Presintense wrote: ↑Thu Feb 13, 2020 9:03 pm
It’s not as much second guessing either of them as it is confusion over their conflicting statements.
When or how what all might end? The bull market? Will the end of this bull market be the end of bull markets? Because THAT would scare the you know what out of me.
Isn’t asset allocation explicitly for changing market conditions or is there something extra that I am overlooking?
Winter is coming in Australia. But for those of us in the Midwest US it’s been here for months and spring had better be what’s coming... followed by winter again eventually.
As individual investors I believe you and I share the same concerns. With each other, not with Charlie Munger and Warren Buffet.
You also asked the question about what else you can do if market conditions change.
You are correct in that asset allocations should be selected so that you can stick with it in good times and bad (because when you're going through them, you don't know which one is coming around the corner.)
However, when times are good, you can do the following:
1) Stress test your finances. Project how things would look if:
a. The market dropped by 20%
b. The market dropped by 50%
c. You lose your job
d. Everyone in your household lost their job
e. b and d simultaneously
2) Set up contingency plans. If the events in 1) happen, how would you react? What's your "hang time"? (Football reference to the amount of time the ball hangs in the air without any support) How long can you sustain your family with no outside support? Can you structurally change your expenses to extend your hang time? Are you close enough to financial independence that you can sustain yourself indefinitely? Is your emergency fund fully funded? If you're planning on using loans in an emergency, would that work in the worst case scenarios (in 2008, HELOCs got cancelled.)
3) Review your Investor Policy Statement. Does it need to be updated?
4) Stress test your finances with positive and negative life events. What would you do if:
a. The market increased by 30% again this year.
b. You got an unexpected inflow of cash. What would you do with it?
c. Your car dies and must be replaced. How do you raise the money?
I am also concerned that the Fed actions last year to boost the economy and the stock market have restricted their ability to respond when the next recession hits. They can't lower interest rates much before going negative, they've been buying on the market (but not calling it QE), and the deficit limits the ability to increase federal spending. If the next recession gets really bad, I'm not sure what's going to happen. And if the economy as a whole gets that bad, I'm not sure what individual actions could be taken to shelter from that. Stocks, bonds, real estate, cash, international investing -- all might be ineffective.