How did you determine risk tolerance?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
Topic Author
MissHavisham
Posts: 27
Joined: Mon Jul 20, 2020 8:07 pm

How did you determine risk tolerance?

Post by MissHavisham » Fri Jul 24, 2020 8:24 pm

Dear Bogleheads,

I'm a beginner and new to investing. This will be my first experience as an investor during a Presidential Election year. If the philosophy is to stay the course and hold steadfast, how do you actually do that during a Presidential Election year? or during any other turbulence? I would love to hear your past experiences, what happened to your portfolio and how you handled your emotions. Looking for some wisdom. I read a thread where people said they would read over their Investment Policy Statement.

Also, In January of this year I had $25,000 and due to Covid it dropped to $13,500. Now it's back up. They say smooth seas never make a skilled sailor. Am I a sailor now? Was COVID a big enough experience for anyone? For high net worth people, does losing $100,000's feel the same way as losing +/-?

I've heard all about the "dot come era" and "housing crisis" but didn't have skin in the game. I want to condition myself to not listen to the noise, but is there a point that one should?

Curious.
Last edited by MissHavisham on Fri Jul 24, 2020 10:32 pm, edited 2 times in total.

User avatar
Marmot
Posts: 384
Joined: Sun Oct 10, 2010 1:44 pm
Location: Phoenix, AZ

Re: Presidential Elections: How to stay calm?

Post by Marmot » Fri Jul 24, 2020 8:28 pm

I don't pay attention. Wall street factors it in. I have a percentage set up, I follow it.
Marty....don't go to the year 2020....Dr. Emmett Brown

Normchad
Posts: 855
Joined: Thu Mar 03, 2011 7:20 am

Re: Presidential Elections: How to stay calm?

Post by Normchad » Fri Jul 24, 2020 8:30 pm

Never sell. Like ever. Just never,ever, sell.

As a young investor, there is no need to worry here. Anything bad that an happen, is unpredictable by you. But you have more than enough time for it to straighten itself out and recover.

Keep reading. And after a few decades of learning and experience, you come to learn when it is time to sell.

You will probably go through six presidential elections before you need to sell anything.

User avatar
Marmot
Posts: 384
Joined: Sun Oct 10, 2010 1:44 pm
Location: Phoenix, AZ

Re: Presidential Elections: How to stay calm?

Post by Marmot » Fri Jul 24, 2020 8:33 pm

Found this string. Basically same question:

viewtopic.php?p=5390152#p5390152
Marty....don't go to the year 2020....Dr. Emmett Brown

runner3081
Posts: 3334
Joined: Mon Aug 22, 2016 3:22 pm

Re: Presidential Elections: How to stay calm?

Post by runner3081 » Fri Jul 24, 2020 8:44 pm

What is there to worry about? Keep investing as usual. It is all noise.

drk
Posts: 1839
Joined: Mon Jul 24, 2017 10:33 pm
Location: Seattle

Re: Presidential Elections: How to stay calm?

Post by drk » Fri Jul 24, 2020 8:49 pm

If I knew how elections would impact markets, I'd have a different job. I stay calm by accepting that I don't know.

stoptothink
Posts: 7982
Joined: Fri Dec 31, 2010 9:53 am

Re: Presidential Elections: How to stay calm?

Post by stoptothink » Fri Jul 24, 2020 8:52 pm

Marmot wrote:
Fri Jul 24, 2020 8:28 pm
I don't pay attention. Wall street factors it in. I have a percentage set up, I follow it.
This. I made a mental note in early March when we started going into the Twilight Zone: I was not going to look at least until 2021. All my investing is automated, no real point for me to look anyway.

User avatar
Topic Author
MissHavisham
Posts: 27
Joined: Mon Jul 20, 2020 8:07 pm

Re: Presidential Elections: How to stay calm?

Post by MissHavisham » Fri Jul 24, 2020 8:54 pm

I guess what I am curious about is I heard some people say you should put like a limit on your stuff, that triggers something if it falls a certain amount. Does anyone here do that?

User avatar
One Ping
Posts: 912
Joined: Thu Sep 24, 2015 4:53 pm

Re: Presidential Elections: How to stay calm?

Post by One Ping » Fri Jul 24, 2020 8:54 pm

stoptothink wrote:
Fri Jul 24, 2020 8:52 pm
This. I made a mental note in early March when we started going into the Twilight Zone: I was not going to look at least until 2021. All my investing is automated, no real point for me to look anyway.
Ditto. I don't plan to really 'look' until March, maybe July when I do my annual rebalancing check anyway. :sharebeer
"Re-verify our range to target ... one ping only."

Triple digit golfer
Posts: 5515
Joined: Mon May 18, 2009 5:57 pm

Re: Presidential Elections: How to stay calm?

Post by Triple digit golfer » Fri Jul 24, 2020 8:56 pm

Normchad wrote:
Fri Jul 24, 2020 8:30 pm
Never sell. Like ever. Just never,ever, sell.

As a young investor, there is no need to worry here. Anything bad that an happen, is unpredictable by you. But you have more than enough time for it to straighten itself out and recover.

Keep reading. And after a few decades of learning and experience, you come to learn when it is time to sell.

You will probably go through six presidential elections before you need to sell anything.
This is great advice. Outside of a hardship type situation, simply never sell. Just contribute. Write it down if you have to. "DO NOT EVER SELL."

Simple. Work, contribute, ignore the news and watch The Office on Netflix for about the 10th time. That's what I'm doing, anyway.

ByTheNumbers
Posts: 10
Joined: Thu Jul 26, 2018 4:15 pm

Re: Presidential Elections: How to stay calm?

Post by ByTheNumbers » Fri Jul 24, 2020 9:02 pm

MissHavisham wrote:
Fri Jul 24, 2020 8:54 pm
I guess what I am curious about is I heard some people say you should put like a limit on your stuff, that triggers something if it falls a certain amount. Does anyone here do that?
I used to maintain limit buy orders to pour some of my cash in if various indexes dropped 20% or more. Now I don’t... in retrospect wish I’d still had that in March, but overall I don’t think it’s a good idea.

Hopefully it’s obvious that selling in a drop would be a bad idea.

If you can’t afford to buy and understand what a bad idea it would be to sell... well then there’s not much left to worry about. Make a margarita or something and watch the show.

Vanguard Fan 1367
Posts: 1762
Joined: Wed Feb 08, 2017 3:09 pm

Re: Presidential Elections: How to stay calm?

Post by Vanguard Fan 1367 » Fri Jul 24, 2020 9:05 pm

I try to avoid spending very much time watching the news.
Upton Sinclair: "It is difficult to get a man to understand something when his salary depends on his not understanding it."

quantAndHold
Posts: 4821
Joined: Thu Sep 17, 2015 10:39 pm

Re: Presidential Elections: How to stay calm?

Post by quantAndHold » Fri Jul 24, 2020 9:09 pm

MissHavisham wrote:
Fri Jul 24, 2020 8:54 pm
I guess what I am curious about is I heard some people say you should put like a limit on your stuff, that triggers something if it falls a certain amount. Does anyone here do that?
Yeah, it’s a stop loss order. Don’t do that. All that does is sell you out when the market is at a low point. You don’t want that.

This is money you’re planning on keeping invested for 10 years or more, right? Pick an asset allocation, invest according to it. Buy a book on knitting. Learn to knit while you’re ignoring the market. Check your investments again in a year. Adjust the allocation as necessary. Buy another book, and spend next year learning to do something else. Repeat this every year until you need the money.
Yes, I’m really that pedantic.

User avatar
arcticpineapplecorp.
Posts: 5585
Joined: Tue Mar 06, 2012 9:22 pm

Re: Presidential Elections: How to stay calm?

Post by arcticpineapplecorp. » Fri Jul 24, 2020 9:15 pm

read this:

https://www.capitalgroup.com/advisor/in ... -year.html

that being said, you have to get used to bigger dollar losses...even if your portfolio becomes less risky. why?

Because the reality is, as one's portfolio grows over time, the dollars lost will increase even though the percentage losses (amount of risk) would decrease if you choose less risk over time.

Failing to understand that, will result in panicking each and every time declines come. Because the dollar losses will be larger as the portfolio grows (even if you take less risk).

And I think people panic more because they say "I lost X dollars!!", not "I lost 20%!"

So, understanding that you're risking losing more dollars later on, even though the percentage will be less (if you take less risk) is crucial to be a good investor.

For those who don't understand this, here's the scenario:

You're in your 20s, contributing to 401k, getting employer match, reinvesting dividends, getting growth on investment.
You're 100% in stock because you have the need, ability and willingness to take risk.
You're portfolio has grown to $50,000.
The stock market falls 30%
What's the dollar loss? $15,000. (.30 X $50,000 = $15,000)

You stay the course and keep investing over the next few decades.
You're in retirement now.
Your portfolio has grown over the decades to $500,000 (10X the size it was in your 20s. Yes, you hopefully would have a million or more, but just go with me)
But since you're in retirement you can't take the risk you did in your 20s. So now you have 30% of your money in stock. The rest in fixed income.
The stock market now falls 30% (just like it did in your 20s).
What is your percentage loss now? (it's not 30%, you'd have to have 100% invested like in your 20s to lose 30%. But since you only have 30% in stocks, if the 30% in stocks loses 30%...)
You'd have a 9% loss (.30 X .30 = .09 or 9%)
But what's the dollar loss?
$45,000 (.09 X $500,000 = $45,000).

You now lost 3 times the amount (of dollars) you did as when you were in your 20s.
But you only took a third of the risk as you did in your 20s. (30% stock is a third roughly of 100% stock)

See how you will have to get used to larger and larger dollar losses...even if your portfolio gets less and less risky as time goes on?

Of course, you'd rather have 91% of your portfolio remaining (in the example above) than 70% (in the example in your 20s). But do people really say, "Whew. I've got 91% of my portfolio left!" No, they say, "I lost $45,000!!"

Do you think the average investor is really, truly aware of this? I don't.

also remember that declines happen regularly. expect average intrayear declines of 14%. But remember that just because there are always intrayear declines, doesn't mean you won't make money over time. buy and hold works. more people should try it sometime.

Image

source: https://am.jpmorgan.com/us/en/asset-man ... ets/viewer
Last edited by arcticpineapplecorp. on Fri Jul 24, 2020 9:20 pm, edited 3 times in total.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

User avatar
ResearchMed
Posts: 10386
Joined: Fri Dec 26, 2008 11:25 pm

Re: Presidential Elections: How to stay calm?

Post by ResearchMed » Fri Jul 24, 2020 9:17 pm

Marmot wrote:
Fri Jul 24, 2020 8:33 pm
Found this string. Basically same question:

viewtopic.php?p=5390152#p5390152
This topic (this thread) is probably not allowed here on BH (?).
In any event, the linked thread is already locked, so this one may soon be so, too.

To OP: If you could rephrase your question to be something more specific/actionable, and less about 'emotions', that would help keep this thread open if there were to be any helpful suggestions/information for you.
(And in many cases such as this, the main problem/concern is indeed emotional, and understandably so, especially for those relatively new to investing.)

Try to avoid making any sudden investing changes due to "current events", as it's never actually clear which direction things will go anyway.
This is a reason to have a written investing strategy, so there aren't any sudden decisions to be made...
(And also a reason not to continually check one's investing accounts... except that we do check frequently, as do others here, but to make sure the money is all where it should be, and there hasn't been any mischief, etc. - but not so one can "make frequent or quick investing changes.)

RM
This signature is a placebo. You are in the control group.

ionball
Posts: 225
Joined: Wed Jan 31, 2018 12:17 pm

Re: Presidential Elections: How to stay calm?

Post by ionball » Fri Jul 24, 2020 9:21 pm

Contribute to your investments as often as you can. It's something you can control and has potential to override all other investment challenges.

rascott
Posts: 2166
Joined: Wed Apr 15, 2015 10:53 am

Re: Presidential Elections: How to stay calm?

Post by rascott » Fri Jul 24, 2020 9:26 pm

MissHavisham wrote:
Fri Jul 24, 2020 8:54 pm
I guess what I am curious about is I heard some people say you should put like a limit on your stuff, that triggers something if it falls a certain amount. Does anyone here do that?
Good grief no.... don't ever do that. Certainly not for money you don't need for a very long time. That's a guaranteed way to lose money.

How does it feel to lose a "lot"? I felt nothing, for a while I stopped looking at the balances. So not even sure what I was really down from the peak to valley, possibly upwards of half a mil. So what? This isn't money I needed, and won't for twenty+ years. Last thing I would ever consider doing is selling stock at depressed levels.

MindBogler
Posts: 994
Joined: Wed Apr 17, 2013 12:05 pm

Re: Presidential Elections: How to stay calm?

Post by MindBogler » Fri Jul 24, 2020 9:30 pm

You should search for some of the threads where people tried to market time based on previous elections. Hint: it ends badly. :oops:

User avatar
Nate79
Posts: 6173
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Presidential Elections: How to stay calm?

Post by Nate79 » Fri Jul 24, 2020 9:36 pm

Elections happen all the time. They really aren't a big deal from an investor standpoint. You realize that you are investing in a period just a few years from the last presidential election? Its trivial to look at the stock market the years after each election. What do you see?

Concerning losing money in the stock market early in your career vs later I can say that yes, it hurts more to lose >$100k in a downturn vs $10k. But also with more experience you understand to ignore the noise (such as an election) and stay the course.

Have an investment plan and stick to it. Tune out all the stupidly around us and just keep on investing.

mikeyzito22
Posts: 453
Joined: Sat Dec 02, 2017 5:42 pm

Re: Presidential Elections: How to stay calm?

Post by mikeyzito22 » Fri Jul 24, 2020 10:03 pm

Marmot wrote:
Fri Jul 24, 2020 8:33 pm
Found this string. Basically same question:

viewtopic.php?p=5390152#p5390152
I posted this: If you were a little bit older you would get it. Or maybe, you're just smart and do get it:

Yes, I have advice. Questions first.
Did you change your investing strategy when Nixon was ousted?
Did you change your allocation when Ford reduced taxes twice?
Did you go buy something because Carter took office during a time of stagflation?
Did you think trickle down economics would kill the working class under Reagan?
Did you change your mind because Clinton taxed higher income individuals?
Did you change horses because Goerge Bush spent a lot of tax payers money on the military?
Did you drop the health care sector because Obama wanted to fund health care changes?

The list is endless. Bet on the economy, the whole economy. Same as it ever was. Keep it simple and stay the course.

User avatar
Topic Author
MissHavisham
Posts: 27
Joined: Mon Jul 20, 2020 8:07 pm

Re: Presidential Elections: How to stay calm?

Post by MissHavisham » Fri Jul 24, 2020 10:10 pm

Thank you for sharing that article. I liked the graphic and yes it shows the market trending up over time.

Sorry, I didn't realize this topic wasn't allowed. I'm not necessarily asking about politics, more as using election years and COVID as an example of times when people might be having a panic, and how people really overcame that noise to actually stay the course. It's like weight loss, everyone knows to eat healthy and exercise but how many people actually do that. How many people actually hold on? ya know?

Thanks everyone. I see the take away is to basically only check in on things about once or twice a year regardless of pandemics/elections, and never sell.

I dont' know how to delete or shut it down. so sorry!

ddurrett896
Posts: 1289
Joined: Wed Nov 05, 2014 3:23 pm

Re: Presidential Elections: How to stay calm?

Post by ddurrett896 » Fri Jul 24, 2020 10:19 pm

Your new, hopefully young. Enjoy the declines - that’s when you make money!

MathWizard
Posts: 4245
Joined: Tue Jul 26, 2011 1:35 pm

Re: Presidential Elections: How to stay calm?

Post by MathWizard » Fri Jul 24, 2020 10:23 pm

MissHavisham wrote:
Fri Jul 24, 2020 8:24 pm
Dear Bogleheads,

I'm a beginner and new to investing. This will be my first experience as an investor during a Presidential Election year. If the philosophy is to stay the course and hold steadfast, how do you actually do that during a Presidential Election year? or during any other turbulence? I would love to hear your past experiences, what happened to your portfolio and how you handled your emotions. Looking for some wisdom. I read a thread where people said they would read over their Investment Policy Statement.

Also, In January of this year I had $25,000 and due to Covid it dropped to $13,500. Now it's back up. They say smooth seas never make a skilled sailor. Am I a sailor now? Was COVID a big enough experience for anyone? For high net worth people, does losing $100,000's feel the same way as losing +/-?

I've heard all about the "dot come era" and "housing crisis" but didn't have skin in the game. I want to condition myself to not listen to the noise, but is there a point that one should?

Curious.
Once you weather a few high percentage low dollar amount paper losses, you will get to know your tolerance for such losses, and can adjust your AA accordingly. This is the real risk tolerance test, not the questions that attemot to determine risk tolerance.

I "lost" $200K from July 2008 to the end if the year, about half my portfolio. Strangely I was not concerned. I knew I would be investing for many more years. The market continued to drop into March, but I kept plowing money into stock (buying while they were on sale).

I expected to be concerned with such a big $ "loss", but I weathered high percentage " losses" in 2001 and 2003 .

User avatar
Topic Author
MissHavisham
Posts: 27
Joined: Mon Jul 20, 2020 8:07 pm

Re: Presidential Elections: How to stay calm?

Post by MissHavisham » Fri Jul 24, 2020 10:28 pm

ResearchMed wrote:
Fri Jul 24, 2020 9:17 pm
Marmot wrote:
Fri Jul 24, 2020 8:33 pm


To OP: If you could rephrase your question to be something more specific/actionable, and less about 'emotions', that would help keep this thread open if there were to be any helpful suggestions/information for you.
(

RM
Maybe I should call it "Does COVID drop constitute "experience" to determine my risk tolerance?"

Fallible
Posts: 7439
Joined: Fri Nov 27, 2009 4:44 pm
Contact:

Re: How did you determine risk tolerance?

Post by Fallible » Fri Jul 24, 2020 10:57 pm

MissHavisham wrote:
Fri Jul 24, 2020 8:24 pm
Dear Bogleheads,

I'm a beginner and new to investing. This will be my first experience as an investor during a Presidential Election year. If the philosophy is to stay the course and hold steadfast, how do you actually do that during a Presidential Election year? or during any other turbulence? I would love to hear your past experiences, what happened to your portfolio and how you handled your emotions. ...
Good questions! Have you seen the Bogleheads' wiki page on "Risk tolerance"? It's based on typical questions asked by new investors just learning about investment risk and it includes recommendations for more reading on emotional risk tolerance such as "The Bogleheads' Guide to Investing."

The RT page includes a question on how to determine risk tolerance:
Why is risk tolerance difficult to determine?

Knowing your emotional tolerance for investment risk means knowing yourself and your unique goals and needs - and it is not easy.

Jason Zweig writes in his book on neuroscience, Your Money & Your Brain, that "... perception of investment risk is in constant flux, depending on your memories of past experiences, whether you are alone or part of a group, how familiar and controllable the risk feels to you, how it is described, and what mood you happen to be in at the moment.”[7]
https://www.bogleheads.org/wiki/Risk_tolerance
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle

flaccidsteele
Posts: 593
Joined: Sun Jul 28, 2019 9:42 pm
Location: Canada

Re: How did you determine risk tolerance?

Post by flaccidsteele » Fri Jul 24, 2020 11:05 pm

Most people find out when the market tanks

I learned about temperament as a teenager in the 1980s reading books by Buffett, Fischer, Graham

It was easy to manage after I was completely indoctrinated

Crashes didn’t bother me after that

The US market always recovers. Always.

It’s never different this time. Ever.
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat

User avatar
nedsaid
Posts: 13574
Joined: Fri Nov 23, 2012 12:33 pm

Re: How did you determine risk tolerance?

Post by nedsaid » Fri Jul 24, 2020 11:07 pm

MissHavisham wrote:
Fri Jul 24, 2020 8:24 pm
Dear Bogleheads,

I'm a beginner and new to investing. This will be my first experience as an investor during a Presidential Election year. If the philosophy is to stay the course and hold steadfast, how do you actually do that during a Presidential Election year? or during any other turbulence? I would love to hear your past experiences, what happened to your portfolio and how you handled your emotions. Looking for some wisdom. I read a thread where people said they would read over their Investment Policy Statement.

Also, In January of this year I had $25,000 and due to Covid it dropped to $13,500. Now it's back up. They say smooth seas never make a skilled sailor. Am I a sailor now? Was COVID a big enough experience for anyone? For high net worth people, does losing $100,000's feel the same way as losing +/-?

I've heard all about the "dot come era" and "housing crisis" but didn't have skin in the game. I want to condition myself to not listen to the noise, but is there a point that one should?

Curious.
Your risk tolerance is determined by your first bear market. All those risk surveys have limited usefulness as we are all risk tolerant during bull markets and risk averse during bear markets. After you first experience big losses in your portfolio you will have a much better idea of how much risk you can really take.
A fool and his money are good for business.

User avatar
Topic Author
MissHavisham
Posts: 27
Joined: Mon Jul 20, 2020 8:07 pm

Re: How did you determine risk tolerance?

Post by MissHavisham » Fri Jul 24, 2020 11:14 pm

No, I have not seen the Bogleheads' wiki page on "Risk tolerance". I will read through it. Thank you for showing me!

User avatar
arcticpineapplecorp.
Posts: 5585
Joined: Tue Mar 06, 2012 9:22 pm

Re: Presidential Elections: How to stay calm?

Post by arcticpineapplecorp. » Sat Jul 25, 2020 8:08 am

MissHavisham wrote:
Fri Jul 24, 2020 10:10 pm
Thank you for sharing that article. I liked the graphic and yes it shows the market trending up over time.

Sorry, I didn't realize this topic wasn't allowed. I'm not necessarily asking about politics, more as using election years and COVID as an example of times when people might be having a panic, and how people really overcame that noise to actually stay the course. It's like weight loss, everyone knows to eat healthy and exercise but how many people actually do that. How many people actually hold on? ya know?

Thanks everyone. I see the take away is to basically only check in on things about once or twice a year regardless of pandemics/elections, and never sell.

I dont' know how to delete or shut it down. so sorry!
Or you could ask yourself:

Q: When should I buy?
A: When you have the money.

Q: When should I sell?
A: When you need the money.

Everything else is market timing (except for rebalancing, which is merely following your plan).
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

User avatar
Sandtrap
Posts: 11318
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: How did you determine risk tolerance?

Post by Sandtrap » Sat Jul 25, 2020 8:14 am

The toughest and perhaps most effective "reality check" way to find out one's risk tolerance is by going through the recent market drops since Feb 20, 2020 with substantial market holdings and no pension and no employment.

j :happy
Wiki Bogleheads Wiki: Everything You Need to Know

retiredjg
Posts: 41140
Joined: Thu Jan 10, 2008 12:56 pm

Re: How did you determine risk tolerance?

Post by retiredjg » Sat Jul 25, 2020 8:49 am

MissHavisham wrote:
Fri Jul 24, 2020 8:24 pm
I'm a beginner and new to investing. This will be my first experience as an investor during a Presidential Election year. If the philosophy is to stay the course and hold steadfast, how do you actually do that during a Presidential Election year? or during any other turbulence?
You have to realize there will always be turbulence. You cannot see a smooth market year as "normal" and a turbulent year as "not normal". It's all normal. In other words, some of the "normal" is wonderful and joyful and some of it just sucks. If you are going to invest, you really need to accept that.

Once you realize that, you realize you have to set your risk level at something you can tolerate and be comfortable with in both the good times and the bad times. Picking a risk level that is comfortable in only the good times is a very poor choice.

It's like picking a spouse - there is always a fun and fair weather suitor out there...but is that what you actually want for your life partner and the other parent of your children? No, for the long term, you want someone you can stick with in the good times and the bad times both. Because there will be both.

Awhile back, there was a poster named Adrian who had a rule along this line...decide how much of a loss you can tolerate and hold no more than twice that in stocks. For example, if your portfolio is $100,000 and you feel you can tolerate seeing it drop to $50,000 (drop by half) for a year or so, then maybe 100% stocks is an OK asset allocation for you.

At the point that Adrian suggested this guideline, I had already picked an asset allocation based mostly on age and I was doing OK with it, but it was Adrian's rule that really cemented it for me - I can comfortably tolerate the disappearance of 25% of my portfolio for months on end...so I hold about 50% of my portfolio in stock funds. (I'm older and retired for several years.)


I would love to hear your past experiences, what happened to your portfolio and how you handled your emotions.
Once I settled into reality and set my course expecting that bad weather will definitely occur and always at the worst possible time...I have found there is not much emotion to it anymore.

It's making decisions during emotional times that is dangerous. If you set a realistic path, when the bad times do come, the decisions have already been made. It's kind of comforting.

Also, In January of this year I had $25,000 and due to Covid it dropped to $13,500. Now it's back up. They say smooth seas never make a skilled sailor. Am I a sailor now? Was COVID a big enough experience for anyone?
Yes and no. During the COVID drop earlier this year, some people realized they were in beyond their tolerance. That was a good lesson and may be enough of an experience for some of them.

But there is a difference between seeing your money disappear for a few weeks and seeing it disappear for 12 or 18 months with no improvement in sight. The people who made it through a few weeks OK may still have more lessons to learn.

Good luck with your decision! And remember that you can start out in a conservative position and more to a more aggressive position as you gain experience. This will hurt your portfolio little to none. Doing the opposite can cause a lot more damage.

Robot Monster
Posts: 791
Joined: Sun May 05, 2019 11:23 am
Location: New York

Re: How did you determine risk tolerance?

Post by Robot Monster » Sat Jul 25, 2020 9:09 am

flaccidsteele wrote:
Fri Jul 24, 2020 11:05 pm
The US market always recovers. Always.

It’s never different this time. Ever.
What if the US market got as bubbly as Japan did at the end of 1989 when the Nikkei's CAPE reached 90? The S&P's CAPE all-time is 44.19, which it reached during the dot-com bubble. If the CAPE foamed up much higher than that, would this not open the door for stock market behavior we've never seen before? The Nikkei reached an all-time high of 38,957.44 in '89, and today it's at 22,751.61.
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

nigel_ht
Posts: 1016
Joined: Tue Jan 01, 2019 10:14 am

Re: How did you determine risk tolerance?

Post by nigel_ht » Sat Jul 25, 2020 9:11 am

Well, my IPS has me rebalancing every presidential election cycle vs every year. Jim Otar did some analysis a few years back:

“• The volatility was about the same whether you rebalanced annually or once every four years on the Presidential election year.
• Rebalancing too often stunted the portfolio growth in secular bull markets . In many cases, the portfolio that was rebalanced based on Presidential cycle had slightly higher value at the market peak than rebalancing annually.
• Rebalancing too often compounded losses in secular bear markets. The real benefit of synchronizing the rebalancing activity with the U.S. Presidential election cycle was a significant improvement in preserving one’s capital. This made a considerable difference in portfolio longevity.
• In sideways markets, whether one rebalanced annually or on the election year did not matter: the portfolio lasted randomly either longer, shorter or the same.”

http://retirementoptimizer.com/articles ... ancing.pdf

That’s for retirement but probably holds for accumulation too.

I have rebalance bands but only for fairly large changes in the market (ie >20% drop from peak). If the market is winning then taking money off the table every 4 years seems good enough.

That IS selling by the way...

nigel_ht
Posts: 1016
Joined: Tue Jan 01, 2019 10:14 am

Re: How did you determine risk tolerance?

Post by nigel_ht » Sat Jul 25, 2020 9:13 am

Robot Monster wrote:
Sat Jul 25, 2020 9:09 am
flaccidsteele wrote:
Fri Jul 24, 2020 11:05 pm
The US market always recovers. Always.

It’s never different this time. Ever.
What if the US market got as bubbly as Japan did at the end of 1989 when the Nikkei's CAPE reached 90? The S&P's CAPE all-time is 44.19, which it reached during the dot-com bubble. If the CAPE foamed up much higher than that, would this not open the door for stock market behavior we've never seen before? The Nikkei reached an all-time high of 38,957.44 in '89, and today it's at 22,751.61.
It also might not recover for a couple decades...

Presumably some day the Nikkei will hit 38,958. Might not be for another 30-40 years...

Robot Monster
Posts: 791
Joined: Sun May 05, 2019 11:23 am
Location: New York

Re: How did you determine risk tolerance?

Post by Robot Monster » Sat Jul 25, 2020 9:31 am

Please, please, please remember your risk tolerance is not necessarily static. Your emotional ability to handle stuff could change depending on circumstances. I don't know about y'all, but when Covid-19 initially hit, it took an emotional toll on me, and that alone greatly knocked down my ability to emotionally handle the March plummet. A future plummet could also be accompanied by stuff hitting the fan that could throw you off your game, so beware. It's also possible that you could be having an unfortunate life event e.g. health scare, job loss, that coincidently coincides with a plummet.
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

NoblesvilleIN
Posts: 117
Joined: Sat Mar 24, 2018 6:04 pm
Location: Noblesville IN

Re: How did you determine risk tolerance?

Post by NoblesvilleIN » Sat Jul 25, 2020 9:39 am

I'm one who checks our investment accounts daily - after the market closes. It sounds like you do also. I've done this for years and give my spouse an update nightly on both the dollar amount and percentage change. On down days, she fires me as our financial advisor; on up days, she holds out her hand and asks "where's the money". As our balances have grown, a small percentage change now represents thousands of dollars. Here are a couple of things that have helped us deal with the normal volitility:

- I track the high point and low point of our total investment accounts throughout the year. This year (so far), the high point was on Feb. 12th and the low point was on March 23rd; the percentage was negative 21% and the dollars was > 300k. In 2019 it was a positive 18% (>300k), in 2018 it was a negative 12% (the high for us was on 9/21/18 and the low was on 12/24/18), in 2017 it was a positive 13%, and in 2016 it was a positive 12%. A negative percentage being defined as the high point being earlier in the year than the low point. The point of this is that large swings - both positive and negative are normal and not an abberation. In 2008, the ending balance of our investment accounts was 31% lower than the begining balance on 1/1/2006 - the dollar difference was significently lower than the dollar difference this year. I've taught myself to pay more attention to the percentage than the dollars. This helps me sleep. Side note: your high and low dates won't necessarily correspond with the S&P highest and lowest dates.

- I keep a couple of year's expenses in CD's. We are retired (waiting to start taking a small pension for 3 more years and social security for 8 more years) and living off of our investment income. The CD's are there if the investment income drops below our expenses. When we were working, we kept 3 to 6 months of expenses in a savings account - at that time, savings accounts paid a decent interest rate. This helped us sleep during those years.

- About 20 years ago, I started keeping an annual spreadsheet (updated on New Year's day) tracking our investments and debt. I recorded the 12/31/xx values of our IRA's, 401k's and bank accounts. Sum this up and record the difference between last year and this year in both dollars and percentage. Down years are in red (and there have been some) and up years are in black. I do the same for debt, listing things such as mortgage, HELOC, vehicles. Sum this up and record the difference between last year and this year. A reduction in debt from year to year is in black and an increase in debt (and there will be some) is in red. The goal is an increase in investment value and a decrease in debt. I got a real pleasure from watching the debt go down, eventually to zero.

The real takeaway for me from the above is how normal volitility is, both positive (yay!) and negative (boo!). Over the years, our ability to deal with the negative volitility has improved. Not because we don't look, but precisely because we do look.

Good Luck!

sixtyforty
Posts: 472
Joined: Tue Nov 25, 2014 12:22 pm
Location: USA

Re: How did you determine risk tolerance?

Post by sixtyforty » Sat Jul 25, 2020 10:23 am

Try this questionnaire from Vanguard. It will assess your risk profile and suggest an asset allocation.

https://personal.vanguard.com/us/FundsInvQuestionnaire
"Simplicity is the ultimate sophistication" - Leonardo Da Vinci

flaccidsteele
Posts: 593
Joined: Sun Jul 28, 2019 9:42 pm
Location: Canada

Re: How did you determine risk tolerance?

Post by flaccidsteele » Sat Jul 25, 2020 2:53 pm

Robot Monster wrote:
Sat Jul 25, 2020 9:09 am
flaccidsteele wrote:
Fri Jul 24, 2020 11:05 pm
The US market always recovers. Always.

It’s never different this time. Ever.
What if the US market got as bubbly as Japan did at the end of 1989 when the Nikkei's CAPE reached 90? The S&P's CAPE all-time is 44.19, which it reached during the dot-com bubble. If the CAPE foamed up much higher than that, would this not open the door for stock market behavior we've never seen before? The Nikkei reached an all-time high of 38,957.44 in '89, and today it's at 22,751.61.
I don’t pay attention to “what if’s”.

Never have. Never will.

And I pay no attention to Japan
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat

Robot Monster
Posts: 791
Joined: Sun May 05, 2019 11:23 am
Location: New York

Re: How did you determine risk tolerance?

Post by Robot Monster » Sat Jul 25, 2020 5:15 pm

flaccidsteele wrote:
Sat Jul 25, 2020 2:53 pm
Robot Monster wrote:
Sat Jul 25, 2020 9:09 am
flaccidsteele wrote:
Fri Jul 24, 2020 11:05 pm
The US market always recovers. Always.

It’s never different this time. Ever.
What if the US market got as bubbly as Japan did at the end of 1989 when the Nikkei's CAPE reached 90? The S&P's CAPE all-time is 44.19, which it reached during the dot-com bubble. If the CAPE foamed up much higher than that, would this not open the door for stock market behavior we've never seen before? The Nikkei reached an all-time high of 38,957.44 in '89, and today it's at 22,751.61.
I don’t pay attention to “what if’s”.

Never have. Never will.

And I pay no attention to Japan
"We should get fire insurance."
"Why should we do that? The house has been standing for fifty years."
"Yes, okay, but what if it catches on fire? Don't you remember how the Johnson's house burnt down?"
"I don't pay attention to 'what if's'. And I pay no attention to the Johnson's."
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

pasadena
Posts: 483
Joined: Sat Jul 02, 2016 1:23 am
Location: Washington State

Re: How did you determine risk tolerance?

Post by pasadena » Sat Jul 25, 2020 6:44 pm

Caveat: I haven't read the whole thread.

I started off with the "common wisdom" AA given my age and horizon (a little more conservative, actually), something that seemed reasonable. I watched the markets, so I started to understand how they work (read: they don't really make sense, and they go up, then down, then up again, and so on). I took the time to really think it through. The most important thing to consider is your age, and your time horizon. Then I took the plunge, and invested according to my new shiny AA.

Now what if markets go down?

My horizon is 15-45 years ahead. So I don't act on long term investments with short term thinking. My main thing is to purposely remember that whatever happens now seems way more important than it really is, given that 15 years in the future isn't today, or tomorrow.

Then I remember, that the markets always go back up. Might take a while, years even, like in 2008-2011, might take a few weeks, like this year. But it will go back up.

I also have a pretty detailed IPS, which I refer to if needed. And I wrote some sort of letter to myself to read in case I want to do something stupid. It takes emotions out of the equation.

If you're young-ish, and saving for retirement, then the fact that your $25,000 went down to $15,000 for a few weeks doesn't matter. You didn't actually lose anything as long as you didn't sell anything. Now, if that was really too hard for you, then there is no harm in adjusting your AA - as long as it's a thoughtful decision. Call it a very good lesson learned. When you find the sweet spot that lets you sleep at night, you're at the right AA.

User avatar
bertilak
Posts: 7580
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: How did you determine risk tolerance?

Post by bertilak » Sun Jul 26, 2020 9:40 am

"How did you determine risk tolerance?"

I assumed I did not know what my risk tolerance was so I want 50/50 to cover both ends of the spectrum equally.

After a few years, and a few ups and downs, I decided I could handle a bit more risk so went to 60/40. I thought it important not to stray far from 50/50.

Note that a large part of the new 60/40 remains 50/50.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

Globalviewer58
Posts: 564
Joined: Fri Jul 18, 2008 3:26 pm

Re: How did you determine risk tolerance?

Post by Globalviewer58 » Sun Jul 26, 2020 9:46 am

A Risk Tolerance Questionnaire gives an academic view but market gyrations reveal your true comfort or anxiety during the big contractions and hopeful recoveries. Here’s a Questionnaire link to IFA https://www.ifa.com/survey/?gclid=CjwKC ... fQQAvD_BwE

neverpanic
Posts: 269
Joined: Sun May 10, 2020 12:26 am

Re: How did you determine risk tolerance?

Post by neverpanic » Sun Jul 26, 2020 10:21 am

MissHavisham wrote:
Fri Jul 24, 2020 8:24 pm
Dear Bogleheads,

I'm a beginner and new to investing. This will be my first experience as an investor during a Presidential Election year. If the philosophy is to stay the course and hold steadfast, how do you actually do that during a Presidential Election year? or during any other turbulence? I would love to hear your past experiences, what happened to your portfolio and how you handled your emotions. Looking for some wisdom. I read a thread where people said they would read over their Investment Policy Statement.

Also, In January of this year I had $25,000 and due to Covid it dropped to $13,500. Now it's back up. They say smooth seas never make a skilled sailor. Am I a sailor now? Was COVID a big enough experience for anyone? For high net worth people, does losing $100,000's feel the same way as losing +/-?

I've heard all about the "dot come era" and "housing crisis" but didn't have skin in the game. I want to condition myself to not listen to the noise, but is there a point that one should?

Curious.
We're all different. As a relative market newcomer myself, "losing" $100,000 in 2 days was tangible and palpable, but roughly 90-95% of my overall portfolio are intended to be long-term holds. Outside the index funds and ETFs, all the individual companies I'm in are likely to be in business for the next 10-20 years. A younger person can probably afford to speculate a bit more than I.

I can only encourage people to believe in the power of the market to help them grow and preserve wealth. And people have different levels of comfort when using power tools.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.

Ferdinand2014
Posts: 1581
Joined: Mon Dec 17, 2018 6:49 pm

Re: How did you determine risk tolerance?

Post by Ferdinand2014 » Mon Jul 27, 2020 6:28 am

MissHavisham wrote:
Fri Jul 24, 2020 8:24 pm
Dear Bogleheads,

I'm a beginner and new to investing. This will be my first experience as an investor during a Presidential Election year. If the philosophy is to stay the course and hold steadfast, how do you actually do that during a Presidential Election year? or during any other turbulence? I would love to hear your past experiences, what happened to your portfolio and how you handled your emotions. Looking for some wisdom. I read a thread where people said they would read over their Investment Policy Statement.

Also, In January of this year I had $25,000 and due to Covid it dropped to $13,500. Now it's back up. They say smooth seas never make a skilled sailor. Am I a sailor now? Was COVID a big enough experience for anyone? For high net worth people, does losing $100,000's feel the same way as losing +/-?

I've heard all about the "dot come era" and "housing crisis" but didn't have skin in the game. I want to condition myself to not listen to the noise, but is there a point that one should?

Curious.
Warren Buffett addresses this. Listen carefully.

https://youtu.be/10QoUi2PmNs
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

flaccidsteele
Posts: 593
Joined: Sun Jul 28, 2019 9:42 pm
Location: Canada

Re: How did you determine risk tolerance?

Post by flaccidsteele » Mon Jul 27, 2020 7:18 am

Robot Monster wrote:
Sat Jul 25, 2020 5:15 pm
flaccidsteele wrote:
Sat Jul 25, 2020 2:53 pm
Robot Monster wrote:
Sat Jul 25, 2020 9:09 am
flaccidsteele wrote:
Fri Jul 24, 2020 11:05 pm
The US market always recovers. Always.

It’s never different this time. Ever.
What if the US market got as bubbly as Japan did at the end of 1989 when the Nikkei's CAPE reached 90? The S&P's CAPE all-time is 44.19, which it reached during the dot-com bubble. If the CAPE foamed up much higher than that, would this not open the door for stock market behavior we've never seen before? The Nikkei reached an all-time high of 38,957.44 in '89, and today it's at 22,751.61.
I don’t pay attention to “what if’s”.

Never have. Never will.

And I pay no attention to Japan
"We should get fire insurance."
"Why should we do that? The house has been standing for fifty years."
"Yes, okay, but what if it catches on fire? Don't you remember how the Johnson's house burnt down?"
"I don't pay attention to 'what if's'. And I pay no attention to the Johnson's."
Exactly 👍

The US always recovers. Always.

It’s never different this time. Ever.

How are you preparing for something that won’t happen?
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat

Robot Monster
Posts: 791
Joined: Sun May 05, 2019 11:23 am
Location: New York

Re: How did you determine risk tolerance?

Post by Robot Monster » Mon Jul 27, 2020 7:55 am

flaccidsteele wrote:
Mon Jul 27, 2020 7:18 am
Robot Monster wrote:
Sat Jul 25, 2020 5:15 pm
flaccidsteele wrote:
Sat Jul 25, 2020 2:53 pm
Robot Monster wrote:
Sat Jul 25, 2020 9:09 am
flaccidsteele wrote:
Fri Jul 24, 2020 11:05 pm
The US market always recovers. Always.

It’s never different this time. Ever.
What if the US market got as bubbly as Japan did at the end of 1989 when the Nikkei's CAPE reached 90? The S&P's CAPE all-time is 44.19, which it reached during the dot-com bubble. If the CAPE foamed up much higher than that, would this not open the door for stock market behavior we've never seen before? The Nikkei reached an all-time high of 38,957.44 in '89, and today it's at 22,751.61.
I don’t pay attention to “what if’s”.

Never have. Never will.

And I pay no attention to Japan
"We should get fire insurance."
"Why should we do that? The house has been standing for fifty years."
"Yes, okay, but what if it catches on fire? Don't you remember how the Johnson's house burnt down?"
"I don't pay attention to 'what if's'. And I pay no attention to the Johnson's."
Exactly 👍

The US always recovers. Always.

It’s never different this time. Ever.

How are you preparing for something that won’t happen?
Cool. Glad we're on the same page...
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

Random Walker
Posts: 4568
Joined: Fri Feb 23, 2007 8:21 pm

Re: How did you determine risk tolerance?

Post by Random Walker » Mon Jul 27, 2020 9:12 am

I assumed equities could lose 50% at any given time. And that in the worst circumstances for equities, high quality bonds might gain 5%. So I decided how much total portfolio loss I could tolerate and went from there.

Dave

Robot Monster
Posts: 791
Joined: Sun May 05, 2019 11:23 am
Location: New York

Re: How did you determine risk tolerance?

Post by Robot Monster » Mon Jul 27, 2020 9:31 am

Random Walker wrote:
Mon Jul 27, 2020 9:12 am
I assumed equities could lose 50% at any given time.
Seems many here assume that equities could lose 50%, but many among these assume stocks (US, at least) will recover in accordance with the speed they have historically recovered...something which is perhaps not a guarantee.
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

Random Walker
Posts: 4568
Joined: Fri Feb 23, 2007 8:21 pm

Re: How did you determine risk tolerance?

Post by Random Walker » Mon Jul 27, 2020 9:37 am

Robot Monster wrote:
Mon Jul 27, 2020 9:31 am
Random Walker wrote:
Mon Jul 27, 2020 9:12 am
I assumed equities could lose 50% at any given time.
Seems many here assume that equities could lose 50%, but many among these assume stocks (US, at least) will recover in accordance with the speed they have historically recovered...something which is perhaps not a guarantee.
Totally agree that over last 20 years or so (essentially my investing lifetime) the recoveries have seemed to be V shaped fast. It definitely does not have to be that way. I always have Japan in back of my mind. People especially concerned about an extended equity bear might want to consider diversification with an allocation to time series momentum.

Dave

User avatar
arcticpineapplecorp.
Posts: 5585
Joined: Tue Mar 06, 2012 9:22 pm

Re: How did you determine risk tolerance?

Post by arcticpineapplecorp. » Mon Jul 27, 2020 9:40 am

here are the "worst" year based on different allocations (along with best year, average return and number of years with a loss):

https://personal.vanguard.com/us/insigh ... llocations

you can use that as a guide. Pick the allocation that matches your maximum loss tolerance.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

Post Reply