Being a conservative investor is not always a bad thing

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CULater
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Being a conservative investor is not always a bad thing

Post by CULater » Wed Jun 05, 2019 9:29 am

Interesting chart shows bond returns vs. stocks over the last 20 years

Image
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Sandtrap
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Re: Being a conservative investor is not always a bad thing

Post by Sandtrap » Wed Jun 05, 2019 9:32 am

Outstanding chart.

At what allocation and beyond is one considered a "conservative investor"??
50/50 +
60/40+
???

Thanks for posting this.
j :happy
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bgf
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Re: Being a conservative investor is not always a bad thing

Post by bgf » Wed Jun 05, 2019 9:39 am

if anything, that shows how weak bonds are.

from 1999 to 2009 SP500 returns were negative because your starting point was a bubble, and we experienced one of the worst financial crises in history during that period...

nevertheless, bonds only basically matched equity returns...

doesn't make me want to rush out and buy bonds.
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Re: Being a conservative investor is not always a bad thing

Post by dbr » Wed Jun 05, 2019 9:41 am

Sandtrap wrote:
Wed Jun 05, 2019 9:32 am
Outstanding chart.

At what allocation and beyond is one considered a "conservative investor"??
50/50 +
60/40+
???

Thanks for posting this.
j :happy
That kind of question can be answered by arbitrary means such as dividing 100 into less than 50 and greater than 50, or by dividing 100 into 0-33, 34-66, and 67-100, or by dividing 100 into 0-25, 26-50, 51-75, and 76-100. This is the method of "1/n" which is very helpful when faced with this question. One is still left with trying to figure out if 2 is better than 3 is better than 4 or vice versa. In many cases 3 is a good number. In statistics 10 is common, hence the common presentation by deciles. I think for your question 2 is best, hence 50/50 as one is thinking in the opposites of conservative vs aggressive. An option, of course, is to dodge the issue and allocate 50/50 (a serious recommendation).

This is a real comment and not intended to be fatuous.

asif408
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Re: Being a conservative investor is not always a bad thing

Post by asif408 » Wed Jun 05, 2019 9:42 am

Can we see a chart of the previous 20 years.

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vineviz
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Re: Being a conservative investor is not always a bad thing

Post by vineviz » Wed Jun 05, 2019 9:52 am

Being conservative isn't always a bad thing, but being smart is usually better.

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Lexi
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Re: Being a conservative investor is not always a bad thing

Post by Lexi » Wed Jun 05, 2019 10:15 am

The main reason to hold bonds is not to maximize return over an extended period. It is to reduce volatility.

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Re: Being a conservative investor is not always a bad thing

Post by azanon » Wed Jun 05, 2019 10:20 am

My personal opinion, is that the only "wrong" portfolio would be one holding much less than 20% equities, or thereabouts, because below that approximate point, return per unit risk actually drops (edit: risk rises (measured by volatility) and return drops at the same time), which is an illogical portfolio solution. That being said, stocks and bonds have approximately the exact expected return that they should have for their given level of risks. If there were a discrepancy there, it'd be immediately corrected in the market. So, yes, I believe Warren B. is wrong during those times he says or implies that stocks are "a better deal". No... they're not.

Now from a strictly mathematical point of view (return per unit risk), lower equity portfolios tend to offer a better deal (a "good thing"?), simply because stocks are more volatile, so lower equity portfolios do a better job of risk-matching the two investment types.
Last edited by azanon on Wed Jun 05, 2019 10:23 am, edited 1 time in total.

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Re: Being a conservative investor is not always a bad thing

Post by Valuethinker » Wed Jun 05, 2019 10:20 am

CULater wrote:
Wed Jun 05, 2019 9:29 am
Interesting chart shows bond returns vs. stocks over the last 20 years

Image
This is really sensitive to the end points chosen.

Picking the start as the year before the deflation of the largest stock market bubble since the 1960s (at least) is going to tilt the table towards bonds.

Also we have had a 40 year bull market in bonds, that saw interest rates go from 21% to under 1% (official interest rates). Since negative interest rates are difficult to achieve, that's unlikely to be repeated unless we are in a Japan-style scenario.

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Re: Being a conservative investor is not always a bad thing

Post by CULater » Wed Jun 05, 2019 10:27 am

Picking the start as the year before the deflation of the largest stock market bubble since the 1960s (at least) is going to tilt the table towards bonds.
Which could happen starting tomorrow. Some think that zirp has bubbled us up once again.
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Re: Being a conservative investor is not always a bad thing

Post by randomguy » Wed Jun 05, 2019 10:40 am

CULater wrote:
Wed Jun 05, 2019 10:27 am
Picking the start as the year before the deflation of the largest stock market bubble since the 1960s (at least) is going to tilt the table towards bonds.
Which could happen starting tomorrow. Some think that zirp has bubbled us up once again.
And maybe we having finally hit the top of the biggest bond bubble and starting tomorrow bonds are returning there historical averages instead of the inflated returns of the 00s;) But lets think about how hard it is to be a bond investor
2000 stock vs bond 5.6 vs 4.7 pretty close to a draw
1999 stock vs bond 6.42 vs 4.49. Stock guy has 50% more money
2001 stock vs bond 6.55 vs 4.41. Stock guy has 50% more money
1989 stock vs bond 9.8vs 5.8. Stock guy has 3x more money

Are you a good enough market timer to decide when to buy bonds knowing the odds of you picking the right year is very low?:) I buy bonds but I have no doubt that 95% of the time I would end up with more money buying stocks.

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Re: Being a conservative investor is not always a bad thing

Post by Fallible » Wed Jun 05, 2019 10:57 am

Generally speaking, being a conservative - or aggressive or in-between - investor is never a bad thing if it is right for the investor.
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Re: Being a conservative investor is not always a bad thing

Post by tennisplyr » Wed Jun 05, 2019 11:00 am

Interesting info....I'm ok @ 50/50
Those who move forward with a happy spirit will find that things always work out.

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Re: Being a conservative investor is not always a bad thing

Post by Svensk Anga » Wed Jun 05, 2019 11:32 am

vineviz wrote:
Wed Jun 05, 2019 9:52 am
Being conservative isn't always a bad thing, but being smart is usually better.

Image
Not only smart, but having the courage of one's convictions. To get that green line, one would have had to rebalance from bonds to stocks big time through the fall of 2008 and early 2009. I think it was quite rare for even smart investors to have done that. Even more rare if their employment looked shaky at the time or retirement was at hand.

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Re: Being a conservative investor is not always a bad thing

Post by OSUperu » Wed Jun 05, 2019 11:50 am

vineviz wrote:
Wed Jun 05, 2019 9:52 am
Being conservative isn't always a bad thing, but being smart is usually better.

Image

What is the make up of this 'Diversified Investor" Portfolio?

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Re: Being a conservative investor is not always a bad thing

Post by thefirst100k » Wed Jun 05, 2019 11:51 am

Svensk Anga wrote:
Wed Jun 05, 2019 11:32 am
Not only smart, but having the courage of one's convictions. To get that green line, one would have had to rebalance from bonds to stocks big time through the fall of 2008 and early 2009. I think it was quite rare for even smart investors to have done that. Even more rare if their employment looked shaky at the time or retirement was at hand.
I don't think I'd be able to do that. I'm far more willing to pick up a 2nd job during a recession to pour money into stocks, even if it just a night job as a $15/hr security guard or a contract web design worker.

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Re: Being a conservative investor is not always a bad thing

Post by vineviz » Wed Jun 05, 2019 12:29 pm

Svensk Anga wrote:
Wed Jun 05, 2019 11:32 am
Not only smart, but having the courage of one's convictions. To get that green line, one would have had to rebalance from bonds to stocks big time through the fall of 2008 and early 2009. I think it was quite rare for even smart investors to have done that. Even more rare if their employment looked shaky at the time or retirement was at hand.
Rebalancing would have helped for sure, but even without rebalancing the diversification still would have helped. This is the plot with no rebalancing at all.

Image
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Re: Being a conservative investor is not always a bad thing

Post by vineviz » Wed Jun 05, 2019 12:33 pm

OSUperu wrote:
Wed Jun 05, 2019 11:50 am
What is the make up of this 'Diversified Investor" Portfolio?
I just quickly assembled this portfolio: not sure how realistic it would have been for an investor to choose it.

VTSMX Vanguard Total Stock Mkt 18.00%
IJS iShares S&P Small-Cap 600 Value ETF 18.00%
VGTSX Vanguard Total Intl Stock 12.00%
VEIEX Vanguard Emerging Mkts Stock 12.00%
VUSTX Vanguard Long-Term Treasury 40.00%
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Being a conservative investor is not always a bad thing

Post by abc132 » Wed Jun 05, 2019 1:52 pm

It's strange to me that expected returns are the highest at a market bottom, and yet people flee the market and abandon logic.

Investing rationally, it should be relatively easy to add or rebalance when things are down, as you have better expected future returns.

Unfortunately, I think many people do not invest rationally.

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Re: Being a conservative investor is not always a bad thing

Post by vineviz » Wed Jun 05, 2019 2:10 pm

abc132 wrote:
Wed Jun 05, 2019 1:52 pm
It's strange to me that expected returns are the highest at a market bottom, and yet people flee the market and abandon logic.
Unfortunately you can't spot the bottom until after the rebound has happened.

And almost by definition, the volume of fear is greatest at the bottom right when investors need to tune it out the most.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Being a conservative investor is not always a bad thing

Post by Toons » Wed Jun 05, 2019 2:15 pm

I got in the market in 1980
I will get out of the market ,
When I leave this earth.
4-6% compounding,
I am grateful.
Anything more
A gift
:mrgreen:
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Re: Being a conservative investor is not always a bad thing

Post by delamer » Wed Jun 05, 2019 3:18 pm

Svensk Anga wrote:
Wed Jun 05, 2019 11:32 am
vineviz wrote:
Wed Jun 05, 2019 9:52 am
Being conservative isn't always a bad thing, but being smart is usually better.

Image
Not only smart, but having the courage of one's convictions. To get that green line, one would have had to rebalance from bonds to stocks big time through the fall of 2008 and early 2009. I think it was quite rare for even smart investors to have done that. Even more rare if their employment looked shaky at the time or retirement was at hand.
Why such a big difference between the bond returns on thIs chart and the one in the initial post?

Same problem for the S&P.

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vineviz
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Re: Being a conservative investor is not always a bad thing

Post by vineviz » Wed Jun 05, 2019 3:22 pm

delamer wrote:
Wed Jun 05, 2019 3:18 pm
Why such a big difference between the bond returns on thIs chart and the one in the initial post?

Same problem for the S&P.
Good question. The OP chart was vague on the start and end dates, and my chart runs through the present instead of 2018. I think I got it close enough to make my point, though.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Being a conservative investor is not always a bad thing

Post by DartThrower » Wed Jun 05, 2019 3:44 pm

abc132 wrote:
Wed Jun 05, 2019 1:52 pm
It's strange to me that expected returns are the highest at a market bottom, and yet people flee the market and abandon logic.

Investing rationally, it should be relatively easy to add or rebalance when things are down, as you have better expected future returns.

Unfortunately, I think many people do not invest rationally.
Why strange? The behavior that causes a market bottom is investors fleeing. Nearly all investors are then in shock and investing decisions come to be made out of fear instead of logic. Faith in the very premise of investing itself is destroyed, at least temporarily.
A Boglehead can stay the course longer than the market can stay irrational.

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CULater
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Re: Being a conservative investor is not always a bad thing

Post by CULater » Wed Jun 05, 2019 3:47 pm

vineviz wrote:
Wed Jun 05, 2019 3:22 pm
delamer wrote:
Wed Jun 05, 2019 3:18 pm
Why such a big difference between the bond returns on thIs chart and the one in the initial post?

Same problem for the S&P.
Good question. The OP chart was vague on the start and end dates, and my chart runs through the present instead of 2018. I think I got it close enough to make my point, though.
I noticed the same thing. Here's the reference for the chart I posted.

https://realinvestmentadvice.com/for-th ... -the-last/
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Re: Being a conservative investor is not always a bad thing

Post by abc132 » Wed Jun 05, 2019 3:54 pm

vineviz wrote:
Wed Jun 05, 2019 2:10 pm
abc132 wrote:
Wed Jun 05, 2019 1:52 pm
It's strange to me that expected returns are the highest at a market bottom, and yet people flee the market and abandon logic.
Unfortunately you can't spot the bottom until after the rebound has happened.

And almost by definition, the volume of fear is greatest at the bottom right when investors need to tune it out the most.
True, however I talked about people fleeing at the bottom, and better opportunity when markets are down.

I didn't say people should only invest at the exact bottom.

Difficulty spotting the bottom has little to do with increasing future expectations as prices drop.

Rebalancing and continued investment have nothing to do with spotting a bottom.
Last edited by abc132 on Wed Jun 05, 2019 4:00 pm, edited 1 time in total.

abc132
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Re: Being a conservative investor is not always a bad thing

Post by abc132 » Wed Jun 05, 2019 3:57 pm

DartThrower wrote:
Wed Jun 05, 2019 3:44 pm
abc132 wrote:
Wed Jun 05, 2019 1:52 pm
It's strange to me that expected returns are the highest at a market bottom, and yet people flee the market and abandon logic.

Investing rationally, it should be relatively easy to add or rebalance when things are down, as you have better expected future returns.

Unfortunately, I think many people do not invest rationally.
Why strange? The behavior that causes a market bottom is investors fleeing. Nearly all investors are then in shock and investing decisions come to be made out of fear instead of logic. Faith in the very premise of investing itself is destroyed, at least temporarily.
While that explains overall market behavior, it's strange (to me) that people can spend a lot of time here posting or reading historical expectations and so easily ignore history and expectations.

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Re: Being a conservative investor is not always a bad thing

Post by vineviz » Wed Jun 05, 2019 4:13 pm

abc132 wrote:
Wed Jun 05, 2019 3:54 pm
vineviz wrote:
Wed Jun 05, 2019 2:10 pm
abc132 wrote:
Wed Jun 05, 2019 1:52 pm
It's strange to me that expected returns are the highest at a market bottom, and yet people flee the market and abandon logic.
Unfortunately you can't spot the bottom until after the rebound has happened.

And almost by definition, the volume of fear is greatest at the bottom right when investors need to tune it out the most.
True, however I talked about people fleeing at the bottom, and better opportunity when markets are down.

I didn't say people should only invest at the exact bottom.

Difficulty spotting the bottom has little to do with increasing future expectations as prices drop.

Rebalancing and continued investment have nothing to do with spotting a bottom.
I suspect we agree and that I didn’t articulate my agreement very well.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

abc132
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Re: Being a conservative investor is not always a bad thing

Post by abc132 » Wed Jun 05, 2019 10:37 pm

vineviz wrote:
Wed Jun 05, 2019 4:13 pm
I suspect we agree and that I didn’t articulate my agreement very well.
I was thinking the same thing about my posts.

Thank you for your posts. Many of them have been helpful to me.

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Re: Being a conservative investor is not always a bad thing

Post by LegendaryRed » Thu Jun 06, 2019 1:09 am

dbr wrote:
Wed Jun 05, 2019 9:41 am
Sandtrap wrote:
Wed Jun 05, 2019 9:32 am
Outstanding chart.

At what allocation and beyond is one considered a "conservative investor"??
50/50 +
60/40+
???

Thanks for posting this.
j :happy
That kind of question can be answered by arbitrary means such as dividing 100 into less than 50 and greater than 50, or by dividing 100 into 0-33, 34-66, and 67-100, or by dividing 100 into 0-25, 26-50, 51-75, and 76-100. This is the method of "1/n" which is very helpful when faced with this question. One is still left with trying to figure out if 2 is better than 3 is better than 4 or vice versa. In many cases 3 is a good number. In statistics 10 is common, hence the common presentation by deciles. I think for your question 2 is best, hence 50/50 as one is thinking in the opposites of conservative vs aggressive. An option, of course, is to dodge the issue and allocate 50/50 (a serious recommendation).

This is a real comment and not intended to be fatuous.
Maybe a "scientific" way is to gather data on accounts and determine the median investor's asset allocation as well as the distribution. Since there are too many asset classes, we can just focus on the ratio of stocks : bonds, or broadly equities to fixed income. Then give the "conservative" investors the 0-33th percentile of stock allocations, the ultra-conservative investors 0-10th, the middle of the road 34-66th, and the most aggressive 67-100th. You might get something like 15% of US investors (who have a brokerage account or retirement plan) holding zero stocks whatsoever. If we can find a good public dataset, might be fun to analyze and create new investor typologies.

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Re: Being a conservative investor is not always a bad thing

Post by Northern Flicker » Thu Jun 06, 2019 1:34 am

CULater wrote:
Wed Jun 05, 2019 10:27 am
Picking the start as the year before the deflation of the largest stock market bubble since the 1960s (at least) is going to tilt the table towards bonds.
Which could happen starting tomorrow. Some think that zirp has bubbled us up once again.
Nobody can predict the start of a bear market. You should not take more risk than that with which you are comfortable and have the capacity to take. That is true even if you think the market may take off like a rocket. But trying to time the start of a bear market is a fool's errand.

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