Dealing with the "what ifs?" - psychology of committing to an AA

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jadela
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Dealing with the "what ifs?" - psychology of committing to an AA

Post by jadela »

Context: I'm 36, developing my IPS, and trying to find an AA that I can commit to and stick with over the next ~30 years until retirement. My current portfolio value is ~$328k, invested in TSM index.

Observing my history, I tend to agonize over big decisions. Once I commit, and really feel like I understand and accept what I'm committing to, I'm good at staying the course. But often the process of getting to that decision involves a lot of overthinking and likely excessive analysis. I see this happening now. I've read like 5-6 of the top books, listened to tons of podcasts, and countless BH forum posts at this point. I feel like I'm going a little bit crazy from trying to make sense of all the different arguments in the info I've consumed. Historically how this pattern resolves for me is I do this, drive myself a bit crazy with all the info, get sick of it, put it all away and then a little while later my answer just comes to me. ¯\_(ツ)_/¯ I''m sure there's a healthier or at least less stressful approach.

My only true takeaways from all that research are that the future is unknowable, there are strong arguments for both simple and S&D portfolios, and either way I'll be fine as long as I stay the course and save.

What I've noticed that going through this process of researching/reading as I develop IPS is that I'm trying to optimize/maximize to find "the right" AA. It's hitting squarely on an unanswerable question: "am I doing it right?" Which leads to the what ifs.

For example--I know these aren't reliable to count on--let's assume these CAGRs over the next 30 years:
- simple portfolio e.g. 3 fund returns 8%
- more aggressive portfolio e.g. all TSM returns 9%
- tilted aggressive / S&D portfolio returns 9.5%

Projecting those CAGRs forward from current value ($328k), that would be FVs of $3.3M, $4.35M, and $4.99M. (I just realized this is also assuming I make no future contributions/savings, which isn't true.)

If I accept the higher risk / expected return allocation of S&D I'm like, will I regret tolerating the potential underperformance for a long time and risk of comparing my portfolio to others ("what if I had done that instead?"). If I take the simpler, expected lower return portfolio, I'm potentially leaving substantial money on the table per projections above, which takes me back to the what ifs again.

Both are cases of "what if?" - how do i deal with this? Seems like a maximizers response to an unknowable future. (I've always struggled with the maximizing/satisficing thing.)

I know this is not a helpful place to be, and resolving this mental pattern would help both my investing career and life overall, so I would appreciate any insights you all have here.
Last edited by jadela on Tue Jun 21, 2022 10:59 pm, edited 2 times in total.
livesoft
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Re: Dealing with the "what ifs?" - pychology of committing to an AA

Post by livesoft »

I don't think you need to commit to an AA at this point in your life. Start with something and let it evolve. The idea that you can figure out a set-in-stone AA at this point in time is totally bogus. Don't waste your time trying to achieve a bogus goal.
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jadela
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Re: Dealing with the "what ifs?" - pychology of committing to an AA

Post by jadela »

livesoft wrote: Tue Jun 21, 2022 10:54 pm I don't think you need to commit to an AA at this point in your life. Start with something and let it evolve. The idea that you can figure out a set-in-stone AA at this point in time is totally bogus. Don't waste your time trying to achieve a bogus goal.

What about the point I've seen drilled again and again here that what matters more than the AA itself is being able to stick to it?
Doc7
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Re: Dealing with the "what ifs?" - pychology of committing to an AA

Post by Doc7 »

jadela wrote: Tue Jun 21, 2022 10:59 pm
livesoft wrote: Tue Jun 21, 2022 10:54 pm I don't think you need to commit to an AA at this point in your life. Start with something and let it evolve. The idea that you can figure out a set-in-stone AA at this point in time is totally bogus. Don't waste your time trying to achieve a bogus goal.

What about the point I've seen drilled again and again here that what matters more than the AA itself is being able to stick to it?
Pick one , stick to it, and focus on increasing your savings rate and lowering your spending rate, this will have far more impact than the “perfect” AA.


I’ve been at 70/30 for 15 years and I have been pleased as can be. I’ve never had a regret that I wasn’t 100 or 90 percent stocks even though I’d have more money today. This thread from 2020 epitomizes why I know 70/30 is right for me. You will have to have your own moment of clarity :

viewtopic.php?t=309320
Last edited by Doc7 on Tue Jun 21, 2022 11:09 pm, edited 1 time in total.
livesoft
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Re: Dealing with the "what ifs?" - pychology of committing to an AA

Post by livesoft »

jadela wrote: Tue Jun 21, 2022 10:59 pmWhat about the point I've seen drilled again and again here that what matters more than the AA itself is being able to stick to it?
You cannot believe everything you read on the internet. You have to experiment to find an AA that you can stick to. You cannot without experience get to that point. It seems like you are trying to run a 4-minute mile without any training at all.
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BernardShakey
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by BernardShakey »

jadela wrote: Tue Jun 21, 2022 10:44 pm Context: I'm 36, developing my IPS, and trying to find an AA that I can commit to and stick with over the next ~30 years until retirement. My current portfolio value is ~$328k, invested in TSM index.

Observing my history, I tend to agonize over big decisions. Once I commit, and really feel like I understand and accept what I'm committing to, I'm good at staying the course. But often the process of getting to that decision involves a lot of overthinking and likely excessive analysis. I see this happening now. I've read like 5-6 of the top books, listened to tons of podcasts, and countless BH forum posts at this point. I feel like I'm going a little bit crazy from trying to make sense of all the different arguments in the info I've consumed. Historically how this pattern resolves for me is I do this, drive myself a bit crazy with all the info, get sick of it, put it all away and then a little while later my answer just comes to me. ¯\_(ツ)_/¯ I''m sure there's a healthier or at least less stressful approach.

My only true takeaways from all that research are that the future is unknowable, there are strong arguments for both simple and S&D portfolios, and either way I'll be fine as long as I stay the course and save.

What I've noticed that going through this process of researching/reading as I develop IPS is that I'm trying to optimize/maximize to find "the right" AA. It's hitting squarely on an unanswerable question: "am I doing it right?" Which leads to the what ifs.

For example--I know these aren't reliable to count on--let's assume these CAGRs over the next 30 years:
- simple portfolio e.g. 3 fund returns 8%
- more aggressive portfolio e.g. all TSM returns 9%
- tilted aggressive / S&D portfolio returns 9.5%

Projecting those CAGRs forward from current value ($328k), that would be FVs of $3.3M, $4.35M, and $4.99M. (I just realized this is also assuming I make no future contributions/savings, which isn't true.)

If I accept the higher risk / expected return allocation of S&D I'm like, will I regret tolerating the potential underperformance for a long time and risk of comparing my portfolio to others ("what if I had done that instead?"). If I take the simpler, expected lower return portfolio, I'm potentially leaving substantial money on the table per projections above, which takes me back to the what ifs again.

Both are cases of "what if?" - how do i deal with this? Seems like a maximizers response to an unknowable future. (I've always struggled with the maximizing/satisficing thing.)

I know this is not a helpful place to be, and resolving this mental pattern would help both my investing career and life overall, so I would appreciate any insights you all have here.
I see settling in on a long term AA as a homing activity. Maybe start with 60/40 stocks/bonds and see how you react when the market surges and when it declines. Then adjust AA so the your reactions in the future are not as pronounced. After a couple/few iterations, you will have "homed in" on what AA is right for you. You kind of know it when you are there ---- with me it's being in a frequent state of annoyance --- annoyed that I still have too little in stocks when the market surges and have too much in stocks when the market sinks. When that push/pull is always there, you are probably at your AA, IMO. But you have to live it, you can't fill out a risk tolerance questionnaire and say "that's it."
An important key to investing is having a well-calibrated sense of your future regret.
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jadela
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Re: Dealing with the "what ifs?" - pychology of committing to an AA

Post by jadela »

Doc7 wrote: Tue Jun 21, 2022 11:01 pm
jadela wrote: Tue Jun 21, 2022 10:59 pm
livesoft wrote: Tue Jun 21, 2022 10:54 pm I don't think you need to commit to an AA at this point in your life. Start with something and let it evolve. The idea that you can figure out a set-in-stone AA at this point in time is totally bogus. Don't waste your time trying to achieve a bogus goal.

What about the point I've seen drilled again and again here that what matters more than the AA itself is being able to stick to it?
Pick one , stick to it, and focus on increasing your savings rate and lowering your spending rate, this will have far more impact than the “perfect” AA.

Yes, I understand this. What I'm asking for help on here is the picking, not the sticking.
Marseille07
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Re: Dealing with the "what ifs?" - pychology of committing to an AA

Post by Marseille07 »

jadela wrote: Tue Jun 21, 2022 11:30 pm Yes, I understand this. What I'm asking for help on here is the picking/committing, not the sticking.
This place doesn't recommend S&D; the posters don't have much to offer. As boring as it may be, most advice would suggest some allocation assuming index funds are used.
Last edited by Marseille07 on Wed Jun 22, 2022 12:00 am, edited 1 time in total.
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fisher0815
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by fisher0815 »

jadela wrote: Tue Jun 21, 2022 10:44 pm
For example--I know these aren't reliable to count on--let's assume these CAGRs over the next 30 years:
- simple portfolio e.g. 3 fund returns 8%
- more aggressive portfolio e.g. all TSM returns 9%
- tilted aggressive / S&D portfolio returns 9.5%

Projecting those CAGRs forward from current value ($328k), that would be FVs of $3.3M, $4.35M, and $4.99M. (I just realized this is also assuming I make no future contributions/savings, which isn't true.)

If I accept the higher risk / expected return allocation of S&D I'm like, will I regret tolerating the potential underperformance for a long time and risk of comparing my portfolio to others ("what if I had done that instead?"). If I take the simpler, expected lower return portfolio, I'm potentially leaving substantial money on the table per projections above, which takes me back to the what ifs again.
I would not count on past data for future projections, especially for the S&D portfolios. The market is not a science like physics. The market is a complex adaptive system, which adapts to everything what happend in the past.
Like you said, the future is unknownable. That's the right attitude:
My only true takeaways from all that research are that the future is unknowable, there are strong arguments for both simple and S&D portfolios, and either way I'll be fine as long as I stay the course and save.
Jack Bogle said "When there are multiple solutions to a problem, choose the simplest one."
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by AerialWombat »

It is frequently cited, from what source I don’t know, that any AA from 30/70 to 70/30 will get most people to the finish line.

I went through the same decision process you are back in 2018, and eventually threw my hands in the air and just said, “Fine, 30/70 is the least volatile AA that often works, so it wins.”

I have been happy with that choice.

Consider taking the Vanguard risk assessment:

https://investor.vanguard.com/calculato ... tionnaire/
Last edited by AerialWombat on Tue Jun 21, 2022 11:58 pm, edited 1 time in total.
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jjj_22
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by jjj_22 »

Start simple. Something like 50/25/25 US/international/treasuries.

If you get restless, you learn you’re a tweaker, you can start getting into research US vs international or alts or factors or whatever floats your boat. If you don’t get restless, great, you nailed it.

If you start feeling off balance about stocks vs bonds, adjust that too. Balance is when you spend half the time wondering if you should have more bonds and the other half wondering if you should have more stocks. Again, maybe you get lucky and start off in the right place. Maybe not.

The idea that you can analyze everything a priori and come up with an allocation that will definitely work for you is not realistic, you need to go through a couple cycles to learn what works for your personal psychology.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by WildBill »

Howdy

Start with 60/40 and adjust from there as you live and learn. Do not let the search for perfection be the enemy of the good.

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid
JohnFromPNW
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by JohnFromPNW »

Opener. Exact same mindset here, and about everything. The only way I buy something is to research review compare contrast endlessly until the pain and agony of continued researching exceeds the fear of choosing the wrong option, at which time I just make a choice and do it. Terribly annoying that I function like that but it is what it is.

As for investments, same process as above, at first. A few thoughts:

1. Similar age as you. Most anything reasonable we invest in (Boglehead principles, ie low cost diversified funds) now will most likely be worth much more when we need it.

2. I sliced and diced heavily at first. Stuck with some remnants and want out of it. I get irregular bonuses, some large, and when I open up brokerage to rebalance with the new funds, I realized I didn’t want to put money into some of the stuff I had, I’d rather just buy three fund (VGIT instead of BND). Easier, less questioning, is what it is.

3. One thing I did was I opened an M1 account, and built pies for each “expert” lazy portfolio; I had like 10 or so pies. Buffett 90/10, three fund, UB&H, some ridiculous thing I made myself, etc. I kept it for a little while thinking I would find one that I liked adding more to each time, but all the while, my main account, stayed at what I had always had (mostly 3 fund with smaller positions in some stuff). What did I realize? While the more complicated S&D was sort of fun for awhile, I didn’t trust or want it for my main account. So then why bother? Just an idea as this solidified for me what I wanted. Seems like you sort of already have that, VTI. Maybe just make a baby step and set up your glide path to match Vanguards, and be done with it.

Now I have more time to focus on agonizing about which monitor I should buy….
80/20 Equities/Bonds. 60/40 US/Int. 75/20/5 Total/SCV/REIT.
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jadela
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by jadela »

Thank you all for these responses. Very helpful. Responses make sense on the AA / investing side.

Curious if ppl have any suggestions on dealing with the larger psychological pattern here? In investing and beyond.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by strakert »

jadela wrote: Wed Jun 22, 2022 12:58 am Thank you all for these responses. Very helpful. Responses make sense on the AA / investing side.

Curious if ppl have any suggestions on dealing with the larger psychological pattern here? In investing and beyond.
You don't know the future, so there is no right decision. Make the best decision you can with the information you currently have, check that you're not making an irrecoverable error, then move on to the next one.

Fortunately for you, investing is one of the few activities in life with very limited (negative?) marginal utility of extra time and effort spent trying to outperform the average. The best you can do happens to be close to the least you can do.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by HomerJ »

jadela wrote: Tue Jun 21, 2022 10:44 pm My only true takeaways from all that research are that the future is unknowable, there are strong arguments for both simple and S&D portfolios, and either way I'll be fine as long as I stay the course and save.
That is the important part. Recognize that you are on track, and keep saving, and the AA decisions are only somewhat important.
What I've noticed that going through this process of researching/reading as I develop IPS is that I'm trying to optimize/maximize to find "the right" AA. It's hitting squarely on an unanswerable question: "am I doing it right?" Which leads to the what ifs.

For example--I know these aren't reliable to count on--let's assume these CAGRs over the next 30 years:
- simple portfolio e.g. 3 fund returns 8%
- more aggressive portfolio e.g. all TSM returns 9%
- tilted aggressive / S&D portfolio returns 9.5%

Projecting those CAGRs forward from current value ($328k), that would be FVs of $3.3M, $4.35M, and $4.99M. (I just realized this is also assuming I make no future contributions/savings, which isn't true.)

If I accept the higher risk / expected return allocation of S&D I'm like, will I regret tolerating the potential underperformance for a long time and risk of comparing my portfolio to others ("what if I had done that instead?"). If I take the simpler, expected lower return portfolio, I'm potentially leaving substantial money on the table per projections above, which takes me back to the what ifs again.
You are doing this 100% opposite of how I did this.

I'm not sure if I can help you.

My "what ifs" were "What if the market crashes, stays down a long time, and I lose my job?" How do I protect myself and my family?

Your "what ifs" are what if I have $4.35 million and I regret not having $4.9 million?

That is one crazy "what if".

There is risk in investing. Picking an AA, in my opinion, is about risk management. Not about making maximizing returns. To me, the plan should focus on savings, and hitting your goal by a young enough age, and protecting some chunk of assets as you go to make sure that a disaster doesn't destroy all your savings.

Not seeing how far past your goal you can get. And definitely not regretting that you "only" hit your goal instead of getting an extra $500,000 past your goal. There should be no regret once you make the goal. Because that was the goal.

I don't think I would count on those numbers you posted above. You should work on a plan that gets you to your goal with half the return that you posted above. Just in case that's all we get...

But if we get the average historical return again (which is likely, but not guaranteed, which is why I don't think it should be your PLAN), then you hit your numbers early. Nothing wrong with that. But if we get less than the historical average return, you'll still be okay.

Like you said, you're not even including additional savings over the years which will change the numbers a lot. I bet you'll be fine even with lower returns.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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jadela
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by jadela »

Thank you! Great points and very helpful perspective. I'm too much in maximizer mode and not enough in get to goal + protect downside mode.

I know how to model the FV with a lump sum (no future savings), what's the math / how do I model it with future savings? E.G. if I save another $10k/year.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by GoldenFinch »

You are definitely over thinking and over complicating how you should invest. Focus on automating your investments so that money goes in regularly. Right now stocks and bonds are down, so the key is to be buying into the market on autopilot. You are young, so it’s harder to mess things up as long as you are investing. Obviously here on Bogleheads we think index funds are the way to go. Some combination of total stock and total bond with international thrown in (or not) for good measure. Don’t sweat the details! Just keep investing. Time is your friend.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by Cat Herder »

Sometimes you just have to embrace the fact that there's literally no way to know what is going to happen and roll with it. Have your beverage of choice and and be happy that you're already crushing the heck out of all the people not investing much if at all. Your OP already stated the facts. It's just a matter of accepting them. :sharebeer

I met a patient recently that was about our age (mid to late 30s) who was fine less than a year ago, probably worrying about his future, and now was comfort care waiting for a rare cancer to kill him. We are all just ticking down, and while money is nice, it's just a tool. Having enough so you can focus on things that actually matter, both today and in retirement, should be the goal of investing.

Instead of feeling stressed by your relatively large portfolio compared to our age peers, feel comforted that even if you didn't invest another dime you're on track for a comfortable retirement. With continued investing with a good enough plan you'll be FI before you know it.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by deltaneutral83 »

OP, you need more fixed income than you think and a sliced and diced portfolio would be akin to torture for someone like you from what you've posted. 3F, and probably have 12-24 months of cash as part of your fixed income allocation. People who are 100% equities for their lives and never capitulate are more rare than this board wants to admit.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by Call_Me_Op »

At your age, I would not stick to a fixed AA between now and retirement - I would plan on a glide path. The only circumstance in which I would not do that is if you are really cannot deal with big draw-downs - even at a young age. Even in that case, I would not be lower than 50-50 at your age and would not go below 30-70 at retirement.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by livesoft »

jadela wrote: Wed Jun 22, 2022 12:58 am Thank you all for these responses. Very helpful. Responses make sense on the AA / investing side.

Curious if ppl have any suggestions on dealing with the larger psychological pattern here? In investing and beyond.
You are really asking about Personality tests such as Myers-Briggs. Or the B.E.S.T. profile https://courses.cs.washington.edu/cours ... s/best.pdf <- You seem to not be of the "Bold" and more of the "Technical" from what you have put in this thread, but that's perfectly OK. Some people just want to dot all the i's and cross all the t's
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by Doc7 »

jadela wrote: Wed Jun 22, 2022 2:54 am Thank you! Great points and very helpful perspective. I'm too much in maximizer mode and not enough in get to goal + protect downside mode.

I know how to model the FV with a lump sum (no future savings), what's the math / how do I model it with future savings? E.G. if I save another $10k/year.


Excel

A1 starting value
B1 new additions per year

A2 “=A1*1.06 + $B$1”
Drag a2 down for 30 years



For what it’s worth, if you don’t find it stress-less enough to simply pick an AA between 60/40 and 90/10, knowing that any of them is as likely to beat any other AA over a couple of decades, I would simply utilize Target retirement /Date index funds and move on.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by Tom_T »

All you need is "good enough." If you retire with $1 million instead of $1.5 million, you'll be just fine. What you want to avoid is having $200K to your name at age 65 because you didn't save enough and you couldn't leave your investments alone.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by BarbBrooklyn »

You don't have to stick to ONE AA for life. You are allowed to (and probably should) decrease your risk as you get closer to retirement. For me, that meant pulling back from 80/20 when I was in my late 50s and all the way to 30/70 in the year leading up to retirement. I'm now at 50/50 3 years into retirement. I've avoided some sequence of return risks from 2018 until now.

Find an AA that lets you sleep well and not obsess for the next 15 years.

Edited to correct the obvious error--30/70, not 70/30!
Last edited by BarbBrooklyn on Wed Jun 22, 2022 4:18 pm, edited 1 time in total.
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fisher0815
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by fisher0815 »

jadela wrote: Wed Jun 22, 2022 2:54 am I'm too much in maximizer mode and not enough in get to goal + protect downside mode.
This reminds me of this thread. Maybe it's helpful: viewtopic.php?t=288908
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Drew31
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by Drew31 »

I’ll be honest, as I was reading OP I had to scroll back up to double check this wasn’t something I wrote years ago! OP, I can relate to the decision process and trying to find what is “right”.

What may help from experience for me is breaking down the decision into smaller parts. For instance on your AA, maybe there are parts to it that you know you want to use. For instance, sounds like at least some % you know you’ll want to use TSM. Well that’s already done. Maybe you know that you don’t want less than 50% in TSM. If so that breaks your decision down further. Write down the pieces you aren’t sure on. I think over time that may help and perhaps crystallize sone things.

I’d also second livesoft’s comments where don’t think you need to get this nailed down completely for rest of your life.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by mbasherp »

Projecting into an uncertain future is rarely as productive as our obsessive minds would like us to believe. Past returns mean literally nothing moving forward; we just use them because we don’t have anything else. Really sit and ponder that - it might start to shift the way you approach this.

Rather than projecting returns, assets at retirement and different portfolio constructions, why not start from a question along these lines:

What choice do I know I can live with even if all the unknowables don’t go my way? What course of action, even if it ultimately means I fail, can I live with because of knowing I made the best choice available at the time?

You are in the process of getting your heart and your head on the same page. Rather than let your head dominate the debate, listen to the heart side by entertaining failure rather than success… success is easy to process! If you create a scenario where you can live with failure, you’ve really done something right.
Last edited by mbasherp on Wed Jun 22, 2022 8:01 am, edited 1 time in total.
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WoodSpinner
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by WoodSpinner »

OP,

One technique that helps me through decision making and implementation is to document things in a Decision Log.

- Date
- Decision
- Reasoning
- Supporting Documents (links)
- Signposts for re-evaluating the decision

This builds a record you can review as needed to reinforce (or rethink) a decision.

More importantly (IMHO), it’s a great tool to improve your Decision Quality. Sometimes we can get confused by outcomes vs. decision (e.g. strategy). The Decision Log helps you look asses and improve the method used to make the decision.

It was a common practice at my company while working and I have found this very useful in Retirement.

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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by bling »

jadela wrote: Tue Jun 21, 2022 10:44 pm Observing my history, I tend to agonize over big decisions. Once I commit, and really feel like I understand and accept what I'm committing to, I'm good at staying the course. But often the process of getting to that decision involves a lot of overthinking and likely excessive analysis. I see this happening now. I've read like 5-6 of the top books, listened to tons of podcasts, and countless BH forum posts at this point. I feel like I'm going a little bit crazy from trying to make sense of all the different arguments in the info I've consumed. Historically how this pattern resolves for me is I do this, drive myself a bit crazy with all the info, get sick of it, put it all away and then a little while later my answer just comes to me. ¯\_(ツ)_/¯ I''m sure there's a healthier or at least less stressful approach.
the most stress-free thing you could possibly do is to pick a target date index fund and put everything into it, and don't look at it again until you're retired. anything else, leads you down the slippery slope of "what ifs".

what if i was 100% US instead of US + exUS?
what if i sliced more towards small caps?
what if i had more TIPs in my bond allocation?
what if i over/under weighted EM?
what if i tilt more to REITs?
what if...

it doesn't stop. if you outperform, you're feeling pretty good about yourself. if you underperform, you rationalize your previous decision with stuff like "stay the course", "reversion to the mean", "buying at a discount", "dollar cost average", etc. whether you outperform or underperform, we're talking about just roughly 30 working years here before you retire. there's more luck involved here than i think many realize.

and then there's the actually "staying the course" during a bear market or recession. your AA doesn't matter if losing money causes you to make hasty decisions. and for this, it's really hard to gauge your risk tolerance without living through it.

also, don't forget that for the first ~2/3s of your accumulation years, your savings rate is far more important than whatever AA you choose. instead of spending all of this time researching the elusive perfect AA, you could spend this time improving your professional skills and get a higher paying job, which would literally shave years off of achieving your goal.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by SmileyFace »

Sounds like you are suffering from analysis paralysis. Your allocation doesn't need to be fixed for 30 years - you can take an agebased slide approach which might make you feel better - age-20 in bonds or similar. (Start at 80/20, or even 90/10, now and every 5 years make an adjustment toward being more conservative).
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by jadela »

SmileyFace wrote: Wed Jun 22, 2022 8:20 am Sounds like you are suffering from analysis paralysis. Your allocation doesn't need to be fixed for 30 years - you can take an agebased slide approach which might make you feel better - age-20 in bonds or similar. (Start at 80/20, or even 90/10, now and every 5 years make an adjustment toward being more conservative).
That makes sense. My paralysis has been about the allocation / diversification within equities, rather than the stock/bond split.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by Tom_T »

jadela wrote: Wed Jun 22, 2022 8:35 am
SmileyFace wrote: Wed Jun 22, 2022 8:20 am Sounds like you are suffering from analysis paralysis. Your allocation doesn't need to be fixed for 30 years - you can take an agebased slide approach which might make you feel better - age-20 in bonds or similar. (Start at 80/20, or even 90/10, now and every 5 years make an adjustment toward being more conservative).
That makes sense. My paralysis has been about the allocation / diversification within equities, rather than the stock/bond split.
Keep in mind something else: whatever different strategies are proposed on this forum or any other, nobody is going to know which was "best" until some point in the future -- and even then, it may depend on when the benchmark is taken. Maybe investing with factors will outperform the total market for a while, and then stop. There is no one strategy that is guaranteed to outperform over the long term. So why not pick a middle-of-the-road approach where you don't have to think about it? It will be, as I said earlier, good enough. The paralysis is because you think there's one right answer. There isn't. There are multiple ways to reach your goals, unless your goal is "accumulate the most money", in which case nobody knows the right answer.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by Marseille07 »

jadela wrote: Wed Jun 22, 2022 8:35 am That makes sense. My paralysis has been about the allocation / diversification within equities, rather than the stock/bond split.
Not much to analyze when choosing from VTI, VXUS or just all-in-one VT. Other posters already suggested not to S&D. If you don't listen, you should ask yourself if you're a Boglehead.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by jadela »

Tom_T wrote: Wed Jun 22, 2022 8:48 am
jadela wrote: Wed Jun 22, 2022 8:35 am
SmileyFace wrote: Wed Jun 22, 2022 8:20 am Sounds like you are suffering from analysis paralysis. Your allocation doesn't need to be fixed for 30 years - you can take an agebased slide approach which might make you feel better - age-20 in bonds or similar. (Start at 80/20, or even 90/10, now and every 5 years make an adjustment toward being more conservative).
That makes sense. My paralysis has been about the allocation / diversification within equities, rather than the stock/bond split.
Keep in mind something else: whatever different strategies are proposed on this forum or any other, nobody is going to know which was "best" until some point in the future -- and even then, it may depend on when the benchmark is taken. Maybe investing with factors will outperform the total market for a while, and then stop. There is no one strategy that is guaranteed to outperform over the long term. So why not pick a middle-of-the-road approach where you don't have to think about it? It will be, as I said earlier, good enough. The paralysis is because you think there's one right answer. There isn't. There are multiple ways to reach your goals, unless your goal is "accumulate the most money", in which case nobody knows the right answer.
I think this is finally sinking in. Here's what I was just realizing while journaling on this:

I can see that by just making my full annual Roth contributions and getting a 5% real return ( reasonable), I can have a comfortable retirement at a level I'd feel good about. And that's with conservative assumptions of returns and savings/contributions that I'll almost certainly exceed (at least I control my contributions).

So pick a good enough allocation and get back to what matters: building my life. Creating and connecting and contributing. Rather than being overly reliant on exceptional market returns to make a fortune. I can let the market and a good enough allocation get me to my baseline retirement goals and then play for the upside in my career. That feels much better!

I also feel more secure to swing for the fences in business and creatively. Since my long term security and financial independence is on track already, whether or not a given career bet works out.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by Tom_T »

By George, I think he's got it. :)
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by KlangFool »

jadela wrote: Tue Jun 21, 2022 10:44 pm
For example--I know these aren't reliable to count on--let's assume these CAGRs over the next 30 years:
- simple portfolio e.g. 3 fund returns 8%
- more aggressive portfolio e.g. all TSM returns 9%
- tilted aggressive / S&D portfolio returns 9.5%
jadela,

When you asked the wrong question, you would never get the right answer!

A) It is obvious that the asset allocation does not matter. The difference is only 1.5% per year.

B) It is unlikely that you can safely say that you do not need to withdraw from the portfolio for 30 years.

The real and important question would be what is your annual savings/investment.

Pick an AA from 70/30 to 30/70 and it would be good enough. You can reach your goal if your annual savings/investment is high enough.

1) What is your current annual expense?

2) What is your current annual savings/investment?

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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by diabelli »

My "what ifs?" used to be subtle like the OPs, with a focus on subtle differences in return.
Lately they are more apocalyptic, as I see how nuts everything can be in the world.
Specifically I wonder whether stocks will return nothing for 40 years.
So my "what ifs" have me wanting to change my AA from mainly US equities to something reflecting much more international, bonds, RE etc.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by alluringreality »

A few times my significant other has read threads here that I've commented on and found interesting. Sometimes there were questions for further background about the topic. Other times I received a bit of derision around my own tendency to overthink certain decisions.

My take is that asset allocation is a somewhat personal matter. My own earliest experience with stock investing was a gift I received from my grandparents as a child. I was generally impressed to see how much the value increased in the 1990s, and I was surprised by the 2000-2002 decline of more than 40%. It's possible my own inclinations to put more thought into the downsides of stocks than the upside could either relate to those sorts of prior events, or maybe it's just personal inclinations. Generally I don't have tendencies to regret missing out upside, probably because I tend to think of greater upside as also carrying a potentially greater downside, or having more risk.

From a historical perspective, the most significant stock bear markets often happen during recessions, which usually result in an increase to unemployment. Different people are likely to have non-matching exposure to such events, depending on employment or reasons for the event. Going into 2007-2009 I worked in residential development, which was hit rather hard by that recession. Today I again work in private business that primarily serves other businesses. Ultimately our business is far more connected to the economy than my significant other's government-funded employment. Primarily economic exposure is the ultimate reason that I consider asset allocation a personal matter, since the downside risk tends to vary depending on the reasons for decline and employment or financial situation. If someone falls outside such economic risk, then most any choice is acceptable, regardless of which particular risks someone chooses to take.
Last edited by alluringreality on Wed Jun 22, 2022 9:28 am, edited 3 times in total.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by mbasherp »

diabelli wrote: Wed Jun 22, 2022 9:11 am My "what ifs?" used to be subtle like the OPs, with a focus on subtle differences in return.
Lately they are more apocalyptic, as I see how nuts everything can be in the world.
Specifically I wonder whether stocks will return nothing for 40 years.
So my "what ifs" have me wanting to change my AA from mainly US equities to something reflecting much more international, bonds, RE etc.
When looking at more dire scenarios, I’m of the opinion that it becomes more like how to survive a violent bear encounter: you don’t have to outrun the bear, you just have to outrun the slowest person.

I don’t think anyone who frequents a forum like this will be the slowest person to outrun the bears you cite.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by sailaway »

I originally took the Fidelity questionnaire to determine my AA. I was quite comfortable with that at 80/20.

Several years later, when I decided it was time to talk to DH about his 100/0 AA, he ran a quick calculation and decided he wanted us to be 70/30 on our joint portfolio. I felt it was close enough to my choice and nothing I had learned in the meanwhile made me think we needed to be more precise, so now we stick with 70/30.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by AnnetteLouisan »

I determined my AA when I opened my 401k by asking myself, “what percent would you be ok with losing?” For me, that was 30 percent. I figured I protect my downside while getting some equity upside and get the added benefit of not having to worry about it. In some ways I think this was right for me and in some ways I regret missing a lot of the 13 year bull run by not going 50/50. But I might have had an ulcer at 50/50, because I have a lot of other things to worry about so I didn’t need more.

You don’t have to commit to it forever btw. You can modify it.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by sls239 »

The pattern you describe is colloquially called “analysis paralysis.”

The truth is data alone generally isn’t enough to tell you what to do. You have to recognize what values are important to you and it helps to construct a story that incorporates those values.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by retiredjg »

jadela wrote: Wed Jun 22, 2022 8:35 am That makes sense. My paralysis has been about the allocation / diversification within equities, rather than the stock/bond split.
This means you are paying attention to (and being paralyzed by) something that does not matter very much.

When it comes to portfolio success, the thing that matters the most is saving enough money. The next thing that matters is your stock to bond ratio. Those are the "big rocks". Everything after that is pretty much just details. The "little rocks".

Diversification within equities is relatively unimportant. I'm not saying it does not matter. It probably does matter a little (if we could only predict it). I'm saying it is unlikely to determine whether your portfolio is successful or not.

If you save enough money, have a reasonable stock to bond ratio, and avoid doing stupid stuff, a portfolio 0% international (the usual minimum recommend) and a portfolio with 50% international (the usual maximum recommended) will both get you there.

Will a small cap value tilt make a better portfolio? REIT? Maybe. Maybe not. Nobody knows. But one thing we know for sure is that neither a small cap value tilt nor extra REIT will not determine your portfolio success or your comfort level in retirement.

Somewhere earlier, you asked if there was any guidance that might help with these types of decisions in life as well as investing. I think Stephen Covey's big rocks/little rocks model is a good one here. This video is a bit dated, but the message is pretty timeless. (The 7 Habits of Highly Effectivel People.)

https://www.youtube.com/watch?v=zV3gMTOEWt8
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by invest4 »

Agree with the others that your AA is not a static thing for the next 30 years. Typically, I think your AA will naturally change as you move through life.

As a younger investor, I was 100% equities until I was in my later 40s. I chose 100% as the volatility didn't bother me. In hindsight, I think in part due to the relatively low absolute amounts in early accumulation. For example, I had a 50% paper loss on my portfolio of $150K in 2008...felt a bit bad, but as I did not lose my job and have many years of work ahead, it was not that bad.

In my late 40s, I finally started to learn about and invest in bonds. I changed my AA from 100% to 60/40 while also allowing it to drift upward a bit depending on market conditions. For example, during this year, it has drifted from 60/40, to 70/30...and I am fine with that. Of course, now the absolute dollar amounts are larger up or down. As a result, it sometimes feels a bit worse to me, but as I continue to maintain employment and still have some years to go before retirement (turn age 50 this year), all remains fine.

There is no magic formula. Positively, I think you know yourself pretty well by now and can come up with something reasonably comfortable for you as a start and then adjust if you discover otherwise. Importantly, as highlighted by others, your savings and expenses are big drivers in regard to your long term success.

As a side note, if you decide to have any bonds in your desired allocation, be sure to continue educating yourself so you can think / plan for the long term (e.g. if you are interested in things such as TIPS, I-Bonds, etc. as part of your bond setup for example). I never cared / thought about bonds at all until my late 40s and thus had no awareness of TIPS or consideration for I-Bonds and how they worked, etc. I may have not have done anything different (am 80/20 BND / BNDX), but would have appreciated making better informed choices...particularly those that may have a longer lead time to achieve such as accumulating a sufficient amount of I-Bonds (due to annual limits).

Best wishes
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by Candor »

Your expectations of yourself are not reasonable if you think you can accurately predict the outcome of something decades in the future. You can 'what if' yourself to death or you can make informed assumptions, pick a reasonable plan, put it into place and accept what the market gives you.
The fool, with all his other faults, has this also - he is always getting ready to live. - Epicurus (341–270 BC)
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by makeitcount »

Saving more generally means worrying less about your allocation and its expected return. Start there. Depending on your income and your expenses a lofty goal to shoot for is trying to save 1 years worth of expenses each year. Some people can never get close and others can blow this out of the water. Another goal would be to save 15-20% or more of your earnings each year. Either should work well.
At your age, I would choose a stock/bond split of 70/30 +/- 10. If your tummy hurts when the market drops do 60/40. If you have an iron gut do 80/20. This can be refined in the future after you have been invested for a while and experienced a number of ups and downs.
As for the equity split, again I would start with a US/Int split of 70/30 +/- 10. If you think the US is not the be all end all of markets do 60/40. If you think the US is the cream of the crop do 80/20.
You can slice and dice all day, but more complexity isn't really necessary.
Saving plenty and choosing from within the basic numbers outlined above is likely enough to set you up for success.
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by Taylor Larimore »

Jadela:

No one knows what the best fund/portfolio will be at any point in your lifetime. Betting to outperform a total market index fund is usually the road to underperform. Please don't do it.

Consider The Three-Fund Portfolio recommended by many investment experts:

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by Beensabu »

jadela wrote: Tue Jun 21, 2022 10:44 pm I feel like I'm going a little bit crazy from trying to make sense of all the different arguments in the info I've consumed. Historically how this pattern resolves for me is I do this, drive myself a bit crazy with all the info, get sick of it, put it all away and then a little while later my answer just comes to me. ¯\_(ツ)_/¯ I''m sure there's a healthier or at least less stressful approach.
Too much, too fast. It's an info overload. It does take time to process new information. Breaks can help.

Stick with your current AA until your answer comes to you.

For me, it was "What is the AA that I could tolerate in just about all conditions?" Essentially, eliminate the future "what ifs".
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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Re: Dealing with the "what ifs?" - psychology of committing to an AA

Post by Portfolio7 »

I've been investing for 27 years.

When I started I had no conception of a static AA. I held a jumble of stock funds, and maybe 5% in bonds. Over the next 22 years I transitioned from AA to AA more times than I can remember. Differences were many. Heavy ownership rotated among REITs, International, EM, Small Caps, done it all. Some performance chasing, some just trying to be 'balanced' as I understood it at the time.

One thing in common? Every portfolio was 90-95% stocks and 5-10% bonds until about ten years ago, at which point I upped the bond percentages to around 70/30. I believe that having a large percentage in stocks was really what drove most of what I consider to be a success.

Only for the last 5 years have I held a very consistent portfolio... it scales a bit, shifts a bit, but it's basically 70/30 and consistent by asset class. Guess you'd call it S&D.

Over the entire 27 years my CAGR (returns only, no contributions) is 9.18%, which is good enough to double your money every 8 years or so.

I figure that's about 40 bpts short of the S&P 500 div-adjusted return over the same time period... which is probably about what I paid in fees.

The point is, it got me well into 7 figures despite the massive inconsistencies. Figure out your stock v bond percentage and go. It's far more important to get started, than to have a perfect portfolio.
"An investment in knowledge pays the best interest" - Benjamin Franklin
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