay all that much attention (of course some of them aren't in the most efficient investments and don't re-balance unless they chose a target date fund) until they get close to retirement or switch jobs. I don't know what % of folks are like this - but I've known quite a few over the years.
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Re: It's easy to have an investment plan until you get punched in the face

Post by MnD »

sixtyforty wrote: Mon Aug 14, 2017 9:35 am One's ability to stick with buy and hold is inversely proportional to the frequency they look at their accounts.
One's ability to stick with buy and hold is inversely proportional to the frequency they start or affirm posts about how large numbers of "others" will be unable to stick with buy and hold in the next market downturn.
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Re: It's easy to have an investment plan until you get punched in the face

Post by North Texas Cajun »

Random Walker wrote: Mon Aug 14, 2017 7:42 am North Texas Cajun,
im referencing Lussier's book, Successful Investing Is A Process pages 179-180. He simply has a graph labeled Equity weight and Equity volatility. He doesn't specifically name SD or time frame. You seem to be making the argument that the risk of stocks decreases with time. Certainly the overall average annualized return may be more predictable with longer time frame, but the dispersion of outcomes for the portfolio increases with time. And in a single year equities can lose 50%. Stocks are risky no matter what the time frame.


Billionaire,
My alternatives are 2 AQR funds: style Premia, time series Momentum and 3 Stone Ridge funds: alternative lending, reinsurance, Variance risk premium.

Dave
Not sure of you saw my reply, so here it is again:

We are talking about SD of percent returns. And over time the daily and one year fluctuations tend to cancel out, don't they?

Jeremy Siegel and others have researched the SD of the U.S. Stock returns. Siegel found that it goes way down over time - from 18% over 1 year to 6% over 30 years.

On the other hand, the SD of bonds in the past has not declined as much as would have been expected by a random walk.

I disagree with your statement, Random Walker, that stocks are risky no matter what time frame. Jeremy Siegel has shown that U.S. Stocks are less risky than T bonds and T bills over 30 year periods. That is, over 30 year periods, the standard deviation of real U.S. Stock returns is lower than that of government bonds.

As longinvest pointed out in another post, Professor Siegel's study did not include TIPs. TIPs will likely have a lower SD than all other assets over the long term. But the real returns of TIPs have been close to zero. So, it may be possible to find an asset with less risk than U.S. stocks over the long term, but the price one pays (the foregone return) is very high.
Last edited by North Texas Cajun on Mon Aug 14, 2017 2:51 pm, edited 3 times in total.
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Re: It's easy to have an investment plan until you get punched in the face

Post by jazman12 »

when fear sets in... take out your IP and look at it and see if it still makes sense for your circumstances and go with it... :beer
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Re: It's easy to have an investment plan until you get punched in the face

Post by Toons »

Punched in the face with "Opportunity" :happy
Get it when it is on sale
half price
like 2007-8 :mrgreen: :mrgreen:
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Re: It's easy to have an investment plan until you get punched in the face

Post by North Texas Cajun »

DaftInvestor wrote: Mon Aug 14, 2017 1:59 pm There are two classes of people that don't have a problem.
1) Us true Bogleheads whose only moves during 99-2001 and 2008 timeframes where in buying more stock funds in order to re balance our AAs
2) But then there are also the people who really do NEVER or RARELY look at how their retirement savings are doing. I know people personally who have their 401ks set on autopilot - they set them up when they took their job - are maxing or putting a lot in - but just aren't interested to look - when they heard there was a major market drop in 2008 - they didn't even look at their 401k and didn't understand the news about what was dropping or why. They simply continue to invest for retirement and don't pay all that much attention (of course some of them aren't in the most efficient investments and don't re-balance unless they chose a target date fund) until they get close to retirement or switch jobs. I don't know what % of folks are like this - but I've known quite a few over the years.
There certainly are some 401k investors who ignore their 401ks. But there is another group - the one I am in - who did not rebalance our 401k even though we are very much aware of what is going on in U.S. markets. Why didn't we rebalance our portfolios? Because we were 100% in equities by choice and saw no need to rebalance.

I don't know what you mean when you say that "some of them aren't in the most efficient investments". Certainly in the 1980s and 1990s many 401K plans offerred far fewer choices for participants.
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Re: It's easy to have an investment plan until you get punched in the face

Post by SmileyFace »

North Texas Cajun wrote: Mon Aug 14, 2017 2:29 pm
I don't know what you mean when you say that "some of them aren't in the most efficient investments". Certainly in the 1980s and 1990s many 401K plans offerred far fewer choices for participants.
There's still folks out there that don't take the time to self-educate and just look at Morningstar ratings and will therefore chose an active fund simply because it currently has a 5-star rating (versus an index fund if offered to them). They still do better than the folks that don't save at all but may be able to do better.
It amazes me - I know people who will spend hours doing research about what fertilizer to put on their lawn - but then when it comes to the $1M+ retirement savings - they aren't interested enough to do more than a cursory look at past-performance of the choices they are presented in their 401K plans.
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Re: It's easy to have an investment plan until you get punched in the face

Post by North Texas Cajun »

DaftInvestor wrote: Mon Aug 14, 2017 2:34 pm
North Texas Cajun wrote: Mon Aug 14, 2017 2:29 pm
I don't know what you mean when you say that "some of them aren't in the most efficient investments". Certainly in the 1980s and 1990s many 401K plans offerred far fewer choices for participants.
There's still folks out there that don't take the time to self-educate and just look at Morningstar ratings and will therefore chose an active fund simply because it currently has a 5-star rating (versus an index fund if offered to them). They still do better than the folks that don't save at all but may be able to do better.
It amazes me - I know people who will spend hours doing research about what fertilizer to put on their lawn - but then when it comes to the $1M+ retirement savings - they aren't interested enough to do more than a cursory look at past-performance of the choices they are presented in their 401K plans.
When you wrote "aren't in the most efficient investments", I didn't know what you meant by "most efficient". It sounds like you are meaning investments which do not perform as well as other choices they could have made.
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Re: It's easy to have an investment plan until you get punched in the face

Post by North Texas Cajun »

Duplicate post deleted.
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Re: It's easy to have an investment plan until you get punched in the face

Post by RadAudit »

KlangFool wrote: Mon Aug 14, 2017 10:17 am If the market crashes, do you need to do something in order to rebalance? If the answer is nothing, it is easier to follow your investment plan.
+1

Good point.
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Re: It's easy to have an investment plan until you get punched in the face

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RadAudit wrote: Mon Aug 14, 2017 3:19 pm
KlangFool wrote: Mon Aug 14, 2017 10:17 am If the market crashes, do you need to do something in order to rebalance? If the answer is nothing, it is easier to follow your investment plan.
+1

Good point.
Let's define "do something." I would have to liquidate shares in a short term Bond fund in an IRA and use the money to rebalance to 60/40.
We don't really count that as "do something," I don't think.

This would be "do something": having to sell a rental property that you've considered a part of your fixed income portfolio.

Technically, we don't do that either, but Bogleheads are human and weak sometimes. ;-)

(The paid-off and earning extra house goes when I retire... soon! :-) )
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Re: It's easy to have an investment plan until you get punched in the face

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dupe deleted
Last edited by Johnnie on Mon Aug 14, 2017 8:48 pm, edited 1 time in total.
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Re: It's easy to have an investment plan until you get punched in the face

Post by Doom&Gloom »

MnD wrote: Mon Aug 14, 2017 2:02 pm
sixtyforty wrote: Mon Aug 14, 2017 9:35 am One's ability to stick with buy and hold is inversely proportional to the frequency they look at their accounts.
One's ability to stick with buy and hold is inversely proportional to the frequency they start or affirm posts about how large numbers of "others" will be unable to stick with buy and hold in the next market downturn.
I have no more data than anyone else, but I believe it is almost completely dependent upon whether one has internalized that "buy and hold" is the optimal approach through thick and thin. If one believes they can "sense" what is going to happen or improve their lot by trading, they will trade.
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Re: It's easy to have an investment plan until you get punched in the face

Post by Beensabu »

North Texas Cajun wrote: Mon Aug 14, 2017 2:18 pm
Random Walker wrote: Mon Aug 14, 2017 7:42 am North Texas Cajun,
im referencing Lussier's book, Successful Investing Is A Process pages 179-180. He simply has a graph labeled Equity weight and Equity volatility. He doesn't specifically name SD or time frame. You seem to be making the argument that the risk of stocks decreases with time. Certainly the overall average annualized return may be more predictable with longer time frame, but the dispersion of outcomes for the portfolio increases with time. And in a single year equities can lose 50%. Stocks are risky no matter what the time frame.


Billionaire,
My alternatives are 2 AQR funds: style Premia, time series Momentum and 3 Stone Ridge funds: alternative lending, reinsurance, Variance risk premium.

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Not sure of you saw my reply, so here it is again:

We are talking about SD of percent returns. And over time the daily and one year fluctuations tend to cancel out, don't they?

Jeremy Siegel and others have researched the SD of the U.S. Stock returns. Siegel found that it goes way down over time - from 18% over 1 year to 6% over 30 years.

On the other hand, the SD of bonds in the past has not declined as much as would have been expected by a random walk.

I disagree with your statement, Random Walker, that stocks are risky no matter what time frame. Jeremy Siegel has shown that U.S. Stocks are less risky than T bonds and T bills over 30 year periods. That is, over 30 year periods, the standard deviation of real U.S. Stock returns is lower than that of government bonds.

As longinvest pointed out in another post, Professor Siegel's study did not include TIPs. TIPs will likely have a lower SD than all other assets over the long term. But the real returns of TIPs have been close to zero. So, it may be possible to find an asset with less risk than U.S. stocks over the long term, but the price one pays (the foregone return) is very high.
Someone posted this link in one of the earlier threads I encountered on this forum:

http://www.norstad.org/finance/risk-and-time.html

You may find it interesting.
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Re: It's easy to have an investment plan until you get punched in the face

Post by North Texas Cajun »

Beensabu wrote: Tue Aug 15, 2017 12:44 am
Someone posted this link in one of the earlier threads I encountered on this forum:

http://www.norstad.org/finance/risk-and-time.html

You may find it interesting.
Thanks for taking the time to provide this link.

I read the arguments quickly, and was not impressed. The author spent considerable time talking about the agony one might feel from short term (1 to 3 year) downturns in the stock market. I feel that to be irrelevant to the topic he claimed to be discussing, which is whether risk decreases over the long term.

The author also spent considerable time exploring the possible lower returns shown by the random walk model he used to evaluate longer term risk. Then he acknowledges that the model does not incorporate reversion to the mean, a factor which has been present in U.S. stock returns for 200 years.
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Re: It's easy to have an investment plan until you get punched in the face

Post by mmcmonster »

Independent George wrote: Mon Aug 14, 2017 9:59 am I think most of the people buying into indexes today are actually buying ETFs, and the volume is highest on days when the market is up; these are not "buy and hold" investors, and will likely send the markets even lower than 'normal' during the next bear market.
I would love to see the spread of reasons why people buy ETFs.

When I was less experienced, I bought ETFs because all the articles at the time said that it was equally good to buy and hold ETFs when compared to funds. But ETFs have lower expense ratios than the low-level funds. So I bought the ETFs and still hold about 20% of my portfolio in ETFs (since I don't want to pay taxes on the gains).

(Once I gained more experience I bought the mutual funds and went from investor class to admiral class in short order. That being said, I was older and was able to accumulate at a higher rate)
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Re: It's easy to have an investment plan until you get punched in the face

Post by KlangFool »

Johnnie wrote: Mon Aug 14, 2017 6:33 pm
RadAudit wrote: Mon Aug 14, 2017 3:19 pm
KlangFool wrote: Mon Aug 14, 2017 10:17 am If the market crashes, do you need to do something in order to rebalance? If the answer is nothing, it is easier to follow your investment plan.
+1

Good point.
Let's define "do something." I would have to liquidate shares in a short term Bond fund in an IRA and use the money to rebalance to 60/40.
We don't really count that as "do something," I don't think.

This would be "do something": having to sell a rental property that you've considered a part of your fixed income portfolio.

Technically, we don't do that either, but Bogleheads are human and weak sometimes. ;-)

(The paid-off and earning extra house goes when I retire... soon! :-) )
Johnnie,

<<Let's define "do something." I would have to liquidate shares in a short term Bond fund in an IRA and use the money to rebalance to 60/40.>>

As per my post, "do something" = rebalancing. So, this applies. Many folks can buy and hold but rebalancing in a market crash is beyond many folks. I am probably one of them. So, I setup a strategy whereby my Wellington fund rebalances for me.

KlangFool
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Re: It's easy to have an investment plan until you get punched in the face

Post by Beensabu »

North Texas Cajun wrote: Tue Aug 15, 2017 4:59 am
Beensabu wrote: Tue Aug 15, 2017 12:44 am
Someone posted this link in one of the earlier threads I encountered on this forum:

http://www.norstad.org/finance/risk-and-time.html

You may find it interesting.
Thanks for taking the time to provide this link.

I read the arguments quickly, and was not impressed. The author spent considerable time talking about the agony one might feel from short term (1 to 3 year) downturns in the stock market. I feel that to be irrelevant to the topic he claimed to be discussing, which is whether risk decreases over the long term.

The author also spent considerable time exploring the possible lower returns shown by the random walk model he used to evaluate longer term risk. Then he acknowledges that the model does not incorporate reversion to the mean, a factor which has been present in U.S. stock returns for 200 years.
He does acknowledge that the effect of reversion to the mean on the pure random walk model used does decrease the standard deviations at longer time horizons, versus the pure random walk model. The point is, I think, that the range of possible outcomes becomes broader over a longer time horizon and thus "the uncertainty of the ending values increases with time", even accounting for reversion to the mean.

Can I ask you this? The studies you've looked at that concluded standard deviation decreased with time. Were they looking at annualized compounded returns or total compounded returns?
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next."
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