MJW wrote: ↑
Mon Jul 30, 2018 12:45 pm
azanon wrote: ↑
Mon Jul 30, 2018 9:20 am
I don't know the best way to access risk tolerance, and I'm not sure anyone does. Are you one of the 9? How could you know for sure. At least consider if you lost half or more of your portfolio from market movements, do you think there's any chance that it would cause you to alter your portfolio? I think if you think that chance is greater than zero, I'd probably lower your stock level if it were me. There's charts around the net that estimate maximum drawdowns based on whatever percent stock you have. So I'd pick the stock level/drawdown level where you thought there's zero chance that you'd sell.
I agree about the difficulty of assessing one’s risk tolerance. If you ask me how I would feel if my portfolio were cut in half…well, I’d probably feel bad. ..........................
So why get all bent out of shape about it in this stage of the game?
I specifically asked you if you'd alter your portfolio. I already know you're going to feel bad.
My main point has been that human's aren't as logical about that decision as a computer would be. You're talking to the crowd, if you're referring to the mathematics of it; that its better to ignore the drops. I'm looking at it from a standpoint of a realist, and based upon known studies that people on average underperform by several percentages points because they can't hold that volatile a portfolio.
So then, mathematically, if you can't know exactly for sure how you'd react, then why assume you're in a small minority and stick with the high equity allocation?
It reminds me of another similar study where some 80% of drivers that were polled think they are a better than average driver. When I first heard that, I chuckled, then realized how unsurprised I was by that result.
One human trait I'm pretty convinced of is that we are, on average, a pretty proud species.