Too Complicated

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bartlettjeff
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Too Complicated

Post by bartlettjeff »

Guys, I have been investing w/ index fund (s) for 30 years., I love $VTI 100% up to age 50 year old., like Buffett says US has the 'secret sauce'. After 50 of age, you could look 10% short term T-bills 90% US market? Would be heck of a return if you look back!
PFInterest
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Re: Too Complicated

Post by PFInterest »

is this just a statement?
radiowave
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Re: Too Complicated

Post by radiowave »

and if the US market takes a 50% nosedive could you sleep well at night knowing your portfolio is now half its value?
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arcticpineapplecorp.
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Re: Too Complicated

Post by arcticpineapplecorp. »

welcome to the forum.

are you asking a question?

If so, is it, "Hey, what do y'all think about a 90% VTI / 10% treasury portfolio from age 50 to death?" (as in that's how Warren B. recommended his trustee invest his money for the benefit of his wife)? Because that's not what he recommended, but it's close. He actually recommended 90% S&P500 and 10% short term treasuries.
My advice to the trustee couldn't be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.
source: https://www.marketwatch.com/story/warre ... 2014-03-13

that being said, two things:

1. looking backward doesn't help. If you think so try driving by only looking into the rear view mirror and see what happens.
The future may look very different from the past. We don't know. What we do know is "Past performance is no guarantee of future results."

2. whether 90/10 is right for anyone is a personal decision. If it's fine for you, fine. It may not be fine for others, and that's fine too. a 90/10 portfolio could lose 40% of the value of the entire portfolio in a bear market that falls 50%:

Image

Now that might be fine if you don't need any of that portfolio money and can sit around and wait for it to recover. Otherwise, you'll be selling a part of your portfolio that has fallen 50%. Why would you want to do that?

So, risk is a personal decision. Everyone needs to figure out how much risk they have the need, the ability and the willingness to handle.

If someone has won the game, why do they need to keep playing and risk 90% of their net worth...to make more money they don't need? If you want to look up to Warren, you have to acknowledge everything he has said over the years, not just some of it. Like the following:
"Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don't need. We held this view 50 years ago when we each ran an investment partnership, funded by a few friends and relatives who trusted us. We also hold it today after a million or so 'partners' have joined us at Berkshire."
source: https://www.cnbc.com/2018/02/24/highlig ... etter.html
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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HomerJ
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Re: Too Complicated

Post by HomerJ »

bartlettjeff wrote: Fri Nov 23, 2018 7:09 pm Guys, I have been investing w/ index fund (s) for 30 years., I love $VTI 100% up to age 50 year old., like Buffett says US has the 'secret sauce'. After 50 of age, you could look 10% short term T-bills 90% US market? Would be heck of a return if you look back!
90/10 works for Buffet's wife because he's leaving her millions.

Losing 50% of her portfolio if the market crashes won't change her life at all.

Would it change yours?
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
Dottie57
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Re: Too Complicated

Post by Dottie57 »

arcticpineapplecorp. wrote: Fri Nov 23, 2018 9:27 pm
Image
I am embarrassed to admit I don’t understand the math in the chart. The chart says that the max portfolio loss from stock loss of 50% in 20/80 stck/bond is 5%.

So if you start with $20 stock and $80 bonds and then lose 50% of stock you now have $10 stock and $80 bonds. You still have 90% ($90) of Your starting portfolio. So the loss is 10% of starting value of portfolio, not 5%.

What am I missing?
JBTX
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Re: Too Complicated

Post by JBTX »

Dottie57 wrote: Sat Nov 24, 2018 1:07 am
arcticpineapplecorp. wrote: Fri Nov 23, 2018 9:27 pm
Image
I am embarrassed to admit I don’t understand the math in the chart. The chart says that the max portfolio loss from stock loss of 50% in 20/80 stck/bond is 5%.

So if you start with $20 stock and $80 bonds and then lose 50% of stock you now have $10 stock and $80 bonds. You still have 90% ($90) of Your starting portfolio. So the loss is 10% of starting value of portfolio, not 5%.

What am I missing?
I'm going to guess it is one of two things:

1. The balance of the portfolio is intermediate term bonds, and the assumption is that in a large stock drop bonds actually increase due to interest rate drop

Or

2. If the example is over a period of a year, assume the bonds have a fixed annual return, that we will assume =5. Then you have 80+5+(20*.5)=95, or 5% loss.

Or

Some combination of 1 and 2.
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arcticpineapplecorp.
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Re: Too Complicated

Post by arcticpineapplecorp. »

JBTX wrote: Sat Nov 24, 2018 2:39 am
Dottie57 wrote: Sat Nov 24, 2018 1:07 am
arcticpineapplecorp. wrote: Fri Nov 23, 2018 9:27 pm
Image
I am embarrassed to admit I don’t understand the math in the chart. The chart says that the max portfolio loss from stock loss of 50% in 20/80 stck/bond is 5%.

So if you start with $20 stock and $80 bonds and then lose 50% of stock you now have $10 stock and $80 bonds. You still have 90% ($90) of Your starting portfolio. So the loss is 10% of starting value of portfolio, not 5%.

What am I missing?
I'm going to guess it is one of two things:

1. The balance of the portfolio is intermediate term bonds, and the assumption is that in a large stock drop bonds actually increase due to interest rate drop

Or

2. If the example is over a period of a year, assume the bonds have a fixed annual return, that we will assume =5. Then you have 80+5+(20*.5)=95, or 5% loss.

Or

Some combination of 1 and 2.
yes that's correct. I didn't state the chart was based on the 1973-74 bear market from data Larry Swedroe had provided in the past. For a more recent example, in 2008 while stocks dropped 38% the total bond market index fund ended up for the year +5%. So presumably (no law written in stone though that bonds and stocks can't go down at the same time) bonds would make some money as you're losing much with stocks.

So you would have lost 38% in 2008 if you were 100% in stocks but 90/10 would have lost 33.7% instead (.90 X -.38) + (.10 X .05).
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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LadyGeek
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Re: Too Complicated

Post by LadyGeek »

bartlettjeff, Welcome!

Do you have a question? Or, are you expressing an opinion that holding a diversified portfolio (100% stocks) has worked for you?
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Dottie57
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Re: Too Complicated

Post by Dottie57 »

Thanks for the replies. I didn’t realize the context included movement n bonds.
Call_Me_Op
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Re: Too Complicated

Post by Call_Me_Op »

bartlettjeff wrote: Fri Nov 23, 2018 7:09 pm After 50 of age, you could look 10% short term T-bills 90% US market? Would be heck of a return if you look back!
The problem is we need to look forward - not back.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
AlphaLess
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Re: Too Complicated

Post by AlphaLess »

JBTX wrote: Sat Nov 24, 2018 2:39 am
Dottie57 wrote: Sat Nov 24, 2018 1:07 am
arcticpineapplecorp. wrote: Fri Nov 23, 2018 9:27 pm
Image
I am embarrassed to admit I don’t understand the math in the chart. The chart says that the max portfolio loss from stock loss of 50% in 20/80 stck/bond is 5%.

So if you start with $20 stock and $80 bonds and then lose 50% of stock you now have $10 stock and $80 bonds. You still have 90% ($90) of Your starting portfolio. So the loss is 10% of starting value of portfolio, not 5%.

What am I missing?
I'm going to guess it is one of two things:

1. The balance of the portfolio is intermediate term bonds, and the assumption is that in a large stock drop bonds actually increase due to interest rate drop

Or

2. If the example is over a period of a year, assume the bonds have a fixed annual return, that we will assume =5. Then you have 80+5+(20*.5)=95, or 5% loss.

Or

Some combination of 1 and 2.
There is no sound math system that can explain the funny math in that table.
None.
Zip.
Zilch.

He is making an assumption that bonds gain (when stocks lose 50%).
However, there is no percentage gain to bonds that can make all the numbers in that table work.

On the other hand, they are *AT MOST* within 5 percent of what could be true value.
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.
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LadyGeek
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Re: Too Complicated

Post by LadyGeek »

Perhaps this table would be more relevant. From the wiki: Risk tolerance, Note 2.
From: Asset allocation: Ability relates to an investor's ability to withstand the ups and downs of the market without getting nervous and making changes to the asset allocation. Selling in the face of a decline is about the worst thing an investor can do. Here is a table offered by author Larry Swedroe, based on the 1970s bear market, showing the amount of decline for various stock/bond allocations:

Code: Select all

Asset Allocation %
(Stock/Bond) 	Exposure to Maximum Loss
20/80 	5%
30/70 	10%
40/60 	15%
50/50 	20%
60/40 	25%
70/30 	30%
80/20 	35%
90/10 	40%
100/0 	50% 
For example, an investor would be willing to accept a loss of 35% in the portfolio if she held an allocation of (80% stocks / 20% bonds). This table is from the 1970's; performance during other time periods will have different results. The general idea is for investors to select an asset allocation they are comfortable with. Source: Investment Planning, forum discussion.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
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