Two voices in my head

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TM90
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Two voices in my head

Post by TM90 » Wed Aug 08, 2018 10:08 am

I'm still young, I've got a minimum of 40 years to work before I can officially retire sometimes I think I err on the conservative side because of my 75/25 AA and because I just hold the market portfolio, ridiculous yeah I know but still these thoughts creep into my head.

part of me says:

You only got one shot, one life to invest, invest in a broadly diversified index fund and you are guaranteed your fair share and you'll do fine.

The other part says:

You only got one shot, one life to invest, go for it go all out, take risks (for example high stock AA, investing in small cap value and momentum,..) if it works you'll be rewarded if it doesn't at least you tried.

It's not out of greed or that I think my returns aren't good enough it's just some FOMO I guess.

Anybody else struggle with this kind of behavioral situations?
Last edited by TM90 on Wed Aug 08, 2018 10:52 am, edited 1 time in total.

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munemaker
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Re: Two voices in my head

Post by munemaker » Wed Aug 08, 2018 10:18 am

Hearing voices
It is estimated that between 5% and 28% of the general population hears voices that other people do not.

... a large number of otherwise healthy individuals have also reported hearing voices.
https://www.mentalhealth.org.uk/a-to-z/h/hearing-voices
Last edited by munemaker on Wed Aug 08, 2018 10:19 am, edited 1 time in total.

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vineviz
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Re: Two voices in my head

Post by vineviz » Wed Aug 08, 2018 10:18 am

TM90 wrote:
Wed Aug 08, 2018 10:08 am
I'm still young one, I've got a minimum of 40 years to work before I can officially retire sometimes I think I err on the conservative side because of my 75/25 AA and because I just hold the market portfolio, ridiculous yeah I know but still these thoughts creep into my head.

part of me says:

You only got one shot, one life to invest, invest in a broadly diversified index fund and you are guaranteed your fair share and you'll do fine.

The other part says:

You only got one shot, one life to invest, go for it go all out, take risks (for example high stock AA, investing in small cap value and momentum,..) if it works you'll be rewarded if it doesn't at least you tried.

Anybody else struggle with this kind of behavioral situations?
I think everyone struggles with this to some degree or other. If you didn't I'd be worried. :D

Holding the market portfolio is TOTALLY a smart decision. If you want to add a small (10% or 20%) allocation to some REASONABLE risk (like small cap value) that appeals to you, it's fine. It probably won't help you much, but it probably won't hurt you much either. The main thing is to save as much as you can as soon as you can.

Your 25% bond allocation is more than I'd recommended for someone so far from retirement (most allocation experts would put you closer to 10% in bonds), but if that's honestly what you think you can handle then stay the course.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Silk McCue
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Re: Two voices in my head

Post by Silk McCue » Wed Aug 08, 2018 10:24 am

Most of us are familiar with at least two voices pulling at us. Given that you are 28 it would be better in my opinion if the 2nd voice wasn't asking for significant tilting but rather a higher equity position at your age. With a long horizon and a strong stomach your historically safer shot at long term growth is a higher equity position. IMHO the broadly diverse higher equity percentage approach will have a better risk adjusted return.

Swinging for the fences is a fools errand in investing. You only live once, don't blow it with a strikeout when could have had a solid triple and your team still wins the game.

Cheers

MJW
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Re: Two voices in my head

Post by MJW » Wed Aug 08, 2018 11:39 am

Since someone already beat me to making a "hearing voices" quip, I won't pile on.
TM90 wrote:
Wed Aug 08, 2018 10:08 am
You only got one shot, one life to invest, go for it go all out, take risks (for example high stock AA, investing in small cap value and momentum,..) if it works you'll be rewarded if it doesn't at least you tried.
Okay, but what does "at least you tried" do for you later in life? You aren't auditioning for a talent contest or asking someone to prom. Taking an aggressive approach to investing while you are young isn't a "bad" idea, but your thought process around it might get you into trouble. It sounds like you are romanticizing it a bit with the language you are using. There's nothing sexy about investing. 8-)

mega317
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Re: Two voices in my head

Post by mega317 » Wed Aug 08, 2018 12:47 pm

To me, working a full career and using the 3 fund portfolio with an "average" bond allocation is the middle ground. There is plenty of risk associated with that (individual reasons such as not being able to work as long as I plan, or crazy unexpected expenses, and bigger reasons such as long-term poor stock returns). In order to modify that middle ground plan I evaluate the risks and benefits. Investing more aggressively and with more risk could pay off with higher returns, but how much higher? What is the likelihood I could retire much sooner, or that I would even want to? Not high to me. I use a spread around 3% real returns to roughly estimate the distant future. If I double that to 6% I get to retire 6 years sooner.

On the flip side I could be way less aggressive and hold mostly or all fixed income. Even the rosy projection there probably requires me to dramatically alter my planned retirement spending and even then will have to work a long time. So that's a high likelihood of a barely acceptable risk.

BogleMelon
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Re: Two voices in my head

Post by BogleMelon » Wed Aug 08, 2018 12:55 pm

TM90 wrote:
Wed Aug 08, 2018 10:08 am
You only got one shot, one life to invest, invest in a broadly diversified index fund and you are guaranteed your fair share and you'll do fine.
to invest in a broadly diversified index fund is risky already but it is not gambling as when you gamble your money on few number of stocks.
and you are guaranteed your fair share
The fair share here is more than fair on a personal level! You will make more than most of the folks in Wall street and will be one of the top few people who made good returns during their accumulation years.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

magicrat
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Re: Two voices in my head

Post by magicrat » Wed Aug 08, 2018 1:27 pm

I suggest figuring out your goals first (financial and otherwise), then figuring out what you investment plan should be to maximize the probability of meeting your goals. Your post makes it sound like investment returns are a goal in and of itself, which I think is dangerous.

TM90
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Re: Two voices in my head

Post by TM90 » Wed Aug 08, 2018 4:18 pm

Thank you for your answers, the title was chosen to peak curiosity, so I guess that worked :D

You guys are right, the enemy of a good plan is the dream of a perfect plan. And for me I've already learned the biggest enemy to my plan is me, I am disciplined and I can stomach downturns but I have a tendency to try to do better to try to think of a "better" plan.

I'm taking your advice in consideration though to raise my equity allocation but I think I'm going to wait until we have a market crash (40-50% down from top) so I can buy low and sell (hopefully) high. In the meanwhile I'm not being overly conservative so I should capture most of the gains of the market.

I'm very happy this forum exists and the wisdom shared on it.

Thank you for helping me staying the course.

zuma
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Re: Two voices in my head

Post by zuma » Wed Aug 08, 2018 4:28 pm

TM90 wrote:
Wed Aug 08, 2018 4:18 pm
I'm taking your advice in consideration though to raise my equity allocation but I think I'm going to wait until we have a market crash (40-50% down from top) so I can buy low and sell (hopefully) high. In the meanwhile I'm not being overly conservative so I should capture most of the gains of the market.
Keep in mind that if the market crashes at some point in the future, there's no guarantee that it will ever drop below where it is today.

Grt2bOutdoors
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Re: Two voices in my head

Post by Grt2bOutdoors » Wed Aug 08, 2018 4:32 pm

You have 40 years?, nothing wrong with allocating 10-20% of your equities to those wagers. Go for it, but if you do “go” for it you have to go the distance (wait long enough) for the potential rewards to shine through. Are you willing to wait potentially 40 years for it to show up or maybe it never materializes.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

mega317
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Re: Two voices in my head

Post by mega317 » Wed Aug 08, 2018 4:34 pm

TM90 wrote:
Wed Aug 08, 2018 4:18 pm
I think I'm going to wait until we have a market crash (40-50% down from top) so I can buy low and sell (hopefully) high.
Don't do this. What if the next crash is 39%?

Grt2bOutdoors
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Location: New York

Re: Two voices in my head

Post by Grt2bOutdoors » Wed Aug 08, 2018 4:40 pm

mega317 wrote:
Wed Aug 08, 2018 4:34 pm
TM90 wrote:
Wed Aug 08, 2018 4:18 pm
I think I'm going to wait until we have a market crash (40-50% down from top) so I can buy low and sell (hopefully) high.
Don't do this. What if the next crash is 39%?
Or 18%?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

HEDGEFUNDIE
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Re: Two voices in my head

Post by HEDGEFUNDIE » Wed Aug 08, 2018 4:45 pm

One way you can satisfy both voices in your head is to invest 90% of your assets the BH way and 10% in a “play” account.

That way you can still get lucky without risking your whole retirement fund,

Whakamole
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Re: Two voices in my head

Post by Whakamole » Wed Aug 08, 2018 6:21 pm

Grt2bOutdoors wrote:
Wed Aug 08, 2018 4:40 pm
mega317 wrote:
Wed Aug 08, 2018 4:34 pm
TM90 wrote:
Wed Aug 08, 2018 4:18 pm
I think I'm going to wait until we have a market crash (40-50% down from top) so I can buy low and sell (hopefully) high.
Don't do this. What if the next crash is 39%?
Or 18%?
Or 90%?

GoldenFinch
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Re: Two voices in my head

Post by GoldenFinch » Wed Aug 08, 2018 6:26 pm

mega317 wrote:
Wed Aug 08, 2018 4:34 pm
TM90 wrote:
Wed Aug 08, 2018 4:18 pm
I think I'm going to wait until we have a market crash (40-50% down from top) so I can buy low and sell (hopefully) high.
Don't do this. What if the next crash is 39%?
Precisely why this strategy tends to fail.

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LiveSimple
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Re: Two voices in my head

Post by LiveSimple » Wed Aug 08, 2018 6:34 pm

Do some research on slice and dice and select some appropriate percentages.

Then tell yourself that you are going to stick to the plan for the next 3 or 4 decades and stick to your plan and rebalance, you will be rewarded.

This plan is still conservative to the individual stock picking, so the plan will work.

Again it is your money; you plan; your mind, talk and convince yourselves.

PFInterest
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Re: Two voices in my head

Post by PFInterest » Wed Aug 08, 2018 6:35 pm

TM90 wrote:
Wed Aug 08, 2018 10:08 am
I'm still young, I've got a minimum of 40 years to work before I can officially retire sometimes I think I err on the conservative side because of my 75/25 AA and because I just hold the market portfolio, ridiculous yeah I know but still these thoughts creep into my head.

part of me says:

You only got one shot, one life to invest, invest in a broadly diversified index fund and you are guaranteed your fair share and you'll do fine.

The other part says:

You only got one shot, one life to invest, go for it go all out, take risks (for example high stock AA, investing in small cap value and momentum,..) if it works you'll be rewarded if it doesn't at least you tried.

It's not out of greed or that I think my returns aren't good enough it's just some FOMO I guess.

Anybody else struggle with this kind of behavioral situations?
so make it 80:20 and see how loud those voices are.

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Sandtrap
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Re: Two voices in my head

Post by Sandtrap » Wed Aug 08, 2018 6:48 pm

TM90 wrote:
Wed Aug 08, 2018 10:08 am
I'm still young, I've got a minimum of 40 years to work before I can officially retire sometimes I think I err on the conservative side because of my 75/25 AA and because I just hold the market portfolio, ridiculous yeah I know but still these thoughts creep into my head.

part of me says:

You only got one shot, one life to invest, invest in a broadly diversified index fund and you are guaranteed your fair share and you'll do fine.

The other part says:

You only got one shot, one life to invest, go for it go all out, take risks (for example high stock AA, investing in small cap value and momentum,..) if it works you'll be rewarded if it doesn't at least you tried.

It's not out of greed or that I think my returns aren't good enough it's just some FOMO I guess.

Anybody else struggle with this kind of behavioral situations?
Interesting Title. :shock:
kidding.

Seriously and actionably.
1. Focus on maximizing income stream. Training, education, career advancement, etc.
2. Focus on saving funds for possible alternate investments to diversify income streams. IE: rentals, rent sharing, etc.
3. As for the allocation, consider that investment portfolio "long term". Then focus on what can be done not only to increase that portfolio but expand in other areas.
4. Doing the above will merge all of the voices to one as they arise by the hour, day, week, etc.

j :D

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Taylor Larimore
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Re: Two voices in my head

Post by Taylor Larimore » Wed Aug 08, 2018 6:54 pm

TM90 wrote:
Wed Aug 08, 2018 10:08 am
I'm still young, I've got a minimum of 40 years to work before I can officially retire sometimes I think I err on the conservative side because of my 75/25 AA and because I just hold the market portfolio, ridiculous yeah I know but still these thoughts creep into my head.

part of me says:

You only got one shot, one life to invest, invest in a broadly diversified index fund and you are guaranteed your fair share and you'll do fine.

The other part says:

You only got one shot, one life to invest, go for it go all out, take risks (for example high stock AA, investing in small cap value and momentum,..) if it works you'll be rewarded if it doesn't at least you tried.

It's not out of greed or that I think my returns aren't good enough it's just some FOMO I guess.

Anybody else struggle with this kind of behavioral situations?
TM90:

It is foolish to take unnecessary risk with retirement money. Why? Because we cannot afford to lose.

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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knpstr
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Re: Two voices in my head

Post by knpstr » Wed Aug 08, 2018 7:11 pm

TM90 wrote:
Wed Aug 08, 2018 10:08 am
I'm still young, I've got a minimum of 40 years to work before I can officially retire sometimes I think I err on the conservative side because of my 75/25 AA and because I just hold the market portfolio, ridiculous yeah I know but still these thoughts creep into my head.

part of me says:

You only got one shot, one life to invest, invest in a broadly diversified index fund and you are guaranteed your fair share and you'll do fine.

The other part says:

You only got one shot, one life to invest, go for it go all out, take risks (for example high stock AA, investing in small cap value and momentum,..) if it works you'll be rewarded if it doesn't at least you tried.

It's not out of greed or that I think my returns aren't good enough it's just some FOMO I guess.

Anybody else struggle with this kind of behavioral situations?
75/25 stock to bond is waaaay too many bonds with 40 year horizon to retirement and perhaps 70 year investment time frame.
I am 100/0 in my paper investments not because of greed, but it is logical. I would suggest 90/10 if you think you must hold bonds.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

Mickey7
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Re: Two voices in my head

Post by Mickey7 » Wed Aug 08, 2018 8:02 pm

Your ISP is your ISP.

Keep investing, keep learning.

Stay the course.

Grt2bOutdoors
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Re: Two voices in my head

Post by Grt2bOutdoors » Thu Aug 09, 2018 6:44 am

Mickey7 wrote:
Wed Aug 08, 2018 8:02 pm
Your ISP is your ISP.

Keep investing, keep learning.

Stay the course.
I believe you are referring to IPS.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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arcticpineapplecorp.
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Re: Two voices in my head

Post by arcticpineapplecorp. » Thu Aug 09, 2018 6:55 am

Grt2bOutdoors wrote:
Wed Aug 08, 2018 4:40 pm
mega317 wrote:
Wed Aug 08, 2018 4:34 pm
TM90 wrote:
Wed Aug 08, 2018 4:18 pm
I think I'm going to wait until we have a market crash (40-50% down from top) so I can buy low and sell (hopefully) high.
Don't do this. What if the next crash is 39%?
Or 18%?
good points both. For the OP consider this:

Do you know how many times the market has fallen by 35%-50% since the 1920s?

https://www.businessinsider.com/illustr ... ts-2014-12

That's right. Just 4 times.

And with the exception of the 2000s in which 2 of those 4 declines occurred, you would have had to wait several decades for a drop of 35%-50%. You willing to wait that long?

Finally, have you ever invested (or dumped a largish amount of moolah) into the market during a market that declined 35%-50%? If not, you really have no idea whether you'd really be able to do that. Many think they can. But then they're too scared to actually do it. They instead wait til the dust settles and it seems "safer" (after the market's gone back up), which of course means buying higher, not lower.

What if the market falls 35% and you're waiting for it to fall more (to 50% loss) but it never does, and then it goes on a tear (upwards). Whoops, you missed the boat waiting for a better buying opportunity you were 100% sure would come that didn't.

What if you instead buy in after a 35% decline (or 50%, use whatever numbers you want) and then the market falls further (you gonna regret that)?! The market did just that during the great depression. You just don't know how bad it can get. That means you don't know what the bottom is or the top. That's the problem with market timing. It doesn't usually work.

It's time in the market, not timing the market that matters.

Jack Bogle said (paraphrasing) that he never met anyone who successfully and consistently timed the market and he didn't know anyone who knew anyone who's ever done it. What makes you think you're different?
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

PFInterest
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Re: Two voices in my head

Post by PFInterest » Thu Aug 09, 2018 8:15 am

Grt2bOutdoors wrote:
Thu Aug 09, 2018 6:44 am
Mickey7 wrote:
Wed Aug 08, 2018 8:02 pm
Your ISP is your ISP.

Keep investing, keep learning.

Stay the course.
I believe you are referring to IPS.
unless your ips calls for daytrading then youll need a better isp.

Nowizard
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Re: Two voices in my head

Post by Nowizard » Thu Aug 09, 2018 8:28 am

The dilemma continues for some of us even in retirement when we are fortunate enough to not need to take significant risk but want to maximize return. Years ago, when investment information was not as easily obtained, we were often taking great risk without awareness when all we knew was that we should start investing early. That meant that "diversification" meant nothing more than owning funds rather than individual stocks. So, we put everything in one fund and "went for it." Yes, it worked out quite well, and the absence of knowledge of how great a risk we were taking insulated us from greater anxiety. You have the advantage of much more information and knowledge at an earlier age. That is a benefit, but it does not avoid the dilemma you pose, only means you will make your decisions with more data and the advice of the wonderful people here. You can boil your question down to this: Generally accepted information and history say that a slower and steadier approach is best even though there are some who are successful who "go for it." Make your choice.

Tim

TM90
Posts: 112
Joined: Mon Mar 06, 2017 2:13 am

Re: Two voices in my head

Post by TM90 » Thu Aug 09, 2018 11:16 am

arcticpineapplecorp. wrote:
Thu Aug 09, 2018 6:55 am
Grt2bOutdoors wrote:
Wed Aug 08, 2018 4:40 pm
mega317 wrote:
Wed Aug 08, 2018 4:34 pm
TM90 wrote:
Wed Aug 08, 2018 4:18 pm
I think I'm going to wait until we have a market crash (40-50% down from top) so I can buy low and sell (hopefully) high.
Don't do this. What if the next crash is 39%?
Or 18%?
good points both. For the OP consider this:

Do you know how many times the market has fallen by 35%-50% since the 1920s?

https://www.businessinsider.com/illustr ... ts-2014-12

That's right. Just 4 times.

And with the exception of the 2000s in which 2 of those 4 declines occurred, you would have had to wait several decades for a drop of 35%-50%. You willing to wait that long?

Finally, have you ever invested (or dumped a largish amount of moolah) into the market during a market that declined 35%-50%? If not, you really have no idea whether you'd really be able to do that. Many think they can. But then they're too scared to actually do it. They instead wait til the dust settles and it seems "safer" (after the market's gone back up), which of course means buying higher, not lower.

What if the market falls 35% and you're waiting for it to fall more (to 50% loss) but it never does, and then it goes on a tear (upwards). Whoops, you missed the boat waiting for a better buying opportunity you were 100% sure would come that didn't.

What if you instead buy in after a 35% decline (or 50%, use whatever numbers you want) and then the market falls further (you gonna regret that)?! The market did just that during the great depression. You just don't know how bad it can get. That means you don't know what the bottom is or the top. That's the problem with market timing. It doesn't usually work.

It's time in the market, not timing the market that matters.

Jack Bogle said (paraphrasing) that he never met anyone who successfully and consistently timed the market and he didn't know anyone who knew anyone who's ever done it. What makes you think you're different?
Good points thank you.

TM90
Posts: 112
Joined: Mon Mar 06, 2017 2:13 am

Re: Two voices in my head

Post by TM90 » Thu Aug 09, 2018 11:20 am

Taylor Larimore wrote:
Wed Aug 08, 2018 6:54 pm
TM90 wrote:
Wed Aug 08, 2018 10:08 am
I'm still young, I've got a minimum of 40 years to work before I can officially retire sometimes I think I err on the conservative side because of my 75/25 AA and because I just hold the market portfolio, ridiculous yeah I know but still these thoughts creep into my head.

part of me says:

You only got one shot, one life to invest, invest in a broadly diversified index fund and you are guaranteed your fair share and you'll do fine.

The other part says:

You only got one shot, one life to invest, go for it go all out, take risks (for example high stock AA, investing in small cap value and momentum,..) if it works you'll be rewarded if it doesn't at least you tried.

It's not out of greed or that I think my returns aren't good enough it's just some FOMO I guess.

Anybody else struggle with this kind of behavioral situations?
TM90:

It is foolish to take unnecessary risk with retirement money. Why? Because we cannot afford to lose.

Best wishes
Taylor
Thank you Tyler, it seems you are voice nr1, the voice of reason.

The thing is I have a government pension when I retire, it is guaranteed. That also has to do with me thinking about taking more risk.

michaeljc70
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Re: Two voices in my head

Post by michaeljc70 » Thu Aug 09, 2018 11:29 am

knpstr wrote:
Wed Aug 08, 2018 7:11 pm
TM90 wrote:
Wed Aug 08, 2018 10:08 am
I'm still young, I've got a minimum of 40 years to work before I can officially retire sometimes I think I err on the conservative side because of my 75/25 AA and because I just hold the market portfolio, ridiculous yeah I know but still these thoughts creep into my head.

part of me says:

You only got one shot, one life to invest, invest in a broadly diversified index fund and you are guaranteed your fair share and you'll do fine.

The other part says:

You only got one shot, one life to invest, go for it go all out, take risks (for example high stock AA, investing in small cap value and momentum,..) if it works you'll be rewarded if it doesn't at least you tried.

It's not out of greed or that I think my returns aren't good enough it's just some FOMO I guess.

Anybody else struggle with this kind of behavioral situations?
75/25 stock to bond is waaaay too many bonds with 40 year horizon to retirement and perhaps 70 year investment time frame.
I am 100/0 in my paper investments not because of greed, but it is logical. I would suggest 90/10 if you think you must hold bonds.
I agree. There is nothing wrong with being all in stocks at your age. That is different though than chasing crazy investment ideas, trying to time the market, buying options, etc. I used to read and research a lot about stocks and buy individual stocks. Sometimes options or leveraged products. I did very well on some. Very poor on others. It was stressful (even on the winners- am I selling to early? Or will it tank if I wait?). Overall, I probably did worse than the market. Emotions come into play. You don't want to sell your losers hoping they turn around. They rarely do. If the vast majority of investment professionals at mutual funds with vast staffs and resources cannot beat the market, you probably cannot either.

CurlyDave
Posts: 755
Joined: Thu Jul 28, 2016 11:37 am

Re: Two voices in my head

Post by CurlyDave » Thu Aug 09, 2018 2:09 pm

HEDGEFUNDIE wrote:
Wed Aug 08, 2018 4:45 pm
One way you can satisfy both voices in your head is to invest 90% of your assets the BH way and 10% in a “play” account.

That way you can still get lucky without risking your whole retirement fund,
This is close to what I did quite a while ago. Except I was 20% in the "fun money" account and 80% in retirement money.

Long before the movie came out, I put some of the fun money into the same fruit company as Forrest Gump did. (AAPL if you haven't seen the movie.) I have held that through thick and thin, and it is up over 45 times the original investment right now. The rest of the fun money we spent on upgrades when our house burned down. The house sold at a nice profit and we put the proceeds into real estate.

Why 20% and not 10%? Easy. If I invest in legitimate companies, not get-rich-quick schemes, it is hard to lose more than 50% of the investment no matter how hard I try. And it fit better with my risk tolerance.

gmaynardkrebs
Posts: 937
Joined: Sun Feb 10, 2008 11:48 am

Re: Two voices in my head

Post by gmaynardkrebs » Thu Aug 09, 2018 2:15 pm

TM90 wrote:
Wed Aug 08, 2018 10:08 am
I'm still young, I've got a minimum of 40 years to work before I can officially retire sometimes I think I err on the conservative side because of my 75/25 AA and because I just hold the market portfolio, ridiculous yeah I know but still these thoughts creep into my head.

part of me says:

You only got one shot, one life to invest, invest in a broadly diversified index fund and you are guaranteed your fair share and you'll do fine.

The other part says:

You only got one shot, one life to invest, go for it go all out, take risks (for example high stock AA, investing in small cap value and momentum,..) if it works you'll be rewarded if it doesn't at least you tried.

It's not out of greed or that I think my returns aren't good enough it's just some FOMO I guess.

Anybody else struggle with this kind of behavioral situations?
Are you the kid in the Sixth Sense?

TM90
Posts: 112
Joined: Mon Mar 06, 2017 2:13 am

Re: Two voices in my head

Post by TM90 » Thu Aug 09, 2018 2:17 pm

Yes but I don't see dead people.

I see lost returns.

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bertilak
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Re: Two voices in my head

Post by bertilak » Thu Aug 09, 2018 2:41 pm

TM90 wrote:
Wed Aug 08, 2018 10:08 am
part of me says:

You only got one shot, one life to invest, invest in a broadly diversified index fund and you are guaranteed your fair share and you'll do fine.

The other part says:

You only got one shot, one life to invest, go for it go all out, take risks (for example high stock AA, investing in small cap value and momentum,..) if it works you'll be rewarded if it doesn't at least you tried.
The risks and returns quoted are based on averages. You don't get to do average. Your little voice is right: you only get one shot and a loss is devastating.

On average you will win at Russian roulette but you should still refuse to play, despite the odds being in your favor.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

Firstname Lastname
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Re: Two voices in my head

Post by Firstname Lastname » Thu Aug 09, 2018 2:44 pm

One of the important lesson of modern finance is that under reasonable assumptions, the choices of (1) how much risk to bear, and () which risky assets to hold are independent choices.

Under some simple assumptions, an investor chooses a portfolio of risky assets to maximize the portfolio's Sharpe ratio. Then, given the maximal Sharpe ratio of the portfolio P, the investor then chooses the proper mixture of P and riskless cash. This mix will vary from investor to investor because of differing tolerances for risk, but the relative weights among risky assets will stay constant. Feasible portfolios that maximize expected return for a given amount of risk are said to be "efficient."

Any suggestion to move to 100% equities mixes two separate & distinct questions:
  • Should I incur more risk than, say, a 75/25 portfolio? and
  • Should I incur that extra risk by going to 100% equities?
Investors willing to bear the risk of 100% equities may do even better with a diversified portfolio, particularly when they are willing to lever. A diversified portfolio historically delivers more return, without increasing risk (measuring risk along several different dimensions).

Several academics have shown that for the exact same amount of risk as a 100% equity portfolio, one can instead have a levered 60/40 equity/bond portfolio that provides a higher compound annual return. Yes, a higher ROI for the same amount of risk. Even very long term investors (e.g., 100-year investors such as university endowments) probably should not have 100% equities even in light of the historical superiority of equity returns relative to bond returns, as they can construct a portfolio with the same level of risk but a higher expected return.

Regardless of which portfolio is chosen, the following are separate tasks:
  • deciding how much risk to bear
  • building a portfolio with the most expected return for a given amount of risk
Choosing a portfolio of 100% equities based on their historical realized return misses this separation.
Last edited by Firstname Lastname on Thu Aug 09, 2018 3:02 pm, edited 1 time in total.

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DaftInvestor
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Re: Two voices in my head

Post by DaftInvestor » Thu Aug 09, 2018 2:54 pm

TM90 wrote:
Wed Aug 08, 2018 4:18 pm
Thank you for your answers, the title was chosen to peak curiosity, so I guess that worked :D

You guys are right, the enemy of a good plan is the dream of a perfect plan. And for me I've already learned the biggest enemy to my plan is me, I am disciplined and I can stomach downturns but I have a tendency to try to do better to try to think of a "better" plan.

I'm taking your advice in consideration though to raise my equity allocation but I think I'm going to wait until we have a market crash (40-50% down from top) so I can buy low and sell (hopefully) high. In the meanwhile I'm not being overly conservative so I should capture most of the gains of the market.

I'm very happy this forum exists and the wisdom shared on it.

Thank you for helping me staying the course.
You say you are waiting for the next market crash but are staying the course? Those statements seem to be at odds with eachother. Waiting for a crash is never a good strategy (people have been coming here ever since I joined saying its about to crash and they are waiting - they missed HUGE gains the last few years).
Pick an Asset-Allocation - get to it now - and stay with it through ups and downs (being sure to re-balance). That's what staying the course means

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jakehefty17
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Re: Two voices in my head

Post by jakehefty17 » Thu Aug 09, 2018 3:07 pm

It's perfectly reasonable to have these thoughts.

You are invested overly conservative in my opinion, somewhere around 10% bonds would be more appropriate for a 40 year timeframe. That's completely based on your risk tolerance however, so do whatever makes you comfortable.

I'd suggest doing your own market cap weighting, if you have the index funds available to you. That's what I decided to do with my portfolio. It's slightly outside the general 3 fund portfolio and absolute simplicity touted on these forums. However, I feel most would agree that this is an easy and effective way to personalize your portfolio to your liking. You'll take slightly more risk overall while still being very well diversified. Remember you can always adjust your allocations as you age.

The ideal would be to find some way to appease both those voices in your head. Fiddle with your asset allocation mentally until your solution is found. It took me some time to settle on my investments, and can say I am happy where I'm at. Hope you find your sweet spot!
"The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence." -Charles Bukowski

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Sasquatch
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Re: Two voices in my head

Post by Sasquatch » Thu Aug 09, 2018 5:10 pm

Regardless of how you invest I think the huge thing is you have time on your side. 40 years is a ton of compounding. Stay consistent. Dollar cost average in any market climate. Be consistent. Don’t panic in a downturn, just keep plugging along. The tortoise wins this way.

https://einvestingforbeginners.com/comp ... -interest/

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