Portfolio7 wrote: ↑
Sat Mar 31, 2018 2:06 pm
I actually get where you're coming from. I became conservative twice in my investing life, early 2000 and late 2007. Did I bet everything? Definitely not. Why? Because I have never had a million dollars rolling in annually. I could be richer with a more aggressive investment approach, but I could also be broke, and I don't have the earning power to make it up before retirement age if I lose too much of my retirement stash. This is hurdle number 1 for investing like you do.
I've managed perhaps 1% outperformance annually vs a a globally diversified 80/20 portfolio over 23 years of investing, which is pretty much what my AA has been over that time. At times my AA has been 100/0, it's been 0/100, it's been tilted in many directions. I did it partly by doing what you mention. Watching the markets closely, believing I had some insight into when an investing story was just a story and when there was something real behind it, staying ahead of market trends, and being correct often enough to overcome the losses when I was wrong; though I'll readily admit I didn't keep a record of my AA all that time, only the total portfolio, so now it's likely not possible (certainly a ton of work) to go back and verify exactly how much risk I took to achieve that result. How much was luck, and how much skill I really don't know. (I should add that I forecast for a living, and do it well enough.)
Even so, I'm not shooting for 20% returns. That's a risky game. It can turn on you faster than you can blink. The fact is, the vast majority of stories like yours don't end well; which is hurdle number 2 for your investing approach. Imho this is really THE reason why the Bogleheads exist. I hope your story is different.
As I get older, and have more to risk, my investing methodology gets closer and closer to the Boglehead ideal. There is certainly a lot of wisdom here to benefit from.
I got you. I appreciate your feedback. I also think however, that I have not taken nearly as much risk as many of you think. So let's talk risk.
There's been some concern about two leveraged funds in my 10 mutual fund portfolio that, due to their out-sized returns, got me an overall return of about 30% last 12 months between the 10 funds because the two funds returned about 60 and 80%. Most of my funds are not leveraged but in good sectors, returning about 11%-40% last 12 months. My total brokerage account non-cash portfolio is about $1,500,000 of which only about $300,000 is in the leveraged funds. That's $300,000 out of a total net worth $10,000,000, or 3%. If the Nasdaq and China, where I am leveraged, collapse tomorrow and I lose 99.9% of $300,000, I won't be in dire straits.
As a matter of fact, if you are following my posts, I am looking to cut back to a 50% stock/50% cash portfolio, lower than the stock and bond exposure in the markets that Bogleheads tend to recommend 65% stock, 35% bond. Bonds are also at risk in a rising interest rate environment.
I have about $2,000,000 in cash currently. The other criticism is I'm missing out. First of all, none of that is exposed if the concern is truly about risk. Secondly a large emergency reserve (>1yr) for both personal and business lets me sleep well at night and is necessary for me to be comfortable investing smaller amounts aggressively. Some of these funds will go toward growing my business if the market stalls as I suspect, so my funds follow the best growth (new ARNP starting in 2 weeks, implementing a pharmacy, etc). Some of these funds will be going towards paying off my current $2,100,000 in very low cost fixed rate loans that have allowed my business to prosper. Goal is to pay off all debts within the next 5 years, further decreasing my overall risk.
People say you can't be always right. What if you're wrong. Well, I think the market is currently lofty and will see lower levels soon. Let's say I'm completely wrong and don't see it coming, and it doubles? Then my brokerage portfolio of around $1,500,000 is likely to go past $3,000,000 given my leverage. Yes I lose out on the cash reserves but really, so what?
Let's stay the market generally stays flat. I'll just watch and research.
Let's say the market crashes at a time when I don't see it and we get a 30 or 50% drop as in 2008-2009 and my holdings drop even more because I am leveraged, to $500,000 from $1,500,000. I then add $1,000,000 to bring it back to $1,500,000 with a Dow around 12,000 (50% drop). I'm down $1,000,000 but the Dow has quadrupled over the last bull run, so over the next decade, if history repeats itself, this $1,500,000 should rise to $6,000,000. As some say I got into the last bull run late, let's say I wind up with %4,000,000 instead of $6,000,000. I'll survive.
In the end I currently only have at risk 15% of NW in the stock market and have more control over my other investments (business, real estate, children's education).
Don't look at absolute numbers. $1,500,000 is a lot of money but only 15% of current my NW. Bogleheads, if your market investments are greater than 15% of your NW, then who takes more risk? Most who posted their total net worth posted significantly more than 15% in their retirement assets on Bogleheads. I certainly never condoned risking a larger percentage of NW to stock market investments. The question becomes is 15% too little, too much or just right. Any Boglehead can assess their percentages and see if they have a higher or lower percentage of NW at risk. Clearly don't invest any money that needs to go towards housing, car expenses, food, utilities, clothing, basic entertainment, children and/or grandchildren, donations to the needy, etc. I don't and have never and will never do that.
I've also been told it's easy to do what I do at at my net worth. I came to the states at age 5 with essentially no money to our names. My parents started with $200/week salaries in the late 70's in NYC. I've never received an inheritance, lottery proceedings or other major financial windfall. So I get it because I was in exactly everyone else's position at one point or other. And as I took less risk earlier on, I'm not saying everyone should take calculated risk all of the time, but at times I did when it was prudent.
Obviously as I get closer to retirement and don't have the good income my strategy will be completely different. It goes without saying that as I get older I will be more in the Bogleheads mindset. But if my leveraged high return funds only account for 3% ($300,000/$10,000,000) of my total net worth should that really bother me as too much risk? If that 3% bothers you, and it may, do not aim for my investment returns.
Are the stories (with bad endings) you heard about before really like mine? I feel I have a whole lot protected (ie. cash) and looking to increase that share further due to an abundance of market caution, while wiping out all debt.
No two people are going to do it exactly the same way. Hoping for prosperity for all Bogleheads whatever path you pursue!